The BCCI Affair

A Report to the Committee on Foreign Relations
United States Senate
Senator John Kerry and Senator Hank Brown
December 1992
102d Congress 2d Session Senate Print 102-140













































BCCI's unique criminal structure -- an elaborate corporate spider-web with BCCI's founder, Agha Hasan Abedi and his assistant, Swaleh Naqvi, in the middle -- was an essential component of its spectacular growth, and a guarantee of its eventual collapse. The structure was conceived by Abedi and managed by Naqvi for the specific purpose of evading regulation or control by governments. It functioned to frustrate the full understanding of BCCI's operations by anyone.

Unlike any ordinary bank, BCCI was from its earliest days made up of multiplying layers of entities, related to one another through an impenetrable series of holding companies, affiliates, subsidiaries, banks-within-banks, insider dealings and nominee relationships. By fracturing corporate structure, record keeping, regulatory review, and audits, the complex BCCI family of entities created by Abedi was able to evade ordinary legal restrictions on the movement of capital and goods as a matter of daily practice and routine. In creating BCCI as a vehicle fundamentally free of government control, Abedi developed in BCCI an ideal mechanism for facilitating illicit activity by others, including such activity by officials of many of the governments whose laws BCCI was breaking.

BCCI's criminality included fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia, and the Americas; BCCI's bribery of officials in most of those locations; support of terrorism, arms trafficking, and the sale of nuclear technologies; management of prostitution; the commission and facilitation of income tax evasion, smuggling, and illegal immigration; illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers.

Among BCCI's principal mechanisms for committing crimes were its use of shell corporations and bank confidentiality and secrecy havens; layering of its corporate structure; its use of front-men and nominees, guarantees and buy-back arrangements; back-to-back financial documentation among BCCI controlled entities, kick-backs and bribes, the intimidation of witnesses, and the retention of well-placed insiders to discourage governmental action.


BCCI's systematically relied on relationships with, and as necessary, payments to, prominent political figures in most of the 73 countries in which BCCI operated. BCCI records and testimony from former BCCI officials together document BCCI's systematic securing of Central Bank deposits of Third World countries; its provision of favors to political figures; and its reliance on those figures to provide BCCI itself with favors in times of need.

These relationships were systematically turned to BCCI's use to generate cash needed to prop up its books. BCCI would obtain an important figure's agreement to give BCCI deposits from a country's Central Bank, exclusive handling of a country's use of U.S. commodity credits, preferential treatment on the processing of money coming in and out of the country where monetary controls were in place, the right to own a bank, secretly if necessary, in countries where foreign banks were not legal, or other questionable means of securing assets or profits. In return, BCCI would pay bribes to the figure, or otherwise give him other things he wanted in a simple quid-pro-quo.

The result was that BCCI had relationships that ranged from the questionable, to the improper, to the fully corrupt with officials from countries all over the world, including Argentina, Bangladesh, Botswana, Brazil, Cameroon, China, Colombia, the Congo, Ghana, Guatemala, the Ivory Coast, India, Jamaica, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Pakistan, Panama, Peru, Saudi Arabia, Senegal, Sri Lanka, Sudan, Suriname, Tunisia, the United Arab Emirates, the United States, Zambia, and Zimbabwe.


In 1977, BCCI developed a plan to infiltrate the U.S. market through secretly purchasing U.S. banks while opening branch offices of BCCI throughout the U.S., and eventually merging the institutions. BCCI had significant difficulties implementing this strategy due to regulatory barriers in the United States designed to insure accountability. Despite these barriers, which delayed BCCI's entry, BCCI was ultimately successful in acquiring four banks, operating in seven states and the District of Colombia, with no jurisdiction successfully preventing BCCI from infiltrating it.

The techniques used by BCCI in the United States had been previously perfected by BCCI, and were used in BCCI's acquisitions of banks in a number of Third World countries and in Europe. These included purchasing banks through nominees, and arranging to have its activities shielded by prestigious lawyers, accountants, and public relations firms on the one hand, and politically-well connected agents on the other. These techniques were essential to BCCI's success in the United States, because without them, BCCI would have been stopped by regulators from gaining an interest in any U.S. bank. As it was, regulatory suspicion towards BCCI required the bank to deceive regulators in collusion with nominees including the heads of state of several foreign emirates, key political and intelligence figures from the Middle East, and entities controlled by the most important bank and banker in the Middle East.

Equally important to BCCI's successful secret acquisitions of U.S. banks in the face of regulatory suspicion was its aggressive use of a series of prominent Americans, beginning with Bert Lance, and continuing with former Defense Secretary Clark Clifford, former U.S. Senator Stuart Symington, well-connected former federal bank regulators, and former and current local, state and federal legislators. Wittingly or not, these individuals provided essential assistance to BCCI through lending their names and their reputations to BCCI at critical moments. Thus, it was not merely BCCI's deceptions that permitted it to infiltrate the United States and its banking system. Also essential were BCCI's use of political influence peddling and the revolving door in Washington.


Federal prosecutors in Tampa handling the 1988 drug money laundering indictment of BCCI failed to recognize the importance of information they received concerning BCCI's other crimes, including its apparent secret ownership of First American. As a result, they failed adequately to investigate these allegations themselves, or to refer this portion of the case to the FBI and other agencies at the Justice Department who could have properly investigated the additional information.

The Justice Department, along with the U.S. Customs Service and Treasury Departments, failed to provide adequate support and assistance to investigators and prosecutors working on the case against BCCI in 1988 and 1989, contributing to conditions that ultimately caused the chief undercover agent who handled the sting against BCCI to quit Customs entirely.

The January 1990 plea agreement between BCCI and the U.S. Attorney in Tampa kept BCCI alive, and had the effect of discouraging BCCI's officials from telling the U.S. what they knew about BCCI's larger criminality, including its ownership of First American and other U.S. banks.

The Justice Department essentially stopped investigating BCCI following the plea agreement, until press accounts, Federal Reserve action, and the New York District Attorney's investigation in New York forced them into action in mid-1991.

Justice Department personnel in Washington lobbied state regulators to keep BCCI open after the January 1990 plea agreement, following lobbying of them by former Justice Department personnel now representing BCCI.

Relations between main Justice in Washington and the U.S. Attorney for Miami, Dexter Lehtinen, broke down on BCCI-related prosecutions, and key actions on BCCI-related cases in Miami were, as a result, delayed for months during 1991.

Justice Department personnel in Washington, Miami, and Tampa actively obstructed and impeded Congressional attempts to investigate BCCI in 1990, and this practice continued to some extent until William P. Barr became Attorney General in late October, 1991.

Justice Department personnel in Washington, Miami and Tampa obstructed and impeded attempts by New York District Attorney Robert Morgenthau to obtain critical information concerning BCCI in 1989, 1990, and 1991, and in one case, a federal prosecutor lied to Morgenthau's office concerning the existence of such material. Important failures of cooperation continued to take place until William P. Barr became Attorney General in late October, 1991.

Cooperation by the Justice Department with the Federal Reserve was very limited until after BCCI's global closure on July 5, 1991.

Some public statements by the Justice Department concerning its handling of matters pertaining to BCCI were more cleverly crafted than true.


Acting on information provided him by the Subcommittee, New York District Attorney Robert Morgenthau began an investigation in 1989 of BCCI which materially contributed to the chain of events that resulted in BCCI's closure.

Questions asked by the District Attorney intensified the review of BCCI's activities by its auditors, Price Waterhouse, in England, and gave life to a moribund Federal Reserve investigation of BCCI's secret ownership of First American.

The District Attorney's criminal investigation was critical to stopping an intended reorganization of BCCI worked out through an agreement among the Bank of England, the government of Abu Dhabi, BCCI's auditors, Price Waterhouse, and BCCI itself, in which the nature and extent of BCCI's criminality would be suppressed, while Abu Dhabi would commit its financial resources to keep the bank going during a restructuring. By the late spring of 1991, the key obstacle to a successful restructuring of BCCI bankrolled up Abu Dhabi was the possibility that the District Attorney of New York would indict. Such an indictment would have inevitably caused a swift and thoroughly justified an international run on BCCI by depositors all over the world. Instead, it was a substantial factor in the decision of the Bank of England to take the information it had received from Price Waterhouse and rely on it to close BCCI.


BCCI's decision to divide its operations between two auditors, neither of whom had the right to audit all BCCI operations, was a significant mechanism by which BCCI was able to hide its frauds during its early years. For more than a decade, neither of BCCI's auditors objected to this practice.

BCCI provided loans and financial benefits to some of its auditors, whose acceptance of these benefits creates an appearance of impropriety, based on the possibility that such benefits could in theory affect the independent judgment of the auditors involved. These benefits included loans to two Price Waterhouse partnerships in the Caribbean. In addition, there are serious questions concerning the acceptance of payments and possibly housing from BCCI or its affiliates by Price Waterhouse partners in the Grand Caymans, and possible acceptance of sexual favors provided by BCCI officials to certain persons affiliated with the firm.

Regardless of BCCI's attempts to hide its frauds from its outside auditors, there were numerous warning bells visible to the auditors from the early years of the bank's activities, and BCCI's auditors could have and should have done more to respond to them.

By the end of 1987, given Price Waterhouse (UK)'s knowledge about the inadequacies of BCCI's records, it had ample reason to recognize that there could be no adequate basis for certifying that it had examined BCCI's books and records and that its picture of those records were indeed a "true and fair view" of BCCI's financial state of affairs.

The certifications by BCCI's auditors that its picture of BCCI's books were "true and fair" from December 31, 1987 forward, had the consequence of assisting BCCI in misleading depositors, regulators, investigators, and other financial institutions as to BCCI's true financial condition.

Prior to 1990, Price Waterhouse (UK) knew of gross irregularities in BCCI's handling of loans to CCAH/First American and was told of violations of U.S. banking laws by BCCI and its borrowers in connection with CCAH/First American, and failed to advise the partners of its U.S. affiliate or any U.S. regulator.

There is no evidence that Price Waterhouse (UK) has to this day notified Price Waterhouse (US) of the extent of the problems it found at BCCI, or of BCCI's secret ownership of CCAH/First American. Given the lack of information provided Price Waterhouse (US) by its United Kingdom affiliate, the U.S. firm performed its auditing of BCCI's U.S. branches in a manner that was professional and diligent, albeit unilluminating concerning BCCI's true activities in the United States.

Price Waterhouse's certification of BCCI's books and records in April, 1990 was explicitly conditioned by Price Waterhouse (UK) on the proposition that Abu Dhabi would bail BCCI out of its financial losses, and that the Bank of England, Abu Dhabi and BCCI would work with the auditors to restructure the bank and avoid its collapse. Price Waterhouse would not have made the certification but for the assurances it received from the Bank of England that its continued certification of BCCI's books was appropriate, and indeed, necessary for the bank's survival.

The April 1990 agreement among Price Waterhouse (UK), Abu Dhabi, BCCI, and the Bank of England described above, resulted in Price Waterhouse (UK) certifying the financial picture presented in its audit of BCCI as "true and fair," with a single footnote material to the huge losses still to be dealt with, failed adequately to describe their serious nature. As a consequence, the certification was materially misleading to anyone who relied on it ignorant of the facts then mutually known to BCCI, Abu Dhabi, Price Waterhouse and the Bank of England.

The decision by Abu Dhabi, Price Waterhouse (UK), BCCI and the Bank of England to reorganize BCCI over the duration of 1990 and 1991, rather than to advise the public of what they knew, caused substantial injury to innocent depositors and customers of BCCI who continued to do business with an institution which each of the above parties knew had engaged in fraud.

From at least April, 1990 through November, 1990, the Government of Abu Dhabi had knowledge of BCCI's criminality and frauds which it apparently withheld from BCCI's outside auditors, contributing to the delay in the ultimate closure of the bank, and causing further injury to the bank's innocent depositors and customers.



By early 1985, the CIA knew more about BCCI's goals and intentions concerning the U.S. banking system than anyone else in government, and provided that information to the U.S. Treasury and the Office of the Comptroller of the Currency, neither of whom had the responsibility for regulating the First American Bank that BCCI had taken over. The CIA failed to provide the critical information it had gathered to the correct users of the information -- the Federal Reserve and the Justice Department.

After the CIA knew that BCCI was as an institution a fundamentally corrupt criminal enterprise, it continued to use both BCCI and First American, BCCI's secretly held U.S. subsidiary, for CIA operations.

While the reporting concerning BCCI by the CIA was in some respects impressive -- especially in its assembling of the essentials of BCCI's criminality, its secret purchase of First American by 1985, and its extensive involvement in money laundering -- there were also remarkable gaps in the CIA's reported knowledge about BCCI.

Former CIA officials, including former CIA director Richard Helms and the late William Casey; former and current foreign intelligence officials, including Kamal Adham and Abdul Raouf Khalil; and principal foreign agents of the U.S., such as Adnan Khashoggi and Manucher Ghorbanifar, float in and out of BCCI at critical times in its history, and participate simultaneously in the making of key episodes in U.S. foreign policy, ranging from the Camp David peace talks to the arming of Iran as part of the Iran/Contra affair. Yet the CIA has continued to maintain that it has no information regarding any involvement of these people, raising questions about the quality of intelligence the CIA is receiving generally, or its candor with the Subcommittee. The CIA's professions of total ignorance about their respective roles in BCCI are out of character with the Agency's early knowledge of many critical aspects of the bank's operations, structure, personnel, and history.

The errors made by the CIA in connection with its handling of BCCI were complicated by its handling of this Congressional investigation. Initial information that was provided by the CIA was untrue; later information that was provided was incomplete; and the Agency resisted providing a "full" account about its knowledge of BCCI until almost a year after the initial requests for the information. These experiences suggest caution in concluding that the information provided to date is full and complete. The relationships among former CIA personnel and BCCI front men and nominees, including Kamal Adham, Abdul Khalil, and Mohammed Irvani, requires further investigation.


When the Federal Reserve approved the take over of Financial General Bankshares by CCAH in 1981, it had substantial circumstantial evidence before it to suggest that BCCI was behind the bank's purchase. The Federal Reserve chose not to act on that evidence because of the specific representations that were made to it by CCAH's shareholders and lawyers, that BCCI was neither financing nor directing the take over. These representations were untrue and the Federal Reserve would not have approved the CCAH application but for the false statements made to it.

In approving the CCAH application, the Federal Reserve relied upon representations from the Central Intelligence Agency, State Department, and other U.S. agencies that they had no objections to or concerns about the Middle Eastern shareholders who were purporting to purchase shares in the bank. The Federal Reserve also relied upon the reputation for integrity of BCCI's lawyers, especially that of former Secretary of Defense Clark Clifford and former Federal Reserve counsel Baldwin Tuttle. Assurances provided the Federal Reserve by the CIA and State Department, and by both attorneys, had a material impact on the Federal Reserve's willingness to approve the CCAH application despite its concerns about BCCI's possible involvement.

In 1981, the Office of the Comptroller of the Currency had additional information, from reports concerning BCCI's role in the Bank of America and the National Bank of Georgia, concerning BCCI's possible use of nominee arrangements and alter egos to purchase banks on its behalf in the United States, which it failed to pass on to the Federal Reserve. This failure was inadvertent, not intentional.

In approving the CCAH application, the Federal Reserve permitted BCCI and its attorneys to carve out a seeming loophole in the commitment that BCCI not be involved in financing or controlling CCAH's activities. This loophole permitted BCCI to act as an investment advisor and information conduit to CCAH's shareholders. The Federal Reserve's decision to accept this arrangement allowed BCCI and its attorneys and agents to use these permitted activities as a cover for the true nature of BCCI's ownership of CCAH and the First American Banks.

After approving the CCAH application in 1981, the Federal Reserve received few indicators about BCCI's possible improper involvement in CCAH/First American. However, at several critical junctures, especially the purchase by First American of the National Bank of Georgia from Ghaith Pharaon in 1986, there were obvious warnings signs that could have been investigated and which were not, until late 1990.

As a foreign bank whose branches were chartered by state banking authorities, BCCI largely escaped the Federal Reserve's scrutiny regarding its criminal activities in the United States unrelated to its interest in CCAH/First American. This gap in regulatory oversight has since been closed by the passage of the Foreign Bank Supervision Enhancement Act of 1991.

The U.S. Treasury Department failed to provide the Federal Reserve with information it received concerning BCCI's ownership of First American in 1985 and 1986 from the CIA. However, IRS agents did provide important information to the Federal Reserve on this issue in early 1989, which the Federal Reserve failed adequately to investigate at the time.

The FDIC approved Ghaith Pharaon's purchase of the Independence Bank in 1985 knowing him to be a shareholder of BCCI and knowing that he was placing a senior BCCI officer in charge of the bank, and failed to confer with the Federal Reserve or the OCC regarding their previous experiences with Pharaon and BCCI.

Once the Federal Reserve commenced a formal investigation of BCCI and First American on January 3, 1991, its investigation of BCCI and First American was aggressive and diligent. Its decisions to force BCCI out of the United States and to divest itself of First American were prompt. The charges it brought against the parties involved with BCCI in violating federal banking standards were fully justified by the record. Its investigations have over the past year contributed substantially to public understanding to date of what took place.

Even after the Federal Reserve understood the nature and scope of BCCI's frauds, it did not seek to have BCCI closed globally. This position was in some measure the consequence of the Federal Reserve's need to secure the cooperation of BCCI's majority shareholders, the government and royal family of Abu Dhabi, in providing some $190 million to prop up First American Bank and prevent an embarrassing collapse. However, Federal Reserve investigators did actively work in the spring of 1991 to have BCCI's top management removed.

In investigating BCCI, the Federal Reserve's efforts were hampered by examples of lack of cooperation by foreign governments, including most significantly the Serious Fraud Office in the United Kingdom and, since the closure of BCCI on July 5, 1991, the government of Abu Dhabi.

U.S. regulatory handling of the U.S. banks secretly owned by BCCI was hampered by lack of coordination among the regulators, which included the Federal Reserve, the FDIC, and the OCC, highlighting the need for further integration of these separate banking regulatory agencies on supervision and enforcement.


The Bank of England had deep concerns about BCCI from the late 1970s on, and undertook several steps to slow BCCI's expansion in the United Kingdom.

In 1988 and 1989, the Bank of England learned of BCCI's involvement in the financing of terrorism and in drug money laundering, and undertook additional, but limited supervision of BCCI in response to receiving this information.

In the spring of 1990, Price Waterhouse advised the Bank of England that there were substantial loan losses at BCCI, numerous poor banking practices, and evidence of fraud, which together had created a massive hole in BCCI's books. The Bank of England's response to the information was not to close BCCI down, but to find ways to prop up BCCI and prevent its collapse. This meant, among other things, keeping secret the very serious nature of BCCI's problems from its creditors and one million depositors.

In April, 1990, the Bank of England reached an agreement with BCCI, Abu Dhabi, and Price Waterhouse to keep BCCI from collapsing. Under the agreement, Abu Dhabi agreed to guarantee BCCI's losses and Price Waterhouse agreed to certify BCCI's books. As a consequence, innocent depositors and creditors who did business with BCCI following that date were deceived into believing that BCCI's financial problems were not as serious as each of these parties already knew them to be.

From April, 1990, the Bank of England relied on British bank secrecy and confidentiality laws to reduce the risk of BCCI's collapse if word of its improprieties leaked out. As a consequence, innocent depositors and creditors who did business with BCCI following that date were denied vital information, in the possession of the regulators, auditors, officers, and shareholders of BCCI, that could have protected them against their losses.

In order to prevent risk to its restructuring plan for BCCI and a possible run on BCCI, the Bank of England withheld important information from the Federal Reserve in the spring of 1990 about the size and scope of BCCI's lending on CCAH/First American shares, despite the Federal Reserve's requests for such information. This action by the Bank of England delayed the opening of a full investigation by the Federal Reserve for approximately eight months.

Despite its knowledge of some of BCCI's past frauds, and its own understanding that consolidation into a single entity is essential for regulating a bank, in late 1990 and early 1991 the Bank of England tentatively agreed with BCCI and its Abu Dhabi owners to permit BCCI to restructure as three "separate" institutions, based in London, Abu Dhabi and Hong Kong. This tentative decision demonstrated extraordinarily poor judgment on the part of the Bank of England. This decision was reversed abruptly when the Bank of England suddenly decided to close BCCI instead in late June, 1991.

The decision by the Bank of England in April 1990 to permit BCCI to move its headquarters, officers, and records out of British jurisdiction to Abu Dhabi has had profound negative consequences for investigations of BCCI around the world. As a result of this decision, essential records and witnesses regarding what took place were removed from the control of the British government, and placed under the control of the government of Abu Dhabi, which has to date withheld them from criminal investigators in the U.S. and U.K. This decision constituted a costly, and likely irretrievable, error on the part of the Bank of England.


Regardless of whether Clifford and Altman were deceived by BCCI in some respects, both men participated in some BCCI's deceptions in the United States.

Beginning in late 1977, Clifford and Altman assisted BCCI in purchasing a U.S. bank, Financial General Bankshares, with the participation of nominees, and understood BCCI's central involvement in directing and controlling the transaction.

In the years that followed, they made business decisions regarding acquisitions for First American that were motivated by BCCI's goals, rather than by the business needs of First American itself; and represented as their own to regulators decisions that had been made by Abedi and BCCI on fundamental matters concerning First American, including the purchase by First American of the National Bank of Georgia and First American's decision to purchase branches in New York City.

Clifford and Altman concealed their own financing of shares of First American by BCCI from First American's other directors and from U.S. regulators, withheld critical information that they possessed from regulators in an effort to keep the truth about BCCI's ownership of First American secret, and deceived regulators and the Congress concerning their own knowledge of and personal involvement in BCCI's illegalities in the United States.


Members of Abu Dhabi's ruling family appear to have contributed no more than $500,000 to BCCI's capitalization prior to April 1990, despite being the record owner of almost one-quarter of the bank's total shares. An unknown but substantial percentage of the shares acquired by Abu Dhabi overall in BCCI appear to have been acquired on a risk-free basis -- either with guaranteed rates of return, buy-back arrangements, or both.

The interest held in BCCI by the Abu Dhabi ruling family, like the interests held by the rulers of the three other gulf sheikdoms in the United Arab Emirates who owned shares of BCCI, materially aided and abetted Abedi and BCCI in projecting the illusion that BCCI was backed by, and capitalized by, Abu Dhabi's wealth. Investments made in BCCI by the Abu Dhabi Investment Authority appear to have been genuine, although possibly guaranteed by BCCI with buy-back or other no-risk arrangements.

Shares in Financial General Bankshares held by members of the Abu Dhabi royal family in late 1977 and early 1978 appear to have been nominee arrangements, adopted by Abu Dhabi as a convenience to BCCI and Abedi, under arrangements in which Abu Dhabi was to be without risk, and BCCI was to guarantee the purchase through a commitment to buy-back the stock at an agreed upon price.

Abu Dhabi's representative to BCCI's board of directors, Ghanim al Mazrui, received unorthodox financial benefits from BCCI in no-risk stock deals which may have compromised his ability to exercise independent judgment concerning BCCI's actions; confirmed at least one fraudulent transaction involving Abu Dhabi; and engaged in other improprieties pertaining to BCCI; but remains today in place at the apex of Abu Dhabi's committee designated to respond to BCCI's collapse.

In April, 1990, Abu Dhabi was told in detail about BCCI's fraud by top BCCI officials, and failed to advise BCCI's external auditors of what it had learned. Between April, 1990 and November, 1990, Abu Dhabi and BCCI together kept some information concerning BCCI's frauds hidden from the auditors.

From April, 1990 through July 5, 1991, Abu Dhabi tried to save BCCI through a massive restructuring. As part of the restructuring process, Abu Dhabi agreed to take responsibility for BCCI's losses, Price Waterhouse agreed to certify BCCI's books for another year, and Abu Dhabi, Price Waterhouse, the Bank of England, and BCCI agreed to keep all information concerning BCCI's frauds and other problems secret from BCCI's one million depositors, as well as from U.S. regulators and law enforcement, to prevent a run on the bank.

After the Federal Reserve was advised by the New York District Attorney of possible nominee arrangements involving BCCI and First American, Abu Dhabi, in an apparent effort to gain the Federal Reserve's acquiescence in BCCI's proposed restructuring, provided limited cooperation to the Federal Reserve, including access to selected documents. The cooperation did not extend to permitting the Federal Reserve open access to all BCCI documents, or substantive communication with key BCCI officials held in Abu Dhabi, such as BCCI's former president, Swaleh Naqvi. That access ended with the closure of BCCI July 5, 1991.

From November, 1990 through the present, Abu Dhabi has failed to provide documents and witnesses to U.S. law enforcement authorities and to the Congress, despite repeated commitments to do so. Instead, it has actively prevented U.S. investigators from having access to vital information necessary to investigate BCCI's global wrongdoing.

The proposed agreement between Abu Dhabi and BCCI's liquidators to settle their claims against one another contains provisions which could have the consequence of permitting Abu Dhabi to cover up any wrongdoing it may have had in connection with BCCI.

There is some evidence that the Sheikh Zayed may have had a political agenda in agreeing to the involvement of members of the Abu Dhabi royal family and its investment authority in purchasing shares of Financial General Bankshares, then of CCAH/First American. This evidence is offset, in part, by testimony that Abu Dhabi share purchases in the U.S. bank were done at Abedi's request and did not represent an actual investment by Abu Dhabi until much later.


BCCI's political connections in Washington had a material impact on its ability to accomplish its goals in the United States. In hiring lawyers, lobbyists and public relations firms in the United States to help it deal with its problems vis a vis the government, BCCI pursued a strategy that it had practiced successfully around the world: the hiring of former government officials.

BCCI's and its shareholders' cadre of professional help in Washington D.C. included, at various times, a former Secretary of Defense (Clark Clifford), former Senators and Congressmen (John Culver, Mike Barnes), former federal prosecutors (Larry Wechsler, Raymond Banoun, and Larry Barcella, a former State Department Official (William Rogers), a former White House aide (Ed Rogers), a current Presidential campaign deputy director (James Lake), and former Federal Reserve Attorneys (Baldwin Tuttle, Jerry Hawke, and Michael Bradfield). In addition, BCCI solicited the help of Henry Kissinger, who chose not to do business with BCCI but made a referral of BCCI to his own lawyers.

At several key points in BCCI's activities in the U.S., the political influence and personal contacts of those it hired had an impact in helping BCCI accomplish its goals, including in connection with the 1981 CCAH acquisition of FGB and the handling and aftermath of BCCI's plea agreement in Tampa in 1990.

The political connections of BCCI's U.S. lawyers and lobbyists were critical to impeding Congressional and law enforcement investigations from 1988 through 1991, through a variety of techniques that included impugning the motives and integrity of investigators and journalists, withholding subpoenaed documents, and lobbying on capital hill to protect BCCI's reputation and discourage efforts to close the bank down in the United States.


When Hill and Knowlton accepted BCCI's account in October, 1988, its partners knew of BCCI's reputation as a "sleazy" bank, but took the account anyway. In 1988 and 1989, Hill and Knowlton assisted BCCI with an aggressive public relations campaign designed to demonstrate that BCCI was not a criminal enterprise, and to put the best face possible on the Tampa drug money laundering indictments. In so doing, it disseminated materials unjustifiably and unfairly discrediting persons and publications who were telling the truth about BCCI's criminality.

Important information provided by Hill and Knowlton to Capitol Hill and provided by First American to regulators concerning the relationship between BCCI and First American in April, 1990 was false. The misleading material represented the position of BCCI, First American, Clifford and Altman concerning the relationship, and was contrary to the truth known by BCCI, Clifford and Altman.

Hill and Knowlton's representation of BCCI was within the norms and standards of the public relations industry, but raises larger questions as to the relationship of those norms and standards to the public interest.


Beginning with Bert Lance in 1977, whose debts BCCI paid off with a $3.5 million loan, BCCI, BCCI nominees, and top officials of BCCI systematically developed friendships and relationships with important U.S political figures. While those which are publicly known include former president Jimmy Carter, Jesse Jackson, and Andrew Young, the Subcommittee has received information suggesting that BCCI's network extended to other U.S. political figures. The payments made by BCCI to Andrew Young while he was a public official were at best unusual, and by all appearances, improper.


BCCI's commodities affiliate, Capcom, based in Chicago, London and Cairo, was principally staffed by former BCCI bankers, capitalized by BCCI and BCCI customers, and owned by BCCI, BCCI shareholders, and front-men. Capcom employed many of the same practices as BCCI, especially the use of nominees and front companies to disguise ownership and the movement of money. Four U.S. citizens -- none of whom had any experience or expertise in the commodities markets -- played important and varied roles as Capcom front men in the United States.

While investigation information concerning Capcom is incomplete, its activities appear to have included misappropriation of BCCI assets; the laundering of billions of dollars from the Middle East to the US and other parts of the world; and the siphoning of assets from BCCI to create a safe haven for them outside of the official BCCI empire.

Capcom's majority shareholders, Kamal Adham and A.R. Khalil, were both former senior Saudi government officials and successively acted as Saudi Arabia's principal liaisons to the Central Intelligence Agency during the 1970's and 1980's.

Its U.S. front men included Robert Magness, the CEO of the largest U.S. cable telecommunications company, TCI; a vice-President of TCI, Larry Romrell; and two other Americans, Kerry Fox and Robert Powell, with long-standing business interests in the Middle East. Magness, Romrell and Fox received loans from BCCI for real estate ventures in the U.S., and Magness and Romrell discussed numerous business ventures between BCCI and TCI, some of which involved the possible purchase of U.S. telecommunications stock and substantial lending by BCCI.

Commodities regulators with the responsibility for investigating Capcom showed little interest in conducting a thorough investigation of its activities, and in 1989 allowed Capcom to avoid such an investigation through agreeing to cease doing business in the United States.

The Subcommittee could not determine whether BCCI, Capcom, or their shareholders or agents actually acquired equity interests in the U.S. cable industry and believes further investigation of matters pertaining to Capcom is essential.


Many of the specific criminal transactions engaged in by BCCI's customers remain hidden from investigation as the result of bank secrecy laws in many jurisdictions, British national security laws, and the holding of key witnesses and documents by the Government of Abu Dhabi. Documents pertaining to BCCI's use to finance terrorism, to assist the builders of a Pakistani nuclear bomb, to finance Iranian arms deals, and related matters have been sealed in the United Kingdom by British intelligence and remain unavailable to U.S. investigators. Many other basic matters pertaining to BCCI's criminality, including any list that may exist of BCCI's political payoffs and bribes, remain sequestered in Abu Dhabi and unavailable to U.S. investigators.

Many investigative leads remain to be explored, but cannot be answered with devoting substantial additional sources that to date no agency of government has been in a position to provide.

Unanswered questions include, but are not limited to, the relationship between BCCI and the Banco Nazionale del Lavoro; the alleged relationship between the late CIA director William Casey and BCCI; the extent of BCCI's involvement in Pakistan's nuclear program; BCCI's manipulation of commodities and securities markets in Europe and Canada; BCCI's activities in India, including its relationship with the business empire of the Hinduja family; BCCI's relationships with convicted Iraqi arms dealer Sarkis Sarkenalian, Syrian drug trafficker, terrorist, and arms trafficker Monzer Al-Kassar, and other major arms dealers; the use of BCCI by central figures in the alleged "October Surprise," BCCI's activities with the Central Bank of Syria and with the Foreign Trade Mission of the Soviet Union in London; its involvement with foreign intelligence agencies; the financial dealingst of BCCI directors with Charles Keating and several Keating affiliates and front-companies, including the possibility that BCCI related entities may have laundered funds for Keating to move them outside the United States; BCCI's financing of commodities and other business dealings of international criminal financier Marc Rich; the nature, extent and meaning of the ownership of other major U.S. financial institutions by Middle Eastern political figures; the nature, extent, and meaning of real estate and financial investments in the United States by major shareholders of BCCI; the sale of BCCI affiliate Banque de Commerce et Placement in Geneva, to the Cukorova Group of Turkey, which owned an entity involved in the BNL Iraqi arms sales, among others.

The withholding of documents and witnesses from U.S. investigators by the Government of Abu Dhabi threatens vital U.S. foreign policy, anti-narcotics and money laundering, and law enforcement interests, and should not be tolerated.



















BCCI cannot be taken as an isolated example of a rogue bank, but a case study of the vulnerability of the world to international crime on a global scope that is beyond the current ability of governments to control. Its multi-billion dollar collapse is merely the latest in a series of international financial scandals that have bedeviled international banking this century. Its techniques and its associations with government officials, intelligence agencies, and arms traffickers, were neither new nor unique.

For example, as far back as the 1920's, the International Match Corp bilked shareholders and lenders out of some $500 million through switching company assets and liabilities among a series of shell entities, creating fictional assets when existing ones were adequate, and through transferring funds from the United States offshore. All the while, its chairman, Ivan Kreuger, maintained friendships with numerous world leaders including then U.S. President Herbert Hoover, in a manner reminiscent of BCCI's founder Agha Hasan Abedi's relationships wit President Carter a half a century later.

During the 1960's, the Channel Islands off the coast of England became the host to a series of post-off box banks, including the infamous Bank of Sark, whose facilities including a room over a pub, a desk and a telephone. That headquarters proved adequate to enable the swindlers who established the bank to use it to sell some $100 million in fraudulent checks and letters of credit on the phantom bank before their criminality was discovered.

In the same period, Bernie Cornfeld, chairman of the Investors Overseas Service (IOS), which sold "The Fund of Funds," and fugitive financier Robert Vesco, siphoned off hundreds of millions of dollars from investors in the mutual fund that at its height had $3 billion in assets under its management. In doing so, it moved funds held at Credit Suisse to a small bank which IOS itself owned based in Luxembourg, from which the funds disappeared. Again, this technique anticipated the methods used by BCCI to shift assets from legitimate institutions to its own, and then to engage in wire transfers sufficient to make them impossible to track.

Similar techniques were used by Italian financier Michele Sindona in connection with his management of Banco Ambrosiano in Italy; and by former CIA agent Michael Hand in the drug money laundering Nugan Hand Bank in Australia during the late 1970's and early 1980's. The latter institution had numerous ties to U.S. intelligence and military personnel which have never been explained.

Thus, the rise and fall of BCCI is not an isolated phenomenon, but a recurrent problem that has grown along with the growth in the international financial community itself. Given the extraordinary magnitude of international financial transactions -- which amount to some $4 trillion per day moving through the New York clearance system alone -- the opportunities for fraud are huge, the rewards great, and the systems put in place to protect against them, far from adequate, as this report demonstrates in some detail.

The scope and variety of BCCI's criminality, and the issues raised by that criminality, are immense, and beyond the scope of any single investigation or report. This report, the product of some four years of investigation by the Subcommittee, while extensive, can merely provide a basic guideline to the fundamental facts and issued raised by the BCCI affair.

The Subcommittee investigation of BCCI began in February, 1988, early in the second year of a two-year investigation of the relationship between drug trafficking to U.S. foreign policy and law enforcement that had been authorized by the full Committee. During a hearing on General Noriega's drug trafficking and money laundering, BCCI was identified as facilitating Noriega's criminal activity. In March, 1988, the Foreign Relations Committee authorized the issuance of subpoenas to BCCI and those at the bank involved in handling Noriega's assets, and the accounts of others in Panama and Colombia. Service of those subpoenas was delayed, at the request of the Justice Department and U.S. Customs Service, due to concern that its service could interfere with an ongoing sting operation of BCCI in Tampa, Operation C-Chase. By the time the Subcommittee secured the permission of federal authorities to move forward with service of the subpoena, in late July 1988, the Subcommittee had completed the public hearings in connection with its investigative mandate, and was proceeding to complete its final report, with no further investigative efforts planned.

However, service of the subpoena set into motion a series of contacts during the late summer and early fall involving the Subcommittee, BCCI officials, and BCCI's attorneys, including Clark Clifford and Robert Altman. During those contacts, BCCI officials advised Subcommittee counsel Jack Blum that in their view, BCCI and its attorneys were obstructing the Subcommittee's efforts to investigate the bank. The Subcommittee conducted a deposition of one key BCCI official, Amjad Awan, shortly before his arrest in the Customs' sting, and deposed a second, former BCCI officer following the sting, during the final days of the authorization given the Subcommittee by the Foreign Relations Committee. Thus, as the two-year investigation of the Subcommittee authorized by the Foreign Relations Committee ended, investigating BCCI remained a major piece of unfinished Subcommittee business.

In the spring of 1989, Senator Kerry, chairman of the Subcommittee, authorized Blum as he was leaving the Subcommittee, to provide the information he had developed to the Justice Department. After the Justice Department, in Blum's view, had failed to follow up on the information provided, he took the same information to New York District Attorney Robert Morgenthau, who shortly commenced his investigation of BCCI, based in substantial part on the leads provided him by Blum and the Subcommittee.

In the meantime, Senator Kerry asked two members of his personal staff to continue the investigation from within his personal office until such time as further authorization might be granted from the Foreign Relations Committee, or another Committee of formal jurisdiction for a committee investigation.

During 1989 and 1990, staff in Senator Kerry's office had numerous contacts with BCCI's attorneys, certain BCCI customers, and, in a truncated fashion, with BCCI officials, in an attempt to determine whether allegations concerning BCCI's secret ownership of First American Bankshares were correct, and as part of an effort to identify the extent and nature of BCCI's support of drug money laundering.

In January, 1990, when the Justice Department entered into a plea agreement with BCCI, Senator Kerry criticized the plea agreement for permitting BCCI to avoid trial, and the $14 million fine as insufficient punishment for an institution which had a corporate policy of laundering drug money. At the same time, the Subcommittee published a report on drug money laundering which focused in part on further questions concerning BCCI, including BCCI's alleged secret ownership of First American.

During the spring and summer of 1990, the Senator Kerry's staff conducted further investigative efforts concerning BCCI, met with BCCI's and First American's attorneys on several occasions attempting to obtain BCCI documents. In July, 1990, Senator Kerry, in his capacity as chairman of the Subcommittee, scheduled hearings on BCCI which were postponed after BCCI's attorneys and the Justice Department advised staff that each of the requested witnesses, including BCCI attorney and First American President Robert Altman, would decline the Subcommittee's request to testify.

After efforts to obtain authorization for the investigation within the Banking Committee failed, Senator Kerry decided in early 1991 to formalize the personal staff investigation within the Subcommittee and to seek formal authorization for an investigation from the Foreign Relations Committee, which was granted on May 23, 1991, without dissent. Together with this authorization, the Foreign Relations Committee authorized the issuance of a subpoena to BCCI for records pertaining to its dealings with foreign officials of a number of countries, arms dealers, and focusing on its secret ownership of U.S. financial institutions. At this time, Senator Kerry was joined in further investigative efforts by his ranking member, Senator Brown.

While the Foreign Relations Committee provided consistent support for the Subcommittee's efforts through 1991 and 1992, staffing resources for the investigation remained limited, amounting to two attorneys, with no budget for travel. The lack of resources particularly hampered efforts to investigate matters pertaining to BCCI's activities outside the United States.

Authority for subpoenas and writs were granted by the Committee to the Subcommittee on May 23, 1991, November 27, 1991, February 29, 1992, June 4, 1992. In all, the Subcommittee conducted thirteen days of public hearings, on August 1, 2, 8, October 18, 22, 23, 24, 25, and November 21, 1991; February 19, March 18, May 14, and July 30, 1992; one day of closed hearings, on October 31, 1991 and staffed an additional day of hearings in the Senate Banking Subcommittee on Consumer and Regulatory Affairs on May 23, 1991.

Both by subpoena and by request, documents were received from many institutions, agencies and individuals, including BCCI itself; many of BCCI's attorneys and law firms; many former BCCI officials; representatives of BCCI's creditors and depositors; Price Waterhouse, BCCI's accountants; Clark Clifford and Robert Altman; the First American Bank; the Federal Reserve, Office of Thrift Supervision, Resolution Trust Corporation, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Majority Shareholders of BCCI (Abu Dhabi), the Central Intelligence Agency, the U.S. Customs Service, the State Department; the Department of Agriculture; former federal prosecutors and investigators; and many others.

In addition, the Subcommittee has been vitally assisted by certain BCCI insiders who, while still working at BCCI during the period of its operation, became sufficiently angered and disgusted by what they had observed that they contacted the Subcommittee and agreed to provide the Subcommittee with information on an ongoing basis. These insiders helped the Subcommittee to document improprieties involving BCCI's attorneys, senior officers, and shareholders, as well as, certain failures to act on information by federal law enforcement.

Many matters remain to be investigated, and these are outlined in the Executive Summary and in the final chapter on conclusions and legislative recommendations.

What is absolutely clear is that the United States needs to exercise far more leadership in helping develop a system for monitoring and regulating the movement of funds across international borders to replace the current, inadequate, patchwork system that BCCI, with all of its faults, so aptly took advantage of to defraud over one million depositors and thousands of creditors from countries all over the world.

Equally important is for the United States to give renewed attention to the difficulty of monitoring the actual circumstances and intentions, of foreign investors seeking to acquire U.S. institutions. As the BCCI case demonstrates, such investments pose special difficulties for both investigation and prosecution should something go wrong.

Finally, influence peddling, the revolving door, and the willingness of well-placed and prominent people in Washington to provide services to whoever wants in the door and is willing to pay ones fees is a phenomenon that poses very substantial dangers for our system of government. As the BCCI case suggests, higher standards of conduct by the private sector in Washington that lives alongside of government is an essential part of making it possible for government to work. The lack of those standards was a significant factor in BCCI's success in committing crimes, and the government's failures in doing anything them.





BCCI's conception, growth, collapse, and criminality are inextricably linked with the personality of its founder, Agha Hasan Abedi, who in turn was a product of the unique conditions of Muslim India in the final period of British rule prior to partition, and the first years after partition.

These were years of fundamental change in the region, involving the creation of an entire new ruling class in both Hindu and Moslem India to replace the departing British foreign service. While the period created special opportunities for a newly-emerging professional class in both countries, Abedi and many of the others who later became prominent in Pakistani banking made up a special class. In India, they had grown up as members of a minority, of ineradicably lower status than similarly educated Hindus, despite their university educations. Following partition, these Indian Moslems migrated northward to the new Muslim state of Pakistan, but remained forever regarded as outsiders by the natives. Accordingly, as they settled in the newly-developing cities, such as Karachi and Lahore, they formed a clannish class of Muslim professionals who kept themselves apart from other Pakistanis.

Abedi himself was especially suited to succeed in the post-colonial environment, given his family's experience in northern Indian in Mahmudabad, where his father had served the Rajah. At the Rajah's court, Abedi was exposed to great wealth, and to the concept that access to it could be had for anyone who managed to make himself indispensable to the person who controlled such wealth. Abedi also learned that the previously immutable laws of the British colonial power could be changed, at whim, by the new Indian and Pakistani rulers that followed, and that as often as not, legal obstacles to any goal could be eliminated if they interfered with the plans of a sufficiently important political figure. These were lessons which Abedi applied throughout his career as a banker, and at the core of BCCI's unique history.

A history of BCCI, prepared in 1982 by Khusro Karamat Elley, a key figure in BCCI's secret management of First American, provides a rosy, public-relations view of Abedi's career to the founding of BCCI a decade earlier.

The story begins in the early forties, when the Habib family of India set up a Bank in Bombay, India. They started hiring young graduates as trainee officers and among the first was a young and warm hearted individual named Agha Hasan Abedi. In 1947, when Pakistan was formed, the Habibs [as Moslems] moved their bank to Pakistan.

The Habibs ran the bank like a family business. All decisions were centralized with family members and working hours were long and hard. Agha Hasan Abedi rose very rapidly but soon found the atmosphere to be too restrictive for the great number of ideas welling up inside him. In 1958 he left Habib Bank and was able to get together Investors to form a new bank to be known as United Bank. The Central Bank in Pakistan gave the license and was quite happy with Mr. Abedi's statements that he wanted to make this the largest bank in Pakistan. They however did find it disturbing when he described to them in great detail how high the salaries of the employees of this bank would be, what would be the quality of the offices and the extent of the mechanization that he would go into. Within ten years, United Bank became the second largest bank in Pakistan and all that Mr. Abedi envisioned, relating to the facilities, the staff, and relating to the high quality of appearance of the offices, and to the modern outlook of the Bank, had been achieved. Additionally, the Bank had opened branches overseas in quite a few countries including the Middle East. The Bank was already poised to become the largest bank in Pakistan but political conditions were making it apparent to Mr. Abedi that Pakistan could probably not form the basis for an operation of the size which he and his team were capable of.(1)

This internal BCCI history focuses on key elements of BCCI's operation already present in the Habib and United Banks: a close knit family structure for management, high salaries and benefits to motivate employees, unusually luxurious offices for the purpose of impressing customers, aggressive expansion, beginning with the Middle East, and Abedi's refusal to live within the constraints of governments.

Press accounts of Abedi's life from the 1970's and 1980's typically note Abedi's wish for his success to be seen as a Pakistani version of a Horatio Alger story: success in the material world as being merely the logical reward for piety, hard work, sobriety, discipline, and loyalty. Internal BCCI documents make clear Abedi's ability to motivate his employees to work exceptionally hard. Yet in this, Abedi approach was little different from other successful super-salesmen. What distinguished Abedi's method as a banker was his focused attention on cultivating individuals of wealth, deemed "high net worths," at BCCI, and those who controlled wealth, such as Pakistani government officials.(2)

Abedi's Charisma

By all accounts -- ranging from statements made by Bert Lance to Jimmy Carter to the Pakistani bankers who went to work for him at BCCI -- Agha Hasan Abedi was a man of extraordinary personal charisma. That charisma was the glue which held BCCI together. Its absence following Abedi's stroke in early 1989, which led to Carter arranging an emergency heart transplant for him, had a substantial impact on BCCI's ability to survive the drug money laundering indictments in Tampa and the banks subsequent misfortunes.

According to former BCCI chief financial officer Massihur Rahman, who worked alongside Abedi for nearly two decades, Abedi was a man whose personality dominated all those around him, who could simultaneously turn great personal powers to good and to evil.

I remember looking into his eyes and seeing God and the Devil balanced equally in them. He was already an older man when he began BCCI, and he was determined to not to waste time in taking his vision and turning it into something very big.(3)

Abedi asked the total devotion of everyone around him. Should one of his employees decide to abandon an Abedi project, he took it personally, as if it reflected badly on Abedi himself, and would focus every attention in an effort to persuade the employee to change his mind.

For example, when BCCI officer Abdur Sakhia received two offers from other banks and decided to leave BCCI, Abedi refused to accept the situation:

I said I have to leave. They said you can do what you want, but please stay we wont let you go. I said, Mr. Abedi you are making things very difficult. I have two offers, one from Citicorp and one from BOP Canada. He started crying. It was absolutely heartbreaking. We used to sit in 15,000 square feet of open space. Mr. Abedi is at the head of the room and he started crying. We are people from the East, we are not trained to handle things like that. I said Mr. Abedi, my fate is in your hands, you can do with me what you like.(4)

Abedi As Pakistani Political Paymaster

Abedi's earliest successes were largely the result of his having recognized the importance in Pakistan of providing payoffs or other under-the-table services to Pakistani officials, especially the leadership of any current governing party. For example, when the United Bank was formed in 1959, Abedi appointed as chairman of its board I. I. Chundrigar, the former Prime Minister of Pakistan, who was a close confidante of Pakistani's then current prime minister, Ayub Khan. Abedi maintained close ties to Khan's government, later hiring General Khan's minister of information to become the "publisher" of a BCCI promotional magazine, "South."(5) When the Pakistani military government was replaced following the debacle that resulted in the severance of East Pakistan into Bangladesh, Abedi became just as cozy with Pakistani "socialist" Ali Bhutto, Khan's ideological opposite. When Bhutto was overthrown in 1978 in a military coup, Abedi swiftly changed allegiances again to Bhutto's successor, Islamic "puritan" General Zia.(6) Zia later executed Bhutto for financial crimes, in which Abedi, among others, was clearly involved, while forming close ties to Abedi, on whose financial skills he increasingly relied.

Abedi's personal involvement in Bhutto's "crimes" was described officially in a White Paper issued by the Government of Pakistan in July, 1978 on "The Conduct of the General Elections in March 1977." In a section analyzing the illegal funding of campaign activities for the PPP, the party of Bhutto, the White Paper describes how "the other large source of funds was the money brought in by Agha Hasan Abdi [sic]" amounting to "two or three crores of rupees." A later reference to Abedi in the White Paper describes his "travels . . . loaded as he used to be with bagfuls of money."(7)

Abedi also sought out key pillars of the Pakistani private sector, securing the Saigol family as a key client of Abedi's in three successive banks -- Habib, United, and then BCCI. The Saigol group was one of the major industrial and trade groups in Pakistan by the mid-1950's, with its initial fortune made in textiles, and as close to "old wealth" as existed at the time within Pakistan's commercial class. Abedi first secured the Saigol account while at Habib, and took the account with him when he left to form United Bank, making the Saigol's United's principal shareholders. At the time, some in Pakistani's commercial community wondered how Abedi had managed to take the important Saigol relationship from the Habib Bank. Thirty years later, Price Waterhouse was to detail the reason -- Abedi's willingness to reschedule millions in loans to the Saigols whenever they found it inconvenient to repay them.(8)

Through these and similar relationships, Abedi built the United Bank into the second largest bank in Pakistan, complete with a protocol department responsible for taking care of the personal needs of VIPs. As founder, president and Chairman of United, Abedi was already a great success in Pakistani terms. But Abedi himself felt this was insufficient to meet his ambitions. And so Abedi increasingly began to focus on "high net worth individuals" outside Pakistan to liberate him from the inherent limitations of being nothing more than a very big fish in a Pakistan which Abedi viewed as too small to accommodate his vision.

Impact of Nationalization

By the early 1970's, there was an ongoing tension between Abedi's ambition to move beyond Pakistan, and that of the Pakistani government to keep Pakistani institutions generally and Abedi's bank specifically under its control. From the time he took power, Pakistani Prime Minister Ali Bhutto, typifying the socialist cast of much of the former colonial world in this period, was threatening to nationalize the banks, as he already had nationalized other sectors. Accordingly, Abedi began moving forward with the initial steps to form BCCI as a Pakistani-managed bank outside of Pakistan. When Bhutto in turn learned about Abedi's attempt to circumvent his new socialist order, he not only went ahead with plans for nationalizing the United Bank, but promptly placed Abedi under house arrest.(9)

While under house arrest, Abedi further developed his scheme for his new institution. Unlike United Bank, it would operate in a manner to defy the ability of the Pakistani government, or any other, to impede any objective it might seek. It would be the first global, international, and indeed, trans-national bank, and something more: a charity, a foundation, a shipping empire, an insurer, a brokerage firm, a commodities exchange, a publishing house, a world-class hospital for the rich, a real estate empire, an employee cooperative, an Islamic investment bank, and a Third World powerhouse.(10)

As a politicized, post-colonial Pakistani, Abedi frequently articulated the goal of achieving equality of status with the financial institutions of the former colonial powers. During the colonial period, millions of Indian and Pakistani expatriates had fanned out across British possessions to become the commercial class in many of them. But they had not yet developed their own financial institutions, and had still to rely on European financial institutions to do business, institutions whose attitude towards them ranged from ignorance to neglect to contempt. A bank of their own would treat them better, be able to do far more to help them, and make itself great at the same time.

As Abedi explained while under house arrest to Massihur Rahman, who later became his chief financial officer at BCCI:

Up to that stage in the early 1970's there were mostly national banks and savings banks. The few banks which are international are indeed the colonial banks from Britain, France, Germany, and lately from America. So they were normally not international, they were really national banks, big national banks of countries which were international in network only. So he felt that if a genuinely global bank would be started bridging all the Third World countries and also bridging the first world, there would be a unique banking structure which could be very, very useful socially and also very profitable.(11)

The nationalization of Pakistani banking which provided the impetus for BCCI also insured that BCCI would retain the Saigol relationship, as a substantial portion of their businesses were also nationalized by Bhutto in 1972. Nationalization also provided other Pakistani businessmen with powerful motivation to find a bank that could not be controlled by the Pakistani government. The most important of these proved to be the Gokal brothers, Pakistanis who became in the 1970's, through BCCI lending, owners of the largest shipping empire in the world, with a business that ultimately included commodity trading, general trading, manufacturing, financial services, and real estate.(12) In addition to freeing them from the threat of Pakistani appropriation, BCCI provided both the Saigols and the Gokals one key service from BCCI that no other bank could provide -- the freedom to defer repayment of past loans and to borrow new money at will. Moreover, both clients received a special privilege similar to that afforded BCCI's own officers: when something went wrong and they lost money, BCCI would help them cover it up. This was a matter not just of loyalty to ones intimate business associates -- it was also a matter of sound business practice, as recognizing losses on the loans would have hurt BCCI's balance sheets.(13)

Critical Elements of BCCI's Creation

Abedi needed five things to create BCCI. First, a bank secrecy and confidentiality haven, which he found first in Luxembourg, and then in Grand Caymans. Second, a source of capital, $2.5 million, which Abedi ultimately obtained from Bank of America, supplemented by another $500,000 from Sheikh Zayed of Abu Dhabi. Third, a source of initial assets, $100 million, of which at least half were provided as deposits by Sheikh Zayed. Fourth, a group of like-minded Pakistanis to operate the bank. These were now widely available as a result of Bhutto's nationalization of their banks. Lastly, credibility in the international community, through a relationship with an established Western financial institution which would provide prestige to BCCI, but not interfere with its unique approach to banking. This too was provided by Bank of America during BCCI's formative years.(14)

The most critical of these five elements was the relationship between BCCI and Abu Dhabi.

Abedi and Sheikh Zayed of Abu Dhabi

Abu Dhabi is the largest and wealthiest member of the United Arab Emirates, an oil-rich federation of sheikhdoms with a combined population of under 1.5 million, bordering on Saudi Arabia and Oman, with one of the world's highest standards of living as a result of oil wealth. Like all of the Gulf sheikdoms, Abu Dhabi is unusual among modern states in that its ruler, and the ruling family, owns all the land and natural resources of the country in fee simple absolute, with no distinctions being made among the wealth of the ruler, his family, and the nation itself. As lawyers for Abu Dhabi have described it:

By tradition and historical background of the Trucial States, the ruler of an Emirate owns all of the land of his State. However, he allots land to his subjects individually for their use. Similarly, all the natural resources of the States are also regarded as the personal property of the ruler and his heirs who enjoy complete authority to utilize them as they consdier fit.(15)

As early as 1967 Abedi's high net worth customers included the ruler of Abu Dhabi, Sheikh Zayed bin Sultan Al Nahayan, and his family. The illiterate Sheikh, a formerly impoverished desert Bedouin, was the recently installed head of a newly wealthy oil state who owed his power to a British coup against his brother in 1966. The brother had been deposed for having been unwilling to spend Abu Dhabi oil revenues for any purpose, including easing conditions for members of the British foreign service posted there.

After installing Sheikh Zayed, British officialdom had failed to pay attention to his desire to be taken seriously as an important world political leader. By contrast, Abedi viewed Sheikh Zayed to be a potentially important resource. By one account, the relationship began when Abedi made the decision to fly to Abu Dhabi in 1966 to solicit the right of the United Bank to take deposits from the thousands of Pakistani workers assisting in its modernization. Travelling with one assistant and bringing an oriental rug as a gesture of goodwill, Abedi secured Sheikh Zayed's permission for the United Bank to open a branch in Abu Dhabi.(16) By a second account, Abedi beat out the Habib Bank for taking care of arrangements for Sheikh Zayed's first bustard hunting and falconry vacation in Pakistan, personally waiting patiently outside the Pakistani government guest house while the Sheikh napped, and securing the right to handle the Sheikh's logistics when he awoke.(17)

By 1967, what had begun with Abedi handling the Sheikh's falconry and bustard-hunting trips in Pakistan, and the finances of Pakistani workers in Abu Dhabi, wound up with Abedi running the Sheikh's financial life. As far as Pakistani bankers observing the relationship were concerned, Abedi coordinated everything for Sheikh Zayed, from the building of the Sheikh's palaces in Pakistan, the furnishing of his villas in Morocco and Spain, his medical appointments, to the digging of wells for his homes in the desert.(18) As BCCI officer Abdur Sakhia put it,

Digging a well or two was a minor cost of doing business. Abedi's philosophy was to appeal to every sector. If you were religious people he would help you pray.(19)

From the point of view of BCCI, Sheikh Zayed and his family were ill-equipped to handle the demands of the modern world, and in the early days, dependent on Abedi and Abedi's bank for their every need. Even in the late 1970's, Sheikh Zayed, whose personal tastes were quite simple, would on trips abroad routinely write checks for $100,000 or $200,000 at a time for members of his retinue to spend as they liked, written on the back of a matchbook or a piece of toilet paper. This practice continued until BCCI officers provided the Sheikh with a gold checkbook and insisted that drafts be written on it.(20) As Akbar Bilgrami described his experiences with Zayed:

He would pray or listen to the news. He had a court jester-type person who made him laugh and told him poetry. He was a simple man, simple but shrewd. On a trip to spain which lasted two weeks, his retinue spent $20 million, but he only spend $400 on himself the entire trip for two dogs whose price he negotiated down from $1,000.

He was a simple man who did not spend a lot of money on himself. It is part of Arab culture. The Sheikh is a sort of farther figure. It is hard for him to say no to people, especially because he knows that everybody knows that he has the money. He would carry about a briefcase filled with expensive watches, Cartiers, Rolexes.(21)

Among BCCI officers it was believed that the United Arab Emirates itself owed its creation to Abedi, who came up with the idea as a means of reducing instability among the gulf emirates and increasing the stature of Sheikh Zayed.(22) As Sakhia recalled:

Abedi created the UAE. He planted the idea of the UAE as a federation to Sheikh Zayed. These people had no standing anywhere in the world. They were smugglers and tribesmen. When Sheik Zayed would come for months in Pakistan, not even a policeman would give him any attention. Yet two months after meeting Abedi, Sheikh Zayed finally gets a state visit to Islamabad and meets the President of Pakistan which then became the first country to give him any status. The first embassy of UAE was opened in Pakistan and the second in London, and both were staffed by Abedi's appointments.(23)

In time, Sheikh Zayed would unburden himself to Abedi, and tell Abedi that he felt ignored by westerners, a sentiment he later repeated to Bert Lance, as Lance recalled to Senate investigators, and in testimony on October 24, 1991.

I remember a long conversation I had with Sheikh Zayed at his palace outside of Islamabad. There were three of us there: Bert Lance, Abedi, and Sheikh Zayed. The Sheikh was unhappy that the US hadn't paid any attention to him. The US Ambassador hadn't focused on him. . . He was being reated in a manner that really wasn't befitting the strategic importance or the fiscal importance of the UAE. [Zayed was] concerned about the discrimination as it related to the UAE vis-a-vis other Arab countries . . . receiving more attention and more concern than the UAE was.(24)

It is absolutely clear from BCCI documents that Abedi's relationship with the Sheikh of Abu Dhabi and the Al Nahayan family was the foundation of the establishment of the bank without which BCCI never could have come into existence. Throughout the first critical decade of BCCI's eighteen year existence, as much as 50% of BCCI's overall assets were from Abu Dhabi and the Al Nayhan family, who were earning about $750 million a year in oil revenues in the early 1970's, an amount that rose to nearly $10 billion a year by the end of the decade. Until the formation of a separate affiliate, the Bank of Credit and Commerce Emirates (BCCE), BCCI functioned as the official bank for the Gulf emirates, and handled a substantial portion of Abu Dhabi's oil revenues. And yet from the beginning, there was an oddity about this central relationship: at no time while Abedi was in charge of BCCI did Abu Dhabi hold more than a small share of BCCI's recorded shares. Abu Dhabi appears not to have capitalized BCCI, but instead to have insisted on guaranteed rates of return for the use of its money.

As Akbar Bilgrami, who handled Sheikh Zayed's personal finances in the late 1970's at BCCI, has described it, BCCI provided Zayed with great benefits for what appeared at the time to be very little risk. Zayed deposited substantial funds, amounting to billions of dollars, in BCCI, receiving a guaranteed rate of return on these deposits -- sometimes as high as 1.5 percent over LIBOR, a standard European funds rate. In return for a relationship that was costing him little and indeed, making him profits, Sheikh Zayed received the prestige and benefits of having people all over the world believe it was his bank, without his own funds being at risk.(25) Thus, rather than being a major investor in fact in BCCI, in the early years, Abu Dhabi only agreed to place extremely large sums of money as deposits at the bank, which BCCI used in lieu of capital.

An eyewitness to BCCI's creation described Abedi's elation after Sheikh Zayed agreed to back his new bank in a scene that took place in late 1972, in the late evening, in the living room of a Pakistani banker in Abu Dhabi. Abedi addressed the Pakistanis present in the following terms:

It is truly the grace of God that the prayers of all the U.B.L. [United Bank of Pakistan] employees who had to flee Bangladesh and who had been kept on the U.B.L. payroll by us, have been provided a source of livelihood by God. The Sheikhs have been kind enough to give me their trust and support the new bank that we are creating for these employees.(26)

Abedi used the expression "rizq," or "providence" to describe the deal he had consummated with Sheikh Zayed. But there would have been a number of compelling reasons for Sheikh Zayed to respond to Abedi's offer. Sheikh Zayed was financially unsophisticated and in need of assistance from someone he could trust to handle his finances in a manner that would meet his personal, cultural and political needs. These included the need for secrecy as to the location and size of his wealth, given the political instability within the region; the need to adhere to Islamic law, through structuring transactions so that they could be profitable and safe without the payment of interest in violation of that law. There was, moreover, no one within Abu Dhabi who the Sheikh could trust to provide the adequate secrecy. Indeed, apart from Abedi, Sheikh Zayed may well have known no one inside or outside Abu Dhabi with the apparent sophistication to handle finances of the magnitude that were being generated by the petrodollars. In any case, Abedi had already been attending to all of the Sheikh's personal needs in Pakistan for five years, thereby demonstrating his ability to make the relationship worry-free for the Sheikh.

Abol Helmy, an Iranian BCCI officer, described the relationship as a logical outgrowth of the post-colonial period in the Third World:

The British ruled India, Pakistan, and the Arab countries. Traditionally, the Indians and then the Pakistanis because of the Moslem thread that linked them became the civil servants for the British working in the Gulf. It was a continuation of the policies of the Empire.(27)

As a result of the Abedi-Zayed agreement, Abedi now had essentially unlimited resources to create BCCI. He could now act simultaneously as manager of billions of Sheikh Zayed's personal wealth, as banker to the United Arab Emirates of which Sheikh Zayed was chief of state, and as chairman of a new bank that had guaranteed assets of hundreds of millions of dollars from its inception.(28) Moreover, Sheikh Zayed was accustomed to the use of nominees, as nominee purchases were frequently employed whenever he wished to buy anything to avoid the price increasing if the Sheikh's name had been mentioned as part of the negotiations.(29)

One consequence of this arrangement, however, was that Abedi's success was overly dependent on his relationship with Abu Dhabi and its assets. He was managing the Sheikh's resources, he had use of them, and if he did not meet the Sheikh's needs, he could lose everything. Recognizing this dependence, Abedi made it a practice to insure that BCCI would provide whatever the Sheikh required, whenever the Sheikh or his family wanted it. As BCCI records demonstrate, payments, often characterized as loans, were made to members of the Abu Dhabi royal family on an as-needed basis by BCCI, without any regard as to whether these same resources were also being committed elsewhere. With Abedi relying on the Sheikh's resources to finance his rapid expansion, BCCI's finances quickly became so intermingled with the finances of Abu Dhabi that it was difficult even for BCCI insiders to determine where one left off and the other began.

BCCI's Protocol Department

By all accounts, Abedi flattered Zayed, and to ensure that no detail of his needs would be neglected, established a large protocol department, first at the United Bank and later at BCCI.

The most detailed account of the protocol department's activities provided publicly to date has been that of Nazir Chinoy, who as a branch manager of BCCI in Pakistan had substantial direct contact with the head of BCCI's protocol department, Sani Ahmad, and had first-hand knowledge of the protocol department's finances.

According to Chinoy, upon his arrival at BCCI-Pakistan in 1978, the protocol department employed about 120 people, whose job was "to establish and further the rapport with the sheiks of and ruling families of Dubai and Abu Dhabi." The protocol department was financed by BCCI, and had nothing to do directly with the bank. Instead, it was handled as an adjunct to special activities of Abedi, managed by Ahmad under Abedi's direction, and housed in Karachi in a separate building opposite Mr. Abedi's house.(30) From 1978 through 1982, the period Chinoy was at BCCI-Pakistan, the protocol department principally functioned as the administrative wing of the Abu Dhabi royal family for their foreign travel.

The rulers and their families would come very frequently. Ninety-percent of the time, the guests were from Abu Dhabi and Dubai; occasionally, Oman, and the other emirates. They would come for shooting at the Game Reserves. There was one particular cashier called Ibrahim. Sani would call me and tell me to make Ibrahim available. He would take 5 million in huge notes of rupees. At that time about $400,000. In Pakistan that is a hell of a lot of cash money. It would be carried out in steel trunks. We would be given money from the rulers account in Abu Dhabi in US Dollars.(31)

As of 1978, the expenses of the protocol department were about 300,000 rupees a month -- about $600,000 a year, rising to $2.5 million a year by the early 1980's, and as much as $10 million a year at the height of BCCI's success. The protocol department was not responsible for financing its own operations. Its expenses were instead paid by the Pakistani branch of BCCI each month after it received a statement from BCCI protocol chief Sani Ahmad describing his expenditures. These expenditures were always paid by the BCCI branch, even though often, the bankers were unable to determine the nature of the expenses or the reasons for the expenditures.

According to Chinoy:

Sani would tell me that I need one million rupees today and we would give him the moneys and the branch would pay the money. What it was paid for we would have no idea I did not want to get involved in this either and he would report to Mr. Abedi and I would tell Abedi what money had been given to Sani Ahmed. Abedi would never initial or sign [any of the documents], but he looked at and approved everything.(32)

Each hunting trip's expenses would amount to several million dollars, requiring a special exemption from the State Bank of Pakistan to permit the funds to be debited from BCCI's protocol department. This exemption was granted by the State Bank after arguments by Abedi that Pakistan needed to maintain BCCI's relationship with Abu Dhabi as a means of improving its overall balance of payments.(33)

By the late 1970s, BCCI's protocol department handled all affairs for the 18-20 palaces BCCI maintained for the ruler of Abu Dhabi in Pakistan, all under the direct control of Sani Ahmed. In return, money was sent each month from BCCI Abu Dhabi to Pakistan to pay for the gardeners, telephones, and maintenance of houses.

The protocol department also established a special relationship with Pakistani Customs airport authorities so that members of Arab royal families would receive VIP treatment that avoided the usual delays associated with entering Pakistan.

Along with the construction of palaces and vacation homes, BCCI handled private matters for the visiting Al-Nahayans, including the procurement of Pakistani prostitutes for the male members of the family. These were typically teenage girls, known as "singing and dancing girls," and selected, outfitted and trained by a woman named Begim Hashari Rahim, who later was promoted to the official position of Interior Decorator to the Royal Family of Abu Dhabi.(34)

As head of the protocol department before becoming head of BCCI's Washington, D.C. representative office, Sani Ahmad had a unique role at BCCI and special relationship with Abedi. He was treated with deference by other BCCI officers, who did not consider him to be a banker, but a fixer. As Chinoy recalled:

Sani was the trusted man for things no one else was supposed to know. We were the technocrats. Sani Ahmed would handle the things we wouldn't, like get girls. If anyone paid anyone any money [as a bribe], Sani would have been the one to do it.(35)

Bank of America

Ironically, although Abedi now had a large source of assets for BCCI, the Sheikh of Abu Dhabi could not provide him with credibility in the west. Abedi's first choice for a prestigious western partner, American Express, insisted on having a major say in BCCI's management, which Abedi would not tolerate.(36) Abedi's search for a more compliant partner brought him to Bank of America, which in 1972 was one of the most aggressive of U.S. international banks, with a presence in Iran already and in Pakistan. For BCCI, a relationship with Bank of America would provide recognition in the west and access to the Bank of America's global network for correspondent banking. For the Bank of America, BCCI provided a potentially lucrative entry to Arab oil wealth, at a tiny capitalization cost of just $2.5 million.(37) Following what Abedi referred to as "an historic lunch" in San Francisco, Bank of America agreed to provide the money and to be a passive partner in BCCI, permitting Abedi to run the operation as he pleased.(38) As Abedi told a British magazine, Euromoney, in the summer of 1978:

Bank of America agreed to become a shareholder, but we made it a condition that we would establish the management style.(39)

With only $3 million in total capital, Abedi kept BCCI's initial overhead down through promising the central Pakistani recruits to his team that they were members of a family, employed for life, whose future prosperity was being built collectively. He made the founder group shareholders of BCCI and put them to work in a tiny office in Abu Dhabi sharing what Massihur Rahman later described as "mess-type flats."(40) Working conditions in Abu Dhabi, and at BCCI in the early days, were extremely primitive, but more easily accepted by the Pakistani bankers than they would be by western ones.(41)

Simultaneously, Abedi relied upon senior Bank of America officials to sit on BCCI's board of directors, to recruit additional bankers for BCCI, and to approve all major loans by the bank. Among the key figures retained by Abedi as directors from Bank of America were Yves Lamarche, who had previously managed Bank of America operations in the Middle East, J.D. Van Oenen, a European Bank of America official, and P.C. Twitchen, formerly, Vice President of Bank of America. Another prominent Bank of America figure, Roy Carlson, who was based in Iran, later became President of National Bank of Georgia at a time when it became secretly owned by BCCI.

Ownership of BCCI

Although Abu Dhabi had a key interest in BCCI from its creation, in accord with Abu Dhabi's failure to provide the initial funds for capitalization, BCCI's early stock recordations did not show Abu Dhabi as the actual owner of the bank. A snapshot of BCCI shares from Bank of America files as of September 30, 1977 described BCCI's majority owner as ICIC, at 50.1 percent; its most important minority owner as Bank of America, at 30 percent; and its largest Arab owner as Majid Al-Futaim of Dubai in the United Arab Emirates at just 4 percent, with the members of the family of Abu Dhabi owning just 3.4 percent all told.(42)

This list indicated that the Pakistanis actually owned BCCI at a time when to the outside world, the bank was ostensibly owned by oil-rich Middle Eastern Arabs, including the ruling families of Bahrain, Sharjah, Dubai, Saudi Arabia, and Iran, as well as that of Abu Dhabi.(43)

That picture was complicated still further, however, by the fact that ICIC was not the owner of record of any of its shares of BCCI on the share register of BCCI in Luxembourg. Instead, several of the shareholders on the register were acting as nominees for BCCI, according to the Bank of America records. Moreover, some of the subsidiaries owned by BCCI also relied on nominees, and by the late 1970's, ICIC was the record controller of as much of 70 percent of BCCI all told.(44) Yet even at the time, BCCI officers were told by Abedi that ICIC really owned only about 30 percent of BCCI.(45)

A further difficulty in interpreting the issue of ownership was that ICIC continuously was borrowing very substantial amounts from BCCI with inadequate documentation, with the result that for all practical purposes, BCCI was repeatedly buying itself, and using various nominees along the way to hide this fact.

Looking to BCCI's capitalization was of little help in determining its ownership, either. Apart from the tiny, real capital of $2.5 million placed in BCCI by the Bank of America, and an additional $500,000 acknowledged by Abu Dhabi, there remains no evidence of other substantial cash infusions in the bank in the early years, suggesting that from the beginning, Abedi and Sheikh Zayed had agreed to provide BCCI only the assets of Sheikh Zayed as a depositor, rather than his capital as an investor. This pattern, in which Abedi asked for little in the way of cash on the line from potential "investors," would be repeated in other cases, except that often, a shareholder would contribute merely the prestige of his name and aura of wealth, rather than deposits or any actual financial contribution.

The Early Use of Front-Men

As a privately held company, BCCI was obliged to no one to provide detailed information about shareholders. BCCI made it a practice never to reveal exactly who owned how much of the bank. However, in direct contradiction to BCCI's obsessive secrecy about the actual facts of its ownership, Abedi heavily publicized the fact that most of the most important royal families of the oil-rich states of the Middle East were "shareholders" from the first in BCCI, and therefore were ostensibly backing the bank with their fabulous petrowealth.

What the outside world did not know is that in every case -- with the possible exception of Zayed's and Abu Dhabi's acknowledged holdings in BCCI -- these backers had been provided hold harmless agreements by BCCI, providing them guarantees against loss, and that the interest in BCCI held by these royal families had been essentially provided to them by Abedi as a "gift," accompanied by generous terms on lending and other BCCI services.

Just as BCCI's board of directors would later contemptuously be referred to as "RAF," for "rent-a-face," by BCCI insiders, Abedi had essentially rented the names of many of the Arab world's most prominent oil-rich monarchs. Instead of the public image of their backing BCCI with their money, BCCI was paying them for the illusion that they were behind the bank.

BCCI's glossy promotional materials were characteristically

misleading on the issue of its initial capitalization. In describing its history in a mid-1980's Group Profile made available to the public, BCCI wrote:

The BCC Group was originally conceived as an international banking organization backed by Middle Eastern investors to provide commercial banking services world-wide . . . Its initial paid up capital of $2.5 million wa subscribed by Bank of America (25% later increased to 30%) and the balance by investors from the Middle East (emphasis added).(46)

The deliberate vagueness of the phrase "the balance" underscores the lack of any substantial additional initial capital in BCCI beyond that provided by Bank of America. The $500,000 investment acknowledged by Abu Dhabi to the Subcommittee for the first time on May 14, 1992 would have been considered surprisingly tiny had it been revealed in 1972.

Some hint of how Abedi approached the capitalization problem is found in Abedi's motivational rhetoric, in which he constantly talked of BCCI as something that could be created out of pure willpower. "Western Banks concentrate on the visible, whereas we stress the invisible," Abedi told a British journalist in 1978.(47) Such a statement could be taken as many did take it, as mystical gobbledygook. But it well described Abedi's technique for building a banking empire -- building something out of nothing by relying on something invisible but powerful: images of wealth. These images, from BCCI's fancy buildings to the photographs of Abedi posing with its fabulously wealthy Middle Eastern "shareholders," provided as much power for Abedi as the real money would have done, so long as everyone believed it was there. It was far easier to ask a Middle Eastern potentate for his name than for his money, and as far as Abedi was concerned, the results were the same.

Although ICIC "owned" 70 percent of BCCI in 1980 upon Bank of America's withdrawal, ICIC mysteriously became a minority owner of BCCI by the end of the decade. As of December 31, 1989, ICIC held less than 11 percent of BCCI, with Abu Dhabi becoming the principal shareholder, holding over 35 percent, including shares owned by various members of the Al-Nahyan family and the Abu Dhabi investment authority.(48)

Yet the actual picture as to BCCI's ownership even then remains clouded. Several of the larger shareholders registered at that date, including Wabel Pharaon with 11.55 percent, Mohammed Hammoud, with 3.44 percent, Abdul Raouf Khalil, the Saudi government's intelligence liaison to the United States and other foreign governments, with 3.08 percent, and Kamal Adham, Khalil's predecessor as Saudi intelligence chief, with 2.94 percent, were acting as BCCI's nominees for ownership of its own shares, through guarantees that prevented them from being at risk. Moreover, Price Waterhouse could at the time find no evidence of the bank's actual contact with Khalil, its supposed "shareholder," for a number of years, although there were numerous transactions in his name undertaken in that period.(49)

A year later, following the disclosure of massive losses at BCCI as a result of Price Waterhouse reports to the Board of Directors, the Abu Dhabi royal family had took full legal title of BCCI, increasing its share to over 78 percent of all BCCI shares, with the new shares obtained entirely from those formerly held by the nominees.(50)

Given the many mysteries about BCCI's shareholding from its creation and the fact that critical records remain missing, it remains difficult to determine retrospectively whether or not Abu Dhabi had the ability at all times to do what it ultimately did in 1990 -- obtain direct and complete formal control of the majority of BCCI shares.

BCCI's Rapid Expansion

Throughout the 1970's, BCCI expanded rapidly, with Abedi adding new corporate members to the BCCI family by the month. Initially, BCCI was incorporated in one location only, Luxembourg. Two years later, a holding company was created, BCCI Holdings, with the bank underneath it BCC S.A., split into two parts, BCCI S.A., with head offices in Luxembourg, and BCCI Overseas, with head offices in Grand Cayman. Luxembourg was used mostly for BCCI's European and Middle East locations, and the Grand Caymans mostly for Third World Countries.(51)

This structure was intentionally further complicated by the establishment of a series of additional entities, used as "parallel banks" by BCCI as needed for financial manipulations. These parallel entities included the Kuwait International Finance Company (KIFCO), in which BCCI ostensibly had only a minority interest; a Swiss bank, Bank de Commerce et Placements SA (BCP), in which BCCI also ostensibly had only a minority interest; the National Bank of Oman, again with BCCI formally holding only a minority interest; a 100% owned finance subsidiary, Credit & Finance Corporation Ltd,; and the series of entities based in the Grand Caymans and collectively known as "ICIC," which became the principal "bank within a bank" at BCCI. In the cases in which BCCI's official interest was minority, its apparent lack of control was the consequence of local regulations prohibiting a foreign bank from owning a majority share. Each time, BCCI found ways to evade the regulations through the use of front-men or nominees, and wound up being able to direct the operations of these institutions as if they were wholly-owned subsidiaries.

BCCI's aggressive drive for expansion was necessitated by a financial strategy that pursued asset growth, rather than profitability, as the key to success. This approach was a necessity because of the underlying lack of working capital and BCCI's high-start up costs. The idea was that through rapid growth, BCCI would eventually fill the holes in its capital through commissions on its frenzy of activity. In the meantime, growth could disguise temporary operating losses through creative bookkeeping. In fact, the growth did not end the losses, but exacerbated the underlying capital problem, because BCCI needed to increase its retained capital in order to show an adequate cushion for its billions in new assets. The solution to this problem, like all others, for Abedi, was relentless growth.

To implement this approach, BCCI officers were directed to focus their attention on individuals and entities who controlled large sums of cash: people like central bank officials, heads of state, "high net worth individuals," and black marketeers, and offer them terms significantly better than the terms offered by competing banks, or services, such as kick-backs and freedom from documentation, that the competition was unwilling to provide. As a marketing document from BCCI in the United States, prepared during the mid-1980's, advises BCCI officers, they should vigilantly look for "client relationships which are considered special for . . . reasons such as confidentiality, high sensitivity, requirement of special attention and service, large size deposit, business or profit, complexity of business, etc.," which would receive specialized attention from BCCI higher-ups.(52)

BCCI's trans-national character continued to be a critical ingredient of its marketing. As BCCI historian K.K. Elley noted in 1982, BCCI because "serves no country of individual. . . No customer need fear that their assets will be frozen because their country is having a difference with the country of BCCI's origin."(53)

Fueled in part by infusions of petrodollar deposits from Gulf State rulers during the hey-day of the OPEC years, BCCI's early growth was exponential, especially in the United Arab Emirates, the Sultanate of Oman, Yemen, and Bahrain, as the following profile of the first five-years of BCCI's performance demonstrates.

Year # Branches # Countries Assets Growth

1973 19 5 $200 m --

1974 27 7 610 m 204%

1975 64 13 1.2 b 98%

1976 108 21 1.6 b 37%

1977 146 43 2.2 b 33%

After consolidating its position in the Middle East, BCCI identified Africa as the next area for growth. A number of African countries possessed many of the traits that BCCI had learned to exploit in the Middle East -- autocratic rulers who controlled much of the wealth of their nations, primitive working conditions for bankers which discouraged westerners, and non-western attitudes towards the payment of gratuities as a cost of doing business.

African expansion began in Egypt, Sudan, Mauritius and Seychelles, and extended by 1979 into Kenya, Swaziland, Liberia, Nigeria and Sierra Leone. Typically, BCCI operated in these countries in a corrupt environment marked by cash bribes, kickbacks to senior central bank officials of the nation involved, and special arrangements with the heads of state.(54) As a consequence of its willingness to do things that most westerns banks were not, BCCI soon became the largest foreign bank operating in Africa.

The third phase of BCCI's growth targeted Asia, and included the acquisition of the Hong Kong Metropolitan bank from the Swiss Bank Corporation. This branch of BCCI later became the vehicle for handling very large transactions by the Chinese government, whose business Abedi secured through a mixture of public charitable activities and private kick-backs.(55) Simultaneously, BCCI decided to expand into the Americas, opening offices in Canada, branches in the United States, and in Venezuela, Columbia, Panama, and Jamaica. By the mid-1980s, BCCI's empire extended to banks or branches in 73 countries, and assets totalling about $22 billion.

BCCI's amazing rate of growth continued in good years and bad, without regard to macro-economic conditions. For example, in Hong Kong during the 1983-1984 period, BCCI prospered while other foreign banks were forced to retrench because of economic downturn. This phenomenon was repeated in the United Arab Emirates during a slump that began around 1983 because of the fall in oil prices; and in Nigeria in the late 1980's -- a time when other foreign banks withdrew from operations there. As BCCI officer Nazir Chinoy later explained, in the case of Nigeria, at least, this result was because BCCI was willing to bribe officials and assist them in handling their payments in a manner that the competition, hemmed in by auditors and lawyers, could not meet.(56)

Abedi's Mysticism As Component of BCCI Strategy

While engaging in corporate legerdemain as a means for hiding what he was doing, Abedi developed a peculiar mystic philosophy for BCCI, which was shared with BCCI's recruits in annual means as part of motivating them to give their "all" to BCCI's expansion. Many of BCCI's more senior officials viewed Abedi's philosophical musings as boring and unintelligible material which had to be endured.(57) At annual meetings of BCCI officials, Abedi would often speak about his philosophy for hours at a time. However, Abedi's stature at BCCI was such that no one ever challenged him, and instead, younger officers seeking to rise in the ranks would parrot Abedi's philosophy and describe how it had changed their lives.(58)

Abedi's philosophy was an often obscure mix of Islamic mysticism focusing on the links between the individual, the family, and the universe; and self-help sales motivational pitches. For example, in describing BCCI's decentralized and obscurantist structure in philosophical terms, Abedi wrote:

Our restructuring and reorganization has its own meaning that emerges out of our own needs, our own purpose and our quality and quantity of human resource that we from time to time become. We accept the truth that each one of us is different and like every human being each one of us is inadequate, but unlike others we genuinely accept each other and we have a tremendous urge and desire to constantly move towards adequacy. . . [T]he quality of relationships . . . is the essence of an organization. It is the shining truth. It is the truth that every individual member of the family must unveil in his feelings -- in his psyche. It must spark like a brilliant star in his heart.(59)

Abedi described the key functions of BCCI's support centers to BCCI officers under their jurisdiction as "keep their energy flow," and "becoming an agent of change," including "extricating the Managers and the staff from the malady of containment and psychological lethargy and inertia wherever it has set in."(60)

In an earlier management meeting in New York in 1983, on memo paper featuring a sepia-toned highlight of the hand of God touching the hand of Adam in Michelangelo's Creation from the Sistine Chapel, Abedi explained that BCCI's spiritual aspect was much more important to its success than its material aspects.

We must learn to "feel" that BCCI is this Power and not merely a group of branches, a set of facts and figures. Since, BCC is a power, a spirit, a Desire - it is all encompassing and enfolding - it relates itself to cosmic power and wisdom, which is the will of God. . . . OUR MAJOR FUNCTION: To have a desire, Improve its volume and quality, Make others have such a Desire, Merge this in the pool of corporate Desire, Make the purpose of this Desire our major purpose, Make it BCC identity.(61)

Abedi then asked the key pertinent question: "IS BCC A DESIRE, OR IS BCC A BANK?"(62)

While on one level these philosophic discussions appear far removed from the practical elements of banking, in fact there was an important link between the philosophy and BCCI's strategy of asset growth. The philosophy, obscure as it was, described the importance of relentless, ceaseless activity as a means of growth, and of the need to remove "obstacles" to the growth, regardless of the source. Junior officers were encouraged to keep things moving and not to worry much about rules. Senior managers were advised to encourage junior officers to experiment, and to help them circumvent even the rather relaxed procedures that applied to doing business at BCCI. As Abedi told forty-five of his managers in 1985:

If our colleagues who represent young energy and young hope do not live up to our standards in the task they perform, how do we deal with them? Our response could either encourage them to flow and in time enable them to come closer to the desired standards or may stifle and discourage them early on in their careers, thereby diminishing any chance of them improving and performance towards excellence. Do not nip the flower in the bud. . . give them room to breathe. (63)

Under Abedi's guidance, BCCI officers learned that they would be rewarded for any technique that allowed them to acquire customers and assets, and would not be punished by the bank even for engaging in unorthodox or illegal banking practices. In the words of BCCI official Akbar Bilgrami:

Abedi had a saying to younger employees, that if a banker cannot make money for himself, he cannot make money for the bank. It was an invitation to enrich yourself, that I never felt comfortable with.(64)

When a BCCI banker was caught by local regulations, he would not be punished, but simply transferred from the location or from BCCI to another entity controlled by the bank, often with a bonus payment.(65) By contrast, if an officer refused to facilitate an obviously illegal transaction, BCCI's senior officials would simply go around him, and his career would suffer accordingly.(66)

Abedi made use of mysticism as a motivational technique even on the most mundane of banking matters. When BCCI developed Travellers Cheques in 1986 as a new product, Abedi convened a conference of BCCI employees to announce that these cheques were "a profitful instrument of relationship." Abedi announced that "travellers cheques add a new dimension to my personality. They are a means of making a profit and at the same time a means of fulfilling my aspirations. There is great happiness in selling the largest possible volume of travellers cheques."(67)


As a technique for insuring security and control, Abedi adopted a strategy taken from intelligence operations. He compartmentalized information about BCCI. Compartmentalization insured that even within the bank, officers in one operation would have little to no information about the nature of the activities of an officer in another area. Not only was information about BCCI's activities closely held, but even senior officials were discouraged by Abedi from asking questions. As Massihur Rahman testified:

I was very uncomfortable because in [previous bank jobs], I could go across the board and go to any division and see any of the operation. But here I could see these Chinese walls were getting very, very watertight and we were always taught about humility and ego and anything that was slightly out of context was considered just an ego trip.(68)

Instead of having vice presidencies, the bank had 50 senior executives and 198 managers, with only two people considered to be higher up than all others: Abedi and his chief assistant, Swaleh Naqvi. As Rahman described it:

There was Mr. Abedi at the very top, there was Mr. Naqvi who was like a chief operating officer, who converted . . . Mr. Abedi's ideas and things into practical shapes. And then there was a big gap between these two and the other executives who were all called general managers. All of us were called general managers. . . You couldn't be senior to anybody else, you're all the same pay, the same benefits.(69)

Consequence of BCCI Structure and Philosophy on Audits

Abedi's unique approach to banking had the effect of removing most checks and balances on BCCI. Other senior officers did not have a complete picture of BCCI's operations. The board of directors learned little beyond what Abedi and Naqvi told them. And outsiders, including BCCI's auditors, could be easily manipulated.

This manipulation was facilitated by Abedi's decision to divide its annual audits between two of the then "Big Eight" accounting firms -- Ernst & Whinney and Price Waterhouse, with Ernst & Whinney taking responsibility over only the holding company and BCCI Luxembourg, and Price Waterhouse taking responsibility over only BCCI Overseas in the Grand Cayman, a state of affairs which ended with Ernst & Whinney's withdrawal in 1986, and Price Waterhouse gaining responsibility for a consolidated audit of all BCCI activities in 1987. Even then, however, Price Waterhouse was not in the position to review BCCI's overall picture due to the exclusion from its audit work of a number of BCCI affiliates, some secretly owned, including ICIC, KIFCO, and BCP. Moreover, as late as 1990, key documents involving guarantees against loss by BCCI to principal shareholders, held in the Grand Caymans and in Abu Dhabi, do not appear to have been made available to auditors.

Obstacles In the United Kingdom

Some of the same factors that made BCCI's growth possible also inhibited it from further expansion. Its rapid expansion had prompted intense speculation in the United Kingdom, which was interfering with BCCI's ability to obtain a full banking license from the Bank of England, as Abedi implicitly acknowledged in a 1978 interview.

The Bank of England probably hasn't given permission because of the atmosphere surrounding the BCCI and the propaganda that has been spread about us. . . It is not only the Bank of England that is against us, but the Club.(70)

The hostility to BCCI in the United Kingdom, which was the headquarters for BCCI's operations, was all too reminiscent to Abedi of the conditions that had lead to the demise of the United Bank in Pakistan. Abedi needed to move outside the reach of the United Kingdom. An obvious solution was to find a new home for BCCI in the United States.

Unfortunately, the relationship with Bank of America had become an obstacle to such a move for BCCI. Rather than see BCCI expand into its home base, Bank of America was increasingly uncomfortable with its partner. Despite its initial agreement to let BCCI be BCCI, Abedi's original U.S. partner, Bank of America, had found itself bewildered by many BCCI practices from the beginning. An internal "family history" of BCCI, written as a case study by one of BCCI's key officers in the United States, Khusro Karamat Elley on October 27, 1982, provides a sanitized version, from BCCI's point of view, of what went wrong between BCCI and Bank of America:

The Bank of America found on their hands an affiliate which had already become one of their largest and in which they had no management control. They were also being required to contribute every year to the increase of capital in order to maintain their portion of the shareholding. Perhaps most importantly they had also arrived at the conclusion that the Middle East had become far too important not to have a direct presence.(71)

In fact, by 1976, Bank of America had already stopped contributing to new infusions of capital for BCCI, reducing its share from 30 percent to 24 percent. By the spring of 1976, extensive discussions within Bank of America about BCCI's unusual practices had resulted in a series of memos being created and circulated among senior officials at the bank. Two of these memoranda, introduced as exhibits in the 1978 litigation over the FGB takeover, make explicit the profound disquiet at Bank of America over BCCI's handling of its Arab clients and its management style.

The first memo, written May 10, 1976 from Bank of America Executive Vice President Alvin C. Rice to Scudden Hersman, Jr., a senior vice president, noted the concerns that some in Bank of America had expressed about BCCI's unusual attention to meeting the personal needs of leading political figures, especially in the Middle East, but stated that no bookkeeping entries demonstrating abuses had been found. Rice warned, however, that the overall relationship between Bank of America and BCCI was a difficult one:

We are just not operating on the basis of mutual trust and cooperation that make the whole effort and exercise worthwhile. Substantial profits usually have a way of curing problems but this case is an exception. If we can't make some major breakthroughs in the near future, we will have to consider alternatives such as divestiture.(72)

In the second memo, written following a meeting between Rice and Abedi, Rice described how he and Abedi had discussed the problem of BCCI officials withholding information from Bank of America officials. Abedi attributed this to cultural differences:

According to Abedi, frank criticism "American style" is something Pakistanis are not accustomed to. Criticism is taken as a personal affront and for this reason, sometimes BCCI officers have not wanted to disclose fully operating procedures that they knew would not meet BofA's quality standards.(73)

Later, Rice would tell journalists that the fundamental problem he encountered with BCCI was that BCCI thought nothing of bribery, and believed that even obstacles with regulators could be fixed through "baksheesh."(74)

These concerns simmered for another year at Bank of America. But by the fall of 1977, disapproving questions from an auditor from the U.S. Comptroller of the Currency in London responsible for reviewing Bank of America's overseas holdings, intensified Bank of America's concerns. These concerns had already been acknowledged privately in other Bank of America internal memoranda about BCCI: its overly-cozy relationship with its shareholders, its practice of providing shareholders with unusual banking services, Bank of America's inability to penetrate BCCI's banking practices, and BCCI's hostility to Bank of America inquiries about those practices.

By February, 1978 the OCC auditor had concluded that Bank of America was substantially at risk from BCCI.(75) But by then, divestiture of BCCI by Bank of America was in the interests of both banks. BCCI needed to sever its relationship with Bank of America to provide itself with additional options in connection with its ongoing attempt to buy Financial General Bankshares. Bank of America needed to reduce what might soon become an actual liability on its books. Accordingly, Bank of America had begun to implement a rapid divestment agreement with BCCI through the purchase of the Bank of America shares by BCCI's bank-within-a-bank, ICIC, described by the Bank of America in a January 30, 1978 press release merely as "one of the other major BCCI shareholders." In announcing the sale of its stake in BCCI, Bank of America emphasized that "the close co-operation that has developed between the two banks will be maintained."(76) Over the following decade, Bank of America would in fact maintain correspondent banking relationships with BCCI, continually seek additional business from BCCI, collude in at least one of BCCI's purchases of foreign banks through nominees in South America, and earn a great deal of money from the relationship until BCCI's closure.(77)

1. "Growth of International Banking: Case Study of Bank of Credit and Commerce Intl, Khruso Karamat Elley, October 27, 1982, Senate Document 385.

2. See e.g. "The Mysteries Behind Abedi's Bank," Euromoney July 1978; S. Hrg. 102-350 Pt. 3, pp. 305-310; "The man who adds a touch of mysticism to banking," Financial Times, May 17, 1978; S. Hrg. 102-350 Pt. 3, pp. 303-304.

3. Staff interview, Rahman, August 7, 1991.

4. Staff interview, Sakhia, October 7, 1991.

5. Testimony of Rahman, S. Hrg. 102-350 Pt. 1, p. 540.

6. Former BCCI Pakistan branch chief Nazir Chinoy provided detailed information about the Zia-Abedi relationship in a series of interviews with Senate staff from March 9-16, 1992; see also check to General Zia from BCCI-UAE, May 25, 1985, S. Hrg. 102-350, Pt. 2 p. 511.

7. White Paper on the General Elections, Government of Pakistan, July 1978, S. Hrg. 102-350, Pt. 3, pp. 314-317.

8. See Price Waterhouse reports to BCCI on "Problem Loans," February 14, 1990, in S. Hrg. 103-350, Pt. 1, pp. 359-360 and BCCI Task Force Report on Saigols, id, pp. 437-438.

9. Massihur Rahman, S. Hrg. 102-350, Part One, p. 489.

10. Id.

11. Id. at 490-491.

12. BCCI Task Force Report on Selected International Loans, S. Hrg. 102-350, Pt. 1 p. 417, testimony of Rahman, Id. pp. 532-533.

13. Id at 455-456.

14. See testimony of Rahman, S. Hrg. 102-350, Pt. 1, pp. 489-491; Financial Times, May 17, 1978, "The man who adds mysticism to banking," S. Hrg. 102-350, Pt. 3, pp. 303-304; "The mysteries behind Abedi's bank, Euromoney, July 1978.

15. Letter from Baldwin Tuttle to Lloyd W. Nostian, Jr., Federal Reserve Richmond, November 5, 1980.

16. "BCCI Founder: These Things Happen," Najam Sethi, Wall Street Journal, July 29, 1991.

17. See e.g. Bankrupt, The BCCI Fraud, Kochan & Whittington, p. 23.

18. Staff interviews with Massihur Rahman, August 7, 1991; Abdur Sakhia, October 9, 1991; Nazir Chinoy, March 9-16, 1991.

19. Id.

20. Akbar Bilgrami, Staff interview, July 13, 1992.

21. Staff interview, Bilgrami, July 13, 1992.

22. Id.

23. Staff interview, Abdur Sakhia, October 7, 1991.

24. Staff interview, Lance, October, 1991; testimony of Lance, S. Hrg. 102-350 pp 20-21.

25. Bilgrami, staff interviews, July 13-14, 1992.

26. Transcribed verbatim statement of BCCI insider, April 8, 1991.

27. Staff interview, Abol Helmy, January 13, 1991.

28. Id.

29. Staff interview, Akbar Bilgrami, July 13, 1992.

30. Staff interviews, Chinoy, March 9-16, 1992.

31. Id.

32. Staff interviews, Chinoy, March 9-16, 1992.

33. Id.

34. Testimony, Nazir Chinoy, Subcommittee on Terrorism, Narcotics and International Operations, March 18, 1992, p. 26.

35. Id.

36. Euromoney July 1978, S. Hrg. 102-350 Pt. 3, pp. 305-310.

37. Growth of International Banking, Case Study of Bank of Credit and Commerce Intl, Khruso Karamat Elley, October 27, 1982; BCCI internal document, Senate investigation.

38. Id.

39. The Mysteries Behind Abedi's Bank, Euromoney, July 1978; S. Hrg. 103-350, Pt. 3, pp. 305-310.

40. Testimony of Rahman, S. Hrg. 102-350, Pt. 1, p. 491.

41. Growth of International Banking, Case Study of Bank of Credit and Commerce Intl, Khruso Karamat Elley, October 27, 1982; BCCI internal document, Senate investigation.

42. Exhibit I, OCC Report of Joseph Vaez to Robert Bench, February 15, 1978.

43. See e.g. Euromoney July 1978 chart, S. Hrg. 102-350, Pt. 3, p. 306.

44. Exhibit II, OCC Report of Joseph Vaez to Robert Bench, February 15, 1978.

45. Staff interview, Sakhia, October 7, 1991.

46. BCC Group Profile, undated, 1985.

47. Financial Times, May 17, 1978, S. Hrg. 102-350, Pt. 3, p. 303.

48. BCC Holdings (Luxembourg) S.A., List of Shareholders as On 15.10.1990, Senate Document 300.

49. BCCI documents from Abu Dhabi, Grand Caymans, Panama, showing Khalil transactions; Price Waterhouse, Report to Board of Directors of BCCI, February 18, 1989, S. Hrg. 102-350, Pt. 1, pp. ___.

50. BCCI Holdings (Luxembourg) S.A>, List of Shareholders as on 31.12.89, Senate Document 298.

51. Testimony of Rahman, S. Hrg. 102-350, Pt. 1 p. 491.

52. "Client Contact and Relationship Programme," BCCI internal document from Agha Hasan Abedi to U.S. employees, October 9, 1985, Senate document.

53. "Growth of International Banking: Case Study of Bank of Credit and Commerce Intl, Khruso Karamat Elley, October 27, 1982, Senate Document 385.

54. Staff interviews, Nazir Chinoy, March 9-16, 1992.

55. Confidential source, Senate investigation, March, 1991.

56. Staff interview, Chinoy, March 9-16, 1992.

57. Interview, Nazir Chinoy, March 9-16, 1992.

58. Staff interviews, various BCCI officers; various Senate BCCI documents.

59. "Context and Rationale," Statement of Agha Hasan Abedi to BCCI officials, undated, Senate BCCI Document 1269.

60. Id.

61. BCCI document, Summary of the Management Meeting, New York, 12.2.83 p. 7.

62. Id.

63. Note of Meeting with the President on 17.1.85 at 5pm, Senate BCCI document.

64. Bilgrami, staff interview, July 13, 1992.

65. Testimony of Rahman, S. Hrg. 102-350, Pt. 1, p. 513.

66. Staff interview, Chinoy, March 9-16, 1992; staff interview. Sakhia, October 7, 1991.

67. Abedi, BCCI International, internal publication of BCCI, May 1986, Number 35, p. 12.

68. Id. at 495.

69. Id. at 497.

70. Abedi, quoted in Euromoney, July 1978, in S. Hrg. 1

03-350 Pt. 3, p. 308.

71. Growth of International Banking, Case Study of Bank of Credit and Commerce Intl, Khruso Karamat Elley, October 27, 1982; BCCI internal document, Senate investigation.

72. Bank of America Memo, Rice to Mersman, May 10, 1976, Lamarche Dep Exhibit No 6, August 11, 1978, FGB litigation.

73. Bank of America Memorandum for the Files, May 26, 1976, Lamarche Deposition Exhibit 7, August 14, 1978, FGB Litigation.

74. London Telegraph Magazine, November 10, 1991, No Questions Asked, p. 12.

75. Office of Comptroller of the Currency Report of Joseph Vaez, February 15, 1978, memo to Robert R. Bench from J.E. Vaez, National Bank Examiner London regarding BCCI Holdings (Luxembourg).

76. Id.

77. Staff interviews, Sakhia, October 7, 1991; Chinoy, March 9-16, 1992.


























BCCI's unique criminal structure -- an elaborate corporate spider-web with BCCI's founder, Agha Hasan Abedi and his assistant, Swaleh Naqvi, in the middle -- was an essential component of its spectacular growth, and a guarantee of its eventual collapse. The structure was conceived by Abedi and managed by Naqvi for the specific purpose of evading regulation or control by governments. It functioned to frustrate the full understanding of BCCI's operations by anyone.

Unlike any ordinary bank, BCCI was from its earliest days made up of multiplying layers of entities, related to one another through an impenetrable series of holding companies, affiliates, subsidiaries, banks-within-banks, insider dealings and nominee relationships. By fracturing corporate structure, record keeping, regulatory review, and audits, the complex BCCI family of entities created by Abedi was able to evade ordinary legal restrictions on the movement of capital and goods as a matter of daily practice and routine. In creating BCCI as a vehicle fundamentally free of government control, Abedi developed in BCCI an ideal mechanism for facilitating illicit activity by others, including such activity by officials of many of the governments whose laws BCCI was breaking.

As one BCCI officer later recalled, Abedi had a saying that expressed his view about law:

The only laws that are permanent are the laws of nature. Everything else is flexible. We can always work in and around the laws. The laws change.(1)

BCCI would not change to accommodate human laws. On the occasions that such laws actually interfered with BCCI's business, BCCI would, as necessary, change the laws to accommodate BCCI -- or ignore them entirely.

Significantly, at the same time that BCCI created its elaborate corporate structure for the purpose of deceiving and defrauding those outside BCCI, within BCCI, BCCI's various entities were largely disregarded, and treated interchangably. As BCCI's liquidators concluded one year after the bank's closure in a report to the bank's creditors committee, "in a number of respects, the BCCI Group appears to have conducted its affairs as a single entity, witout clearly identifying which company or entity within the BCCI Group was responsible for any particular transaction."(2)

As a result, the records of BCCI's criminal activity constitute an accounting and legal nightmare, and a full record of what actually took place is unlikely to be reconstructed. BCCI's multiplicity of locations, layered corporate structure, front-companies, front-men, its willingness from the top down to falsify information, and its pervasive disregard for the national laws of each country it operated in, combined to create a culture of criminality within the bank so massive as to defy investigation.

BCCI records in the United States are fragmentary and incomplete. To the extent that they are organized at all, that organization is in chronological order document by document, rather than according to any subject matter, customer account, or transaction. Though fragmentary, these records are also voluminous, amounting to at least 9,000 boxes in New York and Miami alone, and several million pages. Foreign BCCI document repositories of BCCI, especially in the United Kingdom, the Grand Caymans, and Abu Dhabi, are even larger, with access for U.S. investigators limited by foreign bank confidentiality, privacy laws, and the willingness of the foreign jurisdictions to cooperate.

One year following the closure of BCCI, federal investigators in the U.S. were still in the process of microfilming BCCI documents from Miami, and liquidators for BCCI in the United Kingdon had indexed 1600 boxes containing approximately 2.4 million separate BCCI documents -- approximately 2.5 percent of the total of BCCI's documents in the United Kingdom.(3)

Adding to the inherent problem of investigating the largest case of organized crime in history, spanning over some 72 nations, has been the destruction of documents at BCCI and its affiliates by shredding and arson; document backdating and falsification; the removal of most key documents from London to Abu Dhabi in 1990; the refusal of authorities in the United Kingdom and in the Grand Caymans to share information with Congress and other U.S. investigators as a consequence of their interpretation of local bank confidentiality and privacy laws; the inability to question Abedi due to his stroke, the inability to question BCCI's other key officials due to their incarceration and segregation in Abu Dhabi by Abu Dhabi officialdom since July 5, 1991, and BCCI's haphazard method of record-keeping.

Regardless of what might be shown in the missing material, the remainder is more than adequate to document BCCI's criminality, including fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia, and the America; BCCI's bribery of officials in most of those locations; its support of terrorism, arms trafficking, and the sale of nuclear technologies; its management of prostitution; its commission and facilitation of income tax evasion, smuggling, and illegal immigration; its illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers.

Among BCCI's principal mechanisms for committing crimes were shell corporations, bank confidentiality and secrecy havens, layering of corporate structure, front-men and nominees, back-to-back financial documentation among BCCI controlled entities, kick-backs and bribes, intimidation of witnesses, and retention of well-placed insiders to discourage governmental action.

As Robert Mueller III, the Assistant Attorney General at the Justice Department now in charge of the BCCI investigation, testified in October, 1991:

BCCI was not an ordinary bank. It was set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs are extraordinarily complex. Its offers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection.(4)

In the words of former Senate investigator Jack Blum:

The problem that we are all having in dealing with this bank is that . . . it had 3,000 criminal customers and every one of those 3,000 criminal customers is a page 1 story. So if you pick up an one of [BCCI's] accounts you could find financing from nuclear weapons, gun running, narcotics dealing, and you will find all manner and means of crime around the world in the records of this bank.(5)

However daunting the task of explicating the full extent of BCCI's criminality, it is essential to recognize that at core, BCCI was not a bank which made an adequate return on investment through lending out depositors funds like other banks, but a "Ponzi scheme," which used new depositors funds to pay current expenses and to repay earlier depositors, creating a pyramid of mounting obligations that ultimately and inevitably would bring about BCCI's collapse.

As Blum testified:

"The people I talked to at the bank would say, this was a bank that was very strange, because it needed deposits all the time, and if you're running a Ponzi scheme you need more and more cash in to support the whole system of fraud that you've generated. What it meant was that BCCI people would go out and bribe central bank officials and high government officials to get them to deposit their country's foreign exchange at BCCI, and in exchange for whatever amount of money, suddenly the foreign exchange reserves of a country would be put there and put to use."(6)

From the beginning, BCCI President Abedi conceived of BCCI as a machine with two driving mechanisms -- asset growth and faith. The latter was essential to prevent a day of reckoning when depositors and creditors alike would cause a run on the bank. The former was necessary to sustain the latter through bad times. Together, they worked to sustain the illusion that BCCI was solvent, when in fact, it is unlikely BCCI was ever solvent.

On December 18, 1991, in an agreement with the Justice Department and New York District Attorney, BCCI's liquidators pled guilty to having engaged in a criminal conspiracy through financial fraud, and thereby constituting a Racketeering Influenced and Corrupt Organization (RICO), whose entire assets, legitimate and illegitimate, were subject to confiscation by the government. Specific crimes admitted to by BCCI's liquidators in the agreement included:

** Seeking deposits of drug proceeds and laundering drug money

** Seeking deposits from persons attempt to evade U.S. income taxes

** Using "straws" and nominees to acquire control of U.S. financial institutions

** Lying to regulators and falsifying regulatory documents

** Creating false bank records and engaging in sham transactions to deceive regulators.(7)

Thus, the criminality at BCCI was not, as has sometimes been suggested, a side-effect of the bank's enormous growth during the 1970's, an unintended consequence of overly rapid expansion, but inherent in the bank's philosophy of asset expansion from the beginning, and pervasive to its closure.

While U.S. law enforcement was not able to legally establish BCCI as organized crime until December, 1991, the scope of BCCI's criminality had been clear to both prosecutors and BCCI's defense team at least a year earlier. As BCCI's own private investigators, hired by the bank after its indictment in Tampa for money laundering in October, 1988, told BCCI officials in 1990:

It is [the government's] view that BCC is a full service bank in the worse sense of the phrase. [Prosecutors] believe that it is official bank policy to actively seek out and market high net-worth individuals, and to gain from them large and frequent deposits, preferably in cash. They see such marketing efforts as being done at best without regard for the source of the customer's cash, ant at worst with tacit acceptance or even actual knowledge that in many cases the customer's money is derived from illegal enterprises, most notably narcotics. . . In the eyes of some prosecutors and investigators, the Bank's "services" are not limited merely to accepting the proceeds of illegal activities. They believe that BCC[I] officers and employees, with express upper management approval, also actively assist and even advise their customers on the most effective methods of hiding their money and evading taxes. Money, for example, is seen to be hidden or "laundered" by the constant, carefully controlled transfer of funds from one account to another within BCC and its world-wide branches or between BCC and other banks related to BCC, thus making the money almost impossible for U.S. law enforcement to trace. (8)

As an officer of BCCI Canada wrote to law enforcement just three days after the closure of BCCI worldwide, even those inside BCCI were often appalled by its practices.

We have read with a sense of relief that finally somebody had the guts to investigate into the affairs in the Bank . . . BCCI s.a., BCCI Overseas and BCC Canada have been for years conducting false accounting practices, concealment of losses (more so to avoid displeasing the Arab Owners) and making irregular loans.(9)

The letter went on to describe the knowledge of principal officers of BCCI, including its chief executive officer in the Americas, knowledge of money laundering, drug trafficking, loans created in "bogus" names, and advances of funds to non-existent companies in London, Luxembourg, Cyprus, Malta, the Channel Islands, and other locations. The writer begged investigators prosecute "the big crooks in London and Abu Dhabi."(10)

BCCI Paris branch manager Nazir Chinoy would later admit to investigators that essentially all of BCCI's activity in France was the result of the customer or the bank or both violating somebody's laws.

All the money we got [at BCCI-France] in some way we were breaking the law. If you taking it with a kickback, you are breaking foreign exchange, all Africans who brought their money got commissions which meant kick-backs. Back to back LCs to misrepresent financial deals, taking out less money in a third world country and keeping a share, kickbacks, exchanges, laundering, in some way you are breaking the law in each case. The law breaking was pretty systematic.(11)

Scope, Types and Techniques of Fraud

BCCI's financial empire was built on the fiction that it was heavily capitalized by oil-rich Arab leaders, when the reality was that most of them -- and according to some credible information, all of them -- were acting as nominees, providing either their names to BCCI, or their names plus their funds in the form of deposits to BCCI to get a guaranteed no-risk return, rather than as actual investors at risk.

As a result, BCCI never had a substantial capital base, and was forced from the beginning to use deposits to meet operating expenses rather than to properly invest them in legitimate loans or other financing. Not having the actual capital base, BCCI simply pretended it was there, and enlisted the reputations of its shareholders to assist it in so pretending, in order to lure others to deposit their funds with BCCI. As BCCI officers have told the Subcommittee, BCCI in effect had to create retained capital out of operating profits through juggling its books because of the lack of real capitalization. Because of the lack of real profits as well, the supposed profits had to in turn be manufactured through juggling the books pertaining to deposits. These deposits, in turn, could only receive a good return on investment through taking the funds from new deposits, requiring BCCI to grow at a frenzied pace in order to avoid collapse.

As Manhattan prosecutor Robert Morgenthau described in his indictment against BCCI of July 29, 1991, to whose first six counts BCCI's liquidators plead guilty as part of the December, 1991 plea agreement,

[BCCI's] scheme was premised on the fact that banks rely on credit. The essence of the scheme was to convince depositors and other banking and financial institutions, by means of false pretenses, representations, and promises that the BCC Group was a safe financial repository and institution for funds, and thereby defendants acted to persuade depositors and banking and other financial institutions to provide the BCC Group banks with deposits and credit.(12)

The New York District Attorney found that among the major actions taken by BCCI to carry out its fraud were:

** Employing the ruling families of a number of Middle Eastern states as nominees for BCCI, who pretended to be at risk in BCCI but who were in fact guaranteed to be held harmless by BCCI for any actual losses.

** Using bank secrecy havens including Luxembourg and the Cayman Islands to avoid regulation on a consolidated basis by any single regulator of BCCI, and thereby to permit BCCI to transfer assets and liabilities from bank to bank as needed to conceal BCCI's true economic status.

** Paying bribes and kickbacks to agents of other banking and financial institutions, thereby avoiding the scrutiny of regulators. (13)

The Sandstorm Report

An insider's account of BCCI's fraud created by BCCI's own auditors, Price Waterhouse, and provided to the Bank of England dated June 22, 1991, the "Sandstorm Report," was the final evidence that lead to the shutdown of BCCI globally on July 5, 1991. That draft report, based on a review of banking records from several countries and interviews carried out through the spring of 1991, found evidence of "widespread fraud and manipulation," at BCCI, reflecting "the general scale and complexity of the deceptions which have undoubtedly taken place over many years."(14) This information was developed when Price Waterhouse investigated some $600 million of BCCI deposits not recorded in BCCI's books. Other major losses related to BCCI accounts in related entities, including ICIC in the Grand Caymans, sometimes know as BCCI's "bank-within-a-bank," the Bank de Commerce et Placements, a BCCI subsidiary in Switzerland, the Kuwaiti Investment Finance Company (KIFCO), a secret BCCI subsidiary ostensibly owned by a BCCI nominee.

The Sandstorm report has been provided to the Subcommittee solely in a heavily censured form by the Federal Reserve at the insistence of the Bank of England, which forbid the Federal Reserve from providing a clean copy of the report to the Congress on the ostensible ground that to do so would violate British bank secrecy and confidentiality laws. However, even with the hundreds of items and almost every identifiable name in the report censured, it is clear that the Sandstorm report outlines criminality on a vast scale.

Among the specific types of BCCI fraud described by Price Waterhouse in Sandstorm were account manipulation of non-performing loans, fictitious profits and concealed losses, fictitious loans set up in connection with repurchases of shares, misappropriation of deposits, fictitious transactions and charges, unrecorded deposit liabilities, nominee arrangements to create false capitalization, unorthodox and apparently illegal repurchasing arrangements for shareholders, the "parking" of loans to avoid recognition of losses, shoddy lending, bad investments, off-book transactions, false confirmations of transactions, misrepresentations with respect to beneficial ownership of shares, fictitious customer loans, falsified audit confirmations, and the drafting of fraudulent agreements.(15)

The Sandstorm report -- prepared by Price Waterhouse for the benefit of BCCI's final group of managers, brought in for the purpose of finding a way to help BCCI survive as a wholly-owned subsidiary of Abu Dhabi -- describes BCCI's fraud, rather kindly, as originating in BCCI's sense of vulnerability in case of any losses because of its lack of any lender of last resort and the hostile attitude of the international banking community. According to Price Waterhouse, to compensate for this weakness, BCCI's management, including Abedi and Naqvi, believed it was essential to declare profitability every year regardless of the true financial condition of BCCI. Accordingly, Abedi and Naqvi provided guaranteed rates of return to principal Middle Eastern shareholders of BCCI, and then falsified and manipulated accounts and records as necessary in order to pay those returns, while still showing profits. (16)

When BCCI actually lost money due to poor lending practices, rather than accept provisions for the losses, it simply disguised them, through what Price Waterhouse described as "a very complicated series of manipulations of loan and deposit accounts, treasury activities and purchases of its own shares." (17)

Price Waterhouse found significant account manipulation at BCCI beginning as early as 1976.(18) These account manipulations were, according to BCCI officials interviewed by the Subcommittee, carried out in order to make BCCI appear to be a far more profitable institution than it really was, and thus provide a sufficient capital base to justify its level of lending and provide "security" for its deposits.

As BCCI's losses grew, so did its manipulation of accounts and its frauds, as well as its use of affiliated and related entities such as ICIC in the Grand Caymans, the Banque de Commerce et Placements in Geneva, the National Bank of Oman, and the Kuwaiti Investment Finance Corporation (KIFCO).

The bank has a history of poor lending where it now appears that a significant amount of account manipulation has gone on. This has included the utilization of funds routed through Fork [ICIC], including funds managed by Fork Investments [ICIC Investments]; the use of fictitious lionize drawn down in the names of third parties; and the use of unrecorded deposits, in an attempt to avoid the need to make provisions. This routing of funds has been carried out on a very significant scale, involving a number of related companies, including the Fork Holdings Group [ICIC Holdings Group], LOANS, NBO, and KIFCO, and third party banks such that it is now difficult for anyone to ascertain the true nature of external exposures recorded in the names of certain major customers.

It now appears that over the period from 1977 to 1985, the Treasury operations of Sandstorm made significant losses. These losses were concealed and at the same time significant profits were manufactured. The precise amount of such loans/fictitious profits cannot now be established but may well have been of the order of $600-$700 million before funding costs, or approaching $1 billion if funding costs are added.

These losses were originally funded through unorthodox means at the behest of Abedi. . .(19)

The underlying situation at BCCI, already bad, worsened dramatically in 1985 as a result of $500 million in losses "incurred" by BCCI in commodity trading undertaken through Capcom, BCCI's commodity trading affiliate, managed for BCCI by S.M. Akbar. According to Massihur Rahman, who was BCCI's chief financial officer at the time, this was equivalent to BCCI's entire capital, and threatened to wipe out the bank.(20)

Price Waterhouse concluded:

In 1986 . . . it was discovered that significant losses had been incurred in option trading. When Akbar resigned, he left a record of his activities with [redacted by Bank of England] who brought under his own control the amounts which had been financed by unorthodox means. [Redacted by Bank of England] set up a small central team under [redacted by Bank of England] to review the record left by [redacted by Bank of England] to verify the representations made by Akbar and maintain contact with the customers. We understand that whilst [redacted by Bank of England] attempted to establish some control by [illegible] customers deposits, largely by using funds from Fork [ICIC], he could not bring himself to make full disclosure, which would almost certainly have brought the bank down.

Instead as a result of continued pressure for profits and loan servicing he continued to use unrecorded deposits, certain external funds (with Fork Holdings [ICIC Holdings] and companies controlled but not legally owned, by it) and funds were drawndown on bogus loan accounts in the name of prominent Middle East investors. These funds were applied to adjust other balances in order to avoid making provision for bad loans and to conceal the past Treasury losses, in an enormous and complex web of fictitious transactions in what is probably one of the most complex deceptions in banking history.

These losses now form a major part of the current deficit in the bank which has been rectified by the financial support arrangements providing by the Government of Abu Dhabi.(21)

Manager's Ledgers and Numbered Accounts

Among BCCI's unusual practices was the use of "managers ledgers" in addition to numbered accounts to manipulate accounts through back-to-back transactions that were essentially untraceable.

BCCI insiders advised the Subcommittee in early 1991 that these accounts often were designated solely as "ML" with a number following it, and often no one other than the BCCI officer responsible for the account would have any idea who, if anyone, owned it. In some cases, even the BCCI officer in charge of the account would be unable to identify its owner.

Price Waterhouse described this practice in BCCI Grand Caymans as early as April 1986, stating that "we have no particular objection to [using numbered accounts]," but "we found that in most instances none of the officers of the Grand Cayman office were able to correctly identify either the name of the borrower or the credit officer responsible for monitoring the account at other locations."(22) At the time, Price Waterhouse suggested that BCCI should improve its management of such accounts to prevent such occurrences, but when the bank failed to do so, Price Waterhouse took no additional action other than adding an asterisk (*) to this notation in later audit reports, indicating that the recommendation had been made to BCCI more than once.

Later, Price Waterhouse noted how financial transactions from BCCI to its secretly held Swiss subsidiary, LOANS, were marked "PAY WITHOUT MENTIONING OUR NAME," with the result that the recipients of the funds from LOANS were unable to determine from whom or where the money had come.(23)

Price Waterhouse's findings were later affirmed by its successor accountants, Touche Ross, who handled the liquidation of BCCI. A year after becoming liquidator, Touche Ross noted that the true picture of BCCI's activities was distorted by such practices as "loan parking," "artificial fund transfers," the provision of multiple loans to a customer, each secured by the same property, and many similar improper practices.(24)

BCCI Concealment of Treasury Losses

In 1985, after rumors of BCCI's losses in options trading reached bank regulators, Luxembourg bank regulators asked BCCI to provide an audited review of its central treasury activities. BCCI selected Price Waterhouse Cayman to perform the work, which determined in early 1986 that significant losses had been incurred and not recorded. According to Price Waterhouse, it concluded then that the losses and lack of record keeping were due to "incompetence."(25) However, in the 1991 Sandstorm Report, Price Waterhouse found that "with the benefit of hindsight, it appears more sinister in that it now seems to have been a deliberate way to fictitiously inflate income."(26)

BCCI officials have confirmed that the account provided Price Waterhouse in 1986 was designed to conceal the long-term nature of BCCI's inflation of its books.(27)

Ziauddin Akbar, the Treasury official held responsible for the massive losses in 1986 and fired by BCCI at the time following their discovery, told two BCCI officials in the U.S. in 1988 that Akbar had been a "scapegoat," used by BCCI's management to deceive the auditors when the auditors had accidently caught on to long-term manipulations by BCCI of its financial condition.

Ziauddin Akbarr told these officials that BCCI had been inflating its assets from the mid-1970's in order to make the make look profitable when it was not. When Price Waterhouse discovered this activity in 1986, BCCI's top officials worked out a scheme with Akbar under which he would accept responsibility, and pretend that the losses had just happened in the previous year due to unwise commodity speculations by BCCI. In that way, the losses would be viewed by outsiders as an unforunate one-time occurence, and with the sacrifice of Akbar, BCCI could continue.(28)

In its 1991 review, Price Waterhouse found that among the specific techniques used by BCCI to hide its losses were:

** misappropriation of deposits without depositors knowledge to provide funds to adjust non-performing and bogus loan accounts, and Treasury losses.

** misappropriation of external funds deposited under trust with Sandstorm [BCCI] and Fork [ICIC] to be managed on behalf of a few prominent people who are also shareholders of [BCCI] Holdings.

** the creation of loans with no commercial substance in the names of people without their knowledge.

** selling certificates of deposit placed with the Central Treasury without informing the depositors, and using the proceeds to fund adjustments.

** routing funds through [ICIC], LOANS, KIFCO, SDCC and other affiliates and third parties to make adjustments prior to accounting reference dates and audit confirmation dates, which were often reversed at a later date.(29)

ICIC -- The Bank Within A Bank

From the early days of BCCI, the various legal entities known collectively as ICIC, functioned officially as a BCCI pension fund for BCCI officers, and unofficially as BCCI's principal "bank within a bank."

The flexibility of ICIC to carry out many different schemes for Abedi is indicated by the number of different entities Abedi created using the identical ICIC abbreviation, including International Credit and Investment Company Overseas, Ltd.; International Credit and Investment Co., Ltd.; International Credit and Commerce (Overseas) Ltd.; ICIC Holdings of Grand Cayman; ICIC Apex Holdings; ICIC Overseas, Cayman; ICIC Foundation; the ICIC Staff Benefit Fund; the ICIC Staff Benefit Trust; ICIC Business Promotions; ICIC Business and Promotions; and others.

As BCCI liquidators in the Grand Caymans found, ICIC was not really a bank at all, but a post-office box location to "book" transactions that were initiated, organized, and approved in other parts of BCCI. In essence, ICIC was a "conduit" or mechanism for BCCI's fraud.(30)

Some of the bewildering number of purposes and uses of the different ICICs included:

ICIC Apex Holding Limited. Incorporated on October 2, 1987 as the ultimate holding company for the ICIC Group, equivalent to a charitable trust, with the beneficiaries designated as "mankind at large."

ICIC Holdings. Incorporated on April 6, 1976 as the holding company for the ICIC Group, created as the holding company for ICIC Overseas. ICIC Holdings "invested" in ICIC (Overseas) and loaned money to ICIC Foundation and the ICIC Staff Benefit Fund.

ICIC (Overseas) Limited. Incorporated on April 6, 1976 as an offshore bank to facilitate the purchase and sale of BCCI shares and to provide private banking services for BCCI shareholders and customers. (ICIC Overseas also advanced funds to nominees to allow them to purchase interests in the three other BCCI affiliates -- Attock Oil, Credit and Commerce Insurance, and the Saudi Development Company.)

ICIC Foundation Cayman. A charitable foundation wholly owned by the ICIC Foundation in the United Kingdom, established by a gift of BCCI shares owned by ICIC Holdings. The assets of the Foundation were shares in BCCI, and the assets of the UK Foundation were one-third of the shares of LOANS, the secretly-owned Swiss affiliate of BCCI.

ICIC Staff Benefit Fund. A Cayman entity wholly owned by the ICIC Staff Benefit Trust for the benefit of BCCI Employees, established by a gift of BCCI shares from ICIC Holdings. This entity held another one-third of the shares of LOANS.(31)

Usually, correspondence and transactions involving any of these ICIC entities would refer merely to ICIC, leaving it to top BCCI management to determine which of the entities, if any, would get "credit" or be "debited" for the particular transaction.

No one within BCCI other than Abedi, Naqvi, and small circle of younger assistants, had an overall picture of ICIC. To early Pakistani recruits to BCCI, such as Massihur Rahman, ICIC was described as a "parallel organization" to BCCI which would "hold shares of the bank for the founder group," in essence, a holding company controlling the stock of the BCCI holding companies.(32) ICIC was also, from the beginning, a mechanism to disguise and misrepresent the ownership of BCCI. As needed, ICIC took on additional characteristics: bank, foundation, and finance company. But its most usual purpose was to act as a vehicle for BCCI's inflation of assets and concealment of losses, acting as a mechanism for at least $1 billion of circular transactions to inflate BCCI's books.

The first detailed audit of ICIC conducted by Price Waterhouse took place in 1991, with its draft conclusions provided to BCCI's board of directors on June 17, 1991, in a report classified by Price Waterhouse as "strictly private and confidential." The Price Waterhouse report provides cautions that its findings were based on records which were missing, falsified, or incomplete. But the picture drawn in the report again details fraud on a massive scale.

The Price Waterhouse audit found that BCCI effectively controlled ICIC, and that most ICIC transactions were initiated at the instructions of senior BCCI management: Swaleh Naqvi, the number two man at BCCI, and two of his assistants, Mr. Hafeez and Mr. Imam. ICIC's uses included:

** Financing BCCI shares and capitalization, through the use of nominees, buy-back arrangements, and guaranteed minimum returns on investments.

** Routing funds in a manner to disguise their true nature and effect on BCCI.

** Providing guarantees, through commitments signed by BCCI management on ICIC letterhead, for various nominee arrangements for shareholders of companies secretly controlled by BCCI, such as First American through its holding company, CCAH.

** Lending to BCCI shareholders and customers.

** Paying BCCI expenses.

** Handling the management of customer funds controlled by BCCI chairman Abedi through powers of attorney.

** BCCI buying its own shares through nominees through ICIC.

** Processing financial transactions that were "unrecorded" at BCCI and which therefore remain untraceable.(33)

In all, ICIC made $290 million in loans, of which all but perhaps $25 million is apparently lost. About $93.5 million of those loans were used to purchase shares of BCCI itself; another $100 million in loans went to nominees for BCCI, or for "routing" transactions aimed at disguising BCCI's financial status; another $20 million went to an ICIC subsidiary, ICAC, and effectively disappeared in ICAC's insolvency. Another $62 million in lending went to "secure" interests in other entities by BCCI "shareholders," including people who were clearly serving as nominees.

ICIC lending included millions to major front-men for BCCI including Ghaith and Wabel Pharoan, Faisal al Fulaij, Prince Turki, and Mohammed Hammoud. The role at BCCI of Hammoud, who purchased the shares of Clark Clifford and Robert Altman in First American in 1988 with funds lent him by BCCI, is illustrated by the fact than when his BCCI loans become delinquent, they were simply transferred from BCCI to ICIC.(34)

Examples of ICIC being used by BCCI to handle nominee relations include:

** Wabel Pharoan writing ICIC on December 4, 1984 to confirm that all transactions in BCCI shares in his name were undertaken as a nominee.

** Faisal al Fulaij writing ICIC on February 16, 1985 to confirm that ICIC was entitled to all profits, and was required to bear all losses, on the CCAH (First American Bank) shares in his name which were being managed by ICIC.

** BCCI officer H.M. Kazmi writing Saudi Sheikh Kamal Adham on August 2, 1987 to confirm that Adham was not liable for any loans recorded in his name on the books of ICIC, including Adham's loans secured by his shares of CCAH for the First American Bank and Attock Oil.(35)

ICIC also offered unorthodox services, including guarantees against loss, to prominent Middle Eastern political figures, including the rulers of several Gulf states. For example, BCCI #2, Swaleh Naqvi, sent confirmation letters in February 1990 from ICIC Holdings to the Rulers of Ajman and Fujairah advising them that loans to them from BCCI would be paid off through proceeds from the disposal of their shares in CCAH, owner of the First American bank. In the event that their shares did not cover losses, Naqvi confirmed that these Rulers would not be required by ICIC or BCCI to pay them. It is notable that at the time Naqvi made this commitment, CCAH and the First American Banks had not been offered for sale to anyone.(36)

Money Laundering

From the time of BCCI's indictment on drug money laundering charges in Tampa, Florida in October, 1988, there was little doubt to anyone looking at the facts that BCCI had been used to launder drug money.

The Customs agents working on the "C-Chase" case against BCCI, moved millions of dollars in U.S. currency, representing the proceeds of cocaine sales through BCCI Panama, BCCI Luxembourg, and LOANS Switzerland as a result of the knowing participation of several BCCI officials.(37)

As Robert Mazur, the Customs agent in Tampa who selected BCCI as the target of the Customs money laundering sting testified, BCCI bank executives volunteered methods to enhance and improve his techniques for money laundering, and shortly before the sting ended the operation, offered to introduce Mazur to other potential "cash" customers for money laundering services from Bogota, Colombia.(38)

Attorneys for BCCI and the bank itself contended that the Tampa case represented an accident involving a small number of bank officers. Indeed, when BCCI itself pled guilty to money laundering in January, 1990, the bank continued to take the position that this guilty plea only constituted an admission that a few of its employees had engaged in the activity, and that its guilty plea was based solely on a theory of corporate responsibility, "respondeat superior." As BCCI's attorneys argued to federal prosecutors and Senate staff prior to the bank's January 1990 plea agreement, it was inevitable that a bank operating in so many countries would be used by drug traffickers. This was partially true, as the Deputy Assistant Secretary of State for International Narcotics Matters acknowledged:

Setting aside those instances where BCCI managers knowingly promoted money laundering, BCCI seemed attracted to traffickers for the same reasons that other banks have been found attractive. First, traffickers seek international banks that are sophisticated in wire transfers, that have branches in those parts of the world where they operate, and which permit quick retrieval of funds. Second, traffickers seek banks in those countries where national banking laws afford maximum secrecy to depositors, permit nominee accounts, and do not provide for close monitoring of cross border transactions of currency movements.(39)

Given BCCI's size and dispersion, money laundering at BCCI would have been inevitable under any circumstances. Given BCCI's never ending quest for assets and its management's attitude towards laws, it was ubiquitous. As Akbar Bilgrami explained, Abedi was constantly telling BCCI employees that the only thing that mattered was the generation of assets. When Bilgrami was in Colombia in the mid-1980's, a period when Colombia had already developed the reputation as the center for cocaine smuggling and drug money, Abedi told him that he needed to increase BCCI's activity in Colombia to $1 billion in local currency in deposits, and $1 billion in U.S. denominated deposits -- funds which obviously could only be generated, directly or indirectly, from the drug trade.(40)

BCCI's December, 1991 plea agreement with U.S. law enforcement outlines the systematic nature of the money laundering as follows:

40. The BCCI Defendants and their affiliates . . . would and did formulate and implement a corporate strategy for increasing BCCI's deposits by encouraging placements of funds from the proceeds of drug sales, in conscious disregard of the currency regulations, tax laws, and anti-drug laws of the United States, and of other nations;

41. In furtherance of the BCCI Group's corporate strategy to pursue deposits in disregard of United States and foreign law, the BCCI Defendants . . . would knowingly offer a full range of services to drug importers, suppliers and money launderers;

42. Co-conspirators would and did conduct . . . financial transactions with narcotics drug proceeds including the wire transfer of said proceeds from places in the United States to and through other places outside the United States, with the intent to conceal and disguise the nature, location, source and ownership of these drug proceeds.(41)

The criminal information entered into by the liquidators outlined how BCCI laundered money, detailing its use of certificates of deposits held at foreign branches to offset cash deposits made in the U.S.; its technique of crediting "counter-balancing loan proceeds" to foreign corporate bank accounts designated by drug traffickers; and BCCI's use of false names, codes, and counter-surveillance techniques against law enforcement, among other money-laundering techniques.

Knowledge of the bank's money laundering activity was not limited to a few high-level officials at the bank, as former BCCI chief financial officer Massihur Rahman contended.(42) As Abdur Sakhia, formerly BCCI's chief officer in the United States testified, it been obvious within BCCI as of 1983 that the bank had adopted a conscious policy of soliciting drug funds when it decided to purchase a bank in Colombia. It was obvious to Sakhia and other BCCI officers then that BCCI's motivation for obtaining the Colombia bank was its recognition that enormous amounts of U.S. currency were being generated as a result of narcotics trafficking, and that Colombia could become an extremely profitable operation for BCCI.

According to Sakhia,

We knew that the money that we would be getting in Colombia would be drug money. We knew that all the dollar deposits we would be getting would be drug money.(43)

Sakhia contended that his own attempts to discourage BCCI's entry into the Colombian market resulted in his being denied the position of becoming regional manager for BCCI throughout the Americas, in retaliation for his unwillingness to go along with BCCI's plan:

If I had agreed to the purchase of the Colombia bank I would have been head of the Latin American region total but I opposed the purchase of the Colombian bank. I opposed it for two reasons. I didn't want that size of acquisition. We wouldn't know who the 500 people of staff we were taking over well enough. We were getting branches in lawless areas like Cartegena, Cali and Medellin. There were armed guards every time I went from Bogota to the hotel in Colombia. I made an effort to get controls on our accounts in Miami because of concerns about drug money. I was opposed by London and by Amir and Saleem Saddiqi, who was also head of audit and compliance and simultaneously head of growth and profit.(44)

While Sakhia provided key information to U.S. investigators about wrong-doing at BCCI, other BCCI officers remaining at the institution scoffed at his professions of innocence in the banks criminality.(45) Similarly, Massihur Rahman, who likewise provided vital information to this and other investigations, professed to have been excluded from all wrongdoing at the bank. But other BCCI insiders contended that Rahman assisted BCCI's inner circle in deception, if inadvertently, through noting deficiencies in BCCI's books and warning other officials of the risks if they were not corrected. As one BCCI official told investigators in the spring of 1992:

Massihur Rahman was head of finance and he was a member of the Central Management Committee. He was never part of the inner clique of the top four or five and yet he had a very significant position because all of the balance sheets were reviewed by him. He packaged the balance sheets. He is a very intelligent man. If there were any shortcomings here or there, he came up with the ideas of how to make it look good. As a professional, he dressed them up when he saw deficiencies. He was a technocrat, he understood what the international world wants, whereas a lot of the others did not meet outsiders at all. From their point of view what was good enough for Pakistan or India was good enough. Massihur Rahman had a higher standard. He told them what they had to come up with and Naqvi produced the proper figures in response.(46)

The degree of BCCI-U.S.'s reliance on money laundering as a principal business was demonstrated by what happened when BCCI put into place a "compliance program" as part of its January 1990 plea agreement resolving the Tampa money laundering case: business dropped noticeably, especially referrals from other BCCI locations, because neither BCCI nor its customers wanted to provide details about the customers' businesses.(47)

BCCI's clients for money laundering included Panamanian General Manuel Noriega, for whom it managed some $23 million of criminal proceeds out of its London branches; Pablo Escobar, of the Medellin cartel; Rodriguez Gacha, of the Medellin cartel; and several members of the Ochoa family.(48)


Bribery was a key component of BCCI's strategy for asset growth worldwide, from the earliest days of the bank. In some case, the recipients of funding from BCCI may not have considered the payments to be "bribes," but simply a mechanism by which BCCI obtained what it wanted from an official, and in return the official helped BCCI, such as BCCI's payments to two of the Gulf emirs in return for the use of their names as nominees for the purchase of First American. In other cases, the bribes were naked and direct quid pro quos, such as BCCI's payments to Central Bank officials in return for Central Bank deposits in countries like Peru. In other cases, BCCI made campaign contributions to politicians, such as it did with General Zia in Pakistan and Carlos Andres Perez in Venezuela. In still other cases, BCCI's payments came in the guise of charitable contributions, and provided BCCI with an entree to generate deposits from others, as in the case of President Jimmy Carter. Among the Americans who BCCI provided with financial assistance in addition to Carter, were U.S. Ambassador to the United Nations Andrew Young, Bert Lance, and Jesse Jackson. Abroad, important figures with extensive contact with BCCI included former British Prime Minister James Callahan, then United Nations Secretary General Javier Perez de Cueller, Jamaican prime minister Edward Seaga, Antiguan prime minister Lester Byrd; a large number of African heads of state; and many Third World central bank officials.

The courting of important governmental and political figures was a task ordinarily undertaken directly by Abedi, usually with considerable secrecy. Typically, a local BCCI official would make contact with a key national political figure, who would then be passed on to Abedi. Abedi would then assess that official's needs and try to put together a transaction suitable to the official's status and needs. (49)

In some cases, Abedi would not make a "bribe" per say, but would instead use BCCI's resources to build goodwill, which he in turn would then make use of to generate assets elsewhere. This was Abedi's approach, for example, with President Jimmy Carter, who received millions of dollars in BCCI funding for charitable activities, and then travelled with Abedi to developing nations, providing Abedi with entry to their leaders and, often, the assets of their central banks.(50)

Abedi used a similar approach with Jesse Jackson and Andrew Young, both of whom had business expenses paid for by BCCI, and either solicited business for BCCI in return, or offered to do so. (51)

When it came to General Noriega, bribes were unnecessary, as BCCI provided the far more important service of laundering $23 million of his money and keeping it safe from other governments and his eventual successors in Panama by insuring its disappearance following his indictments. But to demonstrate BCCI's hospitality, the bank still made sure that it provided Noriega with an expensive gift -- a $25,000 persian carpet, hand delivered with Abedi's regards to Noriega by Alauddin Sheikh.(52)

In other cases, however, BCCI would make direct payments to key officials, sometimes in suitcases filled with cash. As BCCI officer Abdur Sakhia stated in interviews with Subcommittee staff:

Abedi's philosophy was to appeal to every sector. President Carter's main thing was charity, so he gave Carter charity. [Pakistani President] Zia's brother in law needed a job, he got a job. [Bangldeshi President] Ashraf's mistress needed a job, she got a job. Admission of your son to a top college, he would arrange it somehow.(53)

According to Sakhia,

There was a world wide list of people who were in the payoff of BCCI. It was my understanding this included the family of Indira Ghandi, Ashad of Bangladesh, and General Zia. In Africa, most of the leaders of Africa in Zambia, Zimbabwe, Mugabe, and others, were all understood to have received money.(54)

According to both Sakhia and BCCI's Paris manager, Nazir Chinoy, BCCI official Alauddin Sheikh would sometimes take cash to people at Abedi's request.(55) Both officials stated that they understood that Nigerian central bankers were paid off in cash by Mr. Sheikh at a World Bank meeting in Seoul, Korea.(56)

Chinoy said that such payments were typically made in great secrecy, but that it was obvious to him and others at BCCI what was going on. He described one such apparent payment by Abedi to President Mugabe in Zimbabwe.

I accompanied Mr. Abedi and Mr. Sheikh to the opening of a joint venture with Zimbabwe. I believe that to get permission to open that venture, money was paid to President Mugabe and to Nkomo. The basis I am making this statement was that when I went there with Mr. Sheikh, I was acting as Mr. Abedi's personal assistant or secretary. Mr. Sheikh went off on his own to see Nkomo who was the chief opposition at that time, and then he went off to see President Mugabe, and when they talked they wanted me out of the room. A number of us were there for the opening. But only Sheikh and Abedi left in the room with these two political figures. Otherwise I was accompanying him and acting with him. Sheikh carried a bag with him. At the time I had a suspicion that you don't get permission as a foreign bank so easily without a payment. Without favors, it wouldn't be so easy to get a bank that fast, especially given the opposition of the British banks who were already established there. And I can think of no other reason for the exclusion of everyone but Sheikh and Abedi.(57)

The New York District Attorney's indictment of BCCI alleged that in 1986 and 1987, BCCI president Abedi and number two official, Swaleh Naqvi, opened a bank account in a Swiss bank in Panama to "transmit bribes and kickbacks in the amount of a percentage of the deposits maintained by the Central Reserve Bank of Peru to the two senior officers of that bank," in a total amount of $3 million, in return for Peru maintaining large central bank deposits in BCCI.(58) These bribes were paid following a meeting involving BCCI officials and Peruvian president Alan Garcia. According to BCCI official Akbar Bilgrami, the purpose of the meeting was to make sure that President Garcia would not undercut the decision by the Central Bank and that if the payments were made to the Central Bankers, BCCI would indeed receive the Peruvian deposits in return. Upon returning from Peru, Shafi told Bilgrami that Garcia had given his blessing to the transaction.(59)

Chinoy contended that BCCI was simply efficiently exploiting the prevailing business practices in many of the countries in which it operated, suggesting that in Nigeria and many other African countries it was not possible to do business without buying presents, giving kickbacks, or making bribes to officials.

Commission means kick-back. The government approves a $300 million contract. A multinational corporation agrees with the government which has helped him, 10 percent gets kicked back. A company is established abroad or they nominate a cousin or someone who is paid 3 percent. It is known as a commission but it is actually a kickback. It is the only way to do business.(60)

Support of Terrorism and Arms Trafficking

BCCI's support of terrorism and arms trafficking developed out of several factors. First, as a principal financial institution for a number of Gulf sheikhdoms, with branches all over the world, it was a logical choice for terrorist organizations, who received payment at BCCI-London and other branches directly from Gulf-state patrons, and then transferred those funds wherever they wished without apparent scrutiny. Secondly, BCCI's flexibility regarding the falsification of documentation was helpful for such activities. Finally, to the extent that pragmatic considerations were not sufficient of themselves to recommend BCCI, the bank's pan-third world and pro-Islam ideology would have recommended it to Arab terrorist groups.

Arms trafficking involving BCCI included the financing of Pakistan's procurement of nuclear weapons through BCCI Canada, as documented in the Parvez case, involving a Pakistani who attempted to procure nuclear related materials financed by BCCI through the United States. (61)

In a November 22, 1991 letter to the Subcommittee, the CIA stated that "the Agency did have some reporting [as of 1987] on BCCI being used by third world regimes to acquire weapons and transfer technology," but was unwilling to elaborate on the nature of this activity in public.(62)

In early August, 1991, the Committee was provided with documents from the Latin American and Caribbean Region Office (LACRO) of BCCI, describing the offer for sale by the Argentine air force of 22 Mirage aircraft for $110 million. (63) The planned sale was to have been made to Iraq, as part of Saddam Hussein's massive military buildup prior to the Gulf war. BCCI was acting as the broker for the transaction, which was to take place in August or September of 1989, but not completed as a result of a dispute within the Argentine military itself.(64) Arms sales involving BCCI from Latin America to the Middle East remain, as of April 1992, under active investigation by U.S. law enforcement.(65)

Abu Nidal

In the United Kingdom, a key window on BCCI's support of terrorism was an informant named Ghassan Qassem, the former manager of the Sloan Street branch of BCCI in London. Qassem had been given the accounts of Palestinian terrorist Abu Nidal at BCCI, and then proceeded, while at BCCI, to provide detailed information on the accounts to British and American intelligence, apparently as a paid informant, according to press accounts based on interviews with Qassem.(66)

As of 1986, the information obtained about Abu Nidal's use of BCCI was sufficiently detailed as to justify dissemination within the U.S. intelligence community.(67)

In July, 1987, as a result of the information provided by Qassem, a State Department report concerning Abu Nidal and Qassem, declassified in 1991 at the request of the Subcommittee, describes Abu Nidal's use of BCCI.

The ANO commercial network comprises several businesses created over the past seven years with the long-term goal of establishing legitimate trading enterprises in various countries, gaining experience in commercial trade, and making a profit for the group. . . The general manager of the commercial network and the principal agent in gray-arms transactions is Samir Hasan Najm al-Din (Samir Najmeddin). He has directed many of ANO's commercial activities, both licit and illicit, from his offices in the INTRACO building in Warsaw, Poland.. . . He has maintained a general account at a major West European Bank [BCCI in London] from which he transfers money to individual company accounts at local banks. He maintains joint control of each company's ban accounts, along with the company manager, and he is responsible for forwarding all major contracts to Sabri al-Banna for final approval.(68)

Following dissemination of this material by the U.S., the U.S. coordinated efforts to shut down the financing of the activities exposed in its targeting of Abu Nidal through BCCI-London, with some success.(69)

Other terrorist groups continued to make use of BCCI, including one "state sponsor of terrorism," and the Qassar brothers, Manzur and Ghassan, who have been associated with terrorism, arms trafficking, and narcotics trafficking in connection with the Government of Syria, and with the provision of East Bloc arms to the Nicaraguan contras in a transaction with the North/Secord enterprise paid for with funds from the secret U.S. arms sales to Iran.(70)

Training of Cartel Death Squads

In April 1989, a network of Israeli arms traffickers, operating out of Miami, made a shipment of 500 Israeli manufactured machine guns through the Caribbean island of Antigua for the use of members of the Medellin cartel. Later, one of these weapons was used in the assassination of Colombian presidential candidate Luis Carlos Galan, and several other of the weapons were found in the possession of cartel kingpin Jose Gonzalo Rodriguez Gacha after his death in a gunfight with Colombian drug agents.

The principals in the arms trafficking included Yair Klein, who had previously been identified in Colombian drug enforcement documents as involved in training paramilitary squads for the cocaine cartel in Medellin; Pinchas Shahar, an Israeli intelligence operative, and Maurice Sarfati, an Israeli "businessman" operating out of Miami and Paris.

The scandal broke after a broadcast by NBC News on August 21, 1989 about Klein's activities, and a Colombian judge charged Klein with having engaged in criminal conspiracy in training the private armies for the cartel. In the months that followed, the scandal extended to Antigua as well, an island with no substantial military force and no need for the 500 machine guns its foreign minister ordered from Israeli military industries.

Subsequent investigations of the affair, including one by the Government of Antigua conducted by a Washington attorney, Lawrence Barcella, left many questions unanswered. However, it became clear that the Antigua project had been outgrowth of the establishment of a "melon farm" by Sarfati in Antigua in 1983,

financed by the United States government through a $2 million loan from the Overseas Private Investment Corporation (OPIC), in part on the basis of financial references for the principals provided OPIC by BCCI.

Before providing the $2 million to Mr. Sarfati for his melon farm, OPIC requested financial references. Sarfati provided references from his principal bank, BCCI Miami. In a letter from its Miami office, BCCI advised OPIC on June 14, 1983 that Sarfati, "who is one of our valued customers" had a number of major accounts with BCCI.(71)

Ultimately, OPIC lost its entire investment in the melon farm and concluded that it had been defrauded by Sarfati. After filing suit against Sarfati, OPIC sold its remaining interest in the melon farm, at a loss of 50 cent on the dollar, to an Israeli businessman, Bruce Rappaport, and an entity owned by him called the Swiss American Bank. Rappaport, a confidante of former CIA director William Casey, was in this period also in frequent contact with BCCI's original U.S. contact, Bert Lance. Coincidentally, one of BCCI's principal board members, Alfred Hartmann, who was also chairman of BCCI's secretly-owned Swiss affiliate BCP, also sat on the board of another of Rappaport's banks.(72)

In 1990, when the Subcommittee sought records pertaining to Mr. Sarfati from BCCI, it was advised by lawyers for BCCI that the Sarfati accounts at BCCI were "missing." Additional investigative work later located most of the accounts pertaining to one of Sarfati's partners in the Antigua venture, Haim Polani, but the accounts of Sarfati and his businesses remained lost. BCCI Latin American and Caribbean Region (LACRO) documents now maintained at the Federal Reserve in Miami document millions in BCCI loans to various Sarfati businesses.


BCCI was also involved with the Banco Nationale del Lavoro (BNL), Italy's biggest bank, whose Atlanta office was involved in a scheme to provide as much as $4 billion in fraudulent loans to facilitate illegal arms sales for the government of Iraq. In March 1991, three officials from BNL were indicted.

Although much about the relationship between the two banks remains unclear, BCCI documents in the United States show that BCCI loaned short-term -- often overnight -- its substantial U.S. surpluses to BNL in Atlanta, with transactions amounting to billions a year. While such lending from a bank with a surplus to another bank that could use the assets would be normal, what was not normal about the transaction was BCCI taking funds from its overseas branches for overnight use by BNL.

BCCI and BNL shared a key figure in common, Alfred Hartmann, who was on the board of directors of both banks and the head of BCCI's secretly controlled Swiss affiliate, Banque de Commerce et Placements (BCP).

Ironically, when BCCI was closed, its Swiss affiliate was almost immediately sold to a Turkish banking group, Cukorova, whose subsidiary, EndTrade, was BNL's partner in the illegal arms sales from the U.S. to Iraq, and part of the federal investigation into BNL.


BCCI's involvement in prostitution arose out of its creation of its special protocol department in Pakistan to service the personal requirements of the Al-Nahyan family of Abu Dhabi, and on an as-needed basis, other BCCI VIPs, including the families of other Middle Eastern rulers.

Several BCCI officers described the protocol department's handling of prostitution to Senate investigators in private, and two -- Abdur Sakhia and Nazir Chinoy -- confirmed their general knowledge of the practice in testimony.

The prostitution handled by BCCI was carried over from practices originally instituted by Abedi at the United Bank, when working with a woman, Begum Asghari Rahim, he cemented his relationship with the Al-Nahyan family through providing them with Pakistani prostitutes.

Among BCCI bank officials in Pakistan, Begum Rahim was reputed to have in United Bank first won the favors or attention of the royal family by arranging to get virgin women from the villages from the ages of 16 to 20. Rahim would make payments to their families, take the teenaged girls into the cities, and there taught them how to dress and how to act, including the correct mannerisms. The women would be then brought to the Abu Dhabi princes. For years, Rahim would take 50-60 of these girls at a time to large department stores in Lahore and Karachi to get them outfitted for clothes. Given the size of Rahim's retinue and her spending habits -- $100,000 at a time was not unusual when she was engaged in outfitting her charges -- her activities became notorious in the Pakistani community generally, and there was substantial competition among clothiers and jewelers for her business.(73)

According to one U.S. investigator with substantial knowledge of BCCI's activities, some BCCI officials have acknowledged that some of the females provided some members of the Al-Nahyan family were young girls who had not yet reached puberty, and in certain cases, were physically injured by the experience. The official said that former BCCI officials had told him that BCCI also provided males to homosexual VIPs.(74)

Intimidation of Witnesses

After his experience with the nationalization of the United Bank in Pakistan, Abedi never forgot the ability of governments to destroy his creations. Bribery and prostitution were two techniques to discourage government inquiry. Intimidation of potential witnesses and whistle blowers was another.

Throughout investigations of BCCI, would-be BCCI whistle blowers have expressed fears for their lives, including Noriega's BCCI banker, Amjad Awan, who told Senate investigator Jack Blum that he would be killed if the details of the limited information he gave the Senate about BCCI were revealed; a second former BCCI official who was a source of Blum; and the two BCCI officials who ultimately testified before the Senate in 1991: Massihur Rahman and Abdur Sakhia.

Both Rahman and Sakhia left BCCI in 1990, together with a few others from the bank in the period when Abu Dhabi was taking active control of BCCI and forcing out those of the original Pakistani group who lacked close ties to the Al-Nahyan family.

These departures came at an especially vulnerable time for BCCI, and the threats to them should they break the code of silence left nothing to the imagination.

In the testimony of Abdur Sakhia, formerly the BCCI official in charge of Latin America and the Caribbean,

When I left the bank in April 1990, we left as a group, about 12 of us, Each one was told you go quietly, if you make any noise, they are going to fix you. I got the word from Naqvi's secretary that if I made any noise, Altman's firm will get me involved in a drug case.(75)

In the account of Massihur Rahman,

I left. Since then, my family and I have been hounded. All sorts of direct and indirect threats have been used, to the extent that Scotland Yard got to know about it and the Guildford police got to know about it . . . and they had special security put around our house and special equipment put in the house for direct access to the police station, and my wife and children were suffering greatly . . . they were being terrorized by these situations and my wife was having to put the children under the bed every night for fear of some physical violence or some gunshots.(76)

It had long been part of BCCI internal lore that erring Pakistani officers in Pakistan could wind up having an accident if they talked about BCCI when they left. In the United Kingdom, another senior BCCI executive, John Hilbery, had told Rahman that there had been a gunshot through his window shortly after he left the bank. As a result, Hilbery decided he would not go to court against BCCI to assert any claims against his former employer, but would simply quietly withdraw.(77)

During the Tampa money laundering case against BCCI, information was received through government sources about potential plans to try to affect the government's case by kidnapping witnesses.(78)

Moreover, in that same case, BCCI retained private investigators to investigate the Customs agents who had brought the case against BCCI, with the investigators ultimately destroying the business of a key informant who assisted in the prosecution of the case. As chief undercover Customs agent Robert Mazur testified:

BCCI, had in fact, retained another investigative firm for the sole purpose of investigating me, and the IRS agent who is the affined to the BCCI searches. That was something that not only happened to me, but also happened to many other people who tried to work on behalf of the Government, and in particular, a citizen who showed tremendous courage to allow the Government to use his business in part as their cover, who later became a victim of malicious statements that were made by the investigators that led later to his financial ruin, and its a shame that that type of thing occurred, but it did.(79)

Black Network?

None of the BCCI officers interviewed by the Senate claimed to have knowledge of a "black network" of intelligence operatives, arms dealers, drug traffickers, burglars, or assassins employed by BCCI, as described in a Time magazine cover-story on BCCI on August 15, 1991. They declared, to a person, that they did not believe such a network existed at the bank. However, several suggested that if the black network were recharacterized as a team of officials carrying out Abedi's most secret missions, then it could exist on a somewhat smaller scale then that characterized by Time, operating out of either BCCI's Pakistani protocol department or its Pakistani BCCI Foundation.

1. Staff interview, Abdur Sakhia, October 7, 1991.

2. Touche Ross, Bank of Credit and Commerce International (SA) in Liquidation, Report on the Activities Undertaken in Luxembourg and the UK Covering the Liquidation Period Up to April 15, 1992.

3. Touche Ross, Report on the Activities Undertaken in Luxembourg and the UK Covering the Liquidation Period Up to April 15, 1992.

4. S. Hrg. 102-350, Pt. 3 pp. 790-791.

5. Blum, S. Hrg. 102-350, Pt. 1, p. 61.

6. Blum, S. Hrg. 102-350, Pt. 1, p. 37

7. Superseding Information, U.S. v. BCCI, Crim. No. 91-0655, U.S. District Court for the District of Colombia, December 19, 1991.

8. Report of Internal Investigation to BCCI, Philip Manuel Resources Group, November 1990, S. Hrg. 102-350, Pt. 2, pp. 387-388.

9. Letter to Whom It May Concern, July 8, 1991 on BCC Canada letterhead.

10. Id.

11. Staff interview, Chinoy, March 9-16, 1992.

12. People v. BCCI, Supreme Court of the State of New York, County of New York, July 29, 1991.

13. Id.

14. Price Waterhouse, Draft Report on Sandstorm SA Under S. 41 of the Savings Act of 1987.

15. Price Waterhouse, Draft Report on Sandstorm SA Under S. 41 of the Savings Act of 1987.

16. Id at 1.

17. Id at 1.

18. Id at 1.

19. Id at 2

20. Testimony of Rahman, S. Hrg. 102-350, Pt. 1, p. 502.

21. Id at 2.

22. Price Waterhouse report to BCCI, Internal Control Report, April 28, 1986, p. 3.

23. Price Waterhouse, Draft Report on Sandstorm SA Under S. 41 of the Savings Act of 1987, p. l3.

24. Touche Ross, Report on the Activities Undertaken in Luxembourg and the UK Covering the Liquidation Period Up to 15 April 1992.

25. Id at 17.

26. Id.

27. Staff interviews, Akbar Bilgrami and Amjad Awan, July, 1992.

28. Staff interviews, Akbar Bilgrami, July 13-14, 1992; Amjad Awan, July 20-21, 1992.

29. Id.

30. Report of Grand Caymans Liquidators to Grand Caymans Court, August 30, 1991, Deloitte Ross Tohmatsu, International Credit and I nvestment Company (Overseas) Ltd.

31. Price Waterhouse, Report to the Director on ICIC Group, June 17, 1991, Sec. 1.

32. Testimony of Rahman, S. Hr. 102-350, Pt. 1, p. 517.

33. Price Waterhouse, Report to the Director on ICIC Group, June 17, 1991, Sec. 1.

34. Id.

35. Id.

36. Id.

37. S. Hrg. 102-350, Pt. 3, p. 737.

38. Testimony of Robert Mazur, S. Hrg. 102-350, Pt. 3, p. 682.

39. Testimony of Grant Smith, Deputy Assistant Secretary of State, S. Hrg. 102-350, Pt. 3, p. 579.

40. Staff interviews, Akbar Bilgrami, July 13-14, 1992.

41. Superseding Information, U.S. v. BCCI, Crim. No. 91-0655, U.S. District Court for the District of Colombia, December 19, 1991.

42. Testimony of Rahman, S.Hrg. 102-350, Pt. 1, p. __.

43. Interview, Abdur Sakhia, October 7, 1991

44. Sakhia, id.

45. Staff interviews with various BCCI officers, October 1991 and July 1992, including Akbar Bilgrami, who worked with Sakhia in Miami in the mid-1980's.

46. Staff interview, BCCI officer, March, 1992. In defense of Sakhia and Rahman, it is notable that neither is the subject of investigation by law enforcement in connection with BCCI's activities, and neither have sought immunity from prosecution, demonstrating substantial limits on their culpability. Both voluntarily provided critically important information about BCCI to U.S. investigators, including the Senate.

47. Price Waterhouse, Interim Report on Results and Operations to BCCI Holdings, September 30, 1989, S. Hrg. 102-350, Pt. 1, p. 279.

48. BCCI Records and customer lists, LACRO, Federal Reserve, Miami.

49. Staff interviews with Abdur Sakhia, October 7, 1991; Nazir Chinoy, March 9-16, 1991; Confidential BCCI informant, March, 1990.

50. See e.g. AP, July 15, 1991.

51. Staff interview, Nazir Chinoy, March 9-16, 1991; BCCI documents, Andrew Young trip to Nicaragua.

52. Chinoy, id.

53. Staff interview, Abdur Sakhia, October 7, 1991.

54. Staff interview, Abdur Sakhia, October 7, 1991.

55. Staff interviews with Sakhia, id., and with Chinoy, March 9-16, 1991.

56. Id.

57. Staff interview, Chinoy, March 9-16, 1992.

58. People v. BCCI, Supreme Court of the State of New York, County of New York, July 29, 1991.

59. Staff interview, Akbar Bilgrami, July 13-14, 1992.

60. Staff interview, Chinoy, id.

61. Testimony of Alan Kreczo, Deputy Legal Adviser, Department of State, S. Hrg. 102-350, Pt. 3, p. 599.

62. S. Hrg. 102-350 Pt. 3 p. 601.

63. BCCI LACRO documents in S. Hrg. 102-350 Pt. 1 pp. 126-162.

64. Interview with Argentine, Mick Anderson, staff, Senator Alan Cranston, August 6, 1991, S. Hrg. 102-350, p. 253.

65. Internal Customs source, April, 1992.

66. See e.g. Financial Times, November 13, 1991, p. 6.


67. Testimony of Laurence Pope, Associate Coordinator for Counter-Terrorism, Department of State, S. Hrg. 102-350, Pt. 3, p 580.

68. Abu Nidal's Terror Network, U.S. Department of State, S. Hrg. 102-350, Pt. 3, pp. 640-641.

69. Testimony of Pope, id, at 581.

70. See Testimony of Pope, id., at 581; staff interviews.

71. Loan Application to the Overseas Private Investment Corporation, submitted by Roydan (Antigua) Limited.

72. OPIC Documents provided to Subcommittee, July, 1990; Testimony of Bert Lance, S.Hrg. 102-350, Pt.3 pp. 44-46.

73. Staff interview, Nazir Chinoy, March 9-16, 1991; see also account of Sakhia, October 7, 1991; practice described by other anonymous BCCI officers to Senate staff.

74. Staff interviews, U.S. investigator, February, 1992.

75. Sakhia interview, October 13, 1991

76. Testimony of Rahman, S. Hrg. 102-350 Pt. 1 p. 256.

77. Id.

78. Testimony of Robert Mazur, S. Hrg. 102-350, Pt. 3, p 692.

79. Id at 692.


























On July 5, 1991, when BCCI was closed, some one million small depositors in BCCI around the world lost their deposits.

In addition to these small depositors, there were other, larger depositors. Among those depositors were central banks, governmental organizations, government investment funds, and government officials, involving most of the countries in the world.

There is no way of knowing even now precisely who were among all those who lost money. BCCI made frequent use of "managers' ledgers" or numbered accounts for its most sensitive depositors, whose identities were typically kept secret from everyone other than their personal banker at BCCI. Given the anonymity, the secrecy, and the source of the income behind many of these deposits, some depositors, including governmental officials or agencies, have not necessarily been in a position to assert claims to the money they have lost.

However, some sense of the impact on governmental entities and global officialdom is provided by an account appearing in the French wire service Agence France Presse a few days after BCCI's global shut-down, concerning BCCI losses at its tiny branch in Korea, entitled "Angry Diplomats Urge Government To Release Their BCCI Assets":

A major row is erupting between the South Korean government and foreign diplomats whose deposits have been frozen by the suspension of the Seoul branch of the scandal-hit Bank of Credit and Commerce International (BCCI). Incensed diplomats from 33 countries met last Thursday at a European embassy here to coordinate strategy after a protest they filed with the central bank of Korea went unheeded, diplomats said. The diplomats said that 120 of their colleagues from 33 embassies have had part or all of their deposits frozen. In addition, the accounts of several embassies have been frozen, forcing some to cut back operations. . . The local branch of BCCI had strongly lobbied diplomats here to use the bank, offering interest rates slightly above average and putting a wide international network at their disposal, officials said. . . . The envoys said that among those countries [in Korea alone] whose embassies were in partial or deep trouble were [a number of] Latin American countries, Bangladesh, Belgium, Iran, Italy, Hungary, Liberia, Libya, Pakistan, the Philippines, Saudi Arabia, Spain, Switzerland, Thailand, Turkey, the United Arab Emirates and Yugoslavia . . . Peru and Argentina have suspended consular operations [entirely] because of lack of funds.(1)

BCCI's offices in Korea were among the bank's smallest, containing just $92 million out of BCCI's total of $23 billion in assets. Yet small as the branch was, the impact of its closure on the foreign diplomatic corps in Seoul was devastating. This tiny branch of BCCI had, somehow, developed relationships with these embassies that neither domestic banks in Korea, nor any of the other foreign banks doing business in Korea had obtained.

The fact so many officials from so many countries banked at a single, obscure BCCI office provides an insight into the success of BCCI's overall strategy of targeting government officials everywhere to use its array of banking services.

In his July 29, 1992 indictment of BCCI's former heads, Agha Hasan Abedi and Swaleh Naqvi, and two of BCCI's front-men, Ghaith Pharaon and Faisal Saud Al Fulaij, New York District Attorney Robert Morgenthau alleged, in some detail, how BCCI systematically engaged in criminal activity with officials and prominent political figures from many countries to generate assets for BCCI's Ponzi scheme, both from the governments involved, and from innocent, legitimate depositors.

As the indictment alleges:

. . . members of the BCC Group, acting to further the conduct and affairs of the criminal enterprise, assisted various nations, including Pakistan, Senegal, Zambia and Nigeria, to evade fiscal restraints placed on them by such world institutions as the World Bank and the International Monetary Fund. . . . The BCC Group agreed to bribe employees, agents and fiduciaries entrusted with Third World money to place it at risk in the BCC Group, which was insolvent.

Members of the enterprise sought to secure a preferential position for the BCC Group in various countries through the use of corrupt payments of monies and other benefits to powerful individuals and to make and cause to be made deposits of money with the BCC Group. Specifically, defendants Abedi and Naqvi plotted to deliver cash and other benefits to countries' finance ministers, head of countries' central banks and senior executives of international and regional organizations to obtain deposits. . .

Among the countries in which members of the BCC group made such corrupt payments for deposits and favorable treatment were the Congo, Nigeria, Morocco, Senegal, Tunisia, the Ivory Coast, Argentina and Peru. Among the institutions defrauded were the World Bank, the International Monetary Fund, the African Development Bank and the Economic Cooperation of West African States.(2)

Similarly, over the past four years, the Subcommittee has developed extensive documentary and testimonial evidence of BCCI's systematic reliance on relationships with, and as necessary, payments to, prominent political figures in most of the 73 countries in which BCCI operated. BCCI records and testimony from former BCCI officials together document BCCI's systematic securing of Central Bank deposits of Third World countries; its provision of favors to political figures; and its reliance on those figures to provide BCCI itself with favors in times of need.

As BCCI's former senior official for the Caribbean, Abdur Sakhia, testified:

BCCI's strategy globally had been to be very well-known, to make an impact in the marketplace, to have contacts or relationships . . . with all the people who matter. . . You name it, we would develop relationships with everyone of consequence . . . In the Caribbean, every major country I knew the heads of state, I knew the finance ministers, I knew the governors of the central bank. I knew heads of all the major banks in the area, the heads of foreign banks. I knew the people in various official agencies, like the Caribbean Development Bank, Inter-American Development Bank, Organization of American States. Everyone of consequence in this region I knew. . . .(3)

These relationships were systematically turned to BCCI's use to generate cash needed to prop up its books. BCCI would obtain an important figure's agreement to give BCCI deposits from a country's Central Bank, exclusive handling of a country's use of U.S. commodity credits, preferential treatment on the processing of money coming in and out of the country where monetary controls were in place, the right to own a bank, secretly if necessary, in countries where foreign banks were not legal, or other questionable means of securing assets or profits. In return, BCCI would pay bribes to the figure, or otherwise give him other things he wanted in a simple quid-pro-quo. For example, BCCI would help an official move flight capital out of his country to a safe haven elsewhere, to launder funds skimmed by the official from an official bank account or official commercial transaction, create a foundation for a head of state to provide charitable services for his home village or province, take him on a shopping spree at a fancy London department store, or secure him sexual favors.

The result was that BCCI had relationships that ranged from the questionable, to the improper, to the fully corrupt with officials from countries all over the world, including but certainly not limited to Argentina, Bangladesh, Botswana, Brazil, Cameroon, China, Colombia, the Congo, Ghana, Guatemala, the Ivory Coast, India, Jamaica, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Pakistan, Panama, Peru, Saudi Arabia, Senegal, Sri Lanka, Sudan, Suriname, Tunisia, the United Arab Emirates, the United Kingdom, the United States, Zambia, and Zimbabwe.

Typically, these relationships were handled personally and in secrecy by BCCI's top two officials -- Abedi and Naqvi -- with the occasional assistance of trusted lieutenants. Accordingly, a full accounting of these relationships may not be possible. Sakhia told the Subcommittee that he believed there was a list of BCCI's payments to political figures somewhere at BCCI's headquarters in London, held closely by Abedi and Naqvi, that contained all the names. When BCCI's headquarters were moved to Abu Dhabi in the spring of 1990, the list, if it still existed, was likely moved there with BCCI's other records:

There was a world wide list of people who were in the payoff of BCCI. The family of Indira Gandhi. President [Ershad] of Bangladesh. General Zia of Pakistan. Many of the leaders of Africa. I went to a World Bank meeting in Seoul, Korea and [BCCI official] Alauddin Shaikh was handing out cash in the hall to the staff of the Central Bank of Nigeria . . . Abedi's philosophy was to appeal to every sector. If you were religious people he would help you pray. President Carter's main thing was charity, so he gave Carter charity. [Pakistani] President Zia's brother-in-law needed a job, he got a job. [Bangladeshi] President [Ershad]'s mistress needed a job, she got a job. You needed the admission of your son to a top college? Abedi would arrange it somehow.(4)

According to Sakhia, the form of the payoff varied with the needs of the customers, but the purpose was always the same -- "to buy influence."(5)

In addition to cash payments, which were kept secret, BCCI routinely gave presents to government officials around the world, a fact disclosed to auditors. As BCCI officer Nazir Chinoy explained:

The auditors will not object if the manager certifies that $50,000 was spent on entertainment on a particular day. They will accept it without bills. It is understood that Christmas presents, giving and taking are common. We tell them we are looking after our people, I have 50 people I want 50 shirts from Harrads for Christmas for my staff, or a Senator from some country telling you I want my people to be looked after. Then he says, when I come to power you take a favor from me. It is an accepted form of operation.(6)

According to Chinoy, these presents would routinely involve gifts worth $5,000 or more if the official was sufficiently important. In the case of Manuel Noriega, for example, the antique oriental rug selected by BCCI and provided to him one year in his honor was worth substantially more.

In other cases, BCCI would make a form of payments to high ranking officials through one of its Foundations, which would create an annual "prize," and bestow it upon a person either whom BCCI wished to influence, or whose receipt the prize would provide BCCI needed legitimacy. For example, from 1980 to 1988, a BCCI foundation called The Third World Foundation bestowed an annial Third World Prize of $100,000 as follows:

1980. Dr. Paul Prebish, international development economist from Argentina. At the time, BCCI was seeking to enter Argentina through nominees.

1981. Dr. Julius Nyerere, President of Tanzania. The Prime Minister of India, Indira Gandhi, presented the prize. At the time, BCCI had alleged financial relationships with various persons associated with Gandhi and was seeking to expand in Tanzania.

1982. Zhao Ziyang, the Chinese premier. Again, BCCI was looking to, and soon thereafter was able to, become one of the first foreign banks to open offices in China.

1983. Professor Arvid Pardo, a UN diplomatic from Malta, whose prize was presented by Belisario Betancur, President of Colombia. In 1983, BCCI purchased a bank in Colombia through nominees.

1984. Willy Brandt, former German chancellor, with UN Secretary General Javier Perez de Cuellar giving his approval.

1985. Nelson and Winnie Mandela.

1986. Musician Bob Geldorf, for his work in raising funds for the hungry in Ethiopia.

1987. The International Planned Parenthood Federation of India, presented by Jose Sarney, President of Brazil. In this very period, BCCI was seeking to strengthen its ties to President Sarney, and had just purchased a bank in Brazil through nominees which included close associates of Sarney.

1988. Gro Harlem Brundtland, the Norweigian Prime Minister, presented by Robert Mugabe, Prime Minister of Zimbabwe. Mugabe had according to many BCCI officials received cash payments from BCCI in previous years.(7)

The Subcommittee has not obtained internal BCCI documents describing its global strategy for bribery, or any list of payments made to officials. However, the Subcommittee does have a collection of documents and testimony which outline individual cases of bribery, payoffs, or financial benefits provided by BCCI to officials in particular countries. Thus, the case histories set forth below are illustrative, rather than comprehensive, and do not necessarily represent the worst examples of the practice, but merely the ones the Subcommittee has been best able to document.

Deposits From Foreign Governments

A baseline for assessing BCCI's principal relationships with foreign governments is to review the deposits it received from Central Banks. At one level, the choice of BCCI as a depository for a Central Bank of a Third World country might seem logical. BCCI had marketed itself as the Third World bank, devoted to providing the best possible services to the Third World. However, every central banker also knew that BCCI, as a bank not based in any one country, had no lender of last resort, and no consolidated audit.

Thus, deposits in BCCI were potentially a very substantial risk for any Central Bank. If BCCI failed, the Central Bank funds would not be protected, but would be treated like the funds of any other depositor. Despite these obvious risks to placing funds with BCCI, dozens of countries placed their reserves with the bank, in some cases, at very substantial, and imprudent, levels.

BCCI document repositories in the United States, unfortunately only contain records pertaining to such deposits in BCCI-Miami, and thus, these represent only a fraction of the total. For example, a number the countries that had deposits at BCCI in the United States would also maintain deposits -- usually larger ones -- at BCCI in Panama, where they would be more protected from creditors.

Typical deposits at BCCI-Miami by central banks and governmental organizations, usually in certificates of deposit, are listed below:


Organization                Amount          Date



Andean Reserve Fund        $15,884,000      July  31, 1988


Central Bank of Aruba        6,000,000      July  31, 1988


Central Bank of Barbados     5,000,000      May   31, 1985


Central Bank of Belize      12,000,000      July  31, 1988


Central Bank of Bolivia     14,414,000      July  31, 1988


Banco de la Rep de Colombia  3,050,346      Aug    4, 1986


Central Bank of Curacao     25,000,000      July  31, 1988


Eastern Caribbean Bank       2,000,000      March 28, 1985


Caribbean Development Bank   3,025,786      June  28, 1985


Bank of China               15,000,000      Dec   31, 1985


Fed. Cafeterios Colombia    10,000,000      July  31, 1985


Banco de Guatemala           3,000,000      July  31, 1988


Bank of Jamaica             13,700,000      July  31, 1986


Jamaica Petroleum/PETROJAM   7,137,437      Jan   31, 1986


Banco Nacional de Panama     UNKNOWN        Dec   31, 1984


Central Bank of Paraguay     5,000,000      Oct   10, 1989


Central Bank of Suriname     UNKNOWN        Nov    3, 1986


Central Bank St. Kitt        8,500,000      July  31, 1988


Central Bank Trinidad        5,000,000      Oct   31, 1984


Venezuela Investment Fund   24,000,000      July  31, 1988

Additional central banks had developed relationships with BCCI, but had their accounts shifted by BCCI from its offices in Miami to the National Bank of Georgia in Atlanta. These included Costa Rica, El Salvador, and Honduras, whose "territory" was given by BCCI to its secretly-held subsidiary in Georgia.(8)

It is not possible from BCCI's records in the U.S. to determine even the neighborhood of the degree to which the other Central Banks were depositing funds in BCCI as a whole. For example, the Central Bank of Peru, which did not deposit any funds in BCCI-Miami and therefore is absent from the above extensive list, placed Central Bank deposits at BCCI-Panama that rose to a level of $270 million dollars in June, 1987 -- nearly 30 percent of the total cash reserves of the Government of Peru.

Thus, what is significant, simply, is the large number of central banks and government organizations -- twenty in all -- who were willing to place what was substantial uninsured deposits with BCCI's Miami branch alone, at a time when BCCI was known to have no lender of last resort behind it, and no one to insure a country's repayment should BCCI default.

An appendix to a September 30, 1988 Price Waterhouse Report to BCCI's Audit Committee shows a substantial number of additional governmental entities from other countries making deposits at BCCI as of that date, as follows:


Organization               Location             Amount


China Civil Eng &

Construction Corporation   UAE                  $11,414,000

                           Hong Kong             34,400,000


International Fund for

Agricultural Development   Luxembourg            17,200,000


OPEC                       United Kingdom        60,000,000 


Central Bank of Sri Lanka  United Kingdom        15,070,000


Bangladesh Bank            United Kingdom        25,340,000


Bank Foreign Trade        

USSR                       United Kingdom        10,135,000


State Bank Pakistan        United Kingdom        48,960,000


National Bank Hungary      United Kingdom        15,000,000


Arab Bank for Natl

Development in Africa      United Kingdom        42,569,000


Central Bank Syria         United Kingdom        21,855,000


Bank of Zambia             France                10,920,000


Bank Milli Afghan          United Kingdom        20,000,000

Perhaps especially worthy of note from the above list are the Soviet Union's foreign trade account at BCCI, the account for the State Bank of Hungary, and the account for the Central Bank of Syria. In each case, the Subcommittee knows essentially nothing about the underlying nature of the relationship between BCCI and these governments, other than the fact that British sources have contended that BCCI in the United Kingdom was used by numerous intelligence agencies, including most of the major intelligence agencies of the world.(9)

Loans to Foreign Governments and Government Banks

As a consequence of BCCI's collapse, determining what governments were credited by BCCI as receiving loans is a far easier matter than determining who, in the past, placed funds with BCCI. A consolidated loan report for BCCI dating from March 31, 1991, shows numerous governmental organizations credited as receiving very substantial lending from BCCI as follows:


        Abu Dhabi Finance Department       $35,704,000


        Abu Dhabi National Food Stuff Co    21,749,000


        Banca Nazional del Lavaro           13,737,000


        Botswana Railways                    9,400,000


        Botswana Telecommunications          2,600,000


        Cameroon Ministry of Finance        29,172,000


        China International Water & Elec    42,268,000


        China National Complete Plant Exp   32,606,000


        China Road & Bridge Eng. Co.        20,641,000


        China State Construction Group      32,450,000


        State of Gabon                       7,771,000


        Bank of Jamaica                     33,895,000


        Central Bank of Nigeria            226,060,000


        Sultanate of Oman                   14,444,000


        Petrojam (Jamaica Petroleum)        45,420,000


        Government of Seychelles            22,957,000


        Bank of Sudan                       53,987,000 


        Republic of Zimbabwe                17,063,000(10)

Price Waterhouse reports 18 months earlier had listed BCCI's exposure on lending to governments and Central Banks as follows:


        Country         Nature of Loans      Exposure 9/30/89

                                           (in millions)  


        Nigeria         Government           216.9


        Philippines     Central Bank          30


        Zambia          Central Bank          24.6


        Sudan           Central Bank          19.9


        Iraq            Unspecified           11.8


        Mexico          Unspecified            7.3


        Cuba            Unspecified            2.3


        Sierra Leone    Unspecified            3.3


        Ivory Coast     Unspecified             .8


        Panama          Unspecified             .6(11)

Many normal banks have such exposures, and apart from the situation involving Nigeria and to some extent Sudan, the exposure faced by BCCI on its lending to governments was within reasonable commercial norms. However, beneath the veneer of normal practice, the underlying manner by which BCCI developed these relationships was anything but normal. As the case histories below demonstrate, in country after country, BCCI's relationships with officials were fundamentally corrupt.

Use of Nominees and Fronts Generally

In the early 1980's, as part of BCCI's program of expansion in Latin America, BCCI decided that it was essential to expand banking operations in the Americas. Accordingly, a team of BCCI's acquisition experts, including Amir Lodhi and Abol Helmy, began meeting with Central Bankers and government officials in such places as Argentina, Brazil, Colombia, Peru and Venezuela to find suitable banks to purchase. In most of these countries, there were at the time restrictions on the ability of foreign banks to purchase local banks. Accordingly, Lodhi and Helmy were directed to identify prominent figures in each country who would agree to act as BCCI nominees in purchasing local institutions, under agreements where the nominees would not be at risk, while BCCI would secretly finance their purchases -- precisely as it had done in its purchase of First American Bankshares and the National Bank of Georgia in the United States.

While the financial details of each proposed transaction differed, the model for the transactions had been drawn up by BCCI years previously, and had been relied upon by BCCI in its secret purchase of First American. Helmy was provided with draft structures of these previous transactions, which he used as a guide in preparing fresh proposals for these Latin American countries. Ultimately, using this mechanism, BCCI was able to purchase banks in Argentina, Brazil, and Colombia; however, Helmy contended that in the case of Argentina, the laws changed prior to the purchase of the bank, and so the nominee arrangements that had been agreed upon were not needed.(12)

As BCCI's former head of its Latin American and Caribbean operations, Akbar Bilgrami explained:

Using a nominee was a typical way of going about things. Argentina, Brazil, Ghana, Colombia, Venezuela, Nigeria. All these places started out as nominee relationships. Some were cleaned up. But it was always preferable that there not be a nominee relationship. When we bought a bank or set up a subsidiary, we would often use the nominee relationship because the laws of the country wouldn't allow BCC to have majority control. For example, we used it briefly in Colombia until we received permission to have majority control for BCCI from the government.(13)

In each case, various forms of payments for the individuals who facilitated the purchases of the banks were made by BCCI, including bribes to officials in many of the countries.

Money Laundering, Commodities Frauds and Skimming

According to BCCI officers interviewed by the Subcommittee, there were consistent themes in BCCI's activities in the Third World, in terms of the kinds of services that government officials would be looking for from BCCI. First, to the extent the official controlled a source of government funds, the official typically wanted to be compensated in connection with his decision on where to place the funds. The solution to this problem was simple enough -- BCCI would pay a "commission" to the official involved. Second, to the extent the official controlled transactions involving government funds, the official might well want to be compensated on a fee basis, transaction by transaction. BCCI developed a number of techniques in response to this requirement, which typically involved one form or another of skimming the government funds that moved through the transaction, again with the revenues deposited in a safe place outside the official's country. Third, to the extent the official was in a position to generate substantial resources of his own through non-BCCI corruption, he often would want a safe and confidential place to hide his money. Again, BCCI would comply.

In each of these cases, BCCI would make use of applicable techniques for hiding and laundering cash: manager's ledgers or numbered accounts; phony loans to hide (and legitimize) real, but unclean deposits; circuitous routing of funds through bank secrecy havens like the Grand Caymans and Panama, and so on.

Pay-Offs to Avoid Prosecution

Inevitably, BCCI's criminal practices as a bank would set off alarm bells in one or another of the nations in which it was operating. Because of BCCI's underlying financial fragility, any such problem could potentially mushroom. Accordingly, the bank made it a high priority to fix such cases through payoffs. Usually, this could be accomplished with existing relationships.

For example, in Nigeria, on the several occasions when BCCI's activities had been discovered by officials who had not been compromised, investigations were quelled by a top Nigerian religious and governmental official, Al Haji Ibrahim Dasuki, who was also president of BCCI's Nigerian bank.(14) This pattern was repeated all over the world. As Sakhia testified:

BCCI officers were indicted and jailed in other countries, like Sudan, Kenya, India, and in each case there was a terror in the bank that, you know, this has happened, that has happened. And somehow then some deal would be struck. People would be freed, BCCI would start doing business all over again.(15)

This practice did not only take place in Third World countries. Notes taken by BCCI's lawyers in the United States at Patton, Boggs & Blow in Washington, D.C. refer to possible payments to French officials by BCCI in 1989 to solve a criminal legal matter that had developed for BCCI there. According to the U.S. lawyers involved, each of them was disturbed about the proposed bribe, and were trying to prevent it from happening.(16)

Thus, BCCI's system of payoffs was not by any means an occasional practice, but one that pervaded the institution from its creation, and continued through to its collapse.



In Argentina, BCCI targeted and ultimately successfully purchased, the Finamerica Bank, a small Argentina financial institution that was at the time owned by FIAT and by the Banco de Italia. In December, 1984, through a local middle-man, Ricardo Gotelli, Fiat authorized the sale to BCCI.(17) Internal BCCI memoranda show that in the original structuring of the transaction, BCCI was intending to lend money to the current shareholders of the bank and have them pledge their shares back to BCCI in order to avoid having to notify the Central Bank, and receive its authorization for the purchase. Ultimately, however, this plan was found not to be necessary as a result of BCCI securing the Central Bank's permission for the transaction.(18)

The New York indictment of Abedi, Naqvi, Faisal al Fulaij and Ghaith Pharaon on July 29, 1992 succinctly sets forth why BCCI was able to abandon the nominee structure and directly, publicly purchase the Argentine bank:

The BCCI Group made corrupt payments to the President of the Central Bank of Argentina and a member of its Board of Directors. In or about 1983 and 1984, the BCC Group made and caused to be made a five hundred thousand dollar "political" contribution to the President and a member of the Board of Directors of the Central Bank of Argentina upon an agreement and understanding that it would influence the conduct of said President and Director in relation to the establishment of a bank of the BCC group in Argentina and in relation to the business of the BCC Group.(19)

At the same time BCCI decided to move into Argentina, so did its front-man, Ghaith Pharaon. According to published reports, Pharaon came to Argentina by way of Paraguay, where he had established a personal friendship with military strongman Alfredo Stroessner. Argentine press accounts quote Pharaon as stating he had visited Paraguay to assist in developing BCCI's relationships there, which culminated in the Central Bank of Paraguay placing some of its central bank deposits with BCCI.

The new BCCI bank quickly made one enormous set of loans to Pharaon -- for the construction of a luxury five-star hotel in downtown Buenos Aires -- the first such hotel in the city, including an 18-story tower, convention center, and shopping gallery, built on the grounds of a historic mansion.

According to a letter submitted to Argentine economic authorities by the Hotel Corporation of Argentina, most of the financing for Pharaon's hotel project -- $26.3 million in all -- was to come through selling Argentina Debt under the government's debt equity conversion program. In the letter, Pharaon was described as "a prominent international businessman who has investments in banks, insurance companies, real state [sic] development projects, and numerous other businesses worldwide."(20) During an application for Argentinean citizenship Pharaon made on June 16, 1988, he listed BCCI, CenTrust Bank in Florida, and Independence Bank in California as among his principal investments, and declared he had helped arrange BCCI's acquisition of FinAmerica -- renamed BCCI Argentina.(21)

BCCI's direct involvement in the debt-for-equity project was suspected by some Argentinean press at the time, given the lavishness of the project and questions about whether a hotel could possibly be profitable. However, BCCI's actual involvement was not proven until after BCCI's global closure on July 5, 1991. A week later, investigators in Buenos Aires reported that BCCI Argentina had been heavily involved in the construction of the Pharaon hotel, but that all accounts at the bank had been "cleared out a week before the central bank's move to revoke the license," leaving no depositors in the bank and no deposits. BCCI had financed the Buenos Aires hotel through buying Argentinean foreign debt at a huge discount and cashing it with the central bank, with the result that the Argentine central bank, in essence, financed the bulk of the hotel.(22)

In addition, the hotel project required legislative and regulatory action by various Argentine political figures. In mid-1989, Pharaon reached out to new-elected Argentine President Carlos Menem himself, through ties Pharaon had developed to Menem's former chief of staff, Alberto Kohan. A few months later, Pharaon was introduced to President Menem, and following a meeting with Pharaon, President Menem personally telephoned local officials in Buenos Aires to eliminate the red tape that had been delaying the construction of the BCCI-Pharaon hotel. The delays ended the following day.(23)

The intimate nature of the relationship between top Argentine officials, BCCI, and Pharaon was further demonstrated when Pharaon hired Argentine economist Gonzalez Fraga. On Pharoan's behalf, Fraga arranged the debt-equity swap to help finance the hotel, and then became the new president of the Central Bank under Menem. Fraga told journalists, "it's a pretty story that President Menem made me head of the Central Bank as a favor to Pharaon. But it wasn't that way."(24)

In practice, BCCI's Buenos Aires bank never developed much of the business anticipated for it. Ultimately, its principal activities were mainly to manage the financing of Pharaon's hotel venture and a jojoba planation also financed through an Argentine debt-equity swap involving BCCI.

In the meantime, Pharaon had unwittingly brought about official action against BCCI Argentina in April, 1991 as a result of testifying in a court case, unrelated to BCCI, that:

As much as BCCI, the First National Bank of Boston, the Credit Suisse and the National Bank of Greece -- all are equally lawbreakers.(25)

In response to this suggestion that all banks were laundering money, Argentina ordered BCCI to begin winding up its affairs in Argentina as of the end of 1991, and began a formal investigation of BCCI in Argentina. Little further happened until BCCI's global closure on July 5, 1991, which soon resulted in BCCI Argentina's closure as well. Argentine Federal Judge Maria Servini then combined the investigation into BCCI with another ongoing case implicating the former appointment's secretary of Argentine President Carlos Menem, and his sister-in-law, Amira Yoma, in an alleged international drug and money laundering network. However, little has been made public about the investigation since that time, and many of the key questions about BCCI's and Pharaon's relationships in Argentina remain unanswered.

BCCI and Argentine Arms Deals

In response to the Foreign Relations Committee subpoena to BCCI, BCCI's liquidators produced documents concerning two proposed arms sales involving Argentina that had been maintained at BCCI's offices in Miami.

The first set of documents held at BCCI-Miami referred to the sale by the Argentine Air Force of what handwritten notes described as "22 units of Aircraft plus adequate space parts, including 6 spare engines at a price of $110,000,000.00," consisting of Mirage IIIC/B jets manufactured in France and "modified to Argentine Air Force requirements following years of combat experience."(26)

The prospectus included technical drawings of the Mirage jets and basic military specifications, with a commitment that the "AAF," or Argentine Air Force, would provide all technical documentation in support of the planes, ground support equipment, and, if the "customer country" wished, a full program of flight training in Argentina for customer country pilots. (27)

This proposal had never gone through the legal processes in Argentina required for such sales, and was a secret in Argentina until the Subcommittee released these documents. As former Argentine Defense Secretary Raul Alconada Sempe testified before the Subcommittee, the sales had never been authorized, and that if such a proposal had been made legally, it would have required notification to the Argentine parliament:

Sales without the Defense Minister knowing, from 1983 on, it was impossible, because it was only the Defense Ministry that authorized such sales. What does exist, and I think this is a general problem throughout all countries, is that there are countries that have arms, countries that need arms, and the famous middleman crop up. The brokers, the sales agents, and these are the people that try to match the buyer and the seller. . . . They just try to look for such a deal. This is what may have happened.(28)

Following the conclusion of the hearing, investigators in Argentina determined that the sale appeared to be a proposal made unofficially by a general in the Argentine air force to various countries in the Middle East, including Iraq. BCCI had offered to act as a broker and possible financier for the proposed sale of the Mirage jets, which represented a substantial percentage of the total possessed by Argentina. However, the general involved had never been able to convince Argentine governmental figures that the transaction was in the interest of Argentina, and the proposal died.

Other BCCI documents describe BCCI's involvement in a possible sale of night vision equipment by Litton Electron Devices in Arizona to the Government of Argentina, guaranteed by an Argentine government bank, through a company owned by the Argentine government. It is not clear from the documents whether BCCI ultimately financed the night-vision equipment sales or not.


When BCCI was closed globally on July 5, 1991, one of the nations that was worst hit was Bangladesh, which had deposits of $171 million at the time of its closure. Following the collapse, some 40,000 depositors threatened a hunger strike after losing their life savings, 500 depositors actually conducted a sit-down strike in the capitol's financial district, and another thirty depositors threatened to engage in self-immolation if the government did not find a way to restore some of their losses. One month later the Bangladeshi government promised to provide up to $1400 to each of the banks depositors, as a means of ending the highly-publicized strikes.

Thus, the impoverished government of one of the poorest countries in the world was forced, in essence, to raid its own treasury to alleviate the suffering of the small depositors to make up for millions stolen from Bangladesh by BCCI and former Bangladeshi government officials, including the man who had been president and dictator of Bangladesh throughout the 1980's, Mohammed Ershad. These schemes included massive tax evasion and an equally massive and illegal currency trafficking ring involving then-president Ershad, top aides, and President Ershad's mistress, which continued until Ershad was deposed in December, 1990.

According to various press accounts, supplemented by information from BCCI insiders provided the Subcommittee, President Ershad worked with his brother-in-law, former Bangladeshi diplomat A.G.M. Mohiuddin, to smuggle millions of dollars out of Bangladesh through BCCI into the United States. BCCI also hired various relatives of Ershad to work at BCCI branches in Hong Kong, Britain and Canada, and in return, Bangladesh hired one of BCCI's top officers to serve as Bangladesh's first ambassador to Brunei -- whose embassy functioned primarily as a sales office in Brunei for BCCI.(29)

The BCCI-Ershad connection was essential to the Bangladesh president because given his country's impoverishment, he had relatively limited opportunities outside of what BCCI could bring him to get rich. His salary was only $13,000 a year as president, but through making use of BCCI he was able to move millions of dollars of fund siphoned out of Bangladesh governmental accounts.

As BCCI officer Abdur Sakhia testified in response to a question about payments by BCCI to the leading political families of India, Pakistan and Bangladesh, including President Ershad:

The payoff [came] either in the form of cash, or hiring of their relatives, contribution to their favorite charities, payment of their medical bills. It took various shapes. So in some cases cash may have been given, in some cases their relatives were hired, in other cases their charities were funded, their projects were financed at favorable rates, loans at favorable rates. So it took different shapes and forms.(30)

In the case of Bangladesh, the payoffs in fact came in almost every shape and form. By far the most detailed account of these payoffs was provided by the Los Angeles Times, which sent a reporter to Bangladesh to interview government officials, BCCI officers, and private business there about the relationship between BCCI and Bangladesh after BCCI's collapse. Its account has been generally corroborated by testimony to the Subcommittee from statements by BCCI officials, including Sakhia and Chinoy. As the Times found:

Here, in a land that perpetually ranks among the poorest of the world's poor, BCCI stretched the law to its limits to avoid paying desperately needed government taxes, to skirt national banking regulations and to remit as much profit as possible out of Bangladesh and into the bank's international web of corporations and subsidiaries.(31)

The practices described in the Los Angeles Times article were typical of BCCI's practices in other countries. After the Central Bank of Bangladesh forbid BCCI from exporting profits in Bangladesh abroad -- the "flight capital" BCCI specialized in -- BCCI created the BCCI Foundation, a charitable trust based in Bangladesh, whose official purpose was to fund scholarships, rural health care centers and school libraries. Funding for the BCCI Foundation came from BCCI's banking operations in Bangladesh. Those profits became tax-free because they were given to the Foundation. And the foundation in turn gave funds not principally to the needy, but to a joint venture investment bank, called the Bank of Small Industries & Commerce or BASIC, staffed by BCCI officials, in which President Ershad and his top aides had a financial stake.(32)

Towards the end of Ershad's rule in Bangladesh, the scheme had become sufficiently transparent that it created outrage within the country. For example, the Foundation's most important scholarship program, to provide interest-free loans to talented college students, received about $10,500 in donations from the Foundation in 1990, in a year when the Foundation earned over $21,000 in interest alone.(33)

In the meantime, BCCI hired three of Ershad's close relatives, along twelve other sons and daughters of prime ministers, finance ministers, police chiefs, central bank governors and deputy governors.(34)

In late 1990, Ershad resigned under fire, and was tried for a variety of arms trafficking offenses in Bangladesh, and sentenced to a ten year prison term, while awaiting trial on additional corruption charges, including some pertaining to his relationship with BCCI. Following BCCI's collapse, the new government retained an investigative firm in New York in an attempt to trace what the new government contended as much as $520 million in funds misappropriated from the Bangladesh treasury by BCCI, Ershad, and his relatives. The investigators have alleged that Ershad moved millions of dollars through BCCI accounts in London and Hong Kong.(35)

Even disaster relief aid provided by foreign governments to Bangladesh to help victims of a devastating cyclone in 1990 wound up being deposited in BCCI and lost with the closure of the bank.(36)

Thus, BCCI, which promoted itself as a Third World Bank devoted to assisting the Third World in development, stole millions from Bangladesh, in concert with Bangladesh's ruling political family, in what one BCCI official was later to describe as "a perverse, reverse Robin Hood."(37)


By early 1986, BCCI had identified Brazil as a prime target for BCCI expansion. Latin American banker Brian Jensen, then an Alternate Executive Director of the International Monetary Fund, had been working closely with BCCI, on an unofficial basis in this period, to help BCCI obtain its relationship with Peru through payments to Peruvian central bankers. In addition to his work on BCCI's Peruvian activities, Jensen studied the Brazilian economy and Brazilian banking system for BCCI, and wrote Abedi a memorandum which Jensen faxed to BCCI from offices at the IMF in early 1986 describing his approach to Brazil:

The establishment of a banking concern in Brazil can become a priority. I feel I can be useful in identifying and putting together a concrete and well-balanced possibility for BCCI while at the same time protecting for a positive attitude from the local authorities to such initiative. . .

A US $230 billion economy with an external trade component that exceeds 25 percent of GNP, Brazil offers the advantages of a large internal market of 135 million people and a rapidly growing export sector . . . Brazilian legislation . . . and long standing traditions or practices . . . exclude foreign banks from establishing branches or investing in domestic commercial banks at present. However, foreign equity participations of up to one-third of the common stock or half of non-voting shares are allowed in investment banks. These are specialized financial intermediaries authorized to issue certificates of deposits and other savings investments, as well as to extend loans to the private sector. . .(38)

Abedi told Jensen to talk with Brazilian bank officials to find a way to get around the regulations. The following month, Jensen sent a second memorandum from his IMF offices in Washington to BCCI:

Conscious of BCCI's interest in Brasil and according to our recent conversations in London. . . I have held discrete conversations (on a no-name basis) with central Bank authorities and existing banking groups (well know to me) as to the better possibilities and strategies. . .

The route followed by most new investors in Brasilian banking in recent years has been to buy equity into existing groups, assuring in his manner an important presence in the market. All foreign investment has been in this fashion. The rationale has been to find a solid and reputable local group (ongoing concern) and acquire up to 30 percent. . .(39)

BCCI well-understood the concept. It did not mind holding a public minority interest in a Brazilian bank, so long as it had sufficient additional secret interests through nominees to insure that in reality the local bank was BCCI anyway. BCCI directed its acquisitions officer, Abol Helmy, who was already handling the Argentine FinAmerica purchase, to locate possible nominees for BCCI in Brazil.(40) Eventually, two were found -- Sergio da Costa and Carlos Leoni Siqueira, to be BCCI's nominees, each to hold on BCCI's behalf one-third of the bank, with the remaining investor, Jacque Eluf, to hold an additional one-third, which he himself would pay for, but which BCCI would guarantee against loss.

The nominees chosen by BCCI were extremely prominent members of BCCI's elite. Jacque Eluf, who it was guaranteeing against loss, was one of the wealthiest men in Brazil, owner of IAT Co., Brazil's largest exporter of industrial alcohol, with a net worth in 1986 of about $100 million. BCCI nominee Carlos Leoni Siqueria was one of Brazil's leading attorneys, on the board of directors of companies such as IBM Brazil and Grupo Gerda, Brazil's largest privately owned steel manufacturing company. BCCI Nominee Sergio da Costa was at the time the most senior member of the Brazilian diplomatic corps and a close associate of then Brazilian president Jose Sarney.(41)

Da Costa was available to BCCI because at the age of 67 after four decades of serving Brazil as its Ambassador to such significant postings as England, Canada, the United Nations, and the United States, he was retiring and anxious to make money. Da Costa had been brought to BCCI by BCCI shareholder and front-man Ghaith Pharaon, who in late April, 1986 had met with Da Costa in Miami to seek Da Costa's help in responding to the problems posed for BCCI in circumventing the Brazilian bank laws. A telex from Miami branch manager Abdur Sakhia to BCCI-London on May 6, 1986 described the meeting having ended positively for BCCI:

Ambassador Da Costa has promised Dr. Pharaon to assist the Bank in any way he can and he also had asked Mr. Ferreira [a prominent Brazilian businessman close to President Sarney] to use his association with the President of the Republic to assist BCC.(42)

By September of 1986, da Costa had agreed to himself become a front-man for BCCI in Brazil. In return, BCCI agreed to pay him $150,000 a year, with no further responsibilities beyond being a front-man and using his influence to help BCCI with Brazilian authorities in Brasilia, the capital city.

Under the terms of the arrangement, da Costa agreed to be a director and shareholder, secretly acting as BCCI's nominee, of the bank BCCI was purchasing in Brazil, in a transaction structured by BCCI officer Abol Helmy.

Helmy drafted a memorandum, "Strictly Private and Confidential," regarding "Brazil," on September 2, 1986, under which da Costa and a second prominent Brazilian would each own 50 percent of a Brazilian company that would buy 12,622,500 voting ordinary shares in BCCI Brazil, pledge those shares to BCCI, give BCCI the right to vote its shares, and give BCCI the right to buy those shares. Da Costa would agree to serve on the three man board of directors as BCCI's front-man, to guarantee BCCI control of the bank. He would 'pay' $1,233,580 for his 'share' of BCCI Brazil's stock, and BCCI would reimburse him that amount in New York. The internal BCCI memorandum drafted by Helmy makes explicit the fact that these arrangements were designed to deceive Brazilian authorities:

It must be emphasized that the Brazilian economy and bureaucracy are highly sophisticated. As such any payments made by Brazilians must have the appropriate ORIGINATION OF FUNDS. That is, the Brazilian 'investors' must have the necessary net worth for Brazilian taxation authorities' purposes to support any investments made. . .

Messrs. Da Costa and Leoni to ensure that the transaction is fully acceptable to the Central Bank and to ensure that there are no adverse public consequences will be purchasing their shares in cash. . .

Both Ambassador Da Costa and Mr. Leoni are reluctant to take loans from any bank to finance the transaction for Central Bank and public image purposes . . . I have negotiated, subject to BCC management approval, an interest free loan to the individuals concerned . . . to enable them to complete the transaction.(43) (emphasis in original)

The memorandum demonstrated that BCCI would provide da Costa and Leoni with $2,467,160 for the purchase of his stock in BCCI Brazil, every penny the stock would cost. In a staff interview, Helmy acknowledged that da Costa and Leoni were not at risk and that the transaction was a standard nominee arrangement by which BCCI circumvented local laws and that this approach had been used a numerous of times previously by BCCI. Helmy also said it was BCCI's understanding that da Costa and Leoni would take care of arrangements with Brazil's central bank and other Brazilian officials to make sure that they acquiesced in the transaction as structured.(44) Thus, in essence, Helmy at BCCI and da Costa, while still Brazil's Ambassador to the United States, had with other BCCI officials and other prominent Brazilians, created a plan by which they would together make possible BCCI's purchase of a bank in Brazil to circumvent Brazilian law.

BCCI officials were ecstatic at da Costa's participation in their plan for Brazil, and his agreement to be a Senior Advisor to BCCI. On October 28, 1986, while da Costa was still Brazil's Ambassador to the United States, the head of BCCI's Miami office, S. M. Shafi, sent him a congratulatory telex at the Embassy:

congratulations from myself and my colleagues on your joing [sic] our Brazilian project. We welcome you to the fold BCC family. I am very certain your experience, qualifications and contacts not only in Brazil but also internationally will go a long way in turning our subsidiary in Brazil into one of the most successful units of BCCI.(45)

Da Costa signed a three-year consultancy agreement with BCCI on November 3, 1986, under which he committed to acting as "Director of [BCCI's] investment bank in Brazil," and a front-man for BCCI there.(46) Da Costa then followed through in participating in the plan developed by Helmy under which BCCI would secretly purchase a majority interest in BCCI Brazil through nominees. He received his 'loans,' from BCCI, and purchased his 'stock' in the Brazilian bank. BCCI duly reported its loans to him on its books in Panama, characterized as "International Loans," as if they were normal loans that BCCI anticipated would be repaid. By April 30, 1988, da Costa's 'loans,' from BCCI amounted to $1,563,723.85. In fact, da Costa did not pay interest or principal on the loans, which were shams to mask BCCI's ownership of the 'da Costa' shares of the bank.

Among themselves, BCCI officials were also pleased about another aspect of being connected to da Costa. As he entered his agreement with BCCI to circumvent Brazilian banking laws, he had told them that he was also joining Kissinger Associates. A full account of da Costa's and BCCI's relationship with Kissinger Associates is set forth separately.(47)

To penetrate the Brazilian market, BCCI had once again made pay-offs to some of the most prominent people in Brazil -- this time among others to the country's most senior and prestigious diplomats -- in order for them to participate with BCCI in circumventing the laws of their country.


BCCI developed a number of relationships with governmental entities in the impoverished Central African country of Cameroon, including the United Nation's account there and the U.S. embassy's account there. But the most critical relationship for BCCI in Cameroon was with the country's ministry of finance, which, after BCCI began making payments to its officials, agreed to borrow funds from BCCI on which BCCI charged Cameroon interest, and then to redeposit them in non-interest bearing accounts, benefiting no one other than BCCI and the bribed officials.(48)

At the same time, BCCI went into a joint venture with the government of Cameroon to finance BCCI's bank in Cameroon. The joint venture was successful for both BCCI, which held 60 percent of the banks shares, and for Kanga Zamb Jean, who was previously Cameroon's finance secretary and governor of a province of Cameroon before he became chairman and managing director of the bank. In that capacity, Jean was officially representing the interests of the Republic of Cameroon, which held a minority interest in the bank. In fact, Jean was also lining his own pockets.(49)

BCCI's relationships with Cameroon were flourishing by the time of BCCI's indictment in Tampa on drug money laundering. In 1988, Cameroon started directing oil export financing through BCCI, as a result of payments being made by BCCI to people in the finance department of the Cameroon national oil company. The payments were small, amounting to no more than $3,000 to $4,000 per person, but enough to secure BCCI what it needed in such a low-income country. In return for this small investment, BCCI benefitted a number of ways. As Nazir Chinoy, Paris regional manager in this period, explained:

The deposits from the purchasers of the oil are kept from 7-10 days in Paris. You can use that money to make a small profit there. But more important than the deposit was the exchange. The money is kept in Paris then is converted into French francs. There is an exchange profit to be made for BCC Paris as well as for BCC Cameroon.(50)

BCCI Cameroon became a cash cow for BCCI, with deposits amounting to between 90 and 100 million pounds sterling. When BCCI was closed globally, Cameroon was caught with most of that money still deposited -- including a substantial amount of government funds -- amounting to about $90 million, which for Cameroon constituted a substantial loss.(51) Of those funds, approximately $63 million amounted to real deposits by Cameroon that had been discovered by BCCI's auditors, but never recorded by BCCI on the books. BCCI had kept the deposits off-the-books in order to use the cash to finance other BCCI operations elsewhere.(52) Later, BCCI's chief financial officer, Massihur Rahman, was to refer to the treatment of Cameroon's as unrecorded deposits at BCCI as "major fraud."(53)


As Colombia was transformed during the 1980's from a country whose biggest cash crop was coffee, to one whose biggest cash crop was cocaine, BCCI decided to enter the Colombian market through buying Banco Mercantile, a troubled bank there.

It did so fully aware of the nature of most of the dollars that were being generated in Colombia. According to Abdur Sakhia, who was then on BCCI's top officials in the United States, BCCI's decision to acquire a Colombian bank was exceptionally controversial even within BCCI:

In December, around Christmas 1982, we had a meeting in Panama, and Mr. Akbar Bilgrami, who was indicted and convicted, and Mr. Amjad Awan, brought in a proposal of this bank in Colombia. We wanted to expand in Colombia in terms of a branch in Bogota which would do international business, but according to them the only way we could get an entry into Colombia would be to buy this bank.

I was vehemently opposed to the acquisition, one, because the bank was doing very poorly . . . I said: What are we going to do with all of this? We do not know what people they are, what type of clients they are, what are they doing in Cartagena, Cali, Medellin? How are we going to control this.

I had been to Colombia twice before this meeting to our office. We used to have a representative office in Bogota. And every time they would take me from the airport escorted by an armed guard to my hotel. . . I said: How are we going to manage offices in remote arts of Colombia when you cannot walk in Bogota unescorted? I said: We don't know what types of clients they are, what type of business they have, what type of money they have; we shouldn't go into this acquisition.

Later on I learned that we would now divide the operation into Caribbean and U.S. on one side and Latin America on the other side. So Colombia, Panama, Peru were taken out of my jurisdiction.(54)

We knew that the money that we would be getting in Colombia would be drug money. We knew that all the dollar deposits we would be getting would be drug money.(55)

Thus, when Sakhia complained about the concept of expansion into Colombia at a time when Colombia had already become lawless as a result of the drug trade, BCCI's response was to take away his jurisdiction over BCCI operations pertaining to Colombia, as well as its drug-producing neighbor Peru, and its drug-money laundering neighbor, Panama.

Akbar Bilgrami, convicted of money laundering in the Tampa case, told the Subcommittee that he could not, for legal reasons, discuss in any detail his activities in Colombia. He was willing, however, to make some general statements about the flow of funds from BCCI Colombia to the United States.

First, it was true that BCCI, like other foreign banks based in Colombia, was moving dollars out of Colombia into FDIC-secured banks in the United States. According to Bilgrami, one of the key goals of many of his Colombian clients was to obtain federal insurance for their cash deposits. Accordingly, BCCI would take their funds, and immediately transfer the funds to accounts set up in their names in First American, which BCCI secretly controlled, and in National Bank of Georgia, which BCCI then separately secretly controlled. According to Bilgrami, most of this was typical flight capital:

You know, all flight capital is questionable money: Tax evasion, drugs money, arms transactions, pure political corruption. But we were small, only able to take in $100 million yearly. Other banks were taking in a billion each. So we were losing out on that business. Credit Suisse was repatriating $1 billion per year in flight capital from Colombia. Union Bank of Switzerland, another $1 billion. We only handled $100 million. But that amount did go from BCCI Colombia into the United States.(56)

In Colombia, as in so many other nations, BCCI found that to stay in business, it had to pay bribes. Because the bank it had acquired was in such poor shape, and so near to collapse, the Colombian government had made no objections to BCCI's acquisition of it, and no payments by BCCI to officials were necessary. That changed, however, after BCCI bought the bank. According to Bilgrami:

Colombia was a unique situation. We never paid any illegal money to purchase the bank. But when we inherited the bank, we learned that it was a tradition to pay the treasurer of the bank commissions on the largest accounts. I asked Mr. Naqvi for clarification, you know, should we pay it? And he said to pay it in dollars so that it couldn't be traced to us. So we paid it, around $20,000 to $30,000 monthly.(57)


BCCI's situation in the Congo was different from its situation in many other countries, in that the best known example of its criminality emanated from government cheating, rather than BCCI's.

Originally, BCCI had purchased government securities, at a discount, under an agreement by which the government promised to repay BCCI, and then the government had, after making some of the repayments, failed to follow through on the deal. Thus, BCCI's original wrongdoing was merely its creation of a mechanism for repayment through skimming off commodities transactions. However, BCCI then wound up paying bribes only after Congo officials failed to honor the deal worked out originally. In essence, BCCI made the payoffs to protect itself after it had been the victim of fraud by the Congo.

As Nazir Chinoy advised the Subcommittee, in August 1985, BCCI had worked out what looked like a profitable arrangement with the Government of the Congo by purchasing notes issued by the Congo in the range of $65 million to $67 million. These notes had been originally purchased by Mohsen Hujaj, a Lebanese contractor, with extensive contacts in the Congo. Hujaj accepted the notes from the Congo in payment for services he had performed after the government proved unable to pay under the terms of its contract with Hujaj. In a three-way deal, Hujaj got the government to acknowledge this indebtedness to BCCI and agree to certain repayments starting every three months.

A complex scheme was devised to insure that BCCI would be repaid on the notes without the government of the Congo having to acknowledge the payments or set aside funding for them. The Congo government placed 17 million in deposits in dollar terms in BCCI Paris, while BCCI was given the right to handle funds generated through the sale of oil and to take a charge off the proceeds of these sales. Under the terms of the deal, the oil sales were made from the Government of the Congo to a French company called ELF. ELF paid the money to an offshore account in a Swiss bank which had lent Congo $60 million. When the oil proceeds came in, the balance after paying for the oil would be sent to BCCI Paris, which got about $20 million of the proceeds and would use this for repayment on the notes. The arrangements worked well until January 1986, when suddenly the money stopped coming in from the Swiss bank.(58)

With some difficulty, BCCI learned from the Swiss bank that the government of the Congo had repaid the Swiss bank directly for its lending, and in the future they took payment directly for the oil from ELF, bypassing BCCI entirely. In response, BCCI turned once again to a tried and tested technique -- bribery. As Chinoy explained:

We had to make expensive presents to the finance minister to get much of our money out. We were still owed $40 million by 1987 and having difficulty with the Lebanese, Hujaj, who threatened to get me killed because we were holding $11 million of his deposits at BCCI which were pledged. We released $6 million and had to find other means of securing repayment on the rest.(59)

In the meantime, French authorities, under the leadership of Jacques Chirac, had recognized the Congo's parlous financial condition, and convened a meeting of bankers in an attempt to restructure Congo's debt. Under the terms of the restructuring, BCCI, which was the second largest of all lenders to the Congo, would be forced to accept losses on its lending, which it did not wish to do. Accordingly, BCCI officials discussed what kind of payments could be made to the ministry of finance in the Congo to solve the problem:

Dildar Rizve [a senior BCCI official] said, if I can get to him, if he releases our funds, I'll set up a scholarship for him. I have a feeling it was $100,000 for his children. But in 1987 the finance minister was replaced and a new finance minister came in who was a younger and more honest man. The new chap wanted $5 million as a temporary overdraft to assist the President for his tribe. If we could get him that, they would pay us back within 5-10 days. I spoke to Naqvi [then BCCI's second highest ranking official] who said, go and do it. It was repaid and he was honest. He said, if you want money, lend me another $20 million. Congo had changed from socialism to joining the World Bank and becoming capitalist. He said I will see that your outstanding [loan]s are paid before we join the World Bank. The money was given. On June 29 1988, the new finance minister was in Paris and Security Pacific [which was lending the Congo new funds] paid us the full amount outstanding.(60)

BCCI was one of only two out of 32 banks that was fully repaid on its lending. While the new finance minister was, in Chinoy's view, honest, to keep him that way, BCCI did make sure that he and the Governor of the Central Bank received presents from BCCI. According to Chinoy, "we gave him the expensive presents and that made the difference."(61)


Shortly after establishing offices in the United States, BCCI cornered the market for government funds and programs in Jamaica as the result of establishing a personal relationship with then-Prime Minister Edward Seaga. Ultimately, this relationship involved BCCI being involved in financing all of Jamaica's commodity imports from the United States under the U.S. Commodity Credit Corporation (CCC) program and handling essentially every foreign current account of Jamaican government agencies.

According to Abdur Sakhia, who brought in the Jamaican account, unlike BCCI's practice in so many other countries, its relationship with Jamaica was based on nothing more than reaping more benefits for having taken some additional risk.

Sakhia told the Subcommittee that the relationship began, in part, because he had known Mr. Seaga's family as a result of his children and Sakhia's children attending the same school in Toronto, Canada. Soon thereafter, Seaga invited Sakhia to Jamaica to find out if BCCI would lend Jamaica any money. Jamaica began to borrow from BCCI, and the borrowing continued until BCCI executives began to become concerned about whether or not BCCI would be repaid. Seaga began personally telephoning BCCI, and Sakhia personally, to beg for additional money for Jamaica.

They owed a lot of money to BCCI. Seaga told me, we need oil, we need seeds for planting, can we make an exception here? Finally he called me in desperation at home. He told me, there is an oil ship which is here in Kingston already, it is ready to unload the oil. If we don't unload it we will have a dark Christmas in Jamaica. Just give us and extra $4 million or $5 million and we will make it up to BCCI. I promise you personally.(62)

Sakhia decided to take the risk. When the crisis was over, Seaga insured that BCCI received essentially all Jamaica's foreign business. BCCI soon wound up with "practically every foreign currency account of Jamaican government agencies at BCCI," including lucrative concessions in which Jamaica selected BCCI as the bank to handle all of the U.S. government or international organization sponsored guarantee programs. As Sakhia told the Subcommittee:

By the mid-1980's, we handled every penny that came into or out of Jamaica in terms of foreign currency.(63)

We were bankers to the central bank, we were bankers to all official governmental organizations in Jamaica.(64)

Typically, BCCI would provide financing, usually for the import or export of products, which in turn would be guaranteed by the foreign or international organization. Jamaica provided BCCI a no-risk means of generating profits through international organizations and foreign governments, and BCCI in return loaned funds to Jamaica which other banks refused to provide, on the basis of the personal relationships involved, and BCCI's expectation that these relationships would in the long run guarantee its repayment.(65)

At the time of BCCI's collapse, Jamaica owed about $34 million to BCCI. Thus, Jamaica may well be one of the few nations to have actually benefitted from the unusual deal worked out between BCCI and its political leaders.(66)


BCCI's activities in Nigeria were so profoundly, overwhelmingly corrupt as to suggest a very significant level of corruption in Nigerian officialdom generally. Whereas BCCI's activities in most countries merely involved corrupting a few, key people, in Nigeria the corruption was systemic and endemic, and touched nearly every operation of the bank in Nigeria.

According to BCCI officers, this was not the consequence of BCCI applying its practices to Nigeria, but rather, BCCI adapting itself to the conditions already present in Nigeria. According to BCCI officers interviewed by the Subcommittee, few European or American businesses active in Nigeria would have been able to do business without making one or another form of pay-off to Nigerian officials during the 1980's, and, to the knowledge of some BCCI officials, several such corporations, including some well-known European and U.S. banks, did.

During the Subcommittee's original investigation of BCCI in 1988, corruption involving Nigerian officials was one of the earliest allegations of BCCI criminality made to staff. As former Subcommittee investigator Jack Blum testified:

There are extraordinarily close relationships at all levels of the Nigerian Government with BCCI. [During my intial investigation] I had been called . . . by the Nigerian Ambassador who had been asked to call by the President [of Nigeria] to say, what's happening here? What are you guys doing with respect to BCCI?(67)

Several BCCI officials described BCCI having made cash payments to officials of the Nigerian central bank. As Abdur Sakhia testified:

During a meeting of the World Bank in Seoul, Korea -- I think it was in 1985 -- I saw one of the BCC officers with a lot of cash, handing it out to the staff of the central bank of Nigeria. This is what I saw personally being given to them.(68)

The most detailed account of BCCI's activities in Nigeria came from Nazir Chinoy, convicted in the Tampa case of money laundering during the time he was BCCI's Francophone regional manager. Prior to moving to BCCI-Paris, Chinoy had been stationed by BCCI in Nigeria for the first half of the 1980's, where he saw first hand the pervasive corruption of the Nigerian banking system, and BCCI's solutions for dealing with it profitably.

At the time Chinoy arrived in Nigeria in December, 1980, he found that BCCI already had purchased a minority interest in a commercial bank in Nigeria -- owning just 40 percent of the Nigerian bank, with corrupt Nigerian officials insisting on controlling the remaining 60 percent. But even with only 40 percent, the Nigerian offices of BCCI were earning BCCI very significant profits. In fact, the profits were so large that BCCI feared the Nigerians might try to take remaining interest in the bank away from BCCI. Chinoy's job was to establish a second bank for BCCI in Nigeria to protect BCCI against the possible expropriation by the government of the first bank.(69)

BCCI was already being used for short-term commercial financing through letters of credit for the purchase and sale of goods by various Nigerian governmental entities. Moreover, some Nigerian officials were using BCCI in London and elsewhere to store cash they had earned through off-the-books deals while in the government. As Chinoy explained:

Nigerians were keeping large laundered funds generated by influential people who got contracts from international companies and commissions paid abroad. The money was kept abroad and not repatriated to Nigeria. BCCI was a good place to keep it.(70)

The simplest means of generating funds for Nigerian officials was requiring a "commission" on each transaction. As Chinoy stated:

Commission means kick-back. The government approves a $300 million contract. A multinational corporation agrees with the government which has helped him, 10 percent gets kicked back. A company is established abroad or they nominate a cousin or someone who is paid 3 percent. It is known as a commission but it is actually a kickback.(71)

Other mechanisms by which these funds were generated for Nigerian officials were through over invoicing of imports and under invoicing of exports. When over invoicing would take place, the government would pay more for goods than the actual market price. BCCI would disguise this through shell entities which would appear to any outsider as arms-length brokers, but which in fact were mere mechanisms by which money would be skimmed off from the government and deposited in BCCI, to be shared by BCCI and by the official responsible for handling the purchase. When under invoicing would take place, the reverse would happen. The government would ship greater commodities than were reflected on the government invoices; the additional commodity would be sold at the same time as that invoiced, and the additional funds generated would again be split by BCCI and the Nigerian official, who of course would have keep his profits outside his home country. As Chinoy explained it:

Essentially, BCCI was handling the financing of commodities through bribery. For example, BCCI loaned $250 million to Nigeria to be repaid within the next six months for oil exports. Nigeria would charge OPIC prices but would load ten percent more than the invoice. That way you are giving a 10 percent discount.(72)

Business was so good that Chinoy's predecessor and superior at BCCI, Alauddin Shaikh, who was a senior official at the bank, decided to leave BCCI to form a partnership with a Nigerian, Razar Sareef, who had gained control of Nigerian oil exports. Shaikh has been implicated by numerous BCCI officials in making pay-offs not only in Nigeria, but in several other countries. His new venture was in any case a success. It wound up controlling the National Petroleum Corporation of Nigeria account for the United States, an account it continued to control at least as of 1991.(73)

Other techniques used by Nigerian officials with the connivance of BCCI were currency swaps involving government funds. Government funds were placed in an account at BCCI in London. BCCI would place the funds with Lloyds or another bank and swap it into different currencies or make stock investments with it. If there was a loss, Nigeria bore it. If there was a profit, the first 8 percent went to Nigeria, on anything additional, the money was split between Nigeria and the traders at BCCI.(74)

In addition to the skimming that was taking place of government funds, BCCI found itself in the position of being able to earn enormous fees from ordinary commercial transactions in Nigeria, because Nigerian officials insured that financial transactions undertaken by BCCI for its customers would be handled much more efficiently than similar transactions undertaken by any other foreign bank doing business in Nigeria. While other banks would have to wait days or weeks for their transactions to be processed by the relevant government ministries, BCCI, would have their transactions handled promptly. As Chinoy explained:

BCCI got big profits because early release of foreign exchange was the crux of any deal. BCCI was two to three times faster than Chase Manhattan or the Bank of America or any other joint venture. BCCI was faster than any Nigerian bank in getting foreign exchange out of the Central Bank. It had very good relations with Central Bank of Nigeria. Unless you were friendly with receptionist, it would lie in the tray and wouldn't go anywhere for days. BCCI used to look after the girl at the foreign exchange desk. When the BCCI clerk would hand in the foreign exchange she would do that first for processing its release. Release of foreign exchange was important. Clerks at every level were looked after by presents. We had an officer, Mr. Saddiqui, who used to go and spend at least 10 days a month in Nigeria. His specific job was to look after people at all levels. In addition, he had appointed one to two expatriates who did nothing but spend their time at Central Bank. I do not think that cash was actually paid, but presents were bought in large amounts, as much as 20-40 dresses, shirts, ties at a time brought in from London and given. Everybody was kept happy. so that there is no objection raised by a clerk that a document isn't filled in exactly correctly. Because BCCI was so good and there was a BCCI application where someone had forgot to cross a "t" or dot an "i" and they would get it rectified quickly. This is Nigeria.(75)

The result was that BCCI began to develop almost a monopoly on handling import-export financing in Nigeria. As Chinoy explained:

For banks other than BCCI, sometimes it could take 90 days for your letter of credit to take. If some clerk is unhappy he says your documents are not in order and he throws it back and doesn't give a reason. In Nigeria it is very important to have contacts because it takes 14 days for a letter to reach you. BCCI would get its letters of credit three times faster than anyone else. They will get it through the Central Bank faster than other banks. Business increases due to this reputation.(76)

According to Chinoy, the price-tag on some of the presents provided Nigerian bureaucrats was not small -- typically, they included such items as silver canteens, cutlery sets, tea sets, coffee sets, and $5,000 luxury watches and similar goods valued at a few thousand pounds, and given to Central Bank and other Nigerian officials.

Chinoy knew about the corruption of top Nigerian officials personally. During his residence in Nigeria, three Nigerians controlled the release of foreign exchange in Nigeria. One of the three, the country's comptroller of foreign exchange, was named Al Haji Balu:

Once when I was in marketing in 1985-1986, I saw a deposit from Balu of 280,000 Deutschmarks in a certificate of deposit in Frankfort. I knew what his salary in Nigeria was. This was at the time worth about $150,000 US, for deposit at BCCI Frankfort. He didn't have that kind of money from his government salary. It was obvious what was going on.(77)

Another extremely prominent Nigerian political figure who was being paid bribes by BCCI was Al Haji Ibrahim Dasuki, chairman of BCC Nigeria up until 1990-1991, when he became the Sultan of Sokoto. BCCI audit records show a $1 million loan from BCCI to Dasuki which BCCI provided him to pay for his shares of BCCI-Nigeria. Dasuki repaid this favor -- although not this loan -- to BCCI in many ways. According to Chinoy:

Dasuki had fantastic contacts with the government. He was a politician and religious leader of great eminence, and in line then to be Sultan of Sokoto. He could help the bank and used to be paid. He was paid from Caymans as well as from Nigeria. He was paid in London by one of Mr. Naqvi's special assistants, Asad Matualah, now in custody in Abu Dhabi.(78)

Chinoy explained that Dasuki was the one who would fix problems with other government officials for BCCI if anyone noticed that exchange laws were being broken or other problems arose. Dasuki was able to perform this role because of his position as a religious leader, making his support indispensable to other key Nigerian officials:

Dasuki came from the North where all presidents in Nigeria come from, and even the President has to go and pay homage to the Sultan of Sokoto. When he became Sultan all of the leaders would owe him a measure of deference. He took full advantage of that. Two to three times BCCI got into trouble and Dasuki would sort it out.(79)

Dasuki also acted as a local representative for BCCI, obtaining the right to import goods for Nigeria, and providing that right to a business associate affiliated with BCCI. The BCCI associate would then arrange for import of the commodity involved, such as rice. According to Chinoy:

It was like a license to make money. Rice was gold. Dummy companies were created on a per transaction basis and had no other life beyond that.(80)

Dasuki had so much business activity, he was able to establish his nephew, Ibrahim Katuni, to a level where by the mid-1980's, every foreign country did business with him because he had access to every ministry and had cut deals with each of them.

Katuni would tell a foreign businessman, this is how you'll make $100,000, and I'll take 20 percent. He kept Dasuki happy and was hoping to become President of BCCI.(81)

BCCI found other ways of circumventing practices in Nigeria which frustrated other banks and prevented them functioning normally. As the indictment of BCCI officials in New York described it, BCCI's success in this area involved defrauding the Central Bank of Nigeria. Foreign exchange shortfalls in Nigeria had caused the government in about 1981 to impose restrictions on imports, requiring letters of credit used in connection with imports to be secured by 100 percent cash deposits in Nigerian banks. In turn, the banks were required to certify that the payment had been made to the Central Bank. As the transactions involved might take months to be completed, this would tie up the company's funds for substantial amounts of time, discouraging the import activity altogether. BCCI's way around the problem was to create phony loans for the importers and deposit the "proceeds" from the phony loans on BCCI's books in Nigeria, and then inform the Central Bank that the deposits had been made. Once the import transaction was over, the paperwork would be reversed. Through this technique, BCCI generated letter-of-credit business from importers who would not otherwise have been able to do business; earned commissions on opening the letters of credit; earned interest on the fictitious loans it granted; and realized exchange profits from converting currencies.(82)

BCCI also handled black market foreign exchange transactions for Nigerian officials for use in Nigerian elections. Because Nigeria has never developed credit cards, and Nigerians rarely use checks, essentially all transactions in Nigeria are in cash, with few record-keeping requirements adequate to monitor graft, which is endemic.(83) Most of the time, officials sell their cash in Nigerian currency and buy foreign exchange with it for purchasing goods abroad, or for maintaining deposits and homes abroad, typically in the United Kingdom. But sometimes the Nigerians found they needed Nigerian currency, especially during election time. According to Chinoy:

At elections, the officials need the money and sell the foreign exchange at black market price and that money is paid in Nigerian currency to them and they return the foreign exchange abroad. This method is employed by Nigerian politicians to obtain political money. It is commonplace throughout Africa.(84)

As noted above, BCCI's Nigerian operations were among the bank's most profitable. This is understandable. In the case of BCCI and the Nigerian government, crime paid.


Pakistan was the home of almost all of BCCI's top officials, including founder Agha Hasan Abedi. Long before BCCI itself was started by Abedi, he began the practice of making pay-offs to politicians as a mechanism for securing business and strengthening his banks.

For example, when Abedi formed the United Bank in 1959, he appointed as chairman of its board I. I. Chundrigar, the former Prime Minister of Pakistan, who was a close confidante of Pakistani's then current prime minister, Ayub Khan. Abedi maintained close ties to Khan's government, later hiring General Khan's minister of information to become the "publisher" of a BCCI promotional magazine, "South."(85)

When the Pakistani military government was replaced following the civil war that resulted in the severance of East Pakistan into Bangladesh, Abedi became just as cozy with Pakistani "socialist" Ali Bhutto, Khan's ideological opposite, making political payoffs on behalf of Bhutto during elections.(86) When Bhutto was overthrown in 1978 in a military coup, Abedi swiftly changed allegiances again to Bhutto's successor, Islamic "puritan" General Zia.(87) Zia later executed Bhutto for financial crimes, in which Abedi, among others, was clearly involved, while forming close ties to Abedi, on whose financial skills he increasingly relied.

The relationship was personal as well as professional. A sample BCCI payment to General Zia was obtained by the Subcommittee, showing BCCI's branch in the United Arab Emirates making a payment to Zia of 40 million Pakistani rupees -- several hundred thousand dollars -- on May 26, 1985.(88)

The BCCI-Pakistan relationship was important to both the bank and a succession of Pakistani governments. Although Abedi had been close to Bhutto, and formed a close relationship with the current President of Pakistan as well, it was General Zia was who in charge of Pakistan during most of BCCI's existence, and General Zia who did the most for BCCI. As Nazir Chinoy, who was based in Pakistan in the late 1970's and early 1980's, recalled:

Every time Mr. Abedi came, he always called on President Zia. President Zia did not meet Abedi during office hours, but in the night when Mr. Abedi would fly in, they would finish official dinners first and I would be sitting with Abedi and Abedi would leave for two to three hours and meet with Zia. It was the President Zia that he spoke to first before speaking to the finance minister. I think that Abedi used Zia and Zia used Abedi also for the gulf countries, when he wanted some assistance. It was a two way street.(89)

The Pakistani government guaranteed BCCI's ability to push aside immigration and customs requirements for its distinguished Arab visitors on their holidays in Pakistan, and BCCI's ability to engage in profitable banking. In return, BCCI assisting Pakistan in violating monetary controls imposed on its government by international organizations. As Chinoy explained:

In 1979, Pakistan was very short of foreign exchange, and under pressure from the World Bank to devalue the rupee. The World Bank had placed credit ceilings. The total lendings by commercial banks were limited to a figure by the World Bank. For BCCI's lending, the figure given was $750,000 US. This was just not viable to maintain. We had large deposits and had large surplus funds. Mr. Abedi was very keen that these limits go up. The World Bank would increase the limits each quarter based on how much foreign exchange Pakistan was able to generate based on central bank records. If the dollar reserves of the country went up, the World Bank would allow larger lendings in rupees. I am not sure who was the brains behind it, Mr. Abedi or Naqvi but between the two of them they came up with the idea. $50 million would be placed with BCCI Pakistan through BCCI's Kuwaiti affiliate, KIFCO. BCCI transferred money to KIFCO. I have a feeling that KIFCO got the money from Caymans. In any case, Kifco placed the money with BCCI Karachi.(90)

Thus, according to Chinoy, BCCI used an affiliate which was officially separate from BCCI, but secretly controlled by it and owned by it, to launder BCCI funds from one BCCI location to BCCI Pakistan, in order to make it seem as if BCCI Pakistan had generated an extra $50 million in legitimate deposits through this paper transaction. BCCI reported the extra $50 million to the Pakistan central bank, which in turn reported it to the World Bank to show the a $50 million increase in Pakistan's dollar reserves from abroad.(91)

A similar account of these transactions is described in the indictment of BCCI's top officials by the New York District Attorney on July 29, 1992. According to that indictment, the amount involved in all totalled $100 million.(92)

Zia died in a plane crash in mid-August, 1988, leaving a vacuum in relationships that BCCI very much regretted. Among BCCI officials, it was generally believed that if Zia had still been alive in October, 1988, he would have used his influence with the U.S. government to soften the handling of the case against BCCI in Tampa.(93)

With Zia gone, BCCI was not left without resources in Pakistan, however. The man who became President, Ishaq Khan, had served as chairman of the BCCI Foundation throughout the 1980's, and had close ties to Abedi.

The relationship between BCCI, the Pakistani government, and the BCCI Foundation had been deeply entangled from the start. As in the Bangladesh version of the BCCI Foundation, the Pakistani BCCI Foundation was created as a means of sheltering BCCI profits from taxation. In 1981, it received tax-free status while Ishaq Khan was Pakistan's minister of finance. In turn, the foundation received BCCI's profits from Pakistani operations, and then used some of those profits to finance projects the Pakistani government wanted and could not pay for itself. For example, BCCI provided $10 million in grants in the late 1980's to finance an officially "private" science and technology institute named for Pakistani President Ishaq Khan, whose director, A. Qadir Khan, has been closely associated with Pakistan's efforts to build a nuclear bomb. The institute is believed by some experts to be the headquarters for Pakistan's efforts to build an Islamic bomb. In the same period, other BCCI officials were assisting Pakistanis in purchasing nuclear technologies paid for by Pakistani-front companies through BCCI-Canada.(94)

The Foundation also made payments to somewhat less political entities, such as $3 million dollars for an "investment" in Attock Cement, a private cement company in Pakistan ostensibly owned by BCCI front-man Ghaith Pharaon, but in fact a front for BCCI itself. As BCCI officer Nazir Chinoy testified:

this foundation was set up . . . with the government of Pakistan nominating as the chairman, one or two trustees from the public and two or three from BCCI management . . . 90 percent of [BCCI Pakistan's] pre-tax profits being generated in rupees [were] given to the Foundation. It is a lot of money. . . .A charitable foundation is not subject to the same audit strict audit procedures or scrutiny by the central bank or the state bank of Pakistan. . . it becomes an opportunity to get employment. If you want to do somebody a favor, you could put him on the staff of the foundation and find a job for him.(95)

Among other officials whose activities were financed by BCCI in Pakistan were Jam Sadiq Ali, the highest ranking official in the province of Sind -- where Karachi is located -- whose personal expenses were financed by BCCI for years of self-exile in London, and who defended BCCI and Abedi after its collapse.(96)

Yet another high-ranking Pakistani official placed on BCCI's payroll after his government service was Pakistan's former Ambassador to China, Sultan Khan, who was provided a job at BCCI at its representative office in Washington, D.C. There, according to BCCI records, Khan solicited business for BCCI and its secretly-held subsidiary, First American, from the Chinese Embassy and Chinese officials in the mid-1980's, sponsored occasional events on behalf of the Chinese to which he invited prominent Americans, and had lunch with foreign diplomats who controlled accounts whose business BCCI was interested in acquiring. By the late 1980's, Khan continued to go to BCCI's Washington representative office, but according to him had little to do there beyond reading the newspapers and picked up his paycheck until the office closed after BCCI's indictment in Tampa.(97)

According to BCCI's former head of Latin American and Caribbean operations, Akbar Bilgrami, such appointments of retired Pakistani officials were typical.


Repatriating U.S. dollars from Latin America to the United States was an essential function of BCCI Panama from its inception. This was apparent to anyone who had contact with BCCI's Panama offices. As a Colombian marijuana trafficker and cooperating Justice Department witness told the Subcommittee:

Everyone who did business in the drug trade knew about BCCI. We all used it. It was very conveniently located at the airport when you came into Panama. Its officers were very attentive. And even if something went wrong, and your money was frozen at the request of the United States, BCCI would make sure you could get your money back.(98)

As this trafficker explained, his accounts at BCCI had been frozen at the request of the United States as a result of an anti-drug operation it had mounted called Operation Pisces. After the funds were frozen, he went to Panama, where he was told by his lawyer that if he was willing to give up 10 percent of the full amount, BCCI would find a way to release his funds to him, while telling the U.S. government they were frozen. He agreed, and soon the lawyer produced a letter from the Attorney General of Panama -- who at the time was supposedly working closely with the United States on anti-drug efforts -- ordering the release of the funds.(99)

Cartel money-launderer Ramon Milian Rodriguez, who testified before the Subcommittee in February, 1988 concerning his knowledge of Noriega's involvement with drug trafficking and money laundering, wrote the Committee after BCCI's global closure to inform the Committee that he too banked at BCCI, and that a substantial portion of his remaining funds following his arrest and conviction in Tampa had remained at BCCI and was lost in its closure.(100)

Following BCCI's plea agreement with the U.S. Attorney in Tampa in January 1990 which required BCCI to cooperate with law enforcement in anti-money laundering activities, BCCI's own employees in Miami began to recommend that BCCI's attorneys refer to the Justice Department BCCI's overall operations in Panama, as well as Colombia, for possible further criminal investigation. When BCCI's attorneys refused to undertake this action, apparently out of concern that such a referral would wind up destroying the bank, these lower-level BCCI employees again asked the lawyers to criminally refer BCCI's Panama and Colombian operations to Justice. The lawyers again refused to do so.(101)

BCCI officials argued that in handling flight capital and dirty funds out of Panama, BCCI was little different from most other foreign banks which had decided to locate there.(102)

However, it was no accident that BCCI was the foreign bank that obtained the bank account of Panama dictator Manuel Antonio Noriega. Once again, BCCI systematically solicited relationships in Panama with top officials as the key to long-term profitability. While Noriega was in charge of Panamanian intelligence, G-2, under the government of General Torillos, Noriega had come to know Alauddin Shaikh, a BCCI official who frequently handled payoffs to government officials in a number of countries.

As Nazir Chinoy explained:

Originally Panama was set up by Alauddin Shaikh, Amjad Awan was his understudy only. Awan reported to Shaikh, not anyone else. Up until I was in London in 1985, Shaikh used to fly to Panama two to three trips a year to meet with General Noriega. The relationship was very close. General Noriega gave a copy of old hand-written Koran to Alauddin Shaikh.(103)

When Noriega visited London, Shaikh provided him with dinners and entertainment, and soon thereafter, Noriega assisted BCCI in obtaining a license to open a bank in Panama. Shortly thereafter, Shaikh's assistant, Awan, who had met Noriega in London, was transferred by BCCI from London to Panama, where he made the acquisition of Noriega's account a priority.(104)

Awan pressed Noriega on numerous occasions to open an account at BCCI, and in early 1982, Noriega agreed, opening an account in the name of the Panamanian defense forces. Under his agreement with Awan, Noriega would have sole control over the funds, which would be maintained by BCCI in the United Kingdom in numbered accounts.(105)

During the first two years he held the account with BCCI, Noriega used his accounts at BCCI to make political payoffs in the course of elections, and for intelligence operations. For example, Noriega directed BCCI to payoff the mortgage of his hand-picked candidate for president of Panama, Nicholas Barletta. Later, this changed, and he used his accounts with BCCI as a personal account for himself and his family, who received credit cards from BCCI and began making extensive charges for shopping trips in Miami, New York, London, Paris, and at popular European resorts on the BCCI "Panamanian Defense Forces" account. At its height, Noriega maintained about $25 million in the account, mostly from cash deposits. The largest single deposit of currency into the accounts was approximately $4 million.(106)

Noriega introduced members of his business clique to BCCI, and encouraged BCCI to make loans to them, including businessman Enrique Pretelt and arms dealer and drug trafficker Cesar Rodriguez. BCCI provided them with lines of credit that were secured by Noriega's promise to Awan that he would make sure that the loans were made good. However, these loans were defaulted on. In the case of Rodriguez, when BCCI raised the issue with Noriega, Noriega advised the bank to look his estate and that he would have no further responsibility. Against Awan's wishes, BCCI chose to swallow the losses -- which amounted to $10 million in all -- rather than irritate Noriega by pushing forward with attempts at recovery.(107)

The closeness of the relationship between BCCI and Noriega extended to Noriega's wife and children as well, each of whom made use of BCCI accounts. Noriega handled the purchase of Noriega residences in the United Kingdom. And Noriega's daughter was even hired as an employee at BCCI-Miami, where the bank trained her in its own techniques for banking.(108)

Later, when Noriega was indicted in Miami in February 1988, he told BCCI to move his bank accounts at BCCI-London to another location, in an effort to hide them from U.S. authorities. Awan and other BCCI officials, including Swaleh Naqvi, then BCCI's Acting CEO, discussed Noriega's request and decided to move the funds to BCCI-Luxembourg as a means of keeping the funds concealed from detection by law enforcement in the United States and United Kingdom. The funds stayed in Luxembourg for the next four months.

In July, 1988, when BCCI learned that the Subcommittee had subpoenaed it for Noriega's records, Awan met with BCCI officials Naqvi, Dildar Rizvi, and S.M. Shafi to discuss whether Noriega's funds needed to be hidden still further. Noriega then called Awan and asked Awan to transfer the money out of BCCI entirely, to Panama's government bank, Banco Nacional de Panama, and immediately from there to a small European bank. Awan then met Ziauddin Akbar, BCCI's former head of Treasury operations, who in 1986 had left BCCI to become the head of Capcom, its commodities trading affiliate. Awan discussed Noriega's problems with Akbar, who offered to hold the $23 million in Noriega funds for BCCI in one of the trading accounts Capcom maintained for laundering money, a company sometimes referred to as Finley and sometimes as Findley. At BCCI's direction, Awan then travelled to Panama through a circuitous route designed to ensure that there would be no record of Awan's travel to Panama through the United States, and while in Panama, met with General and Mrs. Noriega. The Noriegas authorized BCCI to transfer their money to the Findley account at the Middle East Bank in London, and Akbar then moved the Noriega funds through Capcom to different entities, breaking up the trail by which Noriega's money could easily be traced by anyone.(109)

Thus, BCCI officials in the United States, Panama, the United Kingdom and Luxembourg colluded with one another to hide funds which they knew were the subject of a pending criminal action in the United States from law enforcement. They hid the funds through using the rather traditional mechanism in money laundering of layering -- moving the funds from entity to entity and from location to location until they could no longer be traced.



BCCI's method and scope of operations in Peru parallelled its functions in most, if not all, other countries. First, officers of the bank cultivated favorable relationships with powerful members of government and the private sector. Second, BCCI sought to do business in Peru with the hope of securing the high net worth depositors upon which its operations depended regardless of the source of the deposits. Finally, the bank conducted the full range of highly suspect or outright illegal activities that it conducted in other countries, including allegedly giving bribes and kickbacks, hiding money in numbered accounts, evading regulatory inspection, and laundering stolen government funds and drug profits.


Near the end of 1984, the government of Peru ceased making any payments on its national debt. The breach of its debt repayment obligations subjected Peru to two direct results over the next year. First, Peru became a bad risk to which very few, if any, banks or countries outside of Peru would extend loans and lines of credit. These loans and lines of credit were essential to financing trade between Peru and other nations because the external sources were Peru's only source of foreign currency. Second, those banks and countries to which Peru had already become indebted sought to collect the money that Peru owed them. The directors and managers of Peru's central bank -- the Banco Central de Reservas del Peru ("BCRP"), which managed all the funds of the government -- particularly feared attachment and seizure of Peruvian assets located in other countries.(110) In short, Peru was faced with a dilemma: On the one hand, its need to finance foreign trade compelled it to form a relationship with a bank outside the state. Yet Peru faced attachment and seizure of any funds placed outside of the protection of its own borders.

Thus, entering 1986, Peru was faced with two immediate needs as a result of its refusal to pay its debt obligations. First, it needed to form a relationship with a bank which would extend lines of credit in foreign currency in exchange for deposits of Peruvian currency. Second, insofar as Peru faced attachment and seizure of its assets by countries and banks to which it was indebted, it needed to form a relationship with a bank which could "hide"(111) Peruvian deposits from creditors. These two criteria -- "reciprocity" and "safety" -- formed the express agenda of the BCRP as it began to approach BCCI and other banks in mid-1986.(112)

Formation of the Relationship

Just as in the United States, one of BCCI's very first actions lay in hiring a prestigious law firm. Jorge del Castillo, a member of the Peruvian House of Delegates, testified that, upon entering the country in 1984,

BCCI . . . asked for and got the legal advice of a very important law firm in Peru, . . . Arias & Davis & Associates, which is a very well known law firm.(113)

Moreover, just as in the United States, the law firm hired was well-connected to the Peruvian government. Del Castillo testified that the partner at Arias & Davis's representing BCCI was:

. . . Dr. Sterling, . . . a person whom all of us respect and could not possibly be suspected of anything illegal, he is a member of Dr. Lunes Flores' party, and is the President of the Peruvian Senate. He is beyond reproach.(114)

Thus, from its entry into Peru, BCCI sought to cultivate the patina of respectability that it had sought to cultivate since its creation.

In the meantime, BCCI began to promise Peru terms that it, alone among international banks, could meet. Peru would deposit its funds at BCCI-Panama, BCCI-Panama would hide those funds under Panama's strict bank confidentiality laws, and BCCI would then lend money to Peru at a rate of about 50 cents on the dollar, which Peru could use to purchase foreign goods.

This attractive offer was offset, in part, from the beginning, by Peru's legitimate concerns about BCCI as a bank. The central bankers of Peru understood that BCCI had no lender of last resort, and that their funds could disappear if something went wrong. These concerns were met, in part, through bribes by BCCI to at least two of the decision-makers at the central bank, who from there on would become staunch supporters of the BCCI relationship.(115)

Following the bribe payments, the BCRP entered into a formal banking relationship with BCCI on April 28, 1986. The BCRP and BCCI signed two documents, "General Business Agreement for the Handling of Numbered Account" and "Operative Covenant for Numbered Account." These two documents described the accounts to be provided to the BCRP. The deposits were to be in a numbered account, with BCCI to "keep absolute secrecy about [the BCRP's] identity." The accounts were to be kept in Panama, which maintained strict bank secrecy laws. In a letter dated the same day, a $60 million line of credit was extended to the BCRP. In exchange for the credit line, the BCRP promised to keep at least $200 million in its accounts.(116)

These agreements were advantageous to BCCI for three reasons. First, BCCI required that the BCRP deposit four times the amount that it was obligated to lend. Thus, as long as the relationship between the two lasted, BCCI would have $140 million to use for purposes other than its loan obligations to the BCRP. Loans are traditionally considered assets to a bank, and deposits, because they are due upon a customer's demand, are considered liabilities. Thus, the $140 million wouldn't be considered a traditional asset increasing the book value of the branch.(117) However, within the context of the transaction itself, the $200 million minimum requirement limited the BCRP's ability to withdraw the money at will and thus provided a near-certain $140 million for BCCI's use.

Second, the account agreements were advantageous to BCCI because they did not obligate BCCI to pay any interest on the BCRP deposits. This savings in interest would amount to millions in itself.(118) However, the letter of credit did obligate the BCRP to pay an interest rate on any amounts borrowed, as well as "[o]ther charges like Confirmation, Commitment, Negotiation, etc. . . . as per BCCI schedule of charges."(119)

The agreement between BCCI and the BCRP was advantageous to the BCRP in at least one way. Peruvian Central Bank official Ricardo Llaque testified that no other bank with which the BCRP had a relationship would provide a letter of credit as high as BCCI:

Senator Kerry[:] Did not other banks in Panama offer numbered accounts?

Mr. Llaque[:] Yes, but not levels of credit which were very high . . . . It [the size of the line of credit] was one of the most important points in the decision of the board to accept the corresponding relationship . . . and since it was a revolving line of credit it meant that this was a benefit . . . at an amount much higher than what the nominal amount of the line of credit really was.(120)

Llaque was contending that the line of credit BCCI was advancing Peru was greater than that offered by any other bank. However, it was still substantially below the level of the amounts deposited by Peru. More importantly, since BCCI needed Peru's assets, and as an institution tended not to be concerned about the repayment schedule of loans, BCCI's needs and Peru's needs fit one another perfectly.

Relationship Between BCCI And Peruvian Elite

As described above, in the course of obtaining the Central Bank account, BCCI officials paid bribes to the Central Bank officials handling the accounts.(121) The purpose of these bribes was to ensure that once the relationship was established and BCCI had agreed to lend funds against Peru's central bank assets, the Peruvians would have a personal stake in keeping Peru's assets at BCCI.

As the District Attorney of New York has alleged in his July 29, 1991 indictment of BCCI, and his indictment on July 29, 1992 of BCCI's top officials and front-men:

The BCC Group made corrupt payments to the President and the General Manager of the Central Bank of Peru. In or about 1985, the BCC Group made payments of money to the President and General Manager of the Central Bank of Peru upon an agreement and understanding that said President and General Manager would take deposits of hundreds of millions of dollars of Peruvian government reserves with banks of the BCC Group. Hundreds of millions of dollars of the Central Bank of Peru's funds were placed on deposit with banks of the BCC Group, and said payments to the President and General Manager of the Central Bank of Peru were calculated as a percentage of the amount on deposit.(122)

Or, as BCCI's head of Latin American and Caribbean operations, Akbar Bilgrami put it:

We had to make payments into a Special Project Accounts. I was told that BCC's relationship with Peru arose because Mr. Brian Jensen joined the bank in 1986; he was an ex-Central Bank official. BCC's push in 1987-1988 was to get big chunks of deposits from Peru. You see, Peru was being cheap, not paying its foreign debt. BCC offered to keep Peru's money hidden: $320 million in Panama.(123)

Or, in the more laconic conclusion of Abdur Sakhia, the head of BCCI's Miami office:

the relationship between Peru and BCCI was not kosher.(124)

However, even with the payment of bribes, BCCI officials worried that the $250 million in assets could disappear from BCCI if the officials they had paid-off were to lose favor. Given the significant size of the lending BCCI had agreed to in return, they wanted assurances that in the view of BCCI, could only be had from Peru's president, Alan Garcia. Accordingly, after the relationship had been established, S. M. Shafi, head of BCCI's Latin American operations, went to Lima, Peru to meet with Garcia and receive such assurances. The meeting took place in mid-February, 1987, and Garcia promised BCCI that the funds would remain at BCCI. Following the meeting with Garcia, the Peruvian central bank raised its limit for deposits with BCCI by another $50 million.(125) Moreover, the BCRP agreed to "irrevocably and unconditionally" guarantee any loan provided by BCCI. That is, if a local bank or institution defaulted on a loan from the BCCI letter of credit, the BCRP promised to repay the loan. Moreover, the guarantee covered the entire $110 million dollars. In August, 1987, the BCRP received another $50 million increase, but it appears that no corresponding deposit was required.(126)

BCCI sought and had been granted permission from the government (as required by law) to open branches in Peru as early as 1984. Although BCCI never in fact opened branch offices in Peru, its actions in 1984 established a presence in the country which laid the groundwork for the deal eventually struck between BCCI and the BCRP in 1986. Llaque said, "It [BCCI] had sent its people to Peru, and when we began to look for new corresponding banks the bank was already there."(127)

However, it has been alleged that, when the BCRP began searching for corresponding banks in 1986, the relationship between BCCI and the government was already so strong that the BCRP did not even seek proposals from banks other than BCCI. Fernando Olivera, presiding officer of an committee formed by the Peruvian Parliament to investigate Peru's financial operations, testified before the Subcommittee on August 2, 1991. Olivera suggested but did not clearly state that his investigation had revealed that the BCCI proposal was the only proposal sought and entertained by the BCRP.(128) He also testified that the BCRP based its decision to invest in BCCI based solely on a three-page report regarding BCCI Holdings, S.A., in Luxembourg.

The documents do not provide a clear answer as to whether Llaque's explanation or Olivera's explanation was correct. For example, it is unclear how BCCI's mere presence in Peru would in itself be helpful in convincing the BCRP to make deposits with it. Even the placement of deposits in numbered accounts in Panama was not a service unique to BCCI; the BCRP held similar numbered accounts in Panama branches of four European banks other than BCCI as early as December, 1985, six months before its accounts with BCCI were opened.(129)

In opening the BCCI accounts, four BCCI executives held meetings with members of the BCRP.(130)

Over the next year and a half, while the BCRP's relationship with BCCI continued, several more meetings were held between members of the Peruvian government, BCCI executives, and foreign VIPs. On 12/18/86, Akbar Bilgrami came to Peru accompanied by Panamanian General Manuel Noriega. On 07/21/87, Alberto Calvo, an agent of BCCI, met with Daniel Carbonetto, Economic Advisor to Alan Garcia Perez, the President of Peru, who Calvo described to his superior at BCCI, S. M. Shafi, as the person "who the public opinion considers the most influential person in the decision-making process regarding economic policies." Carbonetto and Calvo discussed how the Peruvian government could obtain additional lines of credit through BCCI. They also described the risk of BCCI continuing to hold Peru's central bank reserves at BCCI-Panama, given "Panama's political situation."(131) Calvo concluded:

Mr. Carbonetto asked me to go with him to visit the President Mr. Alan Garcia, and to brief him about our conversation. I politely refused with the excuse that I was leaving for Chile.

In reality I prefer to meet with the President after knowing what will be the policy of the Central Bank regarding the placement of it's reserves and after having a chance of receiving your instructions on this matter.

We agree to meet with the President of the Central Bank one week after he takes office and after that we will visit the President of the Republic.(132)

This meeting between Shafi and Alan Garcia appears to have occurred finally in October of 1987. A separate meeting involving Garcia, Manuel Noriega, and BCCI official Akbar Bilgrami, apparently took place December 18, 1986, according to Fernando Olivera, a Peruvian legislator who headed a commission reviewing the relationship in 1991, discussed below.

Illegal Activities

There is a characteristic of BCCI's activities in Peru not present in other countries which should be emphasized at the outset. The BCRP's purpose in entering into a relationship with BCCI, if not illegal, was at least highly suspect. The BCRP -- a branch of the Peruvian government acting in this matter as government -- expressly intended to conceal its country's funds from legitimate creditors, because of its desire to avoid paying off its debts. Just as Manuel Noriega used BCCI with the intention of hiding funds which rightfully belonged to the Panamanian government, the BCRP used BCCI to conceal funds with were rightfully owed to private banks and other countries. The formal difference between Noriega's use of BCCI and the BCRP's lies in the fact that Noriega was acting as an individual using the bank to deceive his government, while the BCRP was acting as an arm of government using BCCI to deceive banks and other countries. In his testimony before the Subcommittee, deputy central banker Llaque used the euphemism of "safety" to describe the BCRP's purpose:

Senator Kerry[:] . . . [O]ne of the services that you were looking for was an ability to be able to hide the money from seizure, was it not? . . .

Mr. Llaque[:] Yes. Perhaps "hide" is not the word . . . . We had at least two cases of embargoes of funds from the Central Bank in U.S. banks, and also an embargo of funds from commercial banks in the United States as well.(133)

It is apparent from the Subcommittee's review of testimony and documents that "hide" was exactly the word to describe the BCRP's intent in using BCCI. No witness or document disputed that the funds were due to legitimate creditors; not did any witness or document question the propriety of an outside nation seeking to attach funds.

The need for safety manifested itself in two requirements. First, the funds had to be kept in an account shielded from creditors. Thus, BCCI provided Peru with a numbered account which bore no connection with the Peruvian government on its face. Second, the account needed to be kept in a country with strict regulatory laws protecting disclosure of account owners. Thus, the account was opened not in Peru, but in Panama.(134)

End of BCCI Relationship With Peruvian Central Bank

By mid-1987, despite the bribes paid by BCCI and its efforts to secure the support of President Garcia, officials at the Peruvian central bank were becoming increasingly uneasy about the bank's relationship with BCCI. The officials had learned about BCCI's massive commodities trading losses in London, which had in effect wiped out BCCI's capital. They also feared that the Noriega regime in Panama was potentially unstable, and that the United States might ultimately take action against it -- as it did just six months later in shutting down Panama's banks through refusing to accept dollars.

Accordingly, they asked the senior analyst of foreign banks at the Central Bank to provide the Central Bank with an analysis as to the safety and security of Peru's funds at BCCI. The analyst, Gonzalo Aramburu, was only too glad to provide the facts about BCCI -- it had no lender of last resort in case of a default in any of its operational units; over the previous two years BCCI had showed significant losses in operations in the options market; and BCCI "uses an unusual accounting system in that it does not make it possible to clearly identify the level of losses of the fiscal year, or the activity that led to them."(135) Accordingly, Aramburu recommended the Central Bank to take immediate action to protect itself by cutting back on the $270 million in was then maintaining in BCCI.(136)

Over the following month, Peru removed $70 million in deposits from BCCI. By the end of the year, it had removed over $150 million. The remaining funds were pulled at the end of January, 1988, as Panama fell into a crisis over accusations concerning Noriega's drug trafficking.

Peruvian Legislative Commission

Following BCCI's indictment on drug money laundering charges in Tampa in October 1988, and growing international concern about BCCI during 1989 and 1990, a legislative commission was created in Peru to review a number of charges of Peruvian corruption, including issues pertaining to the Central Bank's decision to place the government funds at BCCI. The head of that commission, Fernando Olivera, a member of the Peruvian House of Deputies from an opposing political party to former President Alan Garcia, testified before the Subcommittee on August 2, 1991 about the meaning of BCCI's activities in Peru:

We think that the cause of this behavior and the decision to place Peru's international reserves in BCCI was corruption. And here we have a document of the Swiss Bank Corp. in Panama providing that BCCI oversees George Town Bank Corp Grand Cayman. From there, transfers were made to the Security Bank to the Swiss Bank in New York and transferred from there to an account in Panama of the Swiss Bank. These were the bribes for these officers [Lionel Figueroa and Hector Neyra of Peru's Central Bank]. . . . There are some other people under the Selva Negra and Terra Firma codes, and . . . we are convinced that there are other authorities higher up who intervened.(137)

As another member of the Commission, Pedro Cateriano, testified before the Subcommittee:

In Peru the members of the [Central Bank] board of directors are political. They are named by the President and members of the board . . . That is why the function they carry out is not really technical. It is basically political.(138)

The clear message of the legislative commission was that the Central Bank officials could not have been acting alone, and that other important Peruvian political figures, including former President Alan Garcia, were involved.

Another Peruvian legislator, Jorge Del Castillo, who requested to testify before the Subcommittee to defend President Garcia, stated that the Central Bank was independent of the President and autonomous in all respects with no relationship to the Peruvian executive branch. Del Castillo also provided documents to the Subcommittee consisting of an investigation on behalf of Garcia of alleged BCCI accounts maintained by Garcia that did not, in fact, exist. Del Castillo testified that this investigation disproved that allegations concerning Garcia's involvement in any bribes that may have been failed.(139)

BCCI officer Akbar Bilgrami, who, unlike the other witnesses is neither Peruvian nor affiliated with any Peruvian political party, told the Subcommittee that it was his understanding that Garcia had indeed provided assistance BCCI, but that he had not heard of specific payments being made to Garcia.

My main sources for information on payments in Peru were two BCCI officials, Amir Lodhi and S.M. Shafi. According to them, President Garcia approved that funds be placed in BCCI. Mr. Shafi told me that the BCC had to pay for the deposit, but we didn't know how much, or to whom the money went. This was handled by Mr. Saddiqui [one of BCCI's top officers in London]. Two Central Bank officials and Mr. Jensen were handling it in Peru. Mr. Shafi went to President Garcia as an insurance policy of getting the amounts. I heard that the money went into the hands of the Central Bank officials and Mr. Jensen. Mr. Shafi did not tell me that Mr. Garcia received money. He said that he went there to guarantee that the money would be placed in the account, as an insurance policy. Mr. Tariq Jan [another BCCI officer] also went with Mr. Shafi to the meeting with Garcia. I believe that Mr. Shafi went to see him to make sure that the relationship would occur. You know, it wouldn't be good for BCC to start down this road without the support of the country's president. I also think that Mr. Lodhi also met with Mr. Garcia, but that meeting was more general. The meeting with Shafi was just with regard to this relationship -- the money for the letters of credit. Lodhi's meeting with Garcia was about Latin America and third world causes, and so on.(140)

On September 22, 1992, the Attorney General of Peru announced that she would seek Garcia's extradition from Colombia after charging him with alleged irregularities for his role in depoisiting Peruvian resesrves in BCCI. The official, Blanca Nelida Colan, had "drawn up charges against Garcia for the possible existence of foreign bank accounts for his alleged participation in depositing $287 million in reserves" in BCCI.(141)


There were more than enough reasons for BCCI and Peru's Central Bank for the two to development a relationship in 1986. Peru was seeking to hide its money from foreign creditors, as it began refusing to pay its foreign debt. BCCI was engaged, as always, in a quest for deposits to prop up finances which were in an especially rickety and fragile state in this period. BCCI, as usual, met with top officials in the country to secure and strengthen its relationship with the Central Bank, including President Garcia. Bribes allegedly were paid to two Peruvian central bankers. When BCCI finally collapsed, Peru escaped harm principally because its exposure had previously been so large and so imprudent, especially given both Panama and BCCI's shaky state by the beginning of 1988, that responsible officials in Peru had acted to end the relationship.


In Senegal, BCCI paid bribes to employees of the Foreign Exchange Department of the Central Bank, and provided them with gifts, to assure that BCCI received preferential treatment in the release of foreign exchange funds. This preferential treatment again placed BCCI in a favorable position in relationship to other banks for handling imports to Senegal, similar to that described in some detail above concerning BCCI's activities in Nigeria.

Additionally, BCCI helped the Central Bank of Senegal in defrauding the International Monetary Fund through falsifying deposits in Senegal to the IMF. At the time, Senegal was required by the IMF to maintain cash deposits of a certain level on reserve, and was unable to do so. On the critical reporting dates for the Central Bank, BCCI discounted a $5 million to $6 million promissory note to a Senegal corporation for two to three weeks, the corporation then placed the funds on deposit with the Central Bank of Senegal for that period, showing the IMF that Senegal was meeting its banking obligations, and when the IMF review was concluded, the transaction was reversed.(142)


BCCI's situation in Sudan was similar to its situation in a number of African countries -- it assured its access to central bank funds through making payoffs to officials. As Akbar Bilgrami described it, this was a general practice which he personally participated in only once, by his superiors at BCCI London when he was a very junior officer of the bank:

In 1977, I was asked to go with the Senior Official of the Central Bank and given 100,000 pounds. I was told to buy him anything he wanted. I kept the receipts as we were buying items. This made the central bank official very nervous, the keeping of receipts. He said, 'Barclays doesn't keep receipts.' I brought the receipts back to my boss, who said 'What did you do that for?' and threw them away. We spent about 70,000 pounds that day.(143)


In Zambia, BCCI once again worked with government officials to defraud an international lending institution, in this case, the World Bank. In 1987, the World Bank required Zambia to reduce its borrowings by making a $35 million payment by December 31, 1987 from internal sources or savings. When Zambia could not come up with the funds, BCCI loaned $45 millon to Zambia, hiding the source of the funds so that they appeared to be from Zambia's own sources.(144) As a result, the World Bank granted a new $60 million loan to Zambia. As Nazir Chinoy explained the transaction:

The funds were given to Zambia by BCCI. The routing was that they were sent from BCC Paris to a Zambian commercial bank to London and from there, the World Bank was repaid. Two days later, Zambia was able to draw on the $60 million tranche from the World Bank. BCCI Paris was repaid from Copper exports. The terms for BCCI Paris were one percent front-end fees; one and a half percent over LIBOR [a standard European international banking rate].(145)

According to Chinoy, BCCI was able to make money in several additional ways off the Zambian transaction. In addition to the transaction fees specified above, BCCI made money converting the payments it received in French francs on the copper exports to dollars. Moreover, BCCI was able to use the transaction to assist with internal bookkeeping problems, by sending 50 percent of the front end fee to BCCI-Grand Cayman in compensation for BCCI-Grand Cayman having issued a letter to BCCI Paris underwriting the risk in case Zambia defaulted. In this way, BCCI-Paris reduced its taxable income.


Several BCCI officials interviewed by the Subcommittee referred to bribes paid to Zimbabwe's prime minister, and the political chief opposition figure in Zimbabwe, by BCCI at the time it opened a joint venture with Zimbabwe. By the account of Nazir Chinoy:

I accompanied Mr. Abedi and Mr. Sheikh to the opening of a joint venture with Zimbabwe. I think to get permission for establishing a bank in Zimbabwe that money was paid to President Mugabe and to Nkomo. The basis I am making this statement was that when I went there with Mr. Sheikh I was acting as Mr. Abedi's personal assistant or secretary. Mr. Sheikh went off on his own to see Nkomo who was the chief opposition at that time, and then he went off to see President Mugabe, and when they talked they wanted me out of the room. Many of us were there for the opening. But only Alauddin Sheikh and [BCCI CEO] Abedi were left in the room with these two political figures. Otherwise I was accompanying him and acting with him.

Mr. Sheikh carried a bag with him. At the time I had a suspicion that you don't get permission as a foreign bank so easily without a payment. Without favors, it wouldn't be so easy to get a bank that fast, especially given the opposition of the British banks who were already established there.(146)

By the account of Akbar Bilgrami:

We paid Mugabe and Nkomo. I was at the Parklane Branch. BCC was approached to look after the expenses of the delegates, which were paid. In addition, we paid 500,000 pounds from the Parklane Branch. Someone from Mr. Naqvi's office came to Parklane and picked up the money. I don't think than Ian Smith was getting paid by us. I think that the Rhodesian government was taking care of him. That was in 1980-1981.(147)

By the account of Abdur Sakhia:

I drove one of my colleagues in London to a hotel, and he went with a briefcase and he came back without a briefcase, and I asked him: What happened to your briefcase? And he smiled at me and he said: This was for those people. I said: What, did you carry gold bars? He said: No, some cash. . . So this was prior to independence of Zimbabwe, when they were negotiating for independence. Some officials, some politicians from Zimbabwe were staying at a hotel in London.(148)


BCCI official Nazir Chinoy provided a detailed account of corruption in the African Development Bank to the Subcommittee, which he referred to in a much more limited way in public testimony.

According to Chinoy, BCCI had a long relationship with African Development Bank, maintaining about $32 million in deposits in BCCI's Paris branch in the mid-1980's. When Chinoy arrived, he found the hard way that the African Development Bank was placing those funds on the basis of bribes being paid to the officials at the African Development Bank who controlled the placements.

Fifteen days after my appointment, we lost a deposit of $14.3 million. When this deposit was lost I was concerned. [Another BCCI official] rushed to me and asked me whether I had made the payment? I said, what are you talking about? She said, haven't you been briefed by London? I said, no. She said, have you failed to look after the Treasurer? We were giving them top of the market rates. So I said, no I haven't been briefed. I learned from [BCCI official] Zafir Iqbal that when my predecessor was here, he drew up his expense account and he took cash dollars in travellers checks to give to the man controlling the African Development Bank's accounts, his name was Ismael Emay. I asked how much? Either 1/32nd or 1/16th. $8,000 to $10,000 a year in all. I said, fine, will I be getting the money from Cayman? He said I don't know, you'll have to manage.(149)

Chinoy made a round of courtesy calls at the African Development Bank, meeting the president of the bank and the Treasurer. Chinoy stated that he told the Treasurer that he should look Chinoy up in Paris, that Chinoy did not know what his predecessor had failed to do, but if it hadn't been paid to the Treasurer, Chinoy would pay it. According to Chinoy:

We debited the account and started to pay him. $5000 back due. We opened an account for him and his wife in Monte Carlo. He would draw maybe a couple of thousand dollars as he wanted in expenses. The balance he would send to Monte Carlo. The account he opened later in 1986. The money came from BCCI Paris. We started building up a relationship. By the way, BCCI London had 10m in investment funds of African development bank, this was kept by Investment and finance section for investments in stocks and bonds and this was controlled by Iqbal Rizvi directly with African Development Bank. At this stage, there was rivalry between me and general manager. He wanted ADB under his wing and I wanted to push for Paris. I started building up a relationship but he wouldn't allow me to attend the ADB conference and he didn't take anyone from France in 1986 for meeting in Zimbabwe. Gradually, we started acting in parallel rather than in coordination. Deposits went up to $35 million, $45 million in dollar terms.(150)

Chinoy and BCCI intensified their marketing campaign to the African Development Bank and became friendly with its president, eventually obtaining the bank's entire French franc account, amounting to 200 million or more francs -- some $35 million dollars. According to Chinoy:

We continued the payment to the Treasurer. But I told him no more than $50,000 a year. Which he made in 1987-88.(151)


The above account of corruption involving officials of fifteen countries outlines typical methods by which BCCI acquired and maintained accounts and relationships with governments and government officials around the world. While lengthy, it is by no means complete and the size of the iceberg below remains difficult to measure. The above account should be enough, however, to demonstrate the fundamentally corrupt nature of BCCI's relationships with the politically prominent, and its strategy of corrupting those in or with access to government, for its own purposes.

The pervasiveness of BCCI's corruption of officials in so many countries also raises larger questions about the persistence of corruption as a way of doing business generally, around the world. BCCI officials contend that its practices were typical of those engaged in by other banks, including U.S. banks, doing business in developing countries. For example, if true, this would suggest that international lending institutions financed by the U.S. taxpayers, such as the IMF and World Bank, are routinely being defrauded by collusion between the governments of those countries and unethical banks that see the opportunity to make profits through helping such governments defraud those institutions.

BCCI officials further suggested that U.S. and European businesses that are successful in many of the countries in which BCCI was doing business, especially in Africa, can be so only to the extent that they themselves meet local standards and participate in the endemic corruption. Such participation by U.S. entities is, of course, prohibited by the Foreign Corrupt Practices Act. The testimony in staff interviews by BCCI officials raises the question of whether violations of that act may be substantially greater in number has been recognized.

Finally, the information concerning BCCI's corruption of officials around the world illustrates the public policy interest to lift the veil of secrecy regarding financial information that still obtains in too many jurisdictions. Strong bank secrecy and confidential laws were essential to BCCI preventing the detection of its criminality and its corruption of public officials. In case after case, BCCI shifted funds to bank secrecy havens in order to protect its payoffs from exposure. Moreover, secrecy laws have to this day impeded the ability of the Subcommittee to detail numerous further cases of such corruption that clearly exist. For example, documents subpoenaed in the United States by the Senate, and in the possession and control of BCCI's liquidators in the United Kingdom, have been withheld from the Subcommittee by the British courts on the basis of British secrecy laws. Little progress can be made in combatting corruption so long as many jurisdictions continue to promote numbered accounts and secrecy to flight capital and dirty money. The United States needs to take a fundamentally more active and aggressive role in changing the attitudes of many foreign governments on this issue.

1. Agence France Presse, July 12, 1991.

2. Indictment, People v. Abedi, et. al, Supreme Court of the State of New York County of New York, July 29, 1992.

3. S. Hrg. 102-350 Pt. 2 pp. 507-508.

4. Staff interview, Sakhia, October 7, 1991.

5. S. Hrg. 102-350 Pt. 2 p. 515.

6. Staff interview, Chinoy, March 9, 1992.

7. See Bankrupt: The BCCI Fraud, Kochan and Whittingon, Gollancz, London 1991, pp. 61-62.

8. Sakhia, S. Hrg. 102-350 Pt. 2 p. 508.

9. See reference to November 5, 1986 letter in minutes of Evidence Taken Before House of Commons Treasury and Civil Service Committee, Banking Supervision and BCCI, February 5, 1992, Sec. 252.

10. BCCI -- Consolidated Report, EWP, Loans Over $7.5 million, March 31, 1991.

11. s. Hrg. 102-350 Pt. 1 p. 288.

12. Staff interview, Helmy, January 12, 1992.

13. Staff interview, Akbar Bilgrami, July 20-28, 1992.

14. Staff interview, Chinoy, March 9, 1992.

15. S. Hrg. 102-350 t. 2 p. 528.

16. See documents published in S. Hrg. 102-350 Pt. 6.

17. BCCI-FinAmerica-Gotelli documents, provided to Senate by BCCI liquidators, July, 1992.

18. Id.

19. People v. Abedi, Supreme Court of the State of New York, County of New York, July 29, 1992, p. 23.

20. Letter, to Dr. Juan Sommer, February 4, 1988.

21. See Los Angeles Times, May 8, 1991, "Encino Bank Ordered Sold."

22. UPI, July 30,1 991, "Argentine Central Bank revokes BCCI license."

23. Reuters, August 1, 1991, "Argentina Had No Funds in BCCI; Minister Angry at Media," Washington Post, August 24, 1991, "BCCI Trail in Argentina Remains Untraced."

24. Associated Press, August 1, 1991, "BCCI in Argentina -- Political Headaches, But Little Economic Impact."

25. Associated Press, July 31, 1991, "Court Probes Alleged Money Laundering by Foreign Banks."

26. S. Hrg. 102-350 Pt. 1 p. 127.

27. S. Hrg. 102-350 Pt. 1 p. 159.

28. S. Hrg. 102-350 Pt. 1 p. 243.

29. See e.g. Los Angeles Times, November 2, 1991, id.; Newsday, August 13, 1991, "Ex-Bangladesh Ruler Linked to BCCI;" Daily Telegraph, August 13, 1991, "Bank Linked to Missing Bangladesh Disaster Aid."

30. S. Hrg. 102-350 Pt. 2 p. 515.

31. Mark Fineman, Los Angeles Times, "BCCI Left its Mark on Bangladesh, November 2, 1991.

32. Id.

33. Los Angeles Times, id.

34. Id.

35. See Daily Telegraph, "BCCI Scandal: Bank Linked To Missing Bangladesh Disaster Aid," August 13, 1991.

36. See Agence France Presse, "Bangladesh Appeals to Canada to Unfreeze Some BCCI Accounts," July 26, 1991.

37. Mark Fineman, Los Angeles Times, "BCCI Left its Mark on Bangladesh, November 2, 1991.

38. Memorandum from Brian Jensen to Agha Hasan Abedi, January 30, 1986, Senate document 001546.

39. Banking Venture in Brasil - Aide Memoire, Jensen to Saddiki at BCCI-London, February 24, 1986, Senate document 001545.

40. Staff interview, Abol Helmy, January 12, 1992 and BCCI documents pertaining to Brazil, produced by BCCI liquidators and from BCCI document repository in Miami.

41. Id.

42. Memorandum/telex, Sakhia to Siddiki, May 6, 1986, Senate document.

43. BCCI internal memorandum, Helmy to Ameer Saddiki, September 2, 1986, Senate document 000653.

44. Staff interview, Abol Helmy, January 12, 1992.

45. Telex, Shafi to da Costa, October 28, 1986, BCCI Senate Document 000645.

46. BCCI Luxembourg Letter of Appointment, Ameer H. Siddiki to Ambassador Correa da Costa, October 28, 1986, Senate document.

47. Staff interview, Abdur Sakhia, October, 1991; see also BCCI telex concerning Da Costa, October 28, 1986, id..

48. Staff interview, Nazir Chinoy, March 9, 1992; see indictment, People v. Abedi, New York Supreme Court, July 29, 1992, p. 24.

49. Staff interviews, Chinoy, id. See also People v. Abedi, New York County, indictment, July 29, 1991, id. p. 23.

50. Staff interview, Chinoy, March 9, 1992.

51. See testimony of Alan Kreczko, Deputy Legal Advisor, Department of State, S. Hrg. 102-350 Pt. 3 pp. 575-578.

52. See Price Waterhouse Section 41 Report to the Bank of England, June 1991.

53. Commentary, Massihur Rahman, to Price Waterhouse Section 41 Report to the Bank of England, June 1991.

54. Sakhia testimony, S. Hrg. 102-350 Pt. 2 p. 526.

55. Staff interview, Sakhia, October 7, 1991.

56. Staff interviews, Bilgrami, July 20-28, 1992.

57. Staff interview, Bilgrami, July 20-28, 1992.

58. Staff interview, Chinoy, March 9, 1992.

59. Staff interview, Chinoy, March 9, 1992.

60. Staff interview, Chinoy, March 9, 1992.

61. Id.

62. Staff interview, Sakhia, October 7, 1991.

63. Staff interview, Sakhia, October 7, 1991.

64. Sakhia, S. Hrg. 102-350 Pt. 2 . 508.

65. Id.

66. Price Waterhouse audit report, December 31, 1990.

67. S. Hrg. 102-350 Pt. 1 p. 63.

68. S. Hrg. 102-350 Pt. 2 p. 515.

69. Staff interview, Nazir Chinoy, March 9, 1991, see also Chinoy testimony S. Hrg. 102-350 Pt. 4 p. 829.

70. Staff interview, March 9, 1991.

71. Staff interview, March 9, 1992.

72. Staff interview, Chinoy, March 9, 1992.

73. Id.

74. Id.

75. Staff interview, March 9, 1992.

76. Staff interview, Chinoy, March 9, 1992.

77. Staff interview, Chinoy, March 9, 1992.

78. Staff interview, Chinoy, March 9, 1992.

79. Staff interview, Chinoy, March 9, 1992.

80. Staff interview, Chinoy, id.

81. Staff interview, Chinoy, id.

82. People v. Abedi, July 29, 1992, New York County Supreme Court, p. 20-21.

83. Staff interview, Chinoy, id.

84. Chinoy staff interview, id.

85. Testimony of Rahman, S. Hrg. 102-350 Pt. 1, p. 540.

86. White Paper on the General Elections, Government of Pakistan, July 1978, S. Hrg. 102-350, Pt. 3, pp. 314-317.

87. Former BCCI Pakistan branch chief Nazir Chinoy provided detailed information about the Zia-Abedi relationship in a series of interviews with Senate staff from March 9-16, 1992; see also check to General Zia from BCCI-UAE, May 25, 1985, S. Hrg. 102-350, Pt. 2 p. 511.

88. S. Hrg. 102-350 Pt. 2 p. 510.

89. Staff interview, Chinoy, March 9, 1992.

90. Staff interview, Chinoy, March 9, 1992.

91. Chinoy testimony S. Hrg. 102-350 Pt. 4 pp. 368-369.

92. See People v. Abedi, New York Supreme Court, County of New York, July 29, 1992.

93. Staff interview, Sakhia, October 7, 1991.

94. S. Hrg. 102-350 Pt. 3 p. 599.

95. S. Hrg. 102-350 Pt. 4 pp. 392-393.

96. Los Angeles Times, August 9, 1991.

97. Staff interview, Sultan Khan, March, 1991.

98. Staff interview, Colombian marijuana trafficker and federal cooperating witness, September, 1989.

99. Id; the trafficker provided copies of the original letters to the Subcommittee in 1989, signed by the Attorney General of Panama.

100. Milian-Rodriguez letter to Senator Kerry, August, 1991.

101. Letters, Lino Linares, Miami branch, BCCI to Holland and Knight and to Raymond Banoun, July and August, 1990, and January 1991. Details on this interaction are set forth in the chapter on BCCI's lawyers.

102. Staff interviews, Akbar Bilgrami and Amjad Awan, July, 1992.

103. Staff interview, Chinoy, March 9, 1992.

104. Awan testimony, S. Hrg. 102-350 Pt. 6; see also Blum memorandum of Awan interview, Pt 1 pp. 17-22.

105. Id.

106. Id., see also Affidavit of Amjad Awan, Government Exhibit O, U.S. v. Noriega, Southern District of Florida.

107. Id.

108. Staff interviews, BCCI attorney Raymond Banoun, May-July 1990; see also Banoun notes produced to Subcommittee September 3, 1992.

109. Id.

110. An understanding of the nature and composition of the BCRP is important to the discussion which follows. Del Castillo testified that the Peruvian constitution designates the BCRP as "an autonomous body . . . not depend[ent] upon the executive branch." S. Hrg. 102-350 Pt. 1 p. 233. However, Cateriano testified that its directors are partisan politicians "named by the President and . . . by the Senate." at 199. Thus, the BCRP should not be considered an autonomous body free from political pressure or private influence.

111. S. Hrg. 102-350 Pt 1 p. 167.

112. S. Hrg. 102-350 Pt. 1 p. 166.

113. at 232.

114. S. Hrg. 102-350 Pt. 1 p. 232.

115. See People v. BCCI, New York Supreme Court, July 29, 1991.

116. Letter from A.M. Bilgrami and Ishtiaq Nasim to the BCRP, dated 28 April 1986 ("[T]his is to advise you that in consideration of your placing U.S. $200 [million] [sic] deposits with our Panama Office, we are placing at your disposal a line of [sic] credit for $ U.S. 60 [million]. It is our mutual understanding that you will continue to maintain equivalent sufficient balances in your Placement Account.").

117. Staff interview, Akbar Bilgrami, July 1992.

118. At an interest rate of 5% per year, for example, BCCI would save $7,200,000 per year in fees.

119. "Agreement on operational procedure between BCR and BCCI regarding utilization of credit line for US $60 millions by Peruvian local banks (PLBs)," dated May 30, 1986.

120. S. Hrg. 102-350 Pt. 1 p. 167.

121. Staff interviews, Akbar Bilgrami, July 20-28, 1992; see also indictments People vs. BCCI, July 29, 1991 and People vs. Abedi, July 29, 1992, brought by New York District Attorney.

122. People v. Abedi, et. al, New York County Supreme Court, July 29, 1992.

123. Staff interviews, Bilgrami, July 20-28, 1992.

124. Staff interview, Abdur Sakhia, October 9, 1991.

125. Staff interviews, Akbar Bilgrami, July 20-28, 1992; documents reprinted in S. Hrg. 102-350 pp. 202, 206-207.

126. S. Hrg. 102-350 Pt. 1 p. 165.

127. S. Hrg. 102-350 Pt. 1 p. 166.

128. 196-197. Compare the 8 July 1987 memorandum from Carlos Saito to Ana Ma. de Reategui (both of the BCRP) entitled "Evolution of BCRP deposits abroad" ("At the end of June 1986 work was already underway with seven banks" . . . . "The last bank with which correspondent relations were established was . . . BCCI.").

129. See the Evolution of BCRP deposits abroad, hearing book at 176.

130. S. Hrg. 102-350 PT. 1 p. 170.

131. S. Hrg. 102-350 Pt. 1 p. 206.

132. Id.

133. S. Hrg. 102-350 Pt. 1 p. 167.

134. See the Evolution of BCRP deposits abroad, at 175 ("[I]t was decided to open special accounts in the market in Panama, which have maximum security.").

135. S. Hrg. 102-350 Pt. 1 p. 173, "Central Reserve Bank of Peru, Memorandum to Juan Villanueva from Gonzalo Aramburu, August 7, 1987.

136. Id.

137. S. Hrg. 102-350 Pt. 1 p. 199.

138. Id.

139. S. Hrg. 102-350 Pt. 1 p. 233.

140. Staff interviews, Akbar Bilgrami, July 20-28, 1992.

141. Reuters, September 22, 1992, "Attorney General To Seek Extradition of Ex-President Garcia."

142. People v. Abedi, Supreme Court of the State of New York, County of New York, July 29, 1992.

143. Staff interview, Bilgrami, July 20-28, 1992; Bilgrami testimony, S. Hrg. 102-350 Pt. 6.

144. People v. Abedi, Supreme Court of the State of New York, County of New York, July 29, 1992, p. 18.

145. Staff interview, Chinoy, March 9, 1992.

146. Staff interview, Chinoy, March 9, 1992.

147. Staff interview, Bilgrami, July 20-28, 1992.

148. S. Hrg. 102-350 Pt. 2 p. 515.

149. Staff interview, Chinoy, March 9, 1992.

150. Chinoy, id.

151. Id.














BCCI's entry into the United States was inevitable, given Abedi's desire to make BCCI into a global bank, and the size and importance of the United States financial and banking markets. Since BCCI was undercapitalized from its inception, its success required constant growth as a means of filling the ever-increasing hole created by its lack of capital and its operational losses. Securing a base in the United States was intended by Abedi from the beginning as a means of obtaining new opportunities for growth. The United States was one of the largest money havens for flight capital. It was also unique among banking systems in insuring deposits at a very substantial level for FDIC member banks. FDIC insurance made deposits in U.S. banks more secure than deposits anywhere else in the world. As a foreign bank, BCCI could not legally accept deposits from U.S. citizens, or itself become an FDIC member bank. But if BCCI could find a way to enter the FDIC system, it would be able to offer a whole new, and highly valued, service to its customers -- U.S. government guaranteed deposit insurance. Abedi decided that he would first acquire legitimate banks in the United States for BCCI, and then determine later how to merge BCCI into them.

BCCI's initial strategy for the United States was to infiltrate the U.S. banking system through purchasing beachhead banks in major banking centers, and then to expand the beachhead operations until BCCI had U.S. banking operations of sufficient size that they could ultimately merge with BCCI itself. Later, after state regulators in New York had proven resistent to BCCI, and BCCI had successfully acquired National Bank of Georgia and FGB/First American, this strategy was modified. BCCI expanded in the United States by opening BCCI branch offices in regions with significant populations from the Third World engaged in trans-national commercial activity, such as Miami, Houston, Los Angeles, San Francisco, New York, and Chicago. BCCI's intention was to use these branch offices to feed depositors and banking activity to NBG and First American, expanding BCCI's activities through pushing deposits into the federal deposit insurance system. BCCI then formed an additional beachhead institution in California in 1985 through a nominee. By then, Abedi had decided that he would work systematically to integrate the various U.S. banks BCCI now secretly owned, until the survivor was strong enough and large enough to in turn purchase BCCI.(1)

BCCI had significant difficulties implementing this strategy due to regulatory barriers in the United States designed to insure accountability. These barriers included:

** a strong bias against any bank, such as BCCI, which did not have a primary regulator with the responsibility for conducting oversight on a consolidated basis of the foreign bank.

** requirement for certified financial statements from would-be foreign shareholders seeking to acquire a U.S. target.

** reporting requirements in take-over attempts of federally chartered banks, subjecting any shareholders seeking to acquire a bank to the diverse disclosure rules of the Securities and Exchange Commission (SEC).

** prohibitions on the ability of a bank holding company, such as Bank of America of California, which still had a 28 percent interest in BCCI, from purchasing banks in other states, directly or indirectly.

** limitations against interstate banking and branching, which slowed the ability of BCCI's flag-ship U.S. bank, First American, to purchase the National Bank of Georgia, and prevented First American from integrating with any bank in California, such as the Independence Bank, as desired by BCCI.

However, while these barriers did delay BCCI's purchases of banks in the United States, and the integration of its U.S. empire, they failed to stop the purchases. In the end, BCCI was successful in acquiring four banks, operating in seven states and the District of Colombia, with no jurisdiction successfully preventing BCCI from infiltrating it. The techniques used by BCCI in the United States had been previously perfected by BCCI, and were used in BCCI's acquisitions of banks in a number of Third World countries and in Europe. These included purchasing banks through nominees, and arranging to have its activities shielded by prestigious lawyers, accountants, and public relations firms on the one hand, and politically-well connected agents on the other. These techniques were essential to BCCI's success in the United States, because without them, BCCI would have been stopped by regulators from gaining an interest in any U.S. bank. As it was, regulatory suspicion towards BCCI required the bank to deceive regulators in collusion with nominees including the heads of state of several foreign emirates, key political and intelligence figures from the Middle East, and entities controlled by the most important bank and banker in the Middle East.

Equally important to BCCI's successful secret acquisitions of U.S. banks in the face of regulatory suspicion was its aggressive use of a series of prominent Americans, beginning with Bert Lance, and continuing with former Defense Secretary Clark Clifford, former U.S. Senator Stuart Symington, well-connected former federal bank regulators, and former and current local, state and federal legislators. Wittingly or not, these individuals provided essential assistance to BCCI through lending their names and their reputations to BCCI at critical moments. Thus, it was not merely BCCI's deceptions that permitted it to infiltrate the United States and its banking system. Also essential were BCCI's use of political influence peddling and the revolving door in Washington.

Decision to Enter U.S.

By 1976, it had become clear to both BCCI and its U.S. partner, Bank of America, that their relationship was causing problems for both parties and might not long survive. Moreover, BCCI's top officials, especially Abedi, had come to believe that entry into the U.S. market in a manner that BCCI could control was critical. Since its creation, BCCI had been a bank whose deposits and activities were denominated in dollars. Its settlements with other banks were carried out in dollars. There were numerous inconveniences associated with BCCI's inability to conduct business in the U.S. itself, and its forced reliance on western banks like Bank of America to act as its correspondent banks for all dealings with the U.S. Moreover, given the hostile attitude of regulators in the United Kingdom, BCCI had to make sure it was not fenced out of expansion in the industrialized countries. If the Bank of England ever acted against it, and BCCI had no alternative site in a major western financial center, it might be destroyed.(2) Additionally, the U.S. was home to numerous "high net worth" individuals from Third World countries, who could be induced to bank at BCCI. Unlike many countries, the U.S. had no restrictions on the movement of capital in and out of its borders, making it an attractive place to park BCCI's real financial assets. Finally, both Abedi and his key financial backer, Sheikh Zayed of Abu Dhabi, may have had political motives to strengthen their position in the U.S.

According to T. Bertram Lance, BCCI's initial partner in its most important acquisitions in the United States, both Sheikh Zayed and Abedi felt that BCCI could become a critical element in strengthening ties between the United States and their constituencies. As Lance described a meeting between him, Sheikh Zayed and Abedi in Islamabad, Pakistan in late 1977:

Abedi was concerned about the shifting tides towards the Soviets in Afghanistan, Iran, India and the Mideast. Both Abedi and Zayed each expressed their concerns about the Arab worlds lack of ties to the US. They wanted to do something about it.(3)

Friends of Lance told journalists at the time gaining access to President Carter and the White House was one of the explicit goals of doing business with Lance and one of the reasons the "Arabs" were interested in having Lance represent them and in buying his interest in the National Bank of Georgia.

An Atlanta source close to the negotiations says the Arabs see Lance as giving them access to the administration. Though a private citizen, Lance is a regular visitor at the White House and is the chairman of a $500-to-$1000-a-plate fund-raiser for President Carter scheduled for January in Atlanta.

"Under normal circumstances," says this source, "NBG would be the last bank anyone would be interested in. But the investors see this as an opportunity to do a favor for someone close to the President."(4)

Initial Attempts to Enter U.S.

BCCI's initial attempt to obtain a bank in the United States was notably unsuccessful. Initially, BCCI decided it would begin with a small acquisition, that of the Chelsea Bank, a national bank with a state-chartered holding company in New York. In order to keep the transaction low-key, BCCI decided to proceed through a nominee, a member of the Gokal family, whose shipping empire could be characterized as much BCCI affiliate as BCCI customer. Unfortunately, the nominee chosen had few resources of his own, and was a transparent alter ego for BCCI, prompting the very regulatory scrutiny in New York that BCCI had sought to avoid. As recounted by former Comptroller of the Currency John Heimann:

My first supervisory contact with BCCI occurred when I was New York Banking Superintendent. New York law requires the Superintended to approve the change of control of a New York chartered bank. . . A young Pakistani national was the proposed purchaser. His uncertified financial statement showed total assets of $4.5 million, of which $3 million was in the form of a loan from his sister. His reported annual income for the prior year was, as I recall, approximately $34,000. Since he was not an experienced banker . . . and since BCCI was his primary banking relationship, he indicated that he would be relying upon that institution for advice and counsel.

Since he was relying upon BCCI to meet his qualifications of experience, we sought to determine what we could about that organization.(5)

Heimann determined that BCCI had no central regulator, which meant that there was no banking authority anywhere with the right to review and the responsibility to oversee all of BCCI's activities. BCCI also had divided its operations between two auditors, and thus had no consolidated financial report, so it was impossible for Heimann to be certain he could identify and understand BCCI's actual financial condition. According, Heimann put a hold on the application. BCCI identified a second bank in New York, and a second nominee, and made a second application, with the same result. Finally, Abedi decided to approach Heimann directly.

On each occasion, the subject of the meeting . . . concerned itself with BCCI's apparent desire to enter the United States. In each instance, Mr. Abedi attempted to convince us of the secure nature and correct operations of BCCI, its financial strength, etc. On each of these occasions, I expressed my concern that BCCI did not have a primary regulator, and that, until it did, my office was reluctant to permit entry into the US.(6)

Abedi had by now tried the back door into the United States twice and been rejected, and the front door once, with the same result. New York, the most important U.S. banking market for BCCI, would be closed to BCCI so long as Heimann was its chief regulator.

Soon thereafter, however, Jimmy Carter was elected President, and Heimann was appointed to become Comptroller of the Currency, responsible for supervising national banks, and in a position to opine on nearly any attempted purchase by BCCI in the United States. At the same time, Carter appointed as his new director of the Office of Management and Budget, T. Bertram Lance, head of the National Bank of Georgia (NBG), which Lance had purchased in 1975 from the Financial General Bankshares (FGB) group, a bank holding company headquartered in metropolitan Washington. BCCI alone might not be able to circumvent Heimann. Abedi knew that in such circumstances, the only way to proceed was through going over a bureaucrat's head through making use of one's political ties. In 1975, Abedi had few such ties in the United States. In 1977, however, Abedi was introduced to Bert Lance, and BCCI's previous failures in trying to penetrate the U.S. banking system were replaced with success.

History of Financial General Bankshares

In 1910, a socialist visionary named Arthur J. Morris decided to find a means of providing credit to small wage earners and consumers through creating a kind of cooperative banking system later to be known as the "Morris Plan."

Under the Morris Plan, wage earners depositing their paychecks in a cooperative fashion into Morris' institutions became entitled to receive small loans back in return. The concept was successful, and lead to Morris building consumer banks that by the 1940's extended to Florida, Georgia, Maryland, New York Tennessee, Virginia, and the District of Colombia. All of these lending institutions were under the control of another entity, incorporated in 1925, called Financial General Bankshares ("FGB"). Eventually, these banks converted to and merged with conventional banks, and expanded their services to cover insurance, venture capital, mortgage banking and industrial operations.(7)

In 1955, FGB came under the control of retired Army General George Olmstead. By then, the FGB franchise was one of a small number of banks that had been grandfathered to permit interstate banking, generally prohibited by the McFadden Act. The Federal Reserve grandfathering also permitted Financial General's ownership by another corporate entity of Olmstead's, International Bank ("IB"), despite the fact that IB also had several non-banking subsidiaries.(8)

FGB's unique market position attracted criticism from other banks and by 1966, the Federal Reserve decided that FGB was a holding company subject to its regulation, and that International Bank could not retain FGB. General Olmstead was forced by the Federal Reserve to sell out his interests in FGB on or before 1978.(9)

General Olmstead decided to retire as soon as he could sell FGB, and began looking for buyers. Bank stocks were not in favor with investors at the time. Olmstead was initially unable to find anyone who would buy the entire franchise. But in June 1975, he was able to sell FGB's Georgia operation, the National Bank of Georgia, to Georgia banker Bert Lance.

Bert Lance

By September 21, 1977, when Bert Lance tendered his resignation from the position of director of the Office of Management and Budget (OMB) to President Jimmy Carter, Lance had become the most notorious banker in the United States.

Prior to coming to Washington, Lance's entire career had been in banking in Georgia, starting in 1951 with his work as a teller at the Calhoun National Bank, a bank owned by the grandfather of his wife, Labelle. Lance had stayed with the Calhoun Bank and eventually become its president. He began to support Jimmy Carter in his political activities in 1966, when Carter first ran for governor and lost, and again in 1970, when Carter ran for governor and won. In 1974, at the end of Carter's term, Lance himself ran for governor and lost, before emerging as Carter's most important fund-raiser and political advisor in his successful race for President in 1976.

Lance had become president of National Bank of Georgia in January 1975, and quickly come into conflict with Financial General's headquarters in Washington for making loans which both exceeded his lending limit and were not secured by collateral. FGB's chairman, William J. Schuiling, was sufficiently disturbed by Lance's practices that he intended to force a show-down with Lance. But by June, 1975, Lance instead offered to buy FGB's controlling interest in National Bank of Georgia for $7.8 million.(10)

When Olmstead needed to sell the rest of FGB in 1976, he turned first to Lance. At the time, Lance was working to elect Jimmy Carter president. Anxious to join the Administration, rather than to remain in banking, he turned Olmstead down.(11)

Lance was formally precluded from engaging in financial transactions while director of OMB. However, according to later SEC charges, Lance continued to meet with General Olmstead regarding the sale of FGB, and put Olmstead in touch with William G. Middendorf, a former secretary of the Navy who ultimately decided to take over FGB. Lance met with both Olmstead and Middendorf at the Washington Metropolitan Club about the proposed sale while director of OMB.(12). As of April 1977, Middendorf and a group of twenty investors purchased Olmstead's interests in FGB, and Middendorf was installed as the chairman of the bank. But the takeover group, including former ambassador to Iran Joseph Farland, Arkansas banker Jackson Stephens, and Occidental Petroleum chairman Armand Hammer, swiftly began to disintegrate. By November, 1977 the shareholders had split, with Stephens heading a group opposed to Middendorf -- even as the Federal Reserve ordered Olmstead and his group to end their dual relationship to both International Bank and FGB by January 31, 1978.(13)

It was precisely at this point that FGB, Bert Lance, and BCCI came together to bring about BCCI's secret purchase of a $2 billion bank in the nation's capitol.

Lance's problems had begun on July 11, 1977, when President Carter asked the Congress to suspend ethics rules that would have forced Lance to sell 190,000 shares of stock he owned in National Bank of Georgia. He based his request on the ground that Lance would lose $1.6 million if he was forced to sell, because the bank's stock was depressed. Weeks of bad publicity followed, as well as an investigation by the Office of the Comptroller of Lance's Georgia banks which found "unsafe and unsound" banking practices at NBG and the other banks, but no criminal behavior by Lance.

Following Congressional hearings in which he was represented by Clark Clifford and Robert Altman on September 8-14, 1977, Lance resigned from OMB and found himself in terribly difficult circumstances. Not only was he exiled from President Carter's Administration, but his greatest asset -- his network and experiences as a banker in Georgia -- had been turned into an apparent liability. Also, Lance was still deeply in debt as a result of his borrowing $3.4 million to purchase NBG just two years earlier, and had no ready buyer for his interest in the National Bank of Georgia, his principal asset, given the fall in the price of its stock. Moreover, as Lance's practices at NBG had received a vast amount of negative national publicity, the value of the franchise itself was potentially permanently impaired.

Lance's and NBG's perilous position, coinciding with FGB's perilous position, provided a unique opportunity for Agha Hasan Abedi and BCCI to exploit.

The marriage between Lance and BCCI in 1977 was one not merely of convenience, but necessity. At the time, BCCI had already attempted to enter the United States market and failed; and Lance was facing indictment, deeply in debt, and had literally no other place to turn. Moreover, Abedi and Lance shared some characteristics in common. Both Abedi and Lance were entrepreneurial financiers who liked to operate at the border of legal restrictions, in disregard of customary and usual banking practices. Both had reached high positions in their home countries through providing financial and other backing to political figures in their home countries -- Abedi to a succession of Pakistani prime ministers, Lance to Jimmy Carter. And both had come to a point in their respective careers where their entrepreneurial spirit had been stymied by their respective establishments. They both needed to create new opportunities to escape their difficulties. Without Abedi, Lance was only a few steps away from bankruptcy. Without Lance, Abedi lacked any clear means of entering the United States. Together, they were able to make Lance wealthy, and to gain for BCCI secret entry to several of the most important financial and banking markets in the United States.

During the process, both BCCI and Lance -- each notorious within banking circles -- drew the persistent scrutiny of bank regulators, federal investigators, and journalists alike. Both experienced the most bitterly contested bank take-over in U.S. history in connection with the Financial General Bankshares' takeover litigation. In the face of this unusual regulatory scrutiny and public attention, BCCI was still ultimately able not merely to enter the U.S. market, but to acquire the most important bank in metropolitan Washington. This advantageous market entry would ultimately result in BCCI owning a network of U.S. banks extending coast to coast through seven states and the District of Colombia.

BCCI's Targeting of National Bank of Georgia

And Financial General Bankshares

As in most areas concerning BCCI, there is more than one, mutually inconsistent, account of how BCCI and Bert Lance came together, and of how BCCI came to target Financial General Bankshares (FGB) for takeover.

The first account, as testified to by Lance himself, suggests that a former Georgia state Senator named Eugene Holly had developed a relationship with Abedi and BCCI and wanted Lance to meet Abedi to see if they could help one another. By this account, Lance went to New York in October 1977, met Senator Holly there, was joined by Abedi and his number two at BCCI, Swaleh Naqvi. Lance was told that BCCI had developed a unique approach of economic development for the Third World which it wanted to expand in the United States. As Lance testified:

Basically, Mr. Abedi said to me: I am building a bank headquartered in London that has a deep and abiding interest in the problems of health, hunger, economic development. . . I shared that concern, especially about economic development, because I had come from a poor section of Georgia.(14)

After discussing economic development issues, Lance and Abedi got down to basics: BCCI was looking to expand into the United States, and wanted Lance's help. As Lance testified, Abedi understood that Lance might need to know more about BCCI -- the last thing either Abedi or Lance would wish to do was further embarrass the President of the United States. Accordingly, Abedi would leave Lance with BCCI's annual reports, and Lance could get back to him as to whether Lance could help. According to Lance, he then turned to Clark Clifford, who had represented him in Congressional hearings into Lance's activities in Georgia, and asked Clifford to do due diligence on BCCI. When Clifford called Lance back to tell Lance that Abedi was "a man of integrity and character," Lance agreed to meet with Abedi and Naqvi in London, and there became BCCI's agent for its forays into the U.S.(15) Thus, by Lance's account, Clifford first had contact with BCCI on behalf of Lance in October, 1977.

According to Lance, while in London on October 15, 1977, he learned that Abedi had already targeted the Bank of Commerce in New York for possible purchase by BCCI. Lance told Abedi that FGB was a much better prospective purchase for BCCI, because it "enjoyed a very unique position in American banking at that point in time in the sense that it was one of the two or three, maybe four, multistate holding companies that were in existence in the United States."(16)

Lance testified that while he had read other accounts of how BCCI became interested in FGB, it was his belief that he brought FGB to Abedi's attention, not anyone else.(17)

Lance also testified that in London, he also piqued Abedi's interest in purchasing National Bank of Georgia from Lance -- on behalf of Abedi's investor clients, not BCCI, and that Abedi soon advised him that Ghaith Pharaon might be interested. As a result, Abedi arranged to have the Pharaon purchase of National Bank of Georgia proceed on one track, while Abedi arranged for the other Middle Eastern "investors" to work on the FGB takeover on a second track.(18)

Jackson Stephens: BCCI's Principal U.S. Broker?

A second, and inconsistent, account of BCCI's initial entry into the U.S. was provided to the Washington Post in 1978 by participants in the FGB takeover battle, and later reiterated in filings with the Federal Reserve by Lance and BCCI attorney Robert Altman. By this account, the initial contact between BCCI and FGB came from Arkansas multi-millionaire and FGB shareholder Jackson Stephens.

At the time, Stephens was both a close friend of Lance's, and a longtime activist in Democratic political circles. Stephens had been instrumental in fundraising efforts for President Jimmy Carter, who had been his classmate at the U.S. Naval Academy in Annapolis. Moreover, Stephens retained a financial interest in National Bank of Georgia after Lance purchased it from FGB.(19)

According to the Post account, by the time of Lance's resignation, Stephens had already begun to broker the sale of National Bank of Georgia to "a client of BCCI" -- BCCI front-man Ghaith Pharaon -- as a means of assisting Lance. Stephens then went to BCCI and Abedi to see if BCCI might be interested in acquiring the metropolitan Washington FGB franchise directly. As the Post wrote:

A BCCI executive said the Arabs weren't interested in FGB, but the subject came up again on Nov. 26 when Stephens and Lance met Abedi in Atlanta for more talks about National Bank of Georgia. Abedi began to sound interested, and Stephens reportedly offered to sell a block of 4.9 percent of FGB and recommended Abedi meet [Eugene Metzger, a dissident shareholder with a significant number of FGB shares] to pursue the matter.(20)

Altman's account to the Federal Reserve removed Lance from the picture even further, contending that Jackson Stephens, not Lance, handled all the negotiations regarding National Bank of Georgia, and first proposed to BCCI the possibility of buying FGB.

As set forth in a May 9, 1978 letter from Altman to the Federal Reserve, Jackson Stephens told a BCCI representative during negotiations over the sale of National Bank of Georgia to Pharaon in November, 1977 that FGB might be available and could be a good investment for other BCCI customers. In late November, Stephens told Abedi that Abedi should meet with FGB investor Eugene Metzger, and designate Metzger and Stephens as agents for these Middle Eastern investors. Neither BCCI nor any of its affiliates provided financing for the purchase of the stocks, although BCCI advanced the funds through the accounts the Middle East investors maintained at BCCI. Some funds were borrowed by one "investor," Fulaij, from the Kuwait International Finance Company ("KIFCO"), which BCCI purportedly had a 49 percent interest in, but actually owned and controlled through its nominee, Faisal al-Fulaij.

Adham's Account of Origin of FGB Takeover

A fourth account of the genesis of the BCCI's interest in FGB, completely inconsistent with the Lance, Post, and Altman accounts, came from BCCI shareholder and front-man Kamal Adham, who advised the Federal Reserve on April 10, 1991 by letter that an Middle Eastern friend of his, Hasan Yassin, told him that FGB would be a good investment, and Adham as a result brought the prospective investment to BCCI for review as his business agent. Adham did not explain to the Federal Reserve how Yassin had known of FGB's availability, or why Yassin believed Adham might be interested, nor had Lance ever heard of Yassin. Two weeks later, Adham reiterated these statements in formal testimony before the Federal Reserve.(21)

Oddly, given Altman's representation to the Federal Reserve that the Middle Eastern investors became involved as a result of a meeting between Stephens and Abedi, Clifford himself told the Federal Reserve in 1981 that Adham's involvement came "from a friend who was associated with the Saudi Arabian embassy" with "contacts" to Mr. Middendorf. Clifford's reiterated this statement to the Senate on October 24, 1991, testifying that "the man in the Saudi Arabian Embassy looked into [FGB] in more detail and concluded that it might be an attractive acquisition. Apparently, that was one of his functions in the Saudi Arabian Embassy, to pass information of that kind back to Saudi Arabia."(22)

Later, Adham, Clifford, and Altman would seek to resolve the contractions in these accounts in testimony before the Federal Reserve, discussed below.

The Federal Reserve's Findings

On July 29, 1991, the Federal Reserve issued findings concerning the genesis of the 1977-78 takeover suggesting that in fact, Lance, Stephens and BCCI, working together, had initiated the discussions regarding the BCCI group's purchase of FGB in a meeting on November 7, 1977. According to the Federal Reserve:

At the suggestion of T. Bertram Lance ("Lance"), Abdus Sami ("Sami"), a senior BCCI officer from its inception and a close associate of Abedi, met with Jackson Stephens ("Stephens") to discuss the purchase by a BCCI client of the interest of Lance and others in NBG. . . During the meeting, Stephens, who was dissatisfied with his investment in Financial General, told Sami that Financial General might be a good investment for BCCI clients.(23)

The Federal Reserve findings are indeed the only account that is consistent with the contemporaneous documentary records concerning what took place. These Federal Reserve findings show Lance's testimony to have incorrectly omitted Stephens' key role; Altman's account to have incorrectly omitted the key roles of Lance and of BCCI; and Adham's account, bolstered by Clifford at the Federal Reserve hearing, to be at best, immaterial to the FGB purchase, and at worst, an outright fabrication.

Ghaith Pharaon and the NBG Takeover

In both the National Bank of Georgia and Financial General Bankshares takeovers, although BCCI was the real party at interest, it disguised that interest for a number of reasons, including the fact that at the time, Bank of America's 24 percent ownership of BCCI would have made BCCI's purchase of a U.S. bank outside California illegal under any circumstance.

Both purchases began moving on a fast track in November and December, 1977. Although Lance and the others involved took pains to suggest that the two purchases were unrelated, as Lance acknowledged, Lance, Abedi, Clark Clifford, and Robert Altman were central to both of them, and the two transactions took place simultaneously.(24)

For example, while Clifford and Altman have testified that they did not become involved with Lance and the FGB transaction until February, an article in the Washington Post on December, 18, 1977, quotes Altman, as Lance's representative, confirming negotiations among "Middle Eastern financial interests" and Lance concerning Lance's establishment of "a holding company to direct their capital into banks and other U.S. investments."(25)

The article describes Abedi's role as the "matchmaker" for the proposed transactions, and specified that "Lance's attorney, Altman" had announced earlier in December that Lance was negotiating to sell shares of NBG stock for $20 each -- precisely the price paid in early 1978 to Lance by BCCI nominee Ghaith Pharaon.(26)

Of the two transactions, the National Bank of Georgia transaction was far simpler, and consummated with far greater ease. The principal reason for the difference was that the National Bank of Georgia was not a bank holding company, and as a result, was regulated only by the Office of the Comptroller of the Currency, which was more worried about the wretched condition of the bank and its possible failure than about the possibility that its purchaser, Saudi "billionaire" Ghaith Pharaon, might be a front-man for BCCI.

BCCI's relationship with Pharaon went back to the foundation of Pharaon's fortune. Pharaon inherited funds and opportunities, from his father Rashid, who had been a physician for the founder of Saudi Arabia, Abdul Aziz. His father became close to the King, and was posted abroad as a Saudi Arabian Ambassador to all Europe from 1948 to 1954, during which the younger Pharaon was educated in Paris. Later, Pharaon studied in Lebanon, Syria, and Switzerland. He completed his education in the U.S. at the Colorado School of Mines and Stanford University, where he studied petroleum engineering, and completing it with a Harvard MBA, after which he began referring to himself as "Dr. Pharaon."(27)

While in his twenties in the mid-1960's, Pharaon became friendly with then-Saudi intelligence chief Kamal Adham, who introduced him to Abedi and BCCI. Pharaon and Adham went into business together, building a Hyatt Hotel in Jeddah, Saudi Arabia, financed by BCCI, which in turn generated enough money for Pharaon to found a construction firm, REDEC, whose success formed the basis for Pharaon's reputation as a billionaire. Ultimately, numerous banks financed Pharaon's activities as well as BCCI, and by 1977, Pharaon had already taken short-term passive interests in banks in Texas and Michigan.

Chronology of the Sale of NBG to Pharaon

The National Bank of Georgia sale to Pharaon and BCCI began, according to testimony by Bert Lance, through discussions and negotiations between Lance, Abedi and other BCCI officials in Atlanta over Thanksgiving weekend in 1977.(28) It was precisely the same time that Lance, Abedi and BCCI reached agreement on beginning the takeover of Financial General Bankshares as well.(29)

Abedi handled all the negotiations with Lance concerning the purchase of National Bank of Georgia. Although Pharaon was the apparent buyer, Lance never even met him until January 1978, after the negotiations had been completed, the day before the sale of National Bank of Georgia from the Lance group to Pharaon was announced. Ultimately, Lance received $2.4 million for his interest in the bank, twice the previous market value of the shares.(30) In addition, Lance received another $3.5 million from BCCI's Grand Caymans affiliate, ICIC, for acting as BCCI's business agent. Lance used these funds to repay debts to the National Bank of Chicago, and to purchase shares of FGB.(31) The funds provided Lance were originally described as "loans," but BCCI never asked Lance to sign a note or to arrange terms for repayment, and in time, the payment came to be understood as a consulting fee, or retainer.(32)

Unlike the bitterly contested FGB takeover, the sale of National Bank of Georgia from Lance and its other investors proceeded quickly, and reasonably smoothly. The $20 per share tender offer, with a total cost of $21 million for Pharaon at twice the recent market value of the shares, assured little opposition from the shareholders. Moreover, Pharaon's purchase of his stake of NBG shares from Lance was completed by the beginning of January, 1978 -- before the regulators knew of the BCCI group's attempt to take over FGB, and before a federal grand jury in Atlanta began a criminal probe of Lance's banking affairs.

Nevertheless, federal regulators were uneasy about the Pharaon transaction from the beginning because of the involvement of BCCI officials in it. A memorandum to the files from then-Comptroller of the Currency John Heimann on January 4, 1978 articulated the nature of the concerns:

Tomorrow, January 5th, the sale of Lance's stock to Pharaon will be completed at 2 pm. . . Guyton [President of NBG since Lance's departure for OMB] noted he was somewhat disturbed about the role played by the Pakistanis in this transaction. Not that he knew anything negative about them but their role at present or in the future, seemed to be ill defined and caused him some concern. He believes that Lance is presently on the BCCI payroll working with Addabi [sic] and Sami. As a matter of fact, Lance went to London last week and will be back today. The purpose of that trip, presumably, was to discuss further expansion of BCCI in the U.S.(33)

In the conclusion of the memo, Heimann noted that Pharaon and BCCI apparently had plans for acquiring additional U.S. banks. This fact gave Heimann additional cause for concern given his opposition to BCCI's entry into the U.S. in New York two years previously.

Pharaon had told [Guyton, the NBG president] that Pharaon was negotiating for another bank in the United States and would have an announcement to make within 30 days. Guyton also understands that BCCI is looking for another bank in the United States.(34)

There is no evidence that Pharaon was looking at any other U.S. bank at this time, apart from BCCI's still secret interest in FGB. Thus, while Pharaon was ultimately not involved in the 1978 FGB takeover, in retrospect, this reference suggests that Pharaon may have been considering participating with BCCI in its FGB takeover as a nominee for the bank.

Within two weeks, OCC received additional disturbing information. A small aviation company was requesting an unsecured loan for $890,000 from NBG to purchase a Grumman airplane, backed up by a irrevocable letter of credit issued by BCCI, all at Lance's request. The president of the company was Lance's personal pilot, and the loan was being made to purchase a plane to facilitate Lance's business activities for BCCI. The loan was not one that NBG, or any well-run bank would ordinarily make, because the credit was unsecured. However, NBG officers felt they were under pressure from Lance to approve the loan, who was now on BCCI's payroll, receiving "a tremendous salary," an airplane, office space, and secretarial assistance from BCCI. NBG president Guyton told the OCC that BCCI intended to invest for its own account as well as for other investors in the U.S., and Lance was to be its business agent.(35)

OCC officials told Guyton it would be "foolish" to make the loan, and NBG accordingly agreed not to make it. The incident represented precisely the kind of self-dealing that Heimann had already seen in reviewing Lance's finances at part of the inquiry that arose while Lance was director of OMB. When the FGB takeover attempt became public month later, Heimann directed OCC officials in enforcement to determine whether Pharaon, like Gokal before him, was a front for BCCI.

On March 30, 1978, Robert B. Serino, director of Enforcement and Compliance of OCC, met with Pharaon, to find out just what role BCCI and Lance were going to play in Pharaon's NBG. Pharaon assured the OCC that Lance would not be involved further in his bank, and that BCCI would act merely as an advisor, but Serino, in a memorandum to Heimann, was uncertain as to whether to believe him.

Pharaon . . . indicated that there never was an understanding or desire on his part to have Lance participate in the management of NBG and this was not to be a term of his purchase. This is contrary to the representations given to us and the SEC by Lance's counsel during the original meetings . . . at that time, they indicated that one of Pharaon's conditions of the purchase would be that Lance would be acting as chief executive officer.

Pharaon indicated that Abedi, in fact, was the one who suggested to him that this would be a good investment and essentially put the deal together for him. He indicated that BCCI was, in fact, one of his financial advisors and that he had hoped to use employees of BCCI (paid by him personally) to review the transactions at NBG periodically to advise him as a controlling shareholder of the condition of the bank in the future. . .

My conclusions from meeting with Pharaon are that he tells a convincing story; however, it appears that he is "beholden" to or at least influenced by Abedi. I believe he could, in fact, be Abedi's alter ego in the United States.(36)

There is no evidence in OCC files to suggest that OCC sought to investigate further its suspicions about Pharaon acting as a front man for BCCI in the purchase of National Bank of Georgia. Instead, the OCC, accompanied by the SEC, filed a joint civil suit against Lance, National Bank of Georgia, and Lance's other bank, the Calhoun bank, charging them with "fraud and deceit" in violating banking and securities laws, and including among the charges allegations that Lance used the banks to personal enrich himself by providing himself with excessive and unsecured loans. All three signed consent decrees, neither admitting nor denying the allegations -- but agreeing not to engage in unsafe and unsound banking practices in the future.

Given OCC's concerns about Lance, there was an obvious tension between trying to protect the National Bank of Georgia from Lance's practices by letting a sale to Pharaon go forward, and with trying to protect the National Bank of Georgia by stopping the sale because of concerns about BCCI. The likely consequence of the latter course of action, however, would be that no one would buy NBG at all and it would be left in Lance's hands. The OCC knew in private what was not known by the public, although it was whispered in banking circles -- that NBG was in financial trouble, and had inadequate capital. Pharaon's tender offer for the shares of the bank would expire on June 20, 1978. If the OCC took any action to delay or prevent that acquisition, NBG might never recover.(37) The OCC gave Pharaon permission to move forward and he concluded his tender offer to purchase a 60 percent interest in NBG on May 30, 1978. OCC thus took the conservative approach of accepting Pharaon's dubious account about his relationship to BCCI, and permitting Pharaon to "rescue" the bank, rather than challenging Pharaon's purchase and placing the bank at immediate risk.

The truth was that Pharaon and BCCI had purchased NBG in a partnership, with BCCI lending Pharaon some of the funds to buy the bank, and agreeing to share the expenses, profits, and losses with Pharaon 50-50. This arrangement was convenient for both Pharaon and BCCI because it permitted them to rearrange the ownership of NBG as needed depending on their respective financial situations.(38) It went undetected until 1991, when the Federal Reserve for the first time investigated the NBG takeover of 1978 and concluded that Pharaon had borrowed at least part of the funds he used for the acquisition, with BCCI as his partner in the transaction from the beginning.(39)

OCC's decision about NBG was unfortunate. As later bank examination documents demonstrate, NBG remained what OCC termed a "problem" bank for years following its sale to Pharaon, with a substantial number of Lance-related substandard and non-performing loans remaining in its portfolio. A decade later, after its purchase by First American at the behest of BCCI, NBG -- renamed First American Georgia -- remained in "unsatisfactory" condition according to OCC examiners, with serious problems of asset quality, earnings, loan losses, and monitoring system. Moreover, in buying National Bank of Georgia through its nominee, Pharaon, BCCI had succeeded in overcoming the regulators to acquire its first bank in the United States. This lesson would have been especially powerful to Abedi. During this very time, he was in the very midst of high publicized actions in Washington involving many of the same players and where allegations were again being raised about BCCI's possible use of front-men. It was a lesson that with persistence, BCCI would also be able to succeed in deceiving the regulators in its attempt to take over FGB.

Clifford and Altman and FGB Takeover

By all accounts, Clifford and Altman's introduction to BCCI and FGB came as a consequence of their representation of Lance before Congress beginning on Labor Day weekend in 1977. But the parties involved provide differing accounts of how and when Lance brought Clifford and Altman into his bank deals in the ensuing months.

According to Lance, he first discussed the possibility of Clifford becoming counsel for Abedi and BCCI as early as October, 1977, because Lance "thought that Mr. Clifford ought to be Mr. Abedi's counsel in regard to what he was doing." Lance said that Clifford was already familiar with BCCI at this time, because Clifford had on Lance's behalf "done the due diligence that he reported back to me on from the standpoint of BCCI and Mr. Abedi" before Lance became involved with them in October.(40)

By contrast, Clifford testified that his and Altman's involvement with BCCI began in December 1977 when Lance, as a "former client," brought Abedi in to talk with Clifford for "a social visit." Although the FGB takeover attempt had in fact already begun in November, according to Clifford, there was no discussion at the meeting involving Lance, Clifford, and Abedi, of any prospective takeover. Rather, according to Clifford, Abedi confined himself to telling Clifford of his philosophy of banking -- to provide the Third World with banking services which they had never had before, as a means of bringing progress to developing lands.(41)

According to Clifford, in the weeks that followed, he would "hear from time to time [from] little reports [that] would sift in that Mr. Abedi and BCCI were in the process of acquiring stock in a company called Financial General Bank Shares . . . I had not heard of them before."(42) According to Clifford, only after BCCI and the Middle Eastern investors had made their acquisitions of FGB stock, and only after the SEC had been alerted by the Middendorf group of the action by the BCCI group, did Abedi and the others involved retain Clifford and his firm, Clifford & Warnke to assist them in the litigation regarding the attempted takeover. Clifford testified that his representation of the bank and its investors began in February, 1978.(43)

As Clifford affirmed in his written testimony to the Senate:

Without our involvement or advice, four of these investors had purchased stock in an American bank holding company called Financial General Bankshares ("FGB"), the predecessor to First American, without filing certain disclosures with the Securities and Exchange Commission ("SEC"). The SEC investigated these transactions, and the management of FGB, concerned that these purchased foreshadowed a possible corporate takeover effort, filed suit against the Arab investors, BCCI, Mr. Abedi and others. We were retained to represent Bert Lance, Agha Hasan Abedi, BCCI, Sheikh Mohammed bin Zaied al Nahyan, Sheikh Sultan bin Zaied al Nahyan, Faisal al Fulaij, and Abdullah Darwaish, certain of these defendants.(44)

Thus, by Clifford's account, the entire structure of the FGB transaction and the assembling of the shareholders had been conceived and implemented by BCCI and the "investors" before Clifford had ever become involved. The representation began in connection with SEC action that took place in mid-February, 1978. This account would buttress Clifford and Altman's contentions that they were "grossly deceived" from the first by BCCI.(45)

However, the chronology described by Clifford is inconsistent with both the details and the sense of Lance's testimony, and with a contemporaneous telex sent to Abedi and BCCI by BCCI official Abdus Sami, who was working closely with Lance in late 1977 and early 1978 on the FGB takeover.

The Sami Memo:

Documentary Evidence of BCCI's Actual Intentions

The Sami memo to BCCI chairman Agha Hasan Abedi, written January 30, 1978, provides the best documentary summary of the actual structuring of the FGB takeover by Lance and BCCI. It reveals the clear involvement of Clark Clifford in the month of January, 1978, a time when Clifford contends he was uninvolved in BCCI's attempt to take over FGB, and prior to what Clifford described as the triggering event for his involvement, the commencement of litigation involving the SEC in mid-February, 1978.

The Sami memo, written in Washington and sent to Abedi in Karachi, Pakistan, first describes the "situation of acquisition of FGB," noting the purchase to date by the BCCI group of 17.5 percent of the FGB stock, with commitments or control over 23 to 24 percent of the stock, and that a meeting needed to take place between "our friend," Bert Lance, and the Middendorf group, to determine whether the BCCI takeover would proceed by with the consent of the Middendorf group, or through a contest. In the telex, Sami advised Abedi that they needed to prepare for litigation in which the Middendorf group would argue that it was undesirable for FGB to be taken over by foreigners. He added that BCCI needed to retain Clark Clifford as counsel in the event of a contest for control. Sami then described further steps BCCI needed to take in preparation for such a struggle:

To keep individual ownership to below 5 percent we have to distribute the ownership to 4 persons of substance. We have already given the names of Sheikh Kamal Adham and Mr. Fulaig [sic]. We want two other names immediately. Under Securities and Exchange Regulations we are also obligated to report to Commission as well as Financial General details of purchases. We require their biodata and powers of attorney for them. We must have this early this week to avoid possible liability on Mr. Metzger and purchases. We have to be careful that our name does not appear as financier to most of them for this acquisition. The necessity of filing this return has arisen on account of concentration of over 5 percent in the hands of Metzger, his knowledge and our intention to acquire control.(46)

The Sami memo described an intentional strategy by BCCI, Lance, Adham, Fulaij, and other members of the BCCI group to disguise BCCI's underlying interest in the transaction, and the fact that the individuals were acting as a group, in order to circumvent SEC disclosure rules. Under American securities law, anyone who buys five percent of a publicly traded company must file a disclosure form with the Securities and Exchange Commission. In the memo, Sami also advised Abedi that he has "met Clark Clifford and explained to him our strategy and our goal. He was happy to know the details and has blessed the acquisition," suggesting that Clifford was a knowing participant in BCCI's takeover scheme on or before January 30, 1978, and had already been retained as lawyer for the group prior to that date.(47)

Sami's dating of Clifford's involvement is buttressed by the legal bill sent by Clifford to BCCI for this period. The bill, dated May 24, 1978, describes the legal services rendered them by Clifford as dating not from mid-February, but from January 1978.

Significantly, the federal district court judge who heard the case brought by the Middendorf group against BCCI and the Lance group made a specific finding regarding BCCI's apparent use of nominees in connection with the initial takeover, as suggested by the Sami memorandum. On April 27, 1978, the court found that in early December 1977, BCCI's agents sought to purchase a percentage of Financial General shares substantially in excess of any amount for which Abedi then had purchasers.(48) Thus, rather than responding to investment requests from clients, BCCI was in effect acting not only as agent but as principal in the takeover.

Within a matter of days following the writing of the Sami memorandum, BCCI added the crown prince of the Abu Dhabi royal family, Sheik Sultan bin Zayed al Nahyan, and Abdulah Darwaish, financial adviser to the Abu Dhabi royal family, as the two additional shareholders for the purpose of the takeover referred to by Sami. Significantly, during this period, Abedi also solicited Iranian millionaire Mohammed Rahim Motaghi Irvani, a business partner of former CIA director Richard Helms, to be a nominee shareholder. Irvani, was listed in the original SEC filing in the early, 1978 takeover attempt, as a 5 percent shareholder of CCAH, and BCCI's lead front-man in the original takeover. Several documents, introduced in civil litigation involving Irvani in Georgia, describe Irvani's recruitment by Abedi in early 1978 to act as a front-man for BCCI.(49)

The FGB Litigation, Consent Decree and Takeover

On February 7, 1978, a meeting of FGB shareholders was convened at which Lance announced that the BCCI group controlled 20 percent of the FGB stock and wanted eventual control -- despite having never previously disclosed its takeover intentions, as required by federal securities laws, to the SEC.

The Middendorf group, recognizing that Lance's statements amounted to a confession of violating SEC disclosure laws, immediately complained to the SEC and the Federal Reserve, which launched investigations.

Lance had made a significant mistake in advising the Middendorf group of the coordinated takeover effort by the BCCI group. Within days, both Lance and BCCI began publicly announcing that FGB investors had purchased the stock individually, not as a group. He also announced that BCCI was uninvolved in the purchases and honoring the legal prohibitions against its involvement that existed due to its partial ownership by Bank of America.(50) The revised version of events by Lance and BCCI had come too late: the Middendorf group, which still controlled FGB, filed suit on February 17, 1978 alleging violations of securities laws.

A month later, the SEC filed its own suit to block the Lance-BCCI FGB takeover attempt. Eleven defendants were named in the action, including Lance, Abedi, BCCI, and four BCCI clients. However, an agreement had already been struck between the SEC and the Lance-BCCI group, which suited both the SEC and the would-be investors.

Given Lance's admissions, and the careless assemblage of the Middle Eastern shareholders by BCCI, the SEC case against the Lance-BCCI group was formidable, and hard to contest. For example, each "individual" Middle Eastern investor sought to acquire, at precisely the same time, an identical interest in the bank of 4.9 percent, which placed each one, supposedly acting independently, at just under the level that would otherwise have required them to disclose their purchase to the SEC. It was all too obvious that they were acting jointly, as a group. But the SEC was not looking for punitive action, merely corrective action. So long as Lance-BCCI group agreed to live by SEC rules in the future, and compensate the injured parties by paying more for the shares of the bank, the SEC would let them go forward. The Lance-BCCI group agreed to pay the highest price to date for stock in FGB to any shareholders who wanted to sell -- and promised to keep BCCI out of any continued takeover efforts of FGB, other than as an investment "advisor."

The SEC's surprisingly mild position, given the baldness of the group action, was a further demonstration of Abedi's principal of not being overly concerned about laws. Here, BCCI had broken SEC laws and while hampered by SEC action, would be permitted to move forward with its arrangements to take over FGB so long as it paid the current FGB shareholders enough for the privilege.

On April 27, a federal judge permanently enjoined Lance and ten other defendants form violating securities laws, and the SEC consent decree was issued. In its injunction, the federal district court made specific findings that there was evidence BCCI was at the center of the takeover, and might well have controlled the takeover. The court said that the BCCI clients relied "heavily, if not exclusively" on Abedi and BCCI in deciding to purchase the FGB shares and, tellingly, that BCCI's agents had to sought to purchase a percentage of FGB shares substantially in excess of any amount for which Abedi then had purchasers. These findings should have been warning lights to regulators. In fact, because of these warnings, the Federal Reserve later sought and received assurances from BCCI, the Middle Eastern investors, and the attorneys, that BCCI was not behind the purchase.

In the meantime, BCCI executives began making false statements to the press in an apparent attempt to rewrite history and discourage further litigation. For example, two top BCCI officials, Allaudin Shaikh and Dildar H. Rizvi, told the Washington Post in mid-March, 1978 that Lance was merely "an informal adviser who pointed out investment opportunities in the U.S." for BCCI," suggesting that he was "not employed by the bank . . . was paid nothing by the bank. . . and had received absolutely no loans from BCCI or loans arranged by BCCI." The executives also told the Post that the Middle Eastern investors advised by BCCI were "four individuals from different countries, absolutely unknown to each other."(51)

On March 28, 1978, a memorandum to the Federal Reserve Board of Governors discussed the Fed's investigation into the Lance-BCCI activities, stating that the SEC had found "no evidence" that the Middle Eastern investors had actually acted in concert, despite Abedi's and BCCI's serving as their joint financial advisor. However, within days, the U.S. District Court judge hearing the SEC complaint found that BCCI, Abedi and the four investors had indeed acted as a group.

By April, the Federal Reserve was asking detailed questions of Clark Clifford and Robert Altman as attorneys for Lance and the "individuals" in the BCCI group, inquiring whether ICIC, BCCI's Grand Caymans affiliate, was acting as a vehicle for the acquisition of FGB. On May 9, 1978, Altman told the Federal Reserve that Abedi and BCCI were acting as the commercial banker and financial advisor for the Middle Eastern investors, and that while BCCI had been used to move funds for the investors into the U.S., it had not financed any of the FGB purchases.(52)

Thus, by mid-1978, BCCI had developed a theory of its involvement with the Middle Eastern investors in FGB designed to reconcile its central role in the original takeover with the various securities and banking laws which prohibited it having an actual direct interest in taking over FGB. The theory was that BCCI was a financial advisor to the actual parties at interest, and never a principal itself in their purchases of FGB stock. From May 9, 1978 onward, Clark Clifford and Robert Altman, as attorneys for Lance, BCCI, and the BCCI-related shareholders, would articulate the position that BCCI at no time acted inconsistently with this role.

Although the takeover was now able to move forward, Lance's poor judgment would soon result in his being severed from both National Bank of Georgia and FGB. In February, his statements had set off the SEC action and FGB civil litigation. Moreover, his own legal problems pertaining to his sloppy banking practices in Georgia were mounting. Over the remainder of 1978, Lance was eased out by Clifford, and replaced at the apex of the BCCI group by retired Senator Stuart Symington. Symington would later become chairman of the Board of Directors of the acquisition vehicle BCCI created for the takeover, and would remain so until his death.

In the months that followed, the Middendorf group and the BCCI group continued to litigate the takeover. Dozens of depositions were taken, and all the parties to the takeover were placed on the record. During those depositions, the BCCI investors repeatedly stated under oath that they were purchasing FGB shares for their own interest; that BCCI did not control, vote, or have the power to dispose of their shares; that BCCI would not finance the purchase of their shares; and that BCCI's role was limited to that of commercial banker and investment advisor for the Middle Eastern investors.(53)

In 1991, Clifford testified that "nothing in the course of this litigation . . . indicated in any way that they [the Middle Eastern investors] were nominees for BCCI, as is now alleged."(54) However, throughout the litigation and takeover, there were in fact recurrent allegations that BCCI was behind the takeover, and regulators, including the Federal Reserve, the Office of the Comptroller of the Currency, and various state banking authorities, continued to insist on receiving affirmations from everyone involved that BCCI was not a principal.

The ambiguous nature of BCCI's role was demonstrated again during the summer of 1978, when BCCI, ostensibly on behalf of the Middle Eastern investors, formed Credit and Commerce American Holdings ("CCAH"), N.V., as a Netherlands Antilles holding company, which in turn held a subsidiary, Credit and Commerce American Investment, B.V., of the Netherlands, as vehicles for acquiring shares of FGB. In statements filed with the SEC, BCCI, Abedi, and the four Middle Eastern investors stated that BCCI would have no interest in CCAH. They advised the SEC that ICIC Overseas would own up to 5 percent of CCAH's shares. At the time, ICIC Overseas was ostensibly a staff benefit fund for BCCI, but in fact was then and remained a slush fund for and alter ego of BCCI itself.

The 1978 CCAH Application

By October, no agreement had yet been reached between the Middendorf group and the BCCI group. However, the BCCI group in the form of CCAH pressed forward with making a formal application to the Federal Reserve for the acquisition of all the voting shares of FGB. Under the terms of the application, CCAH, CCAI, and FGB would become bank holding companies and acquire all of the shares of Financial General Bankshares. The four Middle Eastern "investors" would contribute all of their shares of the bank to CCAI, in return for shares of CCAH. CCAI would then make a tender offer for the remaining shares of Financial General Bankshares. As stated to the Federal Reserve by Robert Altman in his capacity as counsel to CCAH, "neither BCCI nor any other organization related to BCCI contemplates owning any equity interests in CCAH."(55)

At the time, Clifford and Altman were dealing simultaneously with BCCI on the acquisition and with BCCI's various front-men and nominees.

For example, in this precise period, Clifford and Altman received a power of attorney from one acknowledged BCCI front-man or nominee, Iranian businessman Mohammed Irvani, for Irvani's proposed involvement as a participant as a shareholder of CCAH, in a transaction handled on Irvani's behalf by former CIA director Richard Helms. Helms drafted an agreement indemnifying Irvani from any loss in connection with Irvani giving Clifford's law firm a power of attorney to act in Irvani's name in purchasing CCAH shares.(56) The fact that Irvani was acting as a front-man for BCCI at the time was confirmed recently by his son, Bahman Irvani, who told the Atlanta Constitution that his father "lent his name to the 1978 takeover bid at the request of BCCI founder Agha Hasan Abedi."(57)

Through the remainder of 1978 and early 1979, the critical issue focused on by regulators was whether BCCI actually had a hidden interest in CCAH. For example, on November 7, 1978, Federal Reserve Lloyd Bostian of the Richmond Fed wrote Altman to ask for more information on the relationship between CCAH, CCAI, and BCCI. Two weeks later, Altman replied that although ICIC would have an ownership interest of 4.5 percent in CCAH, and one or two persons associated with BCCI or ICIC might serve as directors of FGB, neither BCCI nor ICIC would have contracts with the bank or their holding companies relating to management or investments. Soon thereafter, the Comptroller of the Currency raised concerns about who would be providing financing for the proposed FGB purchase. On January 12, 1979, Altman wrote the Federal Reserve to specify that no more than $20 million would be borrowed by the shareholders for the acquisition, and that all such borrowing would be made by institutions having no affiliation with either CCAH or CCAI.

In the meantime, the Middendorf group had continued to object to the takeover, and on January 26, 1979, the Attorney General of Maryland issued an opinion stating that Maryland law precluded a hostile takeover of a bank. On February 16, 1979, the Federal Reserve dismissed the 1978 CCAH application on the ground that it violated Maryland law, and in response, CCAH and CCAI sued to overturn the Maryland decision.

The 1980 CCAH Application

Those involved in the original takeover believed that the Federal Reserve's objections would end if they were able to resolve the continuing fight with the Middendorf group and end the take-over battle. They therefore sought to sweeten the financial reward to the non-CCAH shareholders of FGB, and find ways to shield the CCAH purchase from the shadow of BCCI. Tentative agreement was reached with the non-CCAH shareholders for the sale of the bank in March 1980, while Senator Symington was pressed into a leading role as chairman of CCAH and a would-be director of Financial General Bankshares. Thus BCCI had arranged to replace its shady reputation with the very distinguished and respectable reputation of retired United States Senator and former Democratic Presidential nominee. In May, the non-BCCI faction sent a letter of understanding to Symington setting out the guiding principles of the FGB acquisition, which included the requirement that Symington himself hold and vote 60 percent of the stock of CCAH for the first five years, with Clifford succeeding Symington in the event of his death or inability to complete his term. The provision was suggested by Clifford as a means of assuring regulators that BCCI would not secretly control the bank.(58)

Even at this point, lawyers for the Middle Eastern investors knew that the actual shareholders they were representing were potentially a fluid group. As former Federal Reserve lawyer Baldwin Tuttle explained in a May 27, 1980 memorandum to Robert Altman and two other BCCI attorneys, entitled "The Application (At Long Last!)":

It will be necessary to determine who the new investors will be (we should try to keep as closely as possible to the original cast of characters to help with our moratorium problem.) (emphasis added)(59)

The memorandum from Tuttle implies that even in 1980, the attorneys for the acquiring group believed that the identities of the "investors" were not in control of the proposed takeover, but names to be manipulated at will to deal with legal, regulatory, and financial issues as they arose.

On November 25, 1980 -- three years after the original takeover of the bank began with Bert Lance -- CCAH and CCAI filed a second application with the Federal Reserve to become bank holding companies. The application made a number of key representations, required by the regulators, regarding the nature and source of the financing of the venture, in part to demonstrate that BCCI had no direct or indirect interest in the transaction. These representations included:

** None of those purchasing the CCAH stock would retain any personal indebtedness in connection with the transaction.

** All of the funds used in the transaction would be provided from the personal funds of the investors.

** None of the funds would be from financial institutions affiliated with BCCI.

The application, filed on CCAH's behalf by Clifford and Altman, also made an iron-clad statement that BCCI had no interest, direct or indirect, in the bank:

BCCI owns no shares of [Financial General], CCAH, or CCAI, either directly or indirectly, nor will it if the application is approved. Neither is it a lender, nor will it be, with respect to the acquisition by any of the investors of either [Financial General], CCAI or CCAH shares."

In a written response to questions concerning the relationship between BCCI and CCAH, Altman further stated that the shareholders of CCAH had all made personal investments, and none of them were acting "as an unidentified agent for another individual or organization."

As part of the application process, the investors provided the Federal Reserve with financial information, typically consisting of extremely general statements about the net worth of the applicants. For example, the certificate provided for Kamal Adham consisted of a declaration by a Middle East accountant based in Saudi Arabia on June 19, 1978, addressed "To whom it may concern," that states:

Without any responsibility, we here certify that the estimation of the net worth properties [sic] and investments of H.E. Kamal Adham, as at June 15th 1978, is U.S. dollars 134.000.000 ($134 million).

According to the accountants, this conclusion was based on an estimated value of his investments in land and buildings at $100 million, buildings outside Saudi Arabia at $8 million, and "investments" not otherwise specified at $26 million.

The Federal Reserve made additional efforts to secure more precise information on the finances of the would-be purchasers, and were eventually told that the financial resources of many of the shareholders could not be calculated, because they were rulers of nations who owned all of the land of the countries they ruled, and their financial resources were essentially the net national wealth of their countries.

In a letter from BCCI lawyer Baldwin Tuttle to the Federal Reserve, dated November 5, 1990, Tuttle advised the Federal Reserve:

By tradition and historical background of the Trucial Sates, the ruler of an Emirate owns all of the land of his State . . . Similarly, all the natural resources of the State are also regarded as the personal property of the ruler and his heirs who enjoy complete authority to utilize them as they consider fit.(60)

Tuttle told the Federal Reserve that it was "impossible to estimate or segregate" the assets of the Al Nayhan family from those of the Sheikh himself or of the emirate of Abu Dhabi because they are "not regarded as separate entities." According to Tuttle, the legal situation of all property in these emirates was identical -- the proposed investors in FGB owned everything of value in the emirates they ruled.(61)

Assured of the solvency of these apparent investors in FGB, by early 1981 the Federal Reserve was moving to lift the remaining barriers to the purchase, if it could be certain that BCCI was not secretly behind the transaction. This issue was of deep concern not only to the Federal Reserve, but to the Office of the Comptroller of the Currency, which knew the most about BCCI. OCC had learned of BCCI's use of nominees in connection with its review of Bank of America's interest in BCCI; it had concerns about Ghaith Pharaon being BCCI's alter ego in his purchase of National Bank of Georgia. Given its knowledge, the FGB transaction made OCC officials uneasy. But the Federal Reserve was the primary regulator, and the OCC was not willing to stop the FGB transaction from moving forward, so long as they received assurances from everyone involved that BCCI was not a party to the transaction.

On March 12, 1981, the OCC finally signed off on the CCAH takeover based on the understanding that BCCI would have no involvement with the management of the bank or the holding companies or with the financing of the acquisition.

As Charles Muckenfuss III, the senior deputy comptroller of the currency, explained in the letter to the Federal Reserve:

We note that in the October, 1978 application a relationship between the investors group and the Bank of Credit and Commerce International (BCCI) was outlined. Members of the proposed investors group or Credit and Commerce American holdings, N.V. and Credit and Commerce American Investment, B.V., also hold an interest in BCCI. It has now been represented to us that BCCI will have no involvement with the management and other affairs of Financial General nor will BCCI be involved in the financing arrangements, if any are required, regarding this proposal. This commitment is critical, both now and in the future, since such a relationship with another financial institution would be a significant factor in appraising this application. This is especially important in light of the overlapping ownership which will exist between Credit and Commerce American Holdings N.V., Credit and Commerce American Investment, B.V., and BCCI. Moreover, any enhanced direct or indirect affiliation or relationship would take on even greater significance in light of the fact that BCCI is not subject to regulation and supervision on a consolidated basis by a single bank supervisory authority.(62)

Thus, by early 1981, the technical securities and banking regulatory issues had been solved by the CCAH group. The only remaining obstacle to approval of the CCAH group takeover was continued suspicion by regulators that BCCI -- investment advisor to most of the shareholders and owned by a number of the shareholders -- might still somehow be a direct or indirect shareholder. The regulators therefore repeatedly asked Clifford, Altman, and the CCAH shareholders for assurances on this point, and repeatedly received them. The Federal Reserve and the OCC were now ready to accept these assurances. State regulators, especially Sidney A. Bailey, the chief bank regulator for Virginia, responsible for overseeing FGB banks in Virginia, were not.

Virginia's Objection to the CCAH Takeover

Bailey had served at OCC for twenty years as a bank examiner before becoming the number one bank regulator for Virginia in 1978. Bailey had previously been visited at the state banking offices in Richmond by Clifford and Altman, and had felt that Clifford's representations to him were theatrical and rehearsed. Clifford had argued that America was strengthened by foreigners recycling petrodollars to the U.S., while Bailey believed in local control, so that regulators would have access to the people in charge if there were trouble.(63)

As far as Bailey was concerned, there was no way of knowing who this Middle Eastern group really represented, what they intended to do with the bank after they took it over, or why they had selected this bank in the first place. Bailey believed that banks were like churches, not just basic local institutions in which citizens placed their money, but the repositories for that which is good and sound in a community, the embodiments of a community's past, present and future. The representations that were being made to him by Clifford and Altman were designed to provide comfort to him concerning the intentions of the Middle Eastern investors, but to Bailey, they were inherently unverifiable. For that reason, Bailey had told the Federal Reserve that as far as the State of Virginia was concerned, "the proposed acquisition will be inimical to the convenience and needs of the community."(64)

As Bailey later testified:

Representations were made that the operation of the subsidiary banks of Financial General Bankshares . . . would be improved, that their quality and quantity of service to the communities they served would be raised . . . However, how that was to be done was not made clear and it seemed, with control to pass outside the country, it seemed, well, a little hard to believe that the real intent of this group of individuals was to improve the quality of banking service in the Shenandoah Valley or Virginia or in McLean and Washington, D.C. or anywhere else. There wasn't any real incentive for them to do that . . . Take me at my word. Believe me. Have I ever lied to you? That sort of thing. . . I had the word of the people speaking to me that none of these negative detrimental things would occur, and nothing more.(65)

Bailey was also concerned about the corporate walls created by the holding company structure of CCAH, CCAI, and FGB. With neither CCAH nor CCAI being located in the U.S., Bailey felt the offshore holding company structure provided an invitation to abuse. He was sufficiently concerned about the problem that he had contacted both the State Department and CIA in an effort to learn more about the shareholders, but had received no information from either about any of those involved in the transaction.(66) In all of these objections, Bailey was joined by state regulators from Tennessee, who, in concert with the local bankers at FGB's Tennessee branches, opposed the takeover as against the interests of the community.

The April 23, 1981 Federal Reserve Hearing

In response to Bailey's concerns, and in an effort to put the allegations concerning BCCI's involvement to rest, the Federal Reserve scheduled an unusual hearing on the CCAH application for April 23, 1981, convened by associate counsel Robert Mannion. Prior to the hearing the Federal Reserve advised Baldwin Tuttle, as lawyer for the CCAH group, that the first issue the Federal Reserve wanted answered was how the various shareholders became involved in investing in U.S. banks and decided to acquire FGB. In the letter, the Federal Reserve also asked the applicants to "clarify the historical, current and expected future relationships between the Bank of Credit and Commerce International, S.A., London, England, and its affiliated companies, on the one hand, and Applicants and their principals, on the other."

The hearing opening with Bailey reiterating his opposition to the takeover, and reiterating the concerns he had previously expressed to the Federal Reserve by letter. First, the U.S. might not be able to insure that these foreign owners would abide by its laws. Second, it would be difficult to tell who really controlled the bank. Third, it was possible the bank's new Middle Eastern owners might strip the bank of its assets and move them elsewhere before anyone found out. Bailey listed another half dozen related reasons, mostly related to the difficulties of verifying financial information of foreign shareholders. Finally, Bailey suggested that the key issue the Federal Reserve should consider was why the Middle Eastern investors were willing to pay so much for the bank.

What is the motive giving rise to these protracted, expensive campaign to buy Financial General? Allegedly, Financial General is viewed by these applicants simply as an investment, but it is obvious that the price which the applicants are prepared to offer for control of Financial General bears little logical relationship to either the actual book value of those shares or their price in the market prior to the initial stimulation of the market by the applications or their agents. There can be little doubt that some incentives other than orthodox investment motives must have prompted this effort. . . One obvious plausible answer to this riddle lies in the unique position of Financial General in the market. No other single financial institution is situated in both the financial and government hubs of the United States.(67)

Bailey warned the other regulators that he believed the purchasers had some secret agenda. Bailey did not know for sure what it was, and neither did any of the other regulators. Until they could determine what it was, the Federal Reserve should turn the application down.

In response to this impassioned presentation by Bailey, Clark Clifford opened the presentation of the case on behalf of the Middle Eastern investors. He began by expressing his regret at Bailey's concerns, and promised to answer them, noting that if the Fed permitted the acquisition, Clifford looked forward "to many years of an agreeable relationship between us, Mr. Bailey."

Clifford described the genesis of the FGB takeover as arising from Adham -- not BCCI and Abedi, not Jackson Stephens or Lance -- and that as a result of Adham becoming interested in the bank, Adham had interested his associates and friends, and brought BCCI into the picture to analyze FGB as an investment.(68)

Clifford said that the Middle Eastern group put together by Adham was interested in bringing substantial new capital to the bank as passive investors, and that in addition to Senator Symington and Clifford, other prominent Americans such as retired General Elwood Quesada and General James Gavin would serve on FGB's boards, demonstrating the honorable intentions of the bank's shareholders and their commitment to quality.

He also suggested that it was critical for the national interests of the Untied States itself that the Federal Reserve permit the application to go forward.

It is in the interest of our country that an effort is made to bring back to the United States as many of the dollars as we can that through the years we send over to the OPEC countries.(69)

Clifford explained that some $90 billion in payments had left the U.S. for crude oil to the Persian Gulf countries the previous year. If those funds were taken and invested in West Germany, Great Britain, Switzerland, they would bring no benefit to the United States, whereas if the application was approved, it would be the U.S. that would benefit.

Clifford then introduced the investors, beginning with Sheikh Kamal Adham, whom Clifford described not as the brother-in-law to the late King, nor as the former head of Saudi intelligence, but merely as a prominent Saudi businessman. Clifford said that he had the "deepest respect for his [Adham's] character, for his reputation, for his honor and for his integrity." Clifford suggested that Bailey's concerns were founded on some naive form of anti-foreign bias. He warned that such anti-Arab bigotry was unfair and implied that such a factor could not justify a refusal to grant the CCAH application:

I believe deeply in this country. I believe deeply in its attitude of fairness. I believe deeply in its attitude that it is a country of laws and not of men. I do not believe in prejudice. I do not believe in bias. Our government does not, and with all of these factors, it seems to me that these men bring into this operation those qualities that our country can well receive.(70)

Adham then addressed the Federal Reserve, reiterating the account that his interest in FGB began not with Abedi and BCCI, but with Hassan Yassin of the Saudi Arabian embassy, that BCCI was brought in by Adham to evaluate the bank, and that Adham then learned that BCCI was already independently and coincidentally involved in evaluating the bank for other Middle Eastern investors.

Adham told the Federal Reserve that BCCI was a banker for him and some of the other investors, but that there were no understandings or agreements involving him or any of the investors and BCCI concerning FGB. Parroting language used by Clifford and Altman in formal statements to the Federal Reserve, Adham testified that "whatever relationships are developed between Financial General and BCCI in the future, if any, are matters to be decided by the new management of Financial General based upon that institution's best interests."(71)

Similar statements followed from Faisal al Fulaij, Abdul Raouf Khalil, and El Sayed El Gohary.

At this point in the hearing, Mannion, the Federal Reserve lawyer conducting the hearing, focused on the contradiction between Adham's explanation of how he became interested in FGB, and the apparent earlier involvement of BCCI and Abedi with the Lance group.

MR. MANNION: As I read the statements . . . Sheikh Adham and Mr. Fulaij were originally interested in this investment by the Bank of Credit and Commerce, BCCI.

MR. ALTMAN: That is not correct. . . I believe that Sheikh Adham's testimony was that he was advised of this by a friend who worked in the Saudi Arabian Embassy, Mr Yassin . . . Mr. Fulaij has said that he was seeking to make investments abroad, particularly in the United States, and asked for his representatives to locate some of them and advise him of their availability. They had contacted BCCI in that effort, and BCCI brought to their attention the fact that there was stock available in Financial General.(72)

Thus, according to Adham, Fulaij and Altman, it was sheer coincidence that BCCI was the investment advisor for everyone involved. This testimony, provided to the regulators for the purpose of attempting to reconcile the otherwise inconsistent accounts provided by Lance, Altman and others of how BCCI came to be involved in the takeover, strained the credulity of regulators even in 1981. Mannion again asked Altman whether Adham was the leader of the investor group, the person who had brought together all of the other investors. Adham responded by explaining, again, that there were two independent groups of Middle Eastern investors -- one Saudi, the other Kuwaiti -- who had become interested in FGB as a matter of utter coincidence. Oddly, at this point, Adham had chosen to ignore the third group involved, the Abu Dhabi investors, entirely. Given the fact that Abu Dhabi was even then the largest shareholder in BCCI apart from BCCI itself, the omission may not have been inadvertent.

SHEIKH ADHAM: I invited some of my friends from my part of the world and I guess some friends from Kuwait invited some friends from Kuwait and some of their friends. But I am called the lead because perhaps I now own more shares than the others.(73)

After a lunch break, Mannion returned to the issue that was troubling him.

MR. MANNION: We are still a little bit uncertain as to how the group came about. In Sheikh Adham's written and oral presentation this morning, he indicated how he became interested in Financial General, and then went to BCCI and had them do an analysis of the organization. Then we understand that Mr. Fulaij, on his own, was looking for investments in the United States, and he was advised by BCCI to get involved in or suggested that he might want to get involved in Financial General. Was Sheikh Adham aware that Mr. Fulaij was getting involved in Financial General or when Mr. Fulaij made his investment, was he aware that Sheikh Adham was involved in it?(74)

This question had apparently not been anticipated by Adham, Fulaij, or their lawyers, and hence Adham and Fulaij replied as follows:

SHEIKH ADHAM: I don't know what -- I certainly don't know.

MR. FULAIJ: The same.(75)

Mannion, troubled by the unbelievable nature of the coincidence, persisted.

MR. MANNION: So you were told that Financial General was a good investment by BCCI, and on that basis, is it just a coincidence that BCCI is first asked by Sheikh Adham to do an investigation or analysis of Financial General, and . . . they then gave advice to several of their investment clients to be involved in Financial General?

MR. FULAIJ: (Nods in the affirmative.)

SHEIKH ADHAM: That is very possible. Such things happen in our parts of the world.(76)

Adham then advised the Federal Reserve -- falsely -- that he had not met Fulaij for ten years, had no immediate contacts with him and that their mutual involvement was mere coincidence. In fact, both had been involved with other transactions involving BCCI, including acting as nominees for BCCI in connection with recent stock transactions involving BCCI's oil company, Attock Oil.

Concerned by the nature of Mannion's questions, Adham sought to put his concerns to rest directly.

SHEIKH ADHAM: I think that from the line of questions, it appears there is doubt that somebody or BCCI is behind all of this deal. I would like to assure you that each one on his own rights will not accept in any way to be a cover for somebody else.(77)

In an effort to enlighten the Federal Reserve, Clifford and Altman then compared BCCI's role as an investment advisor to Merrill Lynch in the United States -- independently looking at investment opportunities for its clients. Another lawyer for the BCCI group, Baldwin Tuttle, a former Federal Reserve attorney who previously had been Mannion's superior at the Fed, then took his turn to explain his understanding of what had happened:

MR. TUTTLE: Both [Adham] and Mr. Fulaij have stated that originally they were buying shares as an investment like anyone else buys a small minority interest as an investment. It is only after Financial General commenced the litigation that they considered the possibility of increasing their shareholding.(78)

Mannion then returned to the issue of BCCI directly, noting the similarity of the names "Bank of Credit and Commerce" on the one hand, and "Credit and Commerce Holdings" on the other. Why were the names so similar? Clifford responded:

The terms "Credit" and the term "Commerce" are terms that are used extensively in the Persian Gulf in financial affairs. His Excellency [referring to Adham] has said that he deals with banks that used the terms "credit," and used the terms "commerce." Of course a number of banks used the term "Commerce." . . . I know of no additional reasoning behind it.(79)

Clifford then reiterated the key representation pertaining to the application before the Federal Reserve. In response to a question from Mannion as to precisely the function of BCCI in the application, Clifford testified:

None. There is no function of any kind on the part of BCCI. I think when the question was asked, having to do with what might occur in the future, I think somehow may have given the answer, "well, that would depend upon the judgment of Financial General in the future." I know of no present relationship. I know of no planned future relationship that exists, and other than, I don't know what else there is to say.(80)

Based on the representations made by Clifford, Altman, Tuttle, Adham, Fulaij, and the other Middle Eastern investors, the Federal Reserve, despite its obvious suspicions, approved the application on August 25, 1981. The Federal Reserve also granted a request, made by Altman on behalf of the Middle Eastern investors and CCAH on June 2, 1981, to seal portions of the transcript of the hearing, preventing anyone outside the Federal Reserve from learning the identities of several of the shareholders.(81) A year later, perhaps as a way of breaking with the past and moving beyond the ugly publicity pertaining to the litigation over the takeover, and the bank's new Middle Eastern ownership, FGB formally changed its name of its banks to First American, and its holding company to First American Corporation.

In approving the application, the Federal Reserve explicitly accepted "the entire record" of statements made to it by the Middle Eastern investors, BCCI, and their attorneys. These included certain statements made in the April 23, 1981 hearing and in the applications which constituted loop-holes regarding BCCI's ability to be involved with FGB in the future, and which were contrary to the understandings which the OCC had said were critical for its approval of BCCI's application. These statements suggested that if BCCI loaned funds to the shareholders after the original acquisition in connection with CCAH, such loans would not be precluded. Together with the Federal Reserve's acceptance of the concept that BCCI could act as a liaison between FGB and the shareholders in its capacity as "investment advisor," the ability of BCCI to "lend" to its shareholders following the initial acquisition created a mechanism by which BCCI could at any time "call" its interest in CCAH shares, in collusion with its nominees, by "lending" funds, secured by those shares, on which the nominees defaulted, leaving BCCI in possession of the shares. In the decade to come, this device was used by BCCI repeatedly to deceive the regulators, in some cases with the apparent knowledge of some of BCCI's attorneys and agents in the U.S.

The True Account of the 1978 Takeover

While there had been numerous warning signs in front of the Federal Reserve prior to its approval of the CCAH application to take over CCAH, and again, recurrently, through the 1980's, the Federal Reserve did not conclude that it had been lied to about BCCI's role until December, 1990, when attorneys for Sheikh Zayed and BCCI at the firm of Patton, Boggs & Blow, prompted by investigative activity by the District Attorney of New York and other factors, advised the Federal Reserve of the apparent control of First American by BCCI. Seven months later, after BCCI had been closed globally, the Board of Governors of the Federal Reserve voted to issue an order banning the four Middle Eastern investors from banking activities in the United States forever, on the basis of the false statements they made to the Federal Reserve in the course of the 1978 and 1980 applications to take over FGB, and in the course of the April 23, 1981 hearing. In that order, the Federal Reserve also made findings as to the true state of affairs pertaining to the FGB takeover a decade earlier.

On July 29, 1991, the Federal Reserve found:

** BCCI owned CCAH in violation of the Bank Holding Company Act.

** BCCI concealed its intended ownership and control of CCAH at the time of CCAH's 1980 application to acquire First American.

** At least four of the Middle Eastern investors involved in the 1980 application were nominees for BCCI, including all of the Middle Easterners who had appeared in person before the Federal Reserve during its April 23, 1978 hearing, Adham, Fulaij, Khalil, and Jawhary. In addition, other BCCI nominees included the head of one emirate within the United Arab Emirates -- Sheikh Naomi, ruler of the Emirate of Ajman and a corporation wholly owned by the head of a second emirate, Sheikh Hamad bin Mohammed al-Sharqi, ruler of the Emirate of Fujeriah. Other nominees included Sheikh Shorafa, a government official of the United Arab Emirates.

** The head of BCCI, Agha Hasan Abedi, and his chief assistance, Swaleh Naqvi, had coordinated the nominee scheme for BCCI.

The Federal Reserve found that beginning in late 1977, BCCI began using these nominees to purchase stock in Financial General through an arrangement under BCCI loaned the money to the nominees to purchase the CCAH shares, subject to side agreements under which the nominees were not liable for serving or repaying the loans. Under the terms of the scheme, the nominees signed deeds to transfer their stock in blank, leaving it to BCCI to fill in the name of the transferee at BCCI's convenience. BCCI was also authorized by the nominees to sell the shares at whatever price it chose and to keep any profits it might earn, and BCCI promised to indemnify the nominees against any losses they might sustain for acting as nominees. BCCI was also given the power to vote the shares held by its nominees, had powers of attorney to sell the shares, and agreed to make fixed payments in fees to the nominees in compensation for their agreement to act as nominees.(82) The Federal Reserve found that BCCI also financed the start-up costs of CCAH and a $50 million loan to First American supposedly from an outside bank, BAII, which had interlocking directors with BCCI.(83)

In short, BCCI, Kamal Adham, Faisal al Fulaij, A.R.K. Khalil, and the other Middle Eastern nominees had secretly done precisely what the Federal Reserve had sought to assure they would not do, and had done precisely what they had promised not to do, in writing and in testimony to the Federal Reserve prior to its approval of the 1980 CCAH application. From late 1977 through December 1990, BCCI and its nominees lied to the Federal Reserve, repeatedly filling out false reports to the Federal Reserve, and providing the Federal Reserve false statements and information.

1. See e.g. Price Waterhouse Note of Audit Committee Meeting on 4 April 1989, BCCI, "SN [Swaleh Naqvi] said that it was unlikely there could be a merger between BCCI and CCAH in the immediate future, although it is possible that there could be a reverse merger in the future. In the view of BCCI's problems in the USA, he did not consider it advisable that this possibility was discussed [publicly] for a couple of years."

2. London Daily Telegraph Magazine November 19, 1991, "No Questions Asked."

3. Staff interview, Lance, October, 1991.

4. Harris and Berry, "Arab Investors Want Lance to Manage Funds," Washington Post, December 18, 1977, A1.

5. Testimony of Heimann, S. Hrg. 102-379, p. 76.

6. Id at 77.

7. Washington Post, April 2, 1978, John F. Berry and Jerry Knight.

8. Id.

9. See Washington Post, April 2, 1978.

10. Washington Post, April 2, 1978.

11. Id.

12. SEC civil complaint, US District Court Washington DC, March 17, 1078; see also Washington Post, March 18, 1978.

13. Id.

14. Lance, S. Hrg. 102-350, Pt. 3, p. 5.

15. Id. p. 6.

16. Id at 8.

17. Id.

18. Id. p. 11.

19. Forbes, December 15, 1976, p. 95, "A Couple of Country Slickers."

20. Washington Post, April 2, 1978.

21. S. Hrg. 102-350, Pt. 3 pp. 8-9; see also Federal Reserve Hearing April 23, 1981 transcript p. 54.

22. Federal Reserve Hearing transcript, April 23, 1981, p. 25; Clifford, S. Hrg. 102-350 Pt 3., p. 59.

23. Summary of Charges, U.S. Board of Governors of the Federal Reserve System, In the Matter of BCCI, No. 91-043, Paragraph 22, July 29, 1991.

24. Id. at 12.

25. Harris and Berry, Washington Post, December 18,1 977, A1.

26. Id.

27. Resume, Ghaith Pharaon, in BCCI Senate documents; see Atlanta Business Chronicle, April 27, 1987. While "Dr." Pharaon's doctorate was self-conferred, his decision to adopt the honorific had lasting impact. Even after Pharaon had been indicted by the Justice Department and New York District Attorney and cited for numerous violations of banking law, federal banking regulators continued to refer to him in prepared and oral testimony before the Subcommittee as "Dr. Pharaon." See, e.g. prepared testimony of John Stone, head of enforcement, FDIC, May 14, 1992, which refers to Pharaon as "Dr Pharaon" some 33 times, S. Hrg. 102-350 Pt. 5 pp. 158-163.

28. Id.

29. In its suit in the FGB case, the SEC found the FGB takeover battle formally began just a few days later, on November 29, 1977, when Lance, Stephens, Metzger and BCCI, through Abedi, set in motion a plan for taking over FGB. Lance began buying up the bank's stock, telling none of the sellers that the secret purchaser was BCCI.

30. The Economist, April 1, 1978; Lance, id., p. 14.

31. See e.g. The Economist, April 1, 1978, "The Nine Lives of Bert Lance."

32. Facts on File, March 24, 1978; The Economist, September 9, 1978.

33. Memorandum, Office of the Comptroller of the Currency, January 4, 1978, Comptroller John Heimann.

34. Id.

35. Memorandum, OCC, to File from John G. Hensel, January 17, 1978.

36. Memorandum, OCC, Serino to Heimann, April 3, 1978, "Notes On Meeting with Pharaon."

37. Various documents, OCC files on NBG, March-July, 1978.

38. See e.g. memorandum, Patton, Boggs & Blow re: National Bank of Georgia, March 14, 1991.

39. Summary of Charges, U.S. Board of Governors of the Federal Reserve, In the Matter of BCCI, #91-043 Paragraph 181, July 29, 1991.

40. Lance, S. Hrg. 102-350 Pt. 3 p. 32.

41. Clifford, Id., p. 70.

42. Id. at 59.

43. Id. at 60.

44. Clifford, id., p. 70.

45. S. Hrg. 102-350 Pt. 3 p. 63.

46. S. Hrg. 102-350 Pt. 3 pp. 25-27.

47. Id.

48. See e.g. Summary of charges, Federal Reserve, In re Clifford, 92-080, July 29, 1992, Paragraph 23.

49. Confidential and Privileged Attendance Note, November 19, 1990, BCCI Attorney memcom of meeting with Roy Carlson, Exhibit D in G&H Montage case, id.; S Hrg. 102-350 Pt. 4 pp. 286-298.

50. Wall Street Journal, February 14, 1978.

51. Washington Post, March 22, 1978.

52. Letter, Robert Altman to Mannion of Federal Reserve, May 9, 1978.

53. See e.g. Clifford written testimony, id., at 71.

54. Clifford, id., at 72.

55. Federal Reserve Application, October 19, 1978.

56. Plaintiff's exhibit, Helms 9, G&H Montage, id., reprinted S. Hrg. 102-350 Pt. 4 p. 237. Helms' involvement with various BCCI figures is discussed in detail in the chapter concerning BCCI's links to U.S. and foreign intelligence.

57. Peter Mantias, "BCCI: Case reveals former CIA chief's ties to bank," Atlanta Constitution, February 15, 1992, A1.

58. S. Hrg. 102-350 Pt. 3 pp. 75-77.

59. Letter, Tuttle to Altman, May 27, 1980, on file at Federal Reserve.

60. Tuttle to Bostian, Federal Reserve Bank Richmond, November 5, 1980.

61. Id.

62. S. Hrg. 102-350, Pt. 3 pp. 328-330.

63. Staff interview, Bailey, April, 1991. See also testimony of Bailey, S. Hrg. 102-379, pp. 60-63.

64. S. Hrg. 102-379, p. 61.

65. S. Hrg. 102-379 pp. 61-63.

66. Staff interview with Bailey, April, 1991; at the time, the CIA knew precisely who Adham was, having had extensive contact with him in his role as the liaison between Saudi and U.S. intelligence, but did not advise Bailey of this relationship. A detailed treatment of Adham and of the CIA are contained in separate chapters of this report.

67. Bailey, Federal Reserve Hearing, April 23, 1981, pp. 15-17.

68. Federal Reserve Hearing Transcript, April 23, 1978 p. 26.

69. Transcript, Federal Reserve Hearing, April 23, 1981.

70. Clifford, Federal Reserve Hearing April 23, 1981, transcript p. 46.

71. Adham, Federal Reserve Hearing transcript April 23, 1981 p. 56.

72. Federal Reserve Hearing transcript April 23, 1981 p. 75.

73. Id p. 76.

74. Id. p. 78.

75. Id p. 78.

76. Id. p. 79.

77. Id. p. 80.

78. Id p. 90.

79. Id. p. 143.

80. Id. p. 144.

81. The Federal Reserve only unsealed this material in 1990, after providing it in a heavily redacted form to journalist Larry Gurwin following repeated requests from Gurwin in the preparation of his ground-breaking story on the BCCI-First American connection for Regardies' magazine.

82. Summary of Charges, US Board of Governors of the Federal Reserve, No. 91-043, July 29, 1992, pp. 1-11.

83. Id. Paragraphs 152-154; see also staff interview, Akbar Bilgrami, July 13, 1992.

















Initial Plan For BCCI in the U.S. After the Takeover

Following the exhausting process of the FGB takeover, BCCI began undertaking a number of steps to carry out Abedi's plan for penetrating the U.S. banking and capital markets, with the intention of making BCCI's U.S. holdings its largest and of controlling a substantial market share of U.S. banking overall by building First American into one of the twenty largest banks in the United States.(1)

Abedi set into motion a dual approach, in which he would establish branch offices of BCCI in the U.S. which would be permitted to accept deposits from foreigners but not take deposits from Americans, and use those offices to feed business to the U.S. banks BCCI owned. An undated BCCI memorandum, titled, "A Strategy for the USA," gives the flavor of the bank's thinking.

The memorandum states that BCCI's purpose in the U.S. is "to make it the most successful country in the BCC network in the next 5 years," through building upon BCCI's existing base of correspondent banking for Third World Central Banks, trade finance, and private banking, and adding to that base the financing of the "export of technology and services from USA." In addition, BCCI would use its U.S. network to branch out into the U.S.'s then profitable real estate development industry, growing through direct investments in U.S. real estate.(2)

According to the memorandum, "penetration of the market" would require BCCI's presence in at least twelve jurisdictions: California, Washington state, Arizona, New York, New Jersey, Connecticut, Florida, Texas, Chicago, DC, Virginia and Maryland.

Accordingly, Abedi assembled a team of BCCI people for North America, placing them, variously, at the BCCI representative offices and branches, at First American, and at National Bank of Georgia. Within BCCI, management discussions on operations in the United States viewed the operations of FGB/First American, National Bank of Georgia and BCCI's branch offices as an organic whole, to be thought of together.

As described by BCCI regional general manager Abdur Sakhia:

In any management discussions, in any discussions on our future in the United States, we would think of three entities -- BCCI, National Bank of Georgia, First American, then Financial General -- in the same breath. Who would be going where, who would work in which entity, what area of business would be handled by which entity, allocation of businesses, markets, geographical territories, all took place as if this was one entity.(3)

To ensure a discreet BCCI role in its new U.S. empire, Abedi placed key employees at each of the institutions BCCI had purchased. At National Bank of Georgia, four officials with ties to Abedi or BCCI were installed. At First American, BCCI limited its direct employment of officers to First American New York, where long-time BCCI officials K. K. Elley and Aijaz Afridi were put into place, where they continued to draw benefits from BCCI while officially employed by First American. Elley obtained his job at First American in 1983 as a consequence of Swaleh Naqvi, the number two official at BCCI, telling Altman to hire him. Afridi, who had previously worked for another secretly-controlled BCCI entity in Switzerland, Banque de Commerce et de Placement of Geneva, was placed at the First American through Abedi's intervention.(4)

From the point of view of BCCI, it was the senior partner in this arrangement, despite the official title given to Clark Clifford as chairman of the board following the death of Stuart Symington. As an article written for Worldpaper on August 24, 1982 following interviews with BCCI officials, including Abedi, described it, BCCI's intention was to "manage" First American and all of its branches in the U.S., just as it was already managing the National Bank of Oman. However, in the years that followed, mid-level BCCI officials in the United States would feel that they were engaged in a struggle for control of First American with Clifford and Altman. Whenever BCCI officials would push too hard to more directly involved in controlling First American's affairs, Clifford and Altman would appeal to Abedi, and Abedi would usually -- but not always -- take steps limiting the BCCI intrusion into First American.

To preserve deniability for the regulators, Abedi and top BCCI management sought to segregate and compartmentalize their activities, making certain that Clifford and Altman would meet separately with Abedi outside the presence of other BCCI officials. As BCCI regional manager Abdur Sakhia described it, typically, when Clifford and Altman visited BCCI offices in New York and Miami from 1982 onwards, Mr. Abedi would meet with them first, they would leave, and Abedi would then separately brief the BCCI staff as to what happened.(5)

In pursuit of a unified U.S. strategy, within one year of the FGB takeover, BCCI moved to establish its U.S. presence directly, opening offices in New York, Miami, and San Francisco, with later branches and representative offices targeted for Chicago, Houston, Los Angeles, Tampa, Boca Raton, and Washington, D.C. These offices primarily engaged in marketing commercial banking services to import-export businesses, and in providing personal banking to "high net worth" individuals who were non-U.S. citizens, and therefore permitted to make deposits at a branch office of a foreign bank in the U.S.

BCCI worked make these branch offices high-profile from the beginning. In Miami, for example, the bank deliberately sought out well-known public officials and invited them to visit the bank. Both past and present Florida governors accepted the invitation, as did a U.S. Senator, and the then-son of the Vice President of the United States, Jeb Bush, who was at the time Florida's Secretary of State. Miami branch chief Abdur Sakhia said although BCCI had only been in south Florida a short time before its opening, it was already growing rapidly and becoming profitable, and political figures were glad to help the bank celebrate its growth.

We started in April 1982, but our formal opening in August 1982. Governor Graham came to that opening. Jeb Bush came to that opening too, along with Atlanta Mayor Andrew Young. Oil ministers from Venezuela, Abu Dhabi, the minister of economy and finance from Jamaica, Barbados, officials from Central Banks from all over the region. We had eight to ten ministers and central bank governors and leading businessmen from Venezuela and Peru and Trinidad, everywhere. It was a very successful opening. . .I have a videotape of portions of those in which Graham is being introduced to all BCCI people. Jeb Bush is also in those videotapes. Dante Fascell came to my house. We had met socially a couple of times. Reuben Askew came to the bank several times and had been to my house. Paula Hawkins came to the bank several times separately.(6)

BCCI's Involvement in First American Management

Shortly after purchasing First American, BCCI recognized that expansion of First American's operations to include offices in New York would be expensive. Accordingly, Abedi and BCCI decided to add $30 million in capitalization to First American/CCAH, with some of these funds coming from the Crown Prince of Abu Dhabi's deposits with BCCI, and the remainder from BCCI itself, as loans to its nominees, Fulaij, Khalil, and Shorafa.(7)

Initially, First American had intended to retain the Bank of Commerce in New York, which had been one of the banks owned by FGB in New York. However, the Bank of Commerce board opposed the acquisition, and purchased the New York branch themselves, leaving First American without offices in New York City. As Robert Altman testified:

In the spring of 1982 we were then in a very awkward, and to some extent, unhappy posture. We were under an obligation to sell the New York City bank. And we were under a need to set up a new bank and really start it from scratch. We had nothing in the city. We had no staff. We had no location. We had no resources. It put us, as I say, in a difficult position. . . We essentially had two contacts in New York. One was the law firm of Wachtell, Lipton, Rosen & Katz that was cocounsel with us . . . the other was BCCI which had a representative office and was acting as an investment advisor. And we used those resources to try to get set up in New York.(8)

Thus, according to Altman, BCCI, acting as an investment advisor to the shareholders, helped First American set up its New York offices as a convenience to Clifford, Altman and First American. This account raises the question of why, under the circumstances of having no resources in New York City, First American would have wanted to establish officers there at all. New York City was already among the most competitive of all banking environments in the United States with giants as Citibank, Chase Manhattan, Chemical Bank, as well as dozens of other already well-established domestic and foreign banks.

The key business reason for opening a New York bank of First American was BCCI's desire to have it become the correspondent bank for BCCI's commercial bank relationships in the United States, and to act as BCCI's U.S. alter ego, free from interference by the DC-Maryland-Virginia banks of First American, which were being managed by Clifford and Altman.

A memorandum dated July 25, 1983, from BCCI employee Aijaz Afridi to BCCI Number 2 Swaleh Naqvi, with copies to BCCI officials Kemal Shoaib and K.K. Elley, described BCCI's plan for First American New York in terms that suggest it would operate independently from the other First American banks, apart from using them as sources of funds and sources for "their entire international business," in which First American New York would "become their Central Treasury."(9)

The memorandum discusses such issues as how to achieve growth and profitability for First American New York, how to project its image domestically and internationally, how to introduce the bank to Third World countries, new products and services, and related issues. Under "basic assumptions," Afridi noted:

Management style and Philosophy will be on the pattern of BCC -- No interference from the Holding Co. and free hand to the Management.(10)

The record also shows that BCCI's involvement in directing the establishment of this office was pervasive. For example, as both BCCI officials and BCCI documents show, it was BCCI, not First American, that determined how much office space First American would lease in New York. As Sakhia testified:

The decision of hiring, decision for acquisition of space . . . the New York office of First American was identified by BCC officers and approved by Mr. Abedi. He made the decision to rent that space.(11)

Over the ensuing decade, the space would prove grossly excessive for the actual needs of First American, and its costs would become a significant drain on First American's resources. A letter dated December 13, 1982 from Elley to Swaleh Naqvi, Abedi's number two at BCCI, on BCC New York stationery, documents the nature of the relationship between BCCI and First American in New York. In the letter, Elley brings Naqvi up to date with a meeting he has had with Altman concerning the First American Bank in New York, and covering the subletting of space at 350 Park Avenue, renovation of the space, selection of board directors, recruitment of key staff, selection of auditors and attorneys, and coordination with the holding company and the shareholders -- all matters being handled for First American by Elley as a BCCI employee and reported to Naqvi, the BCCI senior executive at a time when Clifford and Altman were ostensibly in control of First American.(12)

BCCI also handled the purchase of new branch offices in New York for First American. In March 1983, while Elley was still employed by BCCI as head of its New York representative office, he began discussions with Bankers Trust officials regarding the purchase of branches of their bank for First American. Six weeks later, when First American submitted bids for the branches, BCCI officials -- not First American officials -- handled the negotiations.(13)

From the outset, officials at National Bank of Georgia and First American frequently travelled to meet with top management at BCCI. Soon after Pharaon's purchase of the National Bank of Georgia was approved by the OCC, NBG hired as its president former Bank of America officer Roy Carlson, who had worked closely with Abedi in the Middle East. Carlson soon began making trips to London to visit BCCI and in return, entertaining Abedi and his wife in Atlanta. In 1983, Carlson made two BCCI-related trips abroad, to London and Athens. In 1984, he made three such trips. In 1985, he made three such trips again, together with trips to Miami and Chicago to meet with BCCI officials there. Tariq Jamil, a former BCCI employee who went to National Bank of Georgia until its sale to First American in 1986, when he returned to BCCI, had a similar pattern of BCCI-related trips, as did two other Pakistani NBG employees with ties to BCCI. And National Bank of Georgia in turn financed the travel of top BCCI officials like Abedi and Naqvi to the United States, beginning as early as August, 1982.(14)

U.S. Marketing Meetings

Apart from the situation in New York, where BCCI's branch office managed the start up of First American before its two principal officers there, Elley and Afridi, transferred to the new start up office of First American, BCCI was sufficiently busy during the first two years of its start-up in the U.S. that little effort was made to coordinate the activities of First American and BCCI overall. For example, the first branch in Manhattan of First American Bank opened its doors for the first time on March 1, 1984. By late 1984, BCCI had established a network of branches, representative offices and agencies in the U.S., Canada, and Latin America, including Miami, San Francisco, Los Angeles, New York, and Washington, D.C. Abedi believed that both First American and BCCI were sufficiently well-established that it was time to begin coordinating the different parts of BCCI's empire. In early 1984, Abedi asked the BCCI officials in the Americas to form a committee, which first met in April, 1985 in New York, "to coordinate the efforts of different locations of BCC and other institutions so that the President's desire to have a totality in approach is achieved." (emphasis added)(15)

In attendance at this first meeting were representatives of all of BCCI's offices in the United States and Canada, along with Elley and Afridi from First American New York and Tariq Jamil from the National Bank of Georgia. Its purpose was described by BCCI officers as coordinating the efforts of the entire group of BCCI-controlled institutions, including National Bank of Georgia and First American, to increase their overall market share in the United States. During the meeting, Jamil presented a report on the operations of NBG and Elley presented a report on the operations of First American Bank of New York. The memorandum summarizing the meeting ended with the following conclusion:

Mr. Elley concluded that in America we are sitting on 7 Billion dollar assets and this is just the beginning. There is much to do and inspite [sic] of diversity of operations as different agencies and banks we have to find a common denominator.(16)

The reference to seven billion dollars accurately described BCCI's assets in the U.S. only if one included both National Bank of Georgia and First American.

According to Abdur Sakhia, who was the U.S. coordinator for the meetings, the key mission of the meetings was to find ways to better cross-market between BCCI, First American, and National Bank of Georgia:

There was a plan within BCCI to market for First American. The international division, based in London, marketed for correspondent relationships for BCC group, including First American. So not only the branches of BCCI worldwide sent business to First American, but BCCI correspondents also were sending business to First American. Similarly, the deposits of U.S. residents or U.S. corporations that we could not take in BCCI branches because of the agency status we would market to First American. . . we were parking -- we were giving profits to First American. . . because the overhead, the marketing overhead, was absorbed by BCCI, the profit that was made was made in First American. But it was coming back to us because it was one and the same thing. . . because First American was owned by BCCI.(17)

Later memoranda of the America's Coordinating Committee of BCCI described the sharing of information between First American's officers handling Latin America and BCCI's; the possibility of BCCI procuring mortgages and selling them to First American; and similar coordination among BCCI, National Bank of Georgia, and First American New York.

The absence of First American's Virginia, Maryland and DC banks from these memoranda, despite the inclusion of First American New York, is notable. Clifford and Altman, in their Senate testimony, suggested that the lack of involvement of their branches was evidence that they were deceived by BCCI and BCCI officers at First American New York, Afridi and Elley. An alternate explanation, consistent with the testimony of a number of BCCI officials interviewed, suggests that there was an ongoing battle between BCCI's officials in the United States on the one hand, and between Clifford and Altman on the other, for control of BCCI's empire in the United States; that Abedi insisted on the purchase of First American New York to meet BCCI's needs, despite the lack of market justification for the purchase on the part of First American itself; and that Clifford and Altman temporarily ceded control of aspects of First American New York while jealously guarding First American's metropolitan Washington franchises against encroachment by BCCI's Pakistani second-level managers. Later, Altman would try to regain that control.

Nazir Chinoy, head of BCCI's Paris branch, learned of the struggle over First American New York at a BCCI annual conference in Luxembourg in 1985, from Afridi himself, who confessed over a glass of wine that he was increasingly unhappy at First American New York.

Afridi felt that Altman was not permitting him to run First American on BCCI lines and yet he was answerable to Mr. Abedi for profits. He said Altman was interfering in the management and that he had reported to Naqvi on many an occasion about Altman interfering with his management, or trying to change the management structure or style.(18)

As Chinoy described it, from his point of view as a BCCI official operating outside the U.S., there was not so much a separation between First American and BCCI as two different types of management, one Pakistani and one American.

I saw rivals competing for power -- Afridi wanting to be the top man, and Altman wanting to be the top man.(19)

Abdur Sakhia, who was directly involved in U.S. expansion plans for BCCI, saw the problem in similar terms.

I was insistent that BCCI should have a direct presence of BCCI in the United States because we had a lot of opportunity, we were marketing with out hands tied behind our back because we were agencies. And he would say: Well, why don't you do marketing for our other banks, First American Bank, for National Bank of Georgia? Here are two banks; what do you want? I'd say: Sir, it makes a difference because we do not control the transactions, we do not provide the services directly . . . We were frustrated at the response time, turnaround time, service of First American. In BCC we in terms of business used to give a very good turnaround time, very good service. First American was in that sense very bureaucratic.(20)

Joint Marketing

Numerous BCCI and First American documents demonstrate that the offices of the two banks were working together in the early 1980's in an effort to expand First American's and National Bank of Georgia's business, especially in the international realm. For example, BCCI officers helped First American develop relationships with the Government of Sri Lanka for handling it imports of U.S. agricultural products under the Department of Agriculture's PL 480 program; BCCI officials set up meetings with the World Bank and International Monetary Fund to which officials of First American and National Bank of Georgia would be invited; and sponsored meetings with officers of various Latin American central banks.

Documents retrieved by Subcommittee staff from BCCI's files at its former offices in New York after liquidation provide detailed information about some of the joint marketing efforts. One such document, a discussion paper concerning "Relationship With First American Bank," describes the relationship between BCCI and First American for joint marketing as follows:

We are liasing [sic] closely with First American Bank in their marketing efforts in the Washington area. Already a number of accounts of individuals/corporations have been subpoenaed and a good beginning has been made on Embassy accounts (Brunei, Bangladesh, Guatemala, Pakistan, Panama). We hope to gear up this activity and make substantial progress in the coming months. In addition next week we are jointly calling on thirteen embassies in Washington to get PL 480 business. . . . All efforts are being made to mobilize deposits for other BCC offices and in some cases for First American Bank.(21)

Another document from BCCI's Washington representative office, written by BCCI protocol chief Sani Ahmad, and dated July 5, 1985, suggests that First American would takeover any business in the United States that BCCI could not lawfully engage in, such as taking deposits, or participating in U.S. government programs like agricultural credits.

All business that our own agencies in the United States are precluded from handling is being passed on to First American Bank, and also those contacts who desire local bank accounts. The accounts worth mentioning in this respect are the [deleted] Account with balances of around $100,000, [deleted] restaurant with a turnover of about $35,000 per month and the Bangladesh Embassy who have placed a Term Deposit of over $1 million with First American. . . Bangladesh business is already being routed through [First American] because of this office.(22)

A later BCCI memorandum states that "a number of personal accounts have been opened at different branches of First American bank" through BCCI's efforts . . . we are now working with their [First American's] Asset Management Group who have provided us with a number of top multinational contacts such as Westinghouse and Northrop Corporation."(23)

In early 1986, BCCI officials at the Washington representative office began conducting meetings with prospective clients at First American's Washington offices. Later that year, BCCI introduced First American officers to officials at the Chinese Embassy. According to a BCCI "Business Call Memorandum," dated April 18, 1986:

The purpose of the meeting was to introduce First American to the Chinese Embassy to try and obtain their account. Mr. Barry Blank and Ms. Maureen Mcdonald from First American attended the meeting. . . This meeting was with officers of the political section [which] maintains both current and fixed deposit accounts.(24)

First American documents maintained by BCCI describe the same transactions from the point of view of First American. These documents typically underplay the involvement of BCCI officials in the marketing, simply noting their presence at meetings. However, BCCI officers were provided copies of at least some of the letters produced by First American concerning the joint marketing operations, and were even copied on First American's internal memoranda.

The fullest documentary record of the joint marketing program pertains to BCCI's successful solicitation of UPI to use BCCI as its international bank and First American as its U.S. bank.

In May 27, 1986, Barry Blank of First American wrote to Mario Vazsquez Rana, whose Mexican company was about to purchase UPI, as a follow up to a meeting in Mexico City attended by representatives of both First American and BCCI, and referring to BCCI's involvement in the meetings. In July, additional follow up letters were written by First American officials to UPI, referring to BCCI as First American's "affiliate." In this letters, written by First American personnel, First American officials describe the interrelationship of First American and BCCI and the benefits of banking with them together:

First American Bank, N.A., in cooperation with its affiliate Bank of Credit and Commerce International (BCCI) and its extensive international correspondent bank network, is prepared to establish an international cash management program to meet your company's needs. . . The first step we recommend is that UPI establish banking relationships with BCCI in the locations where they have full service branches corresponding with your bureau locations, and that UPI establish the remaining banking relationships with our [First American's] correspondent banks . . .(25)

Ultimately, UPI agreed to open accounts at both BCCI and First American.(26) From the First American correspondence, it would appear that First American itself successfully solicited the business. A fuller account of the solicitation, contained in the BCCI memoranda, makes it clear that the UPI relationship was initiated by and developed by BCCI officials, and that UPI selected First American for its U.S. banking at BCCI's request. Ironically, UPI was unhappy with the handling of its accounts by First American and quickly ended the relationship.(27)

Correspondent Banking

BCCI sought to strengthen First American through providing it with profitable activity from BCCI. As of February, 1991, some 46 branches of BCCI world-wide still maintained accounts at First American, with First American holding an average of $35 million in BCCI demand deposits, overnight placements and term placements. As part of its relationship with BCCI, First American made credit lines available to numerous BCCI branches and affiliates, for which First American received compensation in the form of demand deposits and cash fees. (28)

Expansion: Purchase of Independence Bank

Abedi had from the beginning intended to expand BCCI's operations into California, as a means of linking BCCI's U.S. operations with its rapidly growing operations on the Pacific rim. Accordingly, BCCI officials in the U.S. were directed in 1983 and 1984 to investigate California banks for secret acquisition by BCCI. In November, 1984, they selected Independence Bank of Encino and began negotiating its sale. Soon thereafter, Abedi and Pharaon agreed to make Pharaon BCCI's nominee for the purchase in order to avoid the regulatory scrutiny that would follow if BCCI sought to purchase Independence directly. Abedi arranged for BCCI's alter ego, ICIC, to enter into an agreement with Pharaon in which Pharaon agreed to act as nominee and agent for ICIC in acquiring Independence. Under the terms of the arrangement, Pharaon would hold 15 percent of Independence Bank on his own behalf, and the 85 percent would be held by ICIC for BCCI.(29)

Regulators were told that Pharaon would pay for Independence through a mixture of his own funds and from a loan from a major domestic bank. However, in fact, BCCI loaned or guaranteed the funds for the purchase, laundering the funds through other banks.

As BCCI Number Two Swaleh Naqvi admitted to BCCI's London attorneys in early 1991, BCCI in fact provided all the financing for the acquisition and later increases in capital. The financing was provided from accounts in Pharaon's name with BCCI holding all the shares as security, although BCCI's security interest was never registered with the company in order to evade detection by regulators.(30)

First, BCCI loaned $8.5 million to Pharaon and transferred the proceeds to Pharaon's account at Banque Arabe et Internationale d'Investissement, Paris (BAII), a bank which shared directors in common with BCCI, and which had also been used to shield BCCI's funding of the First American purchase four years earlier. BCCI instructed BAII to send a telegram to California banking authorities stating that Pharaon had deposits of that amount with BAII that were being held for the purchase of Independence, and thereby disguising the fact that the funds came from BCCI. The remainder of the funding for the transaction came from First National Bank of Boston -- with a letter of credit, guaranteeing First National Bank of Boston against loss coming from BAII, which in turn received a counter-guarantee from BCCI holding BAII harmless against any claim that might arise. Thus, BCCI in effect was responsible for the entire financing of the Pharaon purchase, and disguising this role through both of the banks involved.(31)

After acquiring Independence through Pharaon, BCCI undertook its typical follow-up. Abedi appointed a high-level BCCI official, Kemal Shoaib, to become chief operating officer of Independence, while abandoning its original plan of also placing Roy Carlson, president of National Bank of Georgia, on the bank's board of directors. Shoaib then continued to report to BCCI while heading Independence, and to receive benefits from BCCI such as a subsidized home mortgage loan and accrual of his BCCI pension benefits. Independence's budget, strategy and planning, its directors and senior employees, all were run by BCCI's number two, Swaleh Naqvi, for approval. As Independence required additional capital infusions, BCCI loaned the money to Pharaon.(32) Just as envisioned in BCCI planning memoranda, Independence Bank began to make direct investments in real estate, as permitted by California law, and incurring losses as a result of BCCI's management which ultimately would bring about Independence Bank's collapse.

By 1991, when federal regulators finally conducted a serious review of Independence Bank's condition, they found atrocious conditions at the bank, unusual in a U.S. financial institution, but typical of BCCI's practices:

Loans subject to adverse classification total $194 million, representing nearly 44% of total loans, a phenomenal ratio for a commercial bank. . . The bank has an especially unenviable record of selecting or attracting borrowers of questionable character and creditworthiness. Many files include derogatory credit information, such as delinquencies, tax liens, litigation, and judgments, which were often not addressed in internal memoranda or excused as normal in the real estate business . . . Financial statements were often not complete . . . lacking supporting specifics, sometimes not even signed by the borrower, often not of the legal entity borrowing the funds, and frequently not on the bank's forms, which included a number of pertinent questions which therefore went unanswered. Requesting tax returns was almost unheard of. Rarely were the existence of assets verified, and less frequently were values independently confirmed. In many cases even the most basic financial analysis was not attempted, and when it was, it was often badly flawed.(33)

In all, BCCI spent $90 million on Independence, whose collapse in 1992 later cost the bank insurance fund, and indirectly, the U.S. taxpayers, some $140 million.(34)


First American Purchases National Bank of Georgia

On BCCI's Behalf

As the Office of the Comptroller of the Currency had suspected in early 1978, BCCI in fact owned 50 percent of National Bank of Georgia (NBG) from the moment of its ostensible sale to Ghaith Pharaon in May of that year, with Pharaon acting as BCCI's nominee for those shares to avoid the hostility regulators had already demonstrated towards any direct acquisition by BCCI. As the Federal Reserve ultimately found following BCCI's closure, when Pharaon acquired his shares of NBG from Lance, he borrowed at least part of the funds used for the acquisition from BCCI.

In November 1981, Pharaon established a holding company, GRP, Inc., of which he owned 100 percent, to hold his shares of NBG, and established a cost-sharing arrangement with BCCI concerning NBG under which BCCI and Pharaon would divide expenses equally and consider NBG to be equally owned by both. The following year, this holding company changed its name to NBG Financial Corporation. A year later, in August, 1983, Pharaon formed two more holding companies, Interedec (Georgia) N.V. or Curacao in the Netherlands Antilles, and a second Interedec (Georgia), incorporated in Nassau, Bahamas. Under this arrangement, shares in the National Bank of Georgia were held by NBG Financial, shares in NBG Financial were held by Interedec of the Netherlands Antilles, and shares in Interedec of the Netherlands Antilles were held by Interedec of Nassau Bahamas, which in turn were held by Pharaon. The obvious purpose and intent of this series of holding companies -- so similar to the holding companies and locations set up to hide BCCI's ownership of First American -- was to permit Pharaon and BCCI to sell or mortgage Pharaon's interest in NBG without regulators or creditors finding out.(35)

Soon after setting up these holding companies, Pharaon formed another company, Pharaon Holdings Limited of Nassau, which immediately acquired Pharaon's 50% interest in NBG, making Pharaon Holdings a bank holding company under U.S. law and requiring Pharaon under U.S. law to notify the Federal Reserve of the change in ownership, which Pharaon ignored.(36) The other 50% of the stock, held by Pharaon as a nominee for BCCI from the beginning, remained in NBG Financial.

During the years NBG was "owned" by Pharaon, it adopted a number of BCCI's practices and employed a number of former BCCI employees. NBG personnel regularly attended BCCI conferences, at BCCI's expense. NBG adopted BCCI's management style and hexagonal logo, and reoriented its orientation as a bank from focusing on local business at the retail level to international transactions.(37)

On January 1, 1985, Pharaon, who was experiencing significant financial difficulties, executed a secret "Memorandum of Deposit" with BCCI which provided that all of the outstanding shares of NBG Financial would be deposited with BCCI as collateral for loans to Pharaon and his companies, and giving BCCI "or its nominees" the right to vote the shares. As a result, as of that date, BCCI had effective control over the 50% of the shares of NBG which had been BCCI's from the beginning.(38)

By November 1985, with Pharaon's financial difficulties intensifying, BCCI's auditors, Price Waterhouse, began to express concern to BCCI about its exposure to Pharaon and calling on the bank to reduce this exposure. In fact, a portion of this exposure was related to Pharaon's holding of NBG on BCCI's behalf.

Accordingly, BCCI and Pharaon agreed to liquidate Pharaon's 50% interest in NBG, and sell his holdings of NBG stock held by Pharaon Holdings Limited back to NBG Financial, now controlled by BCCI. At this point, BCCI had direct and total secret control of all of the outstanding shares of National Bank of Georgia, and had demonstrated to Price Waterhouse its ability to force "loans" to major borrowers like Pharaon to be "repaid." But these financial manipulations did not solve the other serious problem created by Pharaon's deteriorating financial condition -- the possibility that creditors might seek to attach the shares of NBG Financial -- still officially "owned" by Pharaon. The result would not merely put BCCI's ownership of NBG at risk, but could set in motion the destruction of BCCI's entire empire in the United States and possibly globally.(39)

In London, Abedi looked at the NBG situation and determined that the simplest solution to the Pharaon problem was to merge National Bank of Georgia into First American, and thereby take Pharaon out of the picture. In the terms of the Federal Reserve charges, "in December 1986, BCCI caused CCAH to agree to purchase the shares of NBG [Financial] from Pharaon for $220 million."(40)

Significantly, while the transaction did not close until August 19, 1987, First American provided $80 million at the end of December, 1986 as an option on the purchase, securing those $80 million worth of shares and leaving Pharaon "holding" only a remainder of $140 million worth of the bank -- shares already held by BCCI as security for defaulted loans. Thus, any outsider who tried to attach Pharaon's shares in NBG would find that as creditors, they were now in back of First American and BCCI, making such an attachment of little legal value and thereby protecting the shares.

Within BCCI at the time, it was generally understood that the sale of NBG from "Pharaon" to "First American" was principally a consolidation of BCCI entities within the United States. As Abdur Sakhia testified, First American had been planning to expand its operations to Florida in the mid-1980's, and had never discussed a move into Georgia, until 1985. In late 1985, he became aware that Pharaon's financial situation had become shaky, and at Abedi's request arranged for a meeting to take place in Miami in November of 1985 involving Abedi, Naqvi, Clifford, Altman, and two officials from National Bank of Georgia -- Carlson and Jamil. No one else was permitted to attend the meeting. After it ended, Abedi came out and told Sakhia and other BCCI officials that National Bank of Georgia would be merged with First American.(41) Later, in preparation for BCCI's possible purchase of a bank in Florida, Sakhia was provided with a model file of the Independence Bank transaction, which had the details of the National Bank Transaction showing Pharaon's role as a nominee.(42)

After the Miami meeting, Sakhia wrote Abedi in London in February 1986 regarding BCCI's "Future Plans in the United States." In the memorandum, Sakhia referenced his discussions with Altman concerning the planned purchases by BCCI of banks in Florida. In a paragraph concerning the National Bank of Georgia, Sakhia suggested that in view of "the forthcoming restructuring of the bank in Georgia, it may be useful to merge their Miami operation with BCC Overseas, Miami, as this will offer additional dollar deposit and correspondent banking relationship to BCCI Overseas."(43)

In their written testimony before the Senate, Clifford and Altman denied that the acquisition of NBG by First American was directed by BCCI, stating instead that the acquisition "was as reflection of First American's consistent corporate strategy of expansion since 1982 . . . in December 1986, based solely on its judgment of First American's best interests, the CCAH Board approved the proposed acquisition of NBG. BCCI did not influence these deliberations, nor did it control the Company's decision to acquire NBG. First American, not BCCI, initiated the NBG transaction."(44)

Pharaon himself took a similar position, which he has maintained to this date, that he was never a BCCI nominee and acted independently in connection with his sale of NBG to First American, as in all other matters. As Pharaon told reporters in 1987, the transaction took place for sound reasons of banking business on both sides:

[NBG] really needed to be part of a larger organization. We let First American take a very deep look at the bank because we knew that we were not selling them anything they wouldn't be totally satisfied in purchasing. It was not a situation where I was simply telling them no look, no see, no touch, just pay. I'm dealing with people with whom I have other dealings and I can't afford to pass on to them something they wouldn't be totally happy with."(45)

As Altman said at the same time:

It was clearly an arms-length business deal, that is to suggest we didn't get any special consideration in terms of price. . . It's a logical move for us in terms of our market expansion.(46)

The statements made by Clifford and Altman to the Committee and to journalists, and by Pharaon to regulators and journalists, cannot be reconciled with the documentary and testimonial accounts of all the other parties involved, as well as the findings of the Federal Reserve concerning the NBG sale to First American, and fails to account for the manner in which BCCI and Pharaon handled the transaction.

At BCCI, the transaction was viewed to be a matter of utmost secrecy, because of the risk to the bank if the regulators should understand that BCCI was directing the National Bank of Georgia sale. Paris branch manager Nazir Chinoy, who had no direct involvement with the sale of NBG to First American, only happened to learn of BCCI's involvement in the deal -- and the secrecy involved concerning BCCI's real role in it -- when Abedi came to Paris and lost a briefcase containing key documents regarding the sale:

Either in December 86 or January 87 Naqvi and Abedi came to meet with Pharaon and through a communications error I was not there to receive them at the airport. They wound up having to take a taxi to BCCI's offices at the Champs Elysee. Abedi gave the taxi driver $30 for a $5 drive. When Abedi got into the bank he said, where's my briefcase. All of us looked surprised. It had been left in the luggage compartment of the taxi. I talked to the girl at the airport and offered a $100 (1000 franc) reward. The next morning at 9 am I got a call. The taxi driver came up and said, the briefcase is there. Naqvi said, you collect it and bring it to London. I said I am leaving for Ivory Coast. They said never mind then you go back and catch your flight. It was a trip I didn't want to make. It's tiring. I saw written National Bank of Georgia written on the briefcase. Naqvi told me to open it and see if the papers are right to the top. I did and they were. The following week they came again and Naqvi and Abedi arranged for it. Abedi told Naqvi in Urdu, thank god the National Bank of Georgia deal is done. Then Naqvi signalled to Abedi to keep quiet because I was in the front seat.(47)

Internal documents produced by British lawyers for BCCI in 1990 and 1991 describe admissions by Naqvi to the bank's lawyers about the true state of affairs between Pharaon and BCCI, at a time when Pharaon was threatening to "trade information for protection from prosecution" with the Manhattan District Attorney if BCCI did not cooperate with Pharaon.(48) According to Naqvi, BCCI and Pharaon had undertaken a complex series of financial maneuvers in 1985, months before Clifford and Altman supposedly initiated the transaction over NBG, to sell Pharaon's interests in NBG to BCCI in response to Pharaon's shortages of funds, even setting an expected price for NBG's sale:

The bank agreed to settle [Pharaon's] 50% interest in advanced based on expected proceeds of $205 million, giving him $102.5 million [as BCCI already secretly owned the other half of National Bank of Georgia]. This payment date was taken as 17 May 1986. In fact Pharaon received some funds before this in 1985 and the remainder through 1986 and 1987, with a small balance carried forward. The payments were structured [not as payment for the stock but] as loans to Pharaon. These payments also covered $95 million due to Pharaon on the sale of his own BCC shares. . . the bank and Pharaon entered a formal agreement signed by Pharaon dated 17 October 1986 for the bank to receive a 10% commission for finding a buyer for the NBG shares. The agreement warrants that Pharaon/Interdec [sic] own all the NBG shares.(49)

When First American purchased National Bank of Georgia a year after Pharaon started receiving his "loans," the funds -- which came from BCCI itself into First American and from First American to NBG -- were used to pay off the "loans." Ironically, since the "loans" were used by BCCI to wipe out Pharaon's shares of BCCI itself and Pharaon's interests as a nominee in other BCCI-related institutions such as Attock Oil, the entire transaction was largely a wash, with the consequence of eliminating Pharaon's nominee interests in National Bank of Georgia, BCCI itself, and BCCI-related entities and consolidating (50)

CenTrust: BCCI Schemes With A Dirty S&L

Throughout the 1980's, BCCI had wanted to establish a foot-hold in Florida through owning a bank in that state with the ability to take deposits from Americans, a power precluded BCCI's branch operation there under federal bank laws applying to foreign banks, which are outside the U.S. federal deposit insurance system. Internal memoranda at BCCI begin referring to a variety of possible acquisitions of banks in South Florida, and a number of different BCCI officials, including Abdur Sakhia, who testified before the Subcommittee, began investigating possible target banks in Florida for BCCI's acquisition. A memorandum from Sakhia to Abedi in early 1986, entitled, "Future Plans in the United States," describes BCCI's intentions:

With reference to our brief meeting in London, we are pursuing bank acquisition with Mr. Altman the two institutions I mentioned to you in London. As you are aware, the statewide banking in the state of Florida is achieved either through acquisition in different counties and subsequent merger or by incorporation of Denovo Banks in each county, and merging them subsequently . . . As I suggested to your good self, we may apply for state chartered agencies of BCC Overseas in Ft. Lauderdale, Orlando and Jacksonville counties. Because of our relationship with state authorities we can get approval ourselves within two to three months without involving any legal cost whatsoever. When we complete the acquisition of a bank we may then transfer existing agencies with the exception of the Miami Agency to the acquired bank with considerable savings of cost and time.(51)

In point of fact, BCCI had expanded its branch offices to three in Florida -- Miami, Tampa and Boca Raton -- but was unable to find a suitable target bank in Florida over the remainder of 1986. Moreover, BCCI had decided by early 1986 that whatever it did in Florida would have to be secret, because the Treasury losses discovered by BCCI's auditors in 1985 and announced publicly in December 1985 had made BCCI even more notorious in international banking circles, and would subject any proposed purpose of a U.S. bank by BCCI to even more scrutiny.(52) Sakhia, as well as others affiliated with BCCI, had already begun meeting with CenTrust chief David Paul beginning in early 1985 and continuing through 1986, socializing with Paul. According to Sakhia, nothing came of these meetings. (53)

By early 1987, however, Pharaon, who had developed a personal relationship with CenTrust Savings & Loan high-flyer David Paul, had advised BCCI that Paul was looking for financing for CenTrust, and might ultimately be willing to give up control of BCCI. Paul was at the time an active political fundraiser for the Democratic party, the Democratic Senate Campaign Committee, which the Subcommittee chairman then chaired, a number of Democratic politicians, and some Republican politicians and entities as well.

At the time, BCCI was not sufficiently satisfied it knew the full extent of CenTrust's problems to be willing to simply purchase the bank. But BCCI and CenTrust's top officials saw a second opportunity. BCCI did not have to make a final decision regarding its ownership of CenTrust. It was sufficient that it could help CenTrust strengthen its eroding capital base through a scheme that would help both CenTrust and BCCI. Working in collusion, Pharaon, BCCI and CenTrust could create a profitable market in CenTrust subordinated debentures by artificially propping up the price through BCCI buying debentures from CenTrust, demonstrating their marketability, and then CenTrust i turn agreeing to repurchase the debentures under a buy-back agreement.

As the Justice Department described the scheme in its late 1991 indictment of BCCI, Abedi, Naqvi, and Pharaon, Pharaon would seek to sell CenTrust subordinated debentures to investors; arrange for a branch of BCCI to purchase $25 million of the debentures to deceive other investors as to their market value; and CenTrust would in turn agree to repurchase any of the debentures that had been purchased by BCCI.(54) As a result, CenTrust -- whose ultimate collapse is likely to cause the taxpayers $1 billion to $2 billion -- was kept afloat and its true condition withheld from regulators. As the Justice Department has charged:

Paul and Pharaon on or about May 16, 1988 would and did cause Pharaon to use his position and relationship with BCCI to arrange BCCI's assistance in purchasing approximately $25,000,000 (par value) of the $150,000,000 offering, with the condition that the debentures would be purchased within a short period of time at full par value. Under this arrangement, the apparent purchaser of the debentures would hold the bonds briefly, creating the appearance that the $150 million offering had been fully sold, and then return the bonds and receive a full refund of the purchase price, assuming no risk of a drop in the market price while earning interest on the bonds for the period they were held.(55)

At first, Pharaon himself was intending to purchase the CenTrust debentures, but as was typical of Pharaon's ventures with BCCI, there was a great deal of flexibility between Pharaon and BCCI as to who between them would actually undertake a particular transaction.

Paris branch manager Nazir Chinoy, who testified before the Subcommittee, developed detailed knowledge of the arrangements involving Pharaon and BCCI as a result of his having had a surplus of dollar funds available for investment out of BCCI's Paris office. Chinoy had in 1988 advised Naqvi that Paris would be happy to loan funds for BCCI investments elsewhere, on a "parked loan" basis, under which the Paris office would not take the credit risk, which would be taken on by BCCI's Central Office in London, but would earn interest and commissions. Soon after, Chinoy received a call from BCCI London that Ghaith Pharaon wish to borrow $25 million to purchase the bonds of a U.S. bank. According to Chinoy:

They asked me, would I be interested in lending it? My initial response was, why is Mr. Naqvi giving this to Paris and not to New York or Miami region? Why not to the States? The answer I got back was that Dr. Pharaon -- I don't know why he was referred to as Dr. Pharoan -- that he had dealings with Paris and his staff knew our people in Paris and he was happy with the service in Paris and he would like it there. The rates were 1 percent front end fee and that was juicy -- $250,000 straight -- and 1 and a half over LIBOR. The loan would be for a period of six months. Collateral American bank bonds. Mr. Naqvi felt they were good bonds and there would be no problem in getting credit committee approval. He may have said the name but it didn't mean anything to me.(56)

Chinoy was told that Pharoan expected the price of the debentures to improve and would ultimately sell the bonds, and that he should make payment for the bonds to Drexel, Lambert, which was handling the transaction for the U.S. bank, CenTrust. According to Chinoy, in making the decision to go ahead with the financing, he was relying not on financial information for CenTrust or for Pharaon, but on the reputation of Drexel, Lambert as an investment banker which created markets, and on Naqvi in London.

If Mr. Naqvi as president of the bank says the collateral is good, he knows better than you. I said fine, and set in progress the loan formalities. The paper work was set into operation and we got instructions to pay Drexel in NY. Payment was made through traditional BCCI bankers in New York Security Pacific. The bonds were held by Drexel in NY to order of BCCI-Paris. Almost $25 million were disbursed. Later negotiations with Imran Iman indicated that Pharoan was not willing to let BCCI buy the bonds after all, instead he wanted to buy them and have BCCI loan him the funds. In April or May of 1988, we had booked a front-end fee of $200,000. $25 million was one of the biggest loans of Paris to an individual. If you did any loan over $5 million you prepared a credit report based on the Bank of Americas loan reporting procedure adopted years ago -- profitability, shareholders profitability etc. 15 pages. In this case, we did not prepare this. We did a CYA letter instead to cover ourselves -- shot off a memo, signed by me, to London.(57)

As branch manager of BCCI Paris, Chinoy was told by BCCI London that he had to go ahead with the transaction however it was structured, and regardless of how the terms changed over the course of the transaction. Ultimately, the debentures arrived at BCCI-Paris as security, and Pharaon later sold the bonds and BCCI Paris was repaid, earning almost $700,000, with another $300,000 being provided to Pharaon as commission or interest. The funds for the repayment of BCCI-Paris in turn came from BCCI London.(58)

Later, Chinoy saw a fabricated document, ostensibly from the Paris branch of BCCI, addressed to BCCI's credit committee and requesting the loans for the CenTrust transaction, which he believed was created by Naqvi after the fact to cover the unusual transaction and to make it appear to auditors that authority for it had been requested and granted by the committee. According to Chinoy, Pharaon's "profits" on CenTrust were transferred to BCCI's offices in Bahrain as a means of reducing Pharaon's defaults to BCCI there, and demonstrating to auditors that Pharaon's loans from BCCI were being serviced.(59)

In the meantime, BCCI also agreed to finance Pharaon's purchase of an interest in CenTrust, with the possibility of assuming actual control of the bank.

On August 12, 1987, Pharaon filed disclosure statements with the SEC stating that he had purchased 16.9 percent of CenTrust common stock and 24.4 percent of its Series One participating stock, a preferred stock, from two insurance companies which had purchased the shares the preceding year. Reminiscent of the FGB takeover purchases of just under the 5 percent holdings required for reporting in 1977, this represented just under the 25 percent ownership that would constitute the legal definition of "control" of CenTrust by Pharaon. The next day, Paul advised inquiring journalists that Pharaon was "one of my very close personal friends. He is probably one of the three of four closest personal friends Mrs. Paul and I have." By January 7, 1988, Pharaon acquired 748,901 shares of voting common stock of CenTrust, and on April 14, 1989, he purchased an additional 812-681 shares of Centrust, bringing his total holdings of CenTrust voting shares to 1,561,582 shares. At no time did Pharaon or BCCI disclose the fact that all of these purchases had been financed by BCCI, and that the CenTrust shares purchased by Pharaon would be held by BCCI as security for those borrowings, placing BCCI in the position of being able to control CenTrust. As a Memorandum of Deposit signed by Pharaon and BCCI stated, "BCC or its nominees may exercise . . . in respect of the [CenTrust] Securities or any of them any voting rights as if BCC or its nominees were a sole beneficial owner thereof." At the very time that BCCI was under indictment in Tampa, Florida for money laundering, it had secretly acquired and controlled the largest S&L in Florida, CenTrust.(60)

Ironically, consistent with its pattern of expanding into areas of operation that BCCI had been interested in exploiting, First American also purchased a bank in Florida, the Bank of Escambia, at almost the same time as BCCI acquired its interest in CenTrust. The purchase of the bank, renamed First American Florida, caused federal regulators to ask for further information concerning First American's dealings with BCCI. On receiving assurances that First American's shareholders still were not nominees for BCCI, and that BCCI was not in back of the transaction, the Federal Reserve permitted the purchase to go forward.(61)

BCCI's Attempts to Sell its US Empire

BCCI's secret purchase of U.S. banks had been extraordinarily expensive for BCCI. Because it had used nominee arrangements to pay for the banks, its ownership of the banks was carried on its books as loans which were not being serviced. As a result, each year, BCCI was forced to add the interest to the amount secured by its shares of First American to its books. Additionally, First American's series of acquisitions, including operations in Tennessee and Florida, had stripped BCCI of further capital. By 1989, Price Waterhouse, as BCCI's auditors, were becoming increasingly unhappy and vocal about the size of BCCI's exposure on First American, and demanding that BCCI contact the shareholders and have them at least been servicing the loans they supposedly had. Since both the shareholders and BCCI knew the loans were bogus, BCCI was left in the position of having to consider the forced sale of First American.

Indeed, that strategy was first considered, and attempted, by BCCI, in 1986 in connection with the purchases of BCCI and CCAH stock by the Khalid bin Mahfouz, head of the National Commercial Bank of Saudi Arabia and the most powerful banker in the Middle East. Bin Mahfouz had purchased shares of both BCCI and CCAH under a complex agreement that would permit him to purchase both banks, or to hold his interests temporarily with BCCI guaranteeing to buy them back at no risk to bin Mahfouz. After auditors for National Commercial Bank raised questions about bin Mahfouz's actions regarding BCCI, the transactions were fully unwound by 1989, leaving the First American problem for BCCI unsolved.

In 1989, after meetings with auditors, BCCI concluded that it should place First American on the market, and asked Clifford to retain an investment banker to seek purchasers for First American. As an internal task force headed by BCCI chief financial officer Massihur Rahman noted in April, 1990:

Since 1989 the bank has advised the major borrowers to dispose of their shares in CCAH to repay their loans in BCCI . . . the legal representatives of the shareholders of CCAH have retained the services of a major U.S. investment bank to advise, evaluate and assist either in the outright sale or in the merger of the CCAH group of First American banks with a larger banking entity.(62)

Goldman Sachs was retained by Clifford, on behalf of "CCAH" in July 1989. On October 10, 1989, Clifford wrote First American's shareholders to inform them that they had been approached by Barnett Banks "to discuss their interest in a possible merger or acquisition arrangement with First American," and had retained Goldman Sachs to evaluate the "express interest of Barnett Banks as well as other possible candidates."(63)

By April, 1990, Price Waterhouse concluded that BCCI's financial situation was perilous, and demanded that action be taken immediately. BCCI's $702 million exposure had not been reduced, as bank officials had promised, but had gone up, with interest, to a staggering amount -- $870 million. Price Waterhouse concluded that based on its estimate, if a buyer were found, BCCI would still lose $200 million or more on a sale of First American at 2.1 times net tangible assets.(64) Price Waterhouse also warned that if a buyer were not found, the auditors might well classify a portion of this debt, wiping out BCCI capital in the process and drawing public attention to the loans in BCCI's annual report. Given the ignorance of U.S. regulators about the nature of BCCI's lending for First American, this would be a catastrophe.

The only way out of this problem was a sale of First American, and the initial interest from Barnett Banks had disappeared. However, at Clifford's recommendation, Goldman Sachs had also contacted NCNB, now known as Nation's Bank, to determine whether NCNB might be interested in purchasing First American. NCNB was indeed interested, and prepared to offer $1 billion for First American based on the financial information provided to them by Goldman Sachs. The offer, which represented 1.5 book value, was subject to a number of conditions, including "satisfactory completion of normal business and legal due diligence by both you and us."(65) Oddly enough, NCNB and BCCI never moved ahead with the due diligence. Little further paperwork was done, and within two months, BCCI executives were told that negotiations had stopped entirely.(66)

By the end of July, BCCI's board of directors had become involved in seeking other ways to dispose of BCCI's holdings in First American. In a letter from BCCI director J.D. Van Oenen to BCCI's then senior executive, Swaleh Naqvi, Van Oenen noted that there were "many problems of which we were not fully aware" in selling the franchise, because of limits on interstate banking, foreign ownership, and because of unspecified problems with the New York operation of First American. Van Oenen noted that if BCCI could not sell First American, it would lose another $60 to $70 million by the end of 1990 on holding the bank. Further, Price Waterhouse had developed an "attitude" regarding the First American shares that might well result in the auditors classifying a portion of the loans, which could damage BCCI's balance sheets further. An attachment to the Van Oenen letter showed annual losses for BCCI connected with First American as amounting to $106 million, and that BCCI would have to sell First American at three times book value to break even, at a time when it had been unable to move ahead with an offer for half that amount.(67)

According to the memorandum the preferred option BCCI was considering was the "internal solution" -- a sale of First American to Abu Dhabi. Unfortunately, the questions that regulators would raise appeared to make this approach impossible. Alternatively, Abu Dhabi might be convinced to lend funds to BCCI and "call the loans, at a time of their choosing, take possession of the security and thus gain two years breathing space to dispose of it." Under this scheme, Abu Dhabi would in effect replace BCCI as the lender to the nominees, and then remove them at its convenience, at which time it could hold or sell First American as it pleased. Van Oenen acknowledged that there was a fundamental flaw with this plan -- if Abu Dhabi called all of its loans simultaneously, regulators would again ask questions, and might charge that Abu Dhabi had secretly gained control of the bank without due notification.(68)

A third approach recommended in the BCCI/Van Oenen memorandum would involve BCCI "garaging" loans with other institutions to "slim down" its balance sheets, either on a "re-purchase basis," or "as an outright sale." The former approach amounted to juggling BCCI's books to take its loans for First American off the balance sheets. The approach had already been effectively used by BCCI in connection with purchases and sales of CCAH stock by Khalid bin Mahfouz and the National Commercial Bank of Saudi Arabia in 1986. But it would do nothing to resolve the underlying losses other than buy time, and it would face severe criticism from regulators, if they found out, and from BCCI's own auditors. Outright sale of First American stock was simpler, but faced an equally daunting objection -- no institution would buy the stock without some form of guarantee from BCCI's shareholders, and favorable terms, costing BCCI further funds it could not afford.(69)

The BCCI directors also wished further to explore selling First American to a domestic U.S. bank, but recognized that the only bank that expressed interest, NCNB, had for unknown reasons done nothing further to move ahead with negotiations. Finally, they considered the possibility of the sale of First American to a foreign bank, noting that the only identifiable institution that might be interested would be the National Bank of Abu Dhabi, a very small institution, with assets of $150 million, that could "theoretically qualify for a 'reverse' procedure by merging into CCAH." Van Oenen acknowledged that "the chances [for approval of such a transaction] do not rate very high."(70)

In fact, by the summer of 1990, the Morgenthau investigation of BCCI's activities in the United States had already moved into high gear, and BCCI's lawyers in the United States, including Clifford and Altman, were in the position of resisting the attempts of the New York District Attorney to obtain documents concerning the relationship between First American and BCCI. Subcommittee staff were also questioning the relationship, and had scheduled hearings for July or August, 1990 on the topic of BCCI's possible ownership of First American. In such an environment, any orderly sale of First American to any potential buyer would be fraught with difficulty, and there is no documentation following the Van Oenen letter indicating that an actual sale of First American was anticipated by anyone.

Consequences for First American

Of BCCI-Related Expansion

Up and until the indictment of BCCI in October, 1988 in Tampa on money-laundering charges, BCCI continued its expansion and consolidation in the United States, with First American expanding operations in Tennessee and Florida, and considering the development of operations in Utah and elsewhere. While the metropolitan branches of First American were kept largely free of BCCI's direct involvement, its New York and Georgia operations were never completely free of BCCI's influence, and even in the metropolitan branches of First American, BCCI had provided a variety of services up to the Tampa indictment. As Abdur Sakhia concluded:

You have enumerated the whole list of interlocking relationship, joint business, joint marketing, joint . . . staff transfers, hiring of staff, merger of First American and National Bank of Georgia, renting of space, appointment of chief executives . . . how the raising of capital and purchase prices were circulated. It is nothing but one institution.(71)

In the face of Clifford and Altman's position that First American bank was never controlled by BCCI, and that the two operations were separate, officials at First American New York took pains to reiterate to BCCI officials at far-away locations elsewhere that the two banks were operating jointly. One such letter, to a BCCI official in Nairobi, Kenya, written on First American stationery, and signed by two First American officials specifically sought to rebut assertions to the contrary:

Recently an article appears in the Financial Times of February 13, 1990 ascribing certain comments to an unnamed senior First American officer. We have taken exception to the report where it states that, in the future, our two institutions shall not be dealing together.

To set the record straight, we wish to reiterate that First American values the relationship between our two institutions, and we are continually desirous of enhancing it. As you are aware, we are maintaining about forty accounts of the BCC Group's various locations. Additionally, sizable credit facilities are also available in all categories.(72)

Unfortunately, a number of BCCI's purchases in the U.S. were proving unprofitable. Independence Bank grew ever weaker as the value of its real estate plummeted. First American New York's operations never justified the costs of the space in Manhattan which BCCI insisted that it lease, and which was still costing First American substantial sums as of May, 1992. And National Bank of Georgia remained a weak institution, with very significant problems, including, as bank regulators late found, "inadequate supervision by board and management, an eroding capital base, an ineffective corporate liquidity function, and deteriorating asset quality and earnings performance."(73)

Even First American's core banks had become severely stressed by the end of the 1980's, in part due to the softening real estate and office building markets on the East Coast generally and in metropolitan Washington in particular. Thus, by the time BCCI was closed internationally on July 5, 1991, federal regulators had sought and received an additional $200 million in new financing and capitalization for First American to keep the bank from being at risk of failure even before the avalanche of negative publicity hit the bank during the second and third quarters of 1991.

By the time BCCI closed, federal bank organizations would find that overall, the First American banks owned by BCCI were "run in a very disorganized manner [with] very little direction being given to the banks" by central management, and Georgia and New York operating "virtually autonomously" from the central management associated with the metropolitan banks of First American.(74)

Similarly, First American's current management, including president George L. Davis, told the Subcommittee in May that despite the opportunities for First American to have used its unique multi-state status to provide enhanced banking services, in actual fact they found the various franchises of First American to have never been centrally coordinated or managed. Instead, each entity had maintained a largely separate existence from others, with the result that there were few benefits to First American from extending its geographic reach. Accordingly, Clifford and Altman's successors at First American were choosing to sell off the various branches of First American other than the metropolitan banks, because they could find no adequate business purpose to keep them.(75)


By the time of the October 1988 indictment of BCCI in Tampa as a result of a Customs money-laundering sting operation, BCCI had secretly acquired a coast-to-coast network of United States banks operating in New York, Maryland, Virginia, the District of Colombia, Georgia, Florida, Tennessee, and California without U.S. or state regulators ever catching on to BCCI's ownership and control of the institutions. Accomplishing this goal had been expensive for BCCI, which had consistently paid more for each bank than the market would dictate for any normal banking institution. Moreover, in some cases, such as the lease for First American New York, BCCI made poor business judgments which cost First American money. In other cases, such as the purchase of National Bank of Georgia, BCCI financed First American's costs, so that First American itself was not stripped of its resources by the purchase, but found itself buying a bank that it did not need, failed to make use of, and which had severe ongoing operational problems that were clearly not taken into account in its pricing.

Thus, even apart from the events that took place as a consequence of the Tampa money-laundering sting and the concurrent Subcommittee investigation of BCCI in 1988, and the resulting investigation conducted by New York District Attorney Morgenthau in 1989, BCCI's U.S. empire was in serious difficulties by the end of the 1980's. Maintaining that empire was already proving increasingly costly to BCCI, which was already being pressured to liquidate its loans to First American shareholders by its auditors and the Bank of England. Yet through financial manipulations which had become routine at BCCI, these banks were kept afloat regardless, because the consequences for BCCI of not maintaining them would have been catastrophic.

1. See e.g. Clifford statement to First American Board re First American growth, October 4, 1984.

2. Senate BCCI document 391-393, produced by BCCI liquidators July, 1991.

3. Sakhia, S. Hrg. 102-350 Pt 2. p. 505.

4. Findings, U.S. Board of Governors of the Federal Reserve System, In the Matter of BCCI, 91-043, July 29, 1991, Paragraphs 165-167.

5. Sakhia, staff interviews, October 7, 1991.

6. Abdur Sakhia, staff interviews, October, 1991.

7. U.S. Board of Governors of the Federal Reserve, In the Matter of BCCI Holdings, 91-043, Paragraph 61, July 29, 1991.

8. Altman testimony, S. Hrg. 102-350 Pt. 3 pp. 234-235.

9. Board of Governors Federal Reserve System Exhibit AD 134, Afridi to Naqvi, July 25, 1983.

10. Id.

11. Sakhia testimony, S Hrg. 102-350 Pt. 2 p. 513.

12. S. Hrg. 102-350 Pt. 3 p. 332.

13. Charges, Board of Governors of the Federal Reserve System, In the Matter of BCCI Holdings, 91-043, July 29, 1991, Paragraphs 176-178.

14. Travel reimbursement records of Tariq Jamil, 1981-1987, First American Georgia.

15. Minutes of U.S. Marketing Meeting, April 24, 1985, S. Hrg. 102-350, Pt. 3 p. 336.

16. Minutes of U.S. Marketing Meeting, S. Hrg. 102-350 Pt 3 p. 342.

17. Testimony of Sakhia, S. Hrg. 102-350 Pt. 2 p. 547.

18. Staff interview, Chinoy, March 9, 1992.

19. Id.

20. Sakhia testimony, S. Hrg. 102-350 Pt. 2 pp. 598-599.

21. BCCI Discussion Paper, dated "London, 1985," retrieved from documents at BCCI offices at 350 Park Avenue, New York, March, 1992.

22. Sani Ahmed, BCCI internal memo, July 5, 1985.

23. BCCI Washington Rep Office Marketing Report, September 30, 1985.

24. BCCI Business Call Memorandum, April 18, 1986.

25. First American Bank/BCCI joint presentation, United Press International, July 1986, retrieved from BCCI files, BCCI-New York.

26. See Office Call Report Form, S.P. Schmidt, November 20, 1986.

27. First American documents, Barry Blank to Mario Vasquez Rana, UPI, May 27, 1986; Susan Schmidt to Miguel A. Bursat, General Manager, UPI, July 23, 1986; BCCI memoranda, Akbar Bilgrami, to S.M. Shafi, August 8, 1986; letter, Susan [Schmidt] to Amjad [Awan], BCCI, regarding UPI account, September 26, 1986.

28. Memo, First American New York, "Correspondent Banking Relationship Between First American Bank of New York and BCCI," February 7, 1991.

29. Charges, Board of Governors of the Federal Reserve System, In the Matter of Ghaith R. Pharaon, 91-037, September 17, 1991, Paragraphs 10-15.

30. Strictly Privileged & Confidential Produced For Legal Advice Memorandum, Pharaon, Background Paper, For Discussion with Messrs Blair and Siddiqui, Considerations Before Pharaon Meeting 5/6 March 1991.

31. Id, paragraphs 20-23.

32. Id, paragraph 28.

33. FDIC, Report of Examination, November 25, 1991.

34. Prepared testimony of Comptroller of the Currency, May 14, 1992.

35. Charges, Board of Governors of the Federal Reserve, In the Matter of BCCI, 91-043, July 29, 1991, Paragraphs 179-195.

36. Id.

37. See summary of charges, Federal Reserve, In re Clifford, id., Paragraph 129.

38. Id. Paragraph 184.

39. Id,. Paragraphs 184-187.

40. Charges, Board of Governors of the Federal Reserve, In the Matter of BCCI, 91-043, July 29, 1991, Paragraph 188.

41. Sakhia testimony, S. Hrg. 102-350 Pt. 2 p. 604.

42. S. Hrg. 102-350 Pt. 2, p. 606.

43. Sakhia letter to Abedi, Future Plans in the United States, February 10, 1986, S. Hrg. 102-350, Pt. 2 p. 595.

44. Written statement, Clifford and Altman, S. Hrg. 102-350 Pt. 3 p. 78.

45. Atlanta Business Journal, April 27, 1987, "Pharaonic reflections: Thoughts on an empire."

46. Id.

47. Staff interview, Chinoy, March 9, 1992.

48. Privileged and Confidential Pharaon Background Paper, unattributed, "For Discussion With Messrs. Blair and Siddiqi, Considerations Before Pharaon Meeting 5/6 March 1991.

49. Id.

50. See February 25, 1990 draft "Strictly Privileged & Confidential, Produced for Legal Advice, re: Dr. GR Pharaon," BCCI Attorneys, London.

51. Sakhia letter to Abedi, Future Plans in the United States, February 10, 1986, S. Hrg. 102-350, Pt. 2 p. 595.

52. Sakhia, S. Hrg. 102-350, Pt. 2 p. 606.

53. S. Hrg. 102-350, Pt. 2 pp. 643-650.

54. Indictment, U.S. v. BCCI, US District Court for DC, Grand Jury January 16, 1991.

55. U.S. v. Paul, Indictment, US District Court for the Southern District of Florida, February 23, 1992.

56. Staff interviews, Chinoy, March 9, 1992.

57. Chinoy id.

58. Chinoy, id.

59. Chinoy, id.

60. Charges, Board of Governors of the Federal Reserve, In the Matter of BCCI, July 29, 1991, Paragraphs 201-206.

61. S. Hrg. 102-350 Pt. 3 p. 83.

62. S. Hrg. 102-350 Pt. 1 p. 408.

63. S. Hrg. 102-350 Pt. 3 p. 453.

64. Price Waterhouse letter to shareholder, S. Hrg. 102-350 Pt. 1 p. 483.

65. S. Hrg. 102-350 Pt. 3 pp. 457-458.

66. BCCI Memo from J.D. van Oenen to S. Naqvi, July 30, 1990, S. Hrg. 102-350 Pt. 3 pp. 463-479.

67. Id.

68. Id.

69. See e.g. Charges, Board of Governors of the Federal Reserve System, In the matter of Khalid bin Mahfouz, 92-074, July 2, 1992.

70. Id.

71. S. Hrg. 102-350 Pt. 2 p. 640.

72. Letter from Maurice Acoca and Mansoor Shafi to S. S. Dinamani, February 21, 1990, First American New York to BCCI Kenya.

73. OCC letter to the Board of Directors, First American Bank Georgia, as of August 30, 1990.

74. OCC, FAB Exam Status Report, June 13, 1991.

75. Staff interview, George Davis, May, 1992.




The Justice Department


Over the past two years, the Justice Department's handling of BCCI has been criticized in numerous editorials in major newspapers, including the Wall Street Journal, the Washington Post, and the New York Times, reflecting similar criticism on the part of several Congressmen, including the chairman of the Subcommittee, Senator Kerry; the chief Customs undercover officer who handled the BCCI drug-money laundering sting, Robert Mazur; his superior at Customs, Commissioner William von Raab; New York District Attorney Robert Morgenthau; former Senate investigator Jack Blum, and, within the Justice Department itself, the former U.S. Attorney for the Southern District of Florida, Dexter Lehtinen.

Typical editorials criticized Justice's prosecution of BCCI as "sluggish," "conspicuously slow," "inattentive," and "lethargic." Several editorials noted that there had been "poor cooperation" by Justice with other agencies. One stated that "the Justice Department seems to have been holding up information that should have been passed on" to regulators and others. Another that "the Justice Department's secretive conduct in dealing with BCCI requires a better explanation than any so far offered."(1)

In response to all these critics, the Justice Department has suggested that their comments are ill-informed, their motives suspect, and that in time, the wisdom and probity of the Justice Department's approach would emerge. As Assistant Attorney General Robert S. Mueller III stated to the Subcommittee in prepared testimony on November 21, 1991:

We are responsible, ethical prosecutors. We will not indict simply to get favorable press coverage or to quiet our critics. We require evidence sufficient to prove a crime beyond a reasonable doubt, and we will not indict if that evidence does not exist . . . It is premature to assess our performance. We cannot even respond fully to criticism, because we cannot reveal grand jury proceedings or the details of our investigations. Our record when the investigations and prosecutions have concluded will speak for itself. . . a fair review of the available facts will show that the Department of Justice has done an excellent job on the BCCI investigations, and that the criticisms of the Department are fundamentally unfair.(2)

Unfortunately, as time has passed it has become increasingly clear that the Justice Department did indeed make critical errors in its handling of BCCI prior to the appointment of Attorney General Barr in October, 1991, and moreover masked inactivity in prosecuting and investigating the bank by advising critics tat matters pertaining to BCCI were "under investigation," when in fact they were not.

These critical strategic errors, which arose in the earliest stages of the Justice Department's handling of the Customs sting, Operation C-Chase, in 1988, were compounded by the Justice Department's attempts to hinder other legitimate investigative efforts, and by the Justice Department's inability to admit that it had made any of these mistakes.

While mid-level officials in the US Attorney's office in Tampa worked long hours under atrocious conditions to bring the money laundering case against BCCI which arose out of Operation C-Chase, it is clear now, and should have been clear as of the date of the C-Chase indictment against BCCI in October 1988, that BCCI represented much more than a drug money laundering case.

Nevertheless, the US Attorney's office chose to bring, and not to supersede, a limited, money-laundering case against the bank in Florida and indicted several mid-level BCCI officials, throwing out a possible Racketeering Influenced and Corrupt Organizations (RICO) case that would have enabled it to have gone after all of BCCI's assets in the United States -- possibly including any interest it had in the First American bank.

The US Attorney in Tampa then made its second strategic mistake as it allowed the bank to plead out while prosecuting the individual bankers. BCCI mounted a $20 million defense in Florida and provided for the legal costs and living expenses of its former employees throughout their trials. The bank's strategy was obviously to blunt to the extent possible any attempt by the US Attorney's office to "flip" individual defendants, causing them to plead out of the case and to agree to provide damaging testimony against the institution itself. BCCI's strategy largely succeeded when in January, 1990, the U.S. Attorney and Justice Department agreed to permit the bank to avoid trial, and pled guilty to the narrow set of offenses contained in the indictment, and thereby end investigation and prosecution of BCCI in the only judicial district where any such activity existed. The October, 1988 indictment had charged BCCI as institution with having a corporate policy of soliciting drug money. Following the plea, prosecutors changed their underlying theory of the case to suggest that the real guilt lay not with the bank, but with the individual bankers at BCCI who happened to fall into the net of the Customs' sting.

The result was that the Justice Department permitted BCCI to sever its Florida operations and sacrifice a handful of bank employees and thereby to continue its worldwide criminal activity.

Soon after the January 1990 plea agreement, the Justice Department stopped investigating BCCI entirely. Despite the fact that hundreds of leads had not been followed up on in the C-Chase investigation, and that law enforcement officials in the filed recognized the importance of those leads, the Justice Department took which government agents later characterized as a "time-out".

There does not appear to have been anything sinister that prompted this decision. Rather, the decision to stop investigating BCCI appears to be an example of poor communication, overwork, understaffing, inadequate understanding of the meaning of information in the possession of Justice, and a flawed prosecutorial and investigative strategy. It was also the unintended consequence of the BCCI case arising as a Treasury Department investigation brought by Customs and IRS agents only, without the involvement of the FBI. Given the focus of Treasury agents on crimes pertaining to issues such as money laundering and customs violations, the failure to bring the FBI into the case may have contributed to the lack of follow through on the broader criminality pertaining to BCCI.

During the remainder of 1990 and the first half of 1991, it became increasingly clear from the Subcommittee's investigation, New York District Attorney Morgenthau's investigation and media investigations that BCCI was an international criminal organization. Throughout that period, the Justice Department found itself in the apparently uncomfortable position of having to give the public impression that it was aggressively moving against BCCI, at a time when it was doing very little concerning the bank, and investigators and prosecutors involved in the Tampa case were no longer working on matters pertaining to BCCI. Instead of immediately renewing their investigation, the Department sought to impede the investigations of others through a variety of mechanisms, ranging from not making witnesses available, to not returning telephone calls, to claiming that every aspect of the case was under investigation in a period when little, if anything, was being done.

Only after regulatory agencies around the world seized the bank on July 5, 1991, did the Justice Department begin to give the BCCI investigation an unprecedented urgency and importance. Under Assistant Attorney General Mueller, the Department assigned nearly three dozen attorneys to the case. During 1992, the Department brought several indictments, which remained narrower, less detailed and, at times, seemingly in response to the efforts of District Attorney Robert Morgenthau of New York, the Federal Reserve, or both.


** Federal prosecutors in Tampa handling the 1988 drug money laundering indictment of BCCI failed to recognize the importance of information they received concerning BCCI's other crimes, including its apparent secret ownership of First American. As a result, they failed adequately to investigate these allegations themselves, or to refer this portion of the case to the FBI and other agencies at the Justice Department who could have properly investigated the additional information.

** The Justice Department, along with the U.S. Customs Service and Treasury Departments, failed to provide adequate support and assistance to investigators and prosecutors working on the case against BCCI in 1988 and 1989, contributing to conditions that ultimately caused the chief undercover agent who handled the sting against BCCI to quit Customs entirely.

** The January 1990 plea agreement between BCCI and the U.S. Attorney in Tampa kept BCCI alive, and had the effect of discouraging BCCI's officials from telling the U.S. what they knew about BCCI's larger criminality, including its ownership of First American and other U.S. banks.

** The Justice Department essentially stopped investigating BCCI following the plea agreement, until press accounts, Federal Reserve action, and the New York District Attorney's investigation in New York forced them into action in mid-1991.

** Justice Department personnel in Washington lobbied state regulators to keep BCCI open after the January 1990 plea agreement, following lobbying of them by former Justice Department personnel now representing BCCI.

** Relations between main Justice in Washington and the U.S. Attorney for Miami, Dexter Lehtinen, broke down on BCCI-related prosecutions, and key actions on BCCI-related cases in Miami were, as a result, delayed for months during 1991.

** Justice Department personnel in Washington, Miami, and Tampa actively obstructed and impeded Congressional attempts to investigate BCCI in 1990, and this practice continued to some extent until William P. Barr became Attorney General in late October, 1991.

** Justice Department personnel in Washington, Miami and Tampa obstructed and impeded attempts by New York District Attorney Robert Morgenthau to obtain critical information concerning BCCI in 1989, 1990, and 1991, and in one case, a federal prosecutor lied to Morgenthau's office concerning the existence of such material. Important failures of cooperation continued to take place until William P. Barr became Attorney General in late October, 1991.

** Cooperation by the Justice Department with the Federal Reserve was very limited until after BCCI's global closure on July 5, 1991.

** Some public statements by the Justice Department concerning its handling of matters pertaining to BCCI were more cleverly crafted than true.

Early Warnings About BCCI

Although the Justice Department did not indict BCCI until 1988, there were rumors about the bank virtually since its inception. BCCI officially first came to the United States as a branch in New York during the 1970's. New York state banking officials subsequently denied BCCI's takeover of a small bank. Furthermore, bank regulators and law enforcement agencies in other countries, such as the United Kingdom, had reservations about the bank. The British, in fact, refused to grant BCCI full banking status. According to U.S. banking regulators, they routinely make inquiries to the Justice Department about BCCI.

In September 1991, the House Subcommittee on Crime and Criminal Justice, issued a report detailing federal law enforcement's handling of allegations involving BCCI. According to the report, "[F]ederal authorities had scores of contacts concerning BCCI as far back as 1983," and "the government had enough information on BCCI by the mid-1980's to have put BCCI on the most wanted list."(3)

Among the findings of the House Subcommittee:

a.) The DEA had a plethora of case information which, taken in totality, led to the inevitable conclusion that "BCCI is the place to launder money."(4) The report stated that:

[A] review of the files has, so far, revealed 125 cases that have been identified "as having something to do with BCCI." Most of the cases are undercover storefront operations which lead to warrants to seize BCCI bank accounts containing suspected drug proceeds.(5)

b.) Senior IRS officials refused to begin an undercover investigation of BCCI despite the fact that the criminal division had developed important information about the bank. The report states:

Former BCCI employee Aziz Rehman was interviewed by IRS special agents in IRS's Miami office in April 1984 shortly after he was fired by BCCI for refusing to transport large volumes of currency which he believed to be in violation of existing Federal laws. He provided them with documentation of deposits to a nonexistent BCCI branch in Nassau, Bahamas, and described his role as a former courier for large cash deposits to BCCI accounts of "customers" and other banks.(6)

c.) The Customs Service had information as far back as 1983 concerning the illegal smuggling operations of one of BCCI biggest customers, a Jordanian arms merchant named Munter Bilbeisi. According to the House Subcommittee report, "Any reasonable investigation into Bilbeisi's operations would have uncovered that Bilbeisi's coffee business had established a financial relationship with BCCI in 1983, and that BCCI had issued phony letters of credit from 1983 to 1986 to finance smuggling."(7)

d.) Representatives of the Government of India provided the IRS with evidence of a money laundering scheme involving BCCI. However, according to the report, because India did not have a tax treaty with the United States, the allegations were not followed-up on.(8)

Abdur Sakhia, the former regional manager for BCCI in the United States, testified before the Subcommittee on Narcotics, Terrorism and International Operations that he met with Justice Department officials in the autumn of 1984 in the office of former then-Senator Paula Hawkins to discuss allegations of BCCI's involvement in drug money laundering. Sakhia testified that he was told by the President of BCCI, Agha Hasan Abedi, to meet with Senator Hawkins after the Senator, on a trip to Pakistan, told President Zia that she was concerned about drug money laundering by a Pakistani bank in the Cayman Islands, which she subsequently identified as BCCI. According to Sakhia, he was told by the Justice Department that BCCI was not under investigation and that he subsequently learned that the US Department of State had communicated the same message to the Pakistani government.(9)

The Subcommittee has been unable to determine the source for Senator Hawkin's information, although notes that she was at the time the Chairman of the Subcommittee on Narcotics, Terrorism and International Operations and would have had access to classified material from both the DEA and the CIA.

There is also evidence that the regulators had passed on information about BCCI to the Justice Department in 1987. Robert Forrestal, President of the Federal Reserve of Atlanta, testified before the House Banking Committee on Sept. 1992, and stated that "while participating in an April, 1987 examination of BCCI Miami, our examiners discovered possible money laundering transactions that appeared to be structured to evade reporting requirements, The transactions were detected in a review of checks and money orders sent from BCCI Panama to BCCI Miami for payment. A criminal referral concerning the activities discovered at the Miami agency was filed with the U.S. Attorney's office in Miami and with the Federal Bureau of Investigation in North Miami Beach on May 18, 1987.

Operation C-Chase

In 1986 undercover Customs agent Robert Mazur wrote a memorandum to his superiors proposing an undercover money laundering operation called Operation C-Chase. According to Mazur, the proposal sprung from almost two and one half years of undercover work in Florida on international money laundering. Mazur's proposal was accepted and the Customs Agency notified the Justice Department which provided strategic and tactical assistance.(10)

Mazur, who coordinated the undercover operation, posed as a businessman coordinating a number of investment and mortgage businesses which were used as a cover for the laundering of drug proceeds. According to Mazur, after the front was established, an informant approached members of a Colombian drug ring based in Medellin. Cartel members slowly gained confidence in Mazur and his team and over a period of time began to provide him with substantial amounts to drug money to be laundered. Mazur testified that in an "effort to ultimately obtain a Panamanian account" he opened an account at BCCI because it was the only bank with which he was familiar that had international branches.(11) Mazur testified that he had not been "armed with any particular information that BCCI was involved in that type of activity."(12)

Operation C-Chase ultimately proved an extremely successful undercover operation and helped to shed light on the massive drug money laundering taking place in the United States. Mazur testified that one of the money launderers ensnared in Operation C-Chase had gross receipts in the United States "of roughly $200 million per month in currency that needed to be removed from the United States on his behalf."(13) While the early stages of the investigation focused on the cartel and drug money laundering, as Mazur learned more about BCCI, he began to focus his efforts on the bank's complicity in money laundering.

From his very first meeting with officials at BCCI, Mazur was struck by the bank's "polished marketing approach . . . everything fit to have an institution that might have an ulterior motive for its locations."(14) After Mazur checked with local prosecutors in Tampa and discovered that the bank showed up in another drug-related investigation, his suspicions were heightened.(15) Directing the activities of his undercover team, Mazur set about to investigate BCCI and he quickly discovered that the bank was all too willing to assist him in the laundering of funds.

Mazur testified that after he opened his account in Panama:

"the bank came back to have a broader relationship ... an operations officer .. recognized the nature of the transactions and called me, unsolicited, to inform me that he would be in the United States and that he felt the bank, being a full service bank, had the types of abilities to keep my transactions conducted in a very confidential way that would enhance the businesses I was involved in."(16)

According to Mazur, the bank provided him with a sophisticated means for laundering money which entailed receiving the cash at "either their Panama branch or their Luxembourg branch and several locations in the Middle East." Mazur described in Subcommittee testimony how an officer at BCCI, Sayed Hussain, advised him not to repeat the mistakes that other drug money launderers had made in Operation Pisces, a previous U.S. government undercover money laundering sting which had traced the proceeds of drug money laundering to BCCI accounts in Panama. BCCI clients had been implicated in that government undercover operation and apparently Hussain believed that there were better ways to conceal client's funds.

Mazur told the Subcommittee that his undercover operation handled "roughly $14 million through BCCI on behalf of clients." BCCI earned banking fees on these transactions totaling in excess of $250,000, but according to Mazur the bank was much more interested in getting large deposits so as cause "their balance sheets to look very strong."(17)

During the winter of 1988, a tentative date was established for the takedown of BCCI. That date was altered slightly during the ensuing months but remained within a two week time frame at the beginning of October. In July, an implementing plan was put into effect with the October time frame in mind.(18)

However, it became increasingly evident to agent Mazur that there were significant leads and evidence that could not be followed up on by October. Moreover, Mazur testified that he was on the verge of meeting with the "inner circle" at BCCI which could have potentially unlocked many of the criminal secrets about the bank. Senator Kerry asked agent Mazur if the predetermined date in October, which seemed increasingly arbitrary to the agents, was politically motivated:

Senator Kerry: Did you have any discussion with anybody about whether or not October was the date? Because October 1988 was a Presidential election year. And by having an October takedown it would make Customs be able to present the administration with a sort of present on a platter.

Mr. Mazur: There certainly was mere speculation that that played a part by people at low levels like mine. But beyond that I cannot say more.

Senator Kerry: But it went through your head that might have been a reason that there was such a compulsion to terminate this thing in October.

Mr. Mazur: I was at a loss for understanding why October. I would say that for sure.(19)

Mark Jackowski, the Assistant US Attorney overseeing the case testified to the Subcommittee, however, that the decision was predicated on other considerations. He testified that his office had made a decision that "if there came a point in the investigation where we continued to launder funds on behalf of old clients without developing evidence against additional defendants, we would attempt to terminate the operation." Jackowski added that the date had been originally set -- in February -- with the expectation that they would be able to make a case by the fall against BCCI officers and that, in fact, they had accumulated the requisite evidence.(20)

By the summer of 1988 Mazur had compiled enough evidence to indict the bank and several of its officers. But Mazur believed that the corruption went much higher than the mid-level officers with whom he had been dealing. As he explained to the Subcommittee, "It appeared to me that the knowledge of the source of the funds and the method of seeking out drug proceeds as a source of deposits for the bank was something that was promoted at every level of senior management within the bank."(21)

On September 9, 1988, one month before the sting operation against BCCI was scheduled to be taken down, Mazur, in his undercover role as drug-money launderer Robert Musella, had met with Amjad Awan, BCCI's personal banker to Panamanian General Manuel Noriega, at the Grand Bay Hotel in Miami, Florida, where he engaged in a conversation with Awan that was wired and recorded by Federal agents. In that conversation, Awan told Mazur that he had been subpoenaed by the Foreign Relations Committee of the U.S. Senate in connection with his handling of Noriega's accounts, and the accounts of others in Panama. He also told Mazur about his understanding of BCCI's secret ownership of First American, about the political implications of Clark Clifford's chairmanship of First American, and about alleged obstruction of the Subcommittee's investigation into Noriega and BCCI by BCCI lawyer Robert Altman. As the transcript of the wiretap showed, Awan told Mazur:

What's happened is that we were served a subpoena last month. The bank was and Mr. Shafi our general manager was. I was supposed to have been served also . . . This is why I've been going up and down to London with our attorneys in Washington . . . On a personal level, last Friday, I was told that, ah, our lawyers, Mr. Altman was there, and he suggested to the bank that I should be immediately transferred from the U.S. to Paris. . . . So, they duly transferred me Friday to Paris. . . I'm not too, too happy on, on what our attorneys are telling us to do. I think that's they're doing a very stupid thing. As long as I am an employee of the bank, I can be anywhere, I can, I can be in Timbuctu, if they throw a subpoena on me, they can demand that the bank produce him. . . So I think that's a very stupid policy to take. . . .

I went to, ah, I met with the counsel to the Foreign Relations Committee . . . I've got a good rapport going with them. And ah, without really damaging the bank or without, without ah, disclosing anything about, uh, business, I think I can, with a bit of luck, I can extricate myself from the whole situation quite cleanly. . . I think they're going to go through BCCI's records with a tooth comb . . . if anything gets released there that BCCI is being investigated, BCCI is dead . . . no customer is going to keep an account with BCCI. . . I don't think the bank could stand up to any sort of publicity. It's gonna, it's going to, it's gonna hit them bad. . .

Our attorneys are, are, they're heavyweights, I mean Clark Clifford is, is sort of the Godfather of the Democratic party. I mean, when he calls Jesse Jackson for dinner, that means Jesse Jackson can receive us for dinner. . . .

I have, I have totally different, uh, uh, assessment of the situation. And it might be far-fetched, it might sound stupid, but my assessment is, that we own a bank in washington . . . We own a bank, uh based in Washington, it's called the First American Bank. The holding company is in Washington, and there are 5 banks actually. First American of New York, First American of Washington, D.C., First American of Virginia, Maryland, Tennessee and Georgia. There's six banks. Six large banks, they are $10 billion banks. Bought out by BCCI about 8 years ago . . . And BCCI was acting as advisor to them, but truth of the matter it is that the bank belongs to BCCI. Those guys are just nominee shareholders. . . Clark Clifford and his, uh, law partner Bob Altman are the chairman and capital holders. I personally feel it would suit them if BCCI withdrew . . . and they just take over that entire part of the bank. . . . I wouldn't at all be surprised if, you know, if they're totally screwing BCCI to take over this bank. I, I don't know, but this is the way I see it. Because the advice he's giving, in my opinion, I, I just don't respect it. . . . He, he knows a lot, and uh, that's why I don't want him to represent me. That's why I've gone on to another lawyer.(22)

Awan had provided Mazur with sufficient background information regarding violations of federal law to enable another agent assigned to the case, IRS Special Agent David Burris, to conclude that seven separate federal criminal statutes had been apparently violated. In addition to the money laundering charges already being contemplated, Awan had now alerted the C-Chase agents to an apparent conspiracy to obstruct a Senate investigation by BCCI and its lawyers, and to BCCI's possible illegal ownership of First American. Accordingly, Burris set down the relevant facts from the Awan wiretap, and drafted an affidavit stating that he believed there was sufficient evidence to make out a case that these statutes, including obstruction of the Senate, had been violated.(23) Burris understood the meaning of Awan's statements, describing them in Paragraph 4 of his affidavit in the following terms:

Awan said that BCCI has bought and controls First American Bank and National Bank of Georgia through private individuals. The banks were bought through individual names rather than BCCI because BCCI could not buy the banks and run them due to U.S. law.(24)

Nevertheless, in the weeks that followed, the prosecutors directing Operation C-Chase made no effort to broaden the case against BCCI, or to investigate any of the new allegations raised by the Awan wiretap. There was no attempt to interview Clifford or Altman, no attempt to seek further information from the Subcommittee to determine whether its investigation had been interfered with, no subpoenas prepared to be issued against First American, and, even after the take-down of the sting, no investigation of any links between BCCI and First American.

Against the desires of Mazur, who wanted to keep the C-Chase operation going longer, the takedown was set in motion on October 8, 1988. A phony wedding had been arranged between Mr. Mazur and another undercover agent posing as his fiancee. The ruse of the wedding successfully lured BCCI officers and narcotics traffickers into the United States who believed they were attending the marriage of an important customer. At a phony bachelor's party for Mr. Mazur, federal agents swooped in and made numerous arrests. The operation had been coordinated with law enforcement authorities in the UK and France who also conducted searches and made arrests.(25)

With the arrests, the effort to make the money-laundering case against BCCI and the BCCI officials indicted in Tampa took precedence over any further investigative efforts concerning broader issues of criminality regarding BCCI. The small team of agents and attorneys, who soon became grossly outnumbered by the defense team retained by BCCI, and selected and coordinated by Clark Clifford and Robert Altman, soon had all they could do to prepare for trial on the specific money-laundering counts brought in the October, 1988 indictments.

Justice Handling of Operation C-Chase:

Failure to Charge RICO

Months before the takedown of Operation C-Chase, many of those most involved in investigating and prosecuting BCCI had concluded that BCCI was a quintessential example of corporate organized crime, and suitable for being prosecuted under the Racketeering Influenced and Corrupt Organizations Act (RICO), whose provisions contained powerful tools for prosecutors, including broad forfeiture possibilities.

Under RICO, any business that is convicted of investing the proceeds of two or more criminal acts, constituting a pattern of racketeering activity, in a legitimate business, is subject to having all of the proceeds of its criminal activity, including the legitimate businesses, forfeited to the government.

RICO would have an especially powerful tool against BCCI, because once the government proved that BCCI committed two or more acts of money laundering, the government might be able to take the entire bank. Given BCCI's actual secret ownership of First American, a RICO case against BCCI would have had a devastating impact on BCCI, and might well have blown open BCCI's core secrets.

A series of memoranda from early 1988 detail the discussions within the Justice Department and among the agents about the basis for a RICO prosecution of BCCI. By March, 1988, high level Customs officials were reporting to Commissioner Von Raab that several BCCI officials were indictable under RICO. On April 6, 1988, another Customs memorandum stated that it was the opinion of the U.S. Attorney's Office in Tampa that "probative evidence exists to establish corporate criminality against BCCI as an institution," and that "current plans for prosecution are to indict BCCI as an institution under the provisions of the RICO statutes." This recommendation was reiterated in a second memorandum, May 10, 1988.(26)

Mazur and the other undercover agents involved in Operation C-Chase strongly supported the bringing of a RICO case against BCCI, because if the bank were convicted of racketeering, they could "seek forfeiture of a lot of the bank's assets that would be located in the United States."(27)

Yet, for reasons that were never explained to the Customs agents, the Justice Department in the fall of 1988 did not give approval to a RICO prosecution, and the RICO case against BCCI was abandoned.(28)

Robert Genzman, the US Attorney for Tampa, told the Subcommittee that it was his view that "RICO charges would have complicated an already complicated case."(29) According to Genzman:

Put simply, we believed that RICO charges would have added nothing, and would have greatly complicated the case. It is absolutely, untrue, as has been suggested, that the entire bank could have somehow been forfeited out the U.S. government had RICO charges been brought in Tampa. There was simply insufficient evidence to support such a sweeping international forfeiture.(30)

Thus, according to Genzman, RICO charges would not have placed additional pressure on BCCI and would not have created the risk of significant additional assets at the bank being forfeited to the government, beyond the $14 million at stake in the narrower case ultimately brought.

Genzman's statements again suggest the blindness at the U.S. Attorney's office to the broader evidence already developed by Mazur and the other Customs agents. This material included, but was not limited to, the Awan allegations contained in the Burris memorandum. Genzman's position also fails to take into account the obvious potential, if Justice had indeed decided to make a RICO case, of seeking plea agreements with the individual officers as a means of securing a broader RICO case against the bank itself in a superseding indictment. Such a strategy, unlike the strategy actually pursued by the U.S. Attorney in Tampa, could well have resulted in a forfeiture of BCCI's assets in the U.S., and led to the uncovering of its ownership of First American as well.

In addition, a RICO case could have permitted the United States to achieve the critical objective for Operation C-Chase defined by Customs agents in March, 1988 -- establishing the corporate culpability of BCCI's involvement in the laundering of "literally hundreds of millions of dollars in drug proceeds," rather than the mere $14 million handled in connection with the sting.(31) In a RICO case against the bank, one or another of BCCI's officers could have been turned to help make the larger case against BCCI that was so important.

Justice Handling of Operation C-Chase:

Failure to Provide Adequate Resources

During the entire post indictment investigation, Mazur and the entire investigative team were strapped for resources. According to Mazur, "I was confronted with some 1,200 tapes that needed to be perfected for the benefit of the defendants.... I and a small number of other agents, two or three, spent at times literally twenty-four hours in a given day transcribing and trying to meet deadlines." When asked by Senator Wofford if he felt "outgunned" by the BCCI defense team, Mazur replied "tremendously," noting that BCCI had investigated him personally, and that there were threats to the lives of agents and witnesses.(32)

As Mazur advised his superiors:

The problems created by defense tactics have resulted in the need for resources to be expended to document improper conduct (ie, misleading business associates of government witnesses, improperly issuing subpoenas, intimidating government witnesses.(33)

Mazur recalled a pretrial hearing at which AUSA Mark Jackowski appeared alone on behalf of the government and 23 lawyers appeared on behalf of BCCI.(34) In recalling the incident to the Subcommittee, Jackowski offered that "it was a fair fight."

Subpoenas and searches related to the takedown had also produced some 16,600 documents from individual defendants, and another 100,000 documents from BCCI itself. These documents, some of which have since been reviewed by Subcommittee staff, contained significant information concerning BCCI's broader criminality. But more than six months after the takedown, the government had yet to review a single page.(35)

In an effort to keep the investigation and prosecution of BCCI on track, Mazur and his colleagues in Tampa made numerous requests to their superiors for help, requests which were largely ignored. As Mazur testified:

After the undercover operation was concluded, the Government was confronted with a massive task. Records had been seized from BCCI in Miami, from the homes of several officers in Miami, from the BCCI offices in London and Paris, from the homes of traffickers. And a tremendous task with a tremendous potential benefit faced the Government in using those records . . .And very little resources of those that were available could be used to deal with those matters because of the tremendous resources that were needed just to attend to pretrial motions and the upcoming trial in Tampa . . .

For one reason or another it was impossible for the Government to locate people who could fill that void or it was in the opinions of those who had the authority to make that decision an unnecessary use of resources, one or the other.

And I think a lot of follow up in contacting witnesses and reviewing records that was lost . . . would have been a great advantage to us all to see the things that are happening in the BCCI case happen more quickly and smarter . . . I think that that was, that time out, was a costly time out.(36)

On April 11, 1989, Mazur wrote superiors to remind them that Operation C-Chase was being severely damaged by the inability to add resources to the case, noting that the problem had been discussed repeatedly since November, 1988 without improvements, and that a much biggest case could yet be made against BCCI if additional resources were provided:

The network of the bank is awesome. Since the have over 14,000 employees and operate in 74 countries, the viable leads are endless. Attempts to superceed [sic] the indictment to include a nucleus of evidence that would reveal BCCI's criminal enterprise is a monumental task, in view of the bank's magnitude. There are inadequate resources to follow up professionally relative to: [next half page of text redacted by Justice Department](37)

Mazur summarized the conditions under which he worked as being a soldier on a forward mission in a war zone, backed up by a government that refused to send in reinforcements when they were needed:

We were somewhat of a reconnaissance squad that had been out in the middle of the desert and encountering the enemy, and sent word back to the fort that we needed some help. And waited and fought and fought and fought but no help came.(38)

Mazur continued to work for the U.S. Customs Service on the BCCI prosecution through to the conviction of the BCCI officers indicted in the case in August, 1990. But the experience had left him frustrated and angry. In April, 1991, Mazur resigned from the U.S. Customs Service in a letter to Customs Commissioner Carol Hallett, to whom he wrote the following:

I know that my formally advising you of the deplorable conditions in Tampa could cause some individuals in a professional circle to question my loyalty. But it is simply out of my love for this country and our critical need for ethical government that I think its appropriate to respond to a request for my candor. . . If it had not been for the nearly two years of achievement prior to March 1988, the ultimate outcome would also have been lost. The outcome of the case, while notable, was considerably less than it could have been. The indictment of additional defendants and the seizure of substantially more drug proceeds was lost, directly as a result of the application of inadequate resources . . . to the investigation. This opinion is shared by individuals meaningfully involved int he successes preserved within Operation C-Chase, including the lead prosecutor.(39)

Mark Jackowski, the assistant U.S. Attorney in Tampa who worked most closely with Mazur on Operation C-Chase, expressed his own unhappiness with the handling of the C-Chase investigation in a memorandum, attached to the Mazur letter, which the Justice Department withheld from the Subcommittee. Jackowski testified about the memorandum, however, in response to questions from Senator Kerry, as follows:

My unhappiness with the C-Chase investigation . . . was that there were a number of documents that were seized as a result of searches conducted in Miami and other places. It was my view that included within those records were leads to other narcotics traffickers and money launderers.l It was my further view, as of the time I wrote my memorandum, which was at the end of January 1991, that those documents had not been adequately reviewed to pursue all those leads. That was the nature of my unhappiness.(40)

In direct contradiction to Customs Special Agent Mazur and Jackowski, an assistant U.S. attorney from his own office, Robert Genzman, the U.S. Attorney in Tampa, testified that the BCCI investigation and prosecution were not substantially impeded by the lack of resources, arguing that the case was extremely successful, because BCCI pled guilty and its officers were convicted, and BCCI paid what was then the largest fine ever imposed on a financial institution in a money-laundering case -- $14 million.

But while characterizing the results of the Tampa prosecution as superb, Genzman acknowledged that the investigative and prosecutorial resources in Tampa had indeed been stretched to the breaking point by the case, due to the complexity of the money-laundering sting; the "scorched earth" strategy of BCCI's lawyers, who "filed hundreds of motions and briefs on every imaginable subject," and the need to transcribe some 2,000 taped conversations between the undercover agents and their targets.(41)

This situation was typical of the kind of conditions faced by government prosecutors, Genzman testified, and nothing unique to the BCCI case:

More resources could always be added to a case of this magnitude and complexity. While agents and prosecutors had to put in very long hours and work under severe time constraints along the way to bring the case to a successful conclusion, that is a regular, albeit unfortunate, fact of law enforcement.(42)

Justice Handling of Operation C-Chase:

Failure To Follow-Up

Robert Genzman, the US Attorney in Tampa, told the Subcommittee that "[I]t was never our intention to simply stop investigating BCCI after the first indictment."(43)

But Genzman's own assistant, Mark Jackowski, told the Subcommittee that the grand jury investigation of BCCI had to be suspended "due to a lack of available leads and the press of the upcoming trial."(44)

A dearth of leads, however, was clearly never a problem in the case. As Mazur told the Subcommittee, the "time-out" consisted of leads that were not followed up, bank officers who were not interviewed and superseding indictments which were not issued. When Senator Kerry suggested that "there was not a follow up and there was not really a continuation of investigation into the leads that existed at the time," Mazur responded, "To a limited extent there was, but not in effect, no."(45) In fact, the "time out" lasted for a full thirteen months, by the calculation of Tampa prosecutor Jackowski.(46)

Mazur testified that among the things not followed up because of the resource crunch were criminal activity involving other BCCI officers and the subpoena of records which could have lead to additional indictments of others or broader, superseding indictments of BCCI.(47) In all, there were hundreds of leads not followed up, including BCCI's involvement in illegal arms transactions, what Mazur described as "the association between BCCI, First American, and National Bank of Georgia," and possibly on payoffs to government officials.(48)

In fact, by mid-1989, the US Attorney's office in Tampa had information on BCCI's alleged ownership of First American in four instances from two separate sources. Initially, a few steps were taken by the Tampa office to follow-up on this information. AUSA Jackowski moved to subpoena the Federal Reserve for First American documents. But following this action, the pressure of preparing for trial against BCCI and the inability to get additional resources allowed the effort to peter out without further efforts being made.(49)

Various officials at the Justice Department provided different explanations as to why the information was not followed-up on. Assistant Attorney General Mueller "passed the buck" to the Federal Reserve, noting that "the essence of the information. . . regarding the allegations of secret ownership was passed on to the Federal Reserve after the October 1988 takedown of the undercover case." Quoting from the Federal Reserve General Counsel Virgil Mattingly's testimony before the Subcommittee, Mueller claimed the Federal Reserve disregarded the information as "the kind of allegation [that] they had heard before."(50)

Kehoe explained to the Subcommittee that once the US Attorney in Tampa had indicted Awan, one of the sources of the allegations regarding First American, it became difficult for him "to point to the documents to corroborate that piece of information." But even on this narrow point Kehoe's testimony is at odds with his colleague, AUSA Jackowski, who told the Subcommittee, "we obtained information from Mr. Awan throughout the course of the case concerning that [First American]."(51)

In the view of the Subcommittee, none of the officials provided an adequate explanation as to why the Justice Department did not follow-up on the evidence it received relating to the secret ownership of First American.

Jackowski perhaps best summed up the myopic strategy of the US Attorney's office in Tampa when he told Senator Kerry, "this, our case, was a money laundering case.(52) As Jackowski testified:

We were at dinner, and the first course was to eat the money laundering plate. And when you look at the evil behind this bank . . . the alleged evil is that they facilitated the cartel. That was what was on our plate. We ate that meal. We did not ignore the dessert, which was First American Bank; we simple put it aside.(53)

However, as Senator Kerry pointed out, "That is the problem. It was not a money laundering case. It was a case that was much bigger than that."(54)

What appears to have happened is that some members of the Operation C-Chase team were never able to move conceptually beyond the original goal of Operation C-Chase, namely, to target drug money laundering. The team of agents working on Operation C-Chase did not include anyone from the FBI with a broader perspective on criminal investigation or a background in major financial fraud. The Tampa prosecutors responsible for trying Operation C-Chase viewed any of the broader panoply of issues pertaining to BCCI as being, as Jackowski testified, "dessert," to be digested following the main course, money laundering. There was little recognition even as late as November 1991 by Jackowski or the other Tampa prosecutors that focusing attention on BCCI as a case study of global organized financial crime could have been more rewarding and more important than the narrower approach they adopted. Given the difficulties facing the Operation C-Chase team, the real solution would have been a referral of the First American and other broader allegations concerning BCCI from the Tampa office to a financial crimes unit at main Justice, and to the FBI, or to another appropriate office within the Justice Department. Unfortunately, rather than make such a referral, the Tampa prosecutors held onto all the BCCI-related matters, while failing to follow up on many of the key ones.

Justice Handling of Operation C-Chase:

The Plea Agreement

The plea agreement reached between BCCI and the U.S. Attorney for the Middle District of Florida (Tampa) in January, 1990, came as a surprise to many. On November 17, 1989, Price Waterhouse informed BCCI's directors that the lawyers for BCCI "will attempt to come to a pre-trial settlement with the prosecution, but the lawyers do not expect the prosecution to be amenable. As such there is now a real prospect of a trial."(55) Similarly, BCCI officers indicted in the Tampa case were told by BCCI higher-ups up to the day of the agreement that they should expect no agreement, but if there was one, the settlement would include bank and officers alike.(56)

During mid-December, a series of meetings took place among BCCI's lawyers and representatives of the US Attorney's office in Tampa, together with representatives of the Customs Service, Internal Revenue Service, and Drug Enforcement Administration. Representing BCCI were two prominent former federal prosecutors from Washington, D.C., Lawrence H. Wechsler and E. Lawrence Barcella, Jr. The lawyers for BCCI were anxious to avoid a trial, and offered a guilty plea by BCCI to money laundering and the complete cooperation of the bank in helping convict other drug money launderers, if they could in return obtain a commitment by the U.S. Attorney that this would end BCCI's criminal problems for all offenses then known to the government.

The offer was intriguing to the prosecutors, but they wanted to make sure that BCCI would not be seen as getting off lightly. The trial judge had indicated during a pre-trial conference that he was of the opinion that BCCI's participation in laundering drug money would be insufficient to prove to him that BCCI and its officers were also guilty of drug trafficking. As a result, given the state of the government's evidence, BCCI could not be convicted on any drug offense itself, but only for laundering drug money. As a result, the most the government might gain if it convicted BCCI was a $28 million fine, twice the amount which the government had moved through BCCI. In practice however, the judge would be unlike to impose much more than the $2.5 million fine imposed against another bank in Puerto Rico the previous year. Accordingly, if BCCI was willing to pay a substantially larger fine -- such as the $14 million fine it ultimately agreed to pay, to be characterized as forfeiture so that it would go to law enforcement instead of back to the U.S. Treasury -- the prosecutors were willing to deal. BCCI's lawyers, after consulting with the bank, agreed, and the plea agreement was struck. According to everyone involved, those making the decision on behalf of the government were in Tampa, not Washington.(57)

As Robert Genzman,