The most expensive battle
in English legal history ended on Wednesday when a £850m lawsuit brought by
liquidators of Bank of Credit and Commerce International (known by many as the
Bank of Crooks and Crime International) against the Bank of England was
withdrawn leaving a £100m legal bill in its wake.
Lawyers for Deloitte, BCCI's
liquidator, said the action was being ended after one of the High Court's most
senior judges ruled that it was “no longer in the best interests of the
creditors for the litigation to continue”.
|A US Senate Committee on Foreign Relations investigation headed by Senator John Kerry reported that: 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. 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. 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.|
BCCI collapsed in 1991 owing £10bn.
The misfeasance claim, which was brought against the Bank of England in 1993,
had accused senior officials of acting in bad faith and with deliberate
disregard for depositors' interests over the supervision of BCCI.
Wednesday's ruling, was made in
private by the judge who heads the Chancery Division and is understood to have
followed a decision two months ago by BCCI's English creditors' committee that
the costly litigation was no longer in the interest of all creditors.
Mervyn King, the Bank of England
governor who had refused to consider settling the case, said: “There has never
been a shred of evidence to support these disgraceful allegations, and the case
has collapsed as we always expected it would.”
“The foolish determination to
pursue a hopeless case for so long has also led to a huge waste of creditors'
and taxpayers' money, and I hope everyone concerned will take a close look at
how and why such a very weak case took years to come to an end,” he continued.
The Bank, the governor said, would be seeking “the largest possible compensation
for its costs”.
The Bank's legal bill is understood
to exceed £70m, while the liquidators' is put at about £38m. In the English
legal system, a loser pays a winner's costs, which means the bill is likely to
end up with the creditors, who range from local authority funds to small
stallholders. The Bank has made clear that it would seek costs based on the
highest possible assessment.
BCCI collapsed in 1991 when
evidence of a massive fraud came to light after a decade of rumours about its
dubious practices. At that stage, BCCI owed depositors and creditors more than
£10bn, making it the world's biggest banking collapse.
BCCI was founded by a Pakistani
national and became known as the Bank of Crooks and Crime International. At the
time of its collapse, it was owned by the ruler of Gulf emirate Abu Dhabi and
many in the Muslim world viewed it as a conspiracy destroy an international
symbol of the Islamic world.
The Bank of England was
subsequently criticised in a 1992 report into the scandal by Lord Bingham then
Lord Justice Bingham who said it had not pursued “the truth about BCCI with the
rigour which BCCI's market reputation justified”.
The bank has statutory immunity
against negligence claims and the only option for the liquidators was a more
ambitious claim of “misfeasance in public office”. Under this, they sought up to
£850m in damages.
On Wednesday, Deloitte said that
the BCCI liquidators said a further dividend payout to creditors, due in
December, would be unaffected by the collapse of the case. This will bring the
recovery to creditors of 81 per cent from 75 per cent at present, or just under
$6bn (£3.4bn) - more than fourteen years after the collapse.
The largest case of organized crime in
A Report to the Committee on
Foreign Relations of the United States Senate in 1992, by Senator John Kerry and
Senator Hank Brown said 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
CONSTITUTED INTERNATIONAL FINANCIAL CRIME ON A MASSIVE AND GLOBAL SCALE.
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.
SYSTEMATICALLY BRIBED WORLD LEADERS AND POLITICAL FIGURES THROUGHOUT THE
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
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
DEVELOPED A STRATEGY TO INFILTRATE THE U.S. BANKING SYSTEM, WHICH IT
SUCCESSFULLY IMPLEMENTED, DESPITE REGULATORY BARRIERS THAT WERE DESIGNED TO KEEP
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
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
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.
JUSTICE DEPARTMENT MISHANDLED ITS INVESTIGATION AND PROSECUTION OF BCCI, AND ITS
RELATIONSHIPS WITH OTHER GOVERNMENT AGENCIES CONCERNING BCCI.
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
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
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.
YORK DISTRICT ATTORNEY MORGENTHAU NOT ONLY BROKE THE CASE ON BCCI, BUT
INDIRECTLY BROUGHT ABOUT BCCI'S GLOBAL CLOSURE.
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 ACCOUNTANTS FAILED TO PROTECT BCCI'S INNOCENT DEPOSITORS AND CREDITORS
FROM THE CONSEQUENCES OF POOR PRACTICES AT THE BANK OF WHICH THE AUDITORS WERE
AWARE FOR YEARS.
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
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.
CIA DEVELOPED IMPORTANT INFORMATION ON BCCI, AND INADVERTENTLY FAILED TO PROVIDE
IT TO THOSE WHO COULD USE IT.
AND FORMER CIA OFFICIALS HAD A FAR WIDER RANGE OF CONTACTS AND LINKS TO BCCI AND
BCCI SHAREHOLDERS, OFFICERS, AND CUSTOMERS, THAN HAS BEEN ACKNOWLEDGED BY THE
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
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
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
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
FLAWED DECISIONS MADE BY REGULATORS IN THE US WHICH ALLOWED BCCI TO SECRETLY
ACQUIRE US BANKS WERE CAUSED IN PART BY GAPS IN THE REGULATORY PROCESS AND IN
PART BY BCCI'S USE OF WELL-CONNECTED LAWYERS TO HELP THEM THROUGH THE
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
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.
BANK OF ENGLAND'S REGULATION OF BCCI WAS WHOLLY INADEQUATE TO PROTECT BCCI'S
DEPOSITORS AND CREDITORS, AND THE BANK OF ENGLAND WITHHELD INFORMATION ABOUT
BCCI'S FRAUDS FROM PUBLIC KNOWLEDGE FOR FIFTEEN MONTHS BEFORE CLOSING THE
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.
CLARK CLIFFORD AND ROBERT ALTMAN PARTICIPATED IN IMPROPRIETIES WITH BCCI IN THE
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
DHABI'S INVOLVEMENT IN BCCI'S AFFAIRS WAS FAR MORE CENTRAL THAN IT HAS
ACKNOWLEDGED, INVOLVING IN SOME CASES NOMINEE RELATIONS AND NO-RISK TRANSACTIONS
THAT ABU DHABI IS TODAY COVERING-UP THROUGH HIDING WITNESSES AND DOCUMENTS FROM
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 MADE EXTENSIVE USE OF THE REVOLVING DOOR AND POLITICAL INFLUENCE PEDDLING
IN THE UNITED STATES TO ACCOMPLISH ITS GOALS.
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.
BCCI'S PUBLIC RELATIONS FIRM SMEARED PEOPLE WHO WERE TELLING THE TRUTH AS PART
OF ITS WORK FOR BCCI.
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.
14. BCCI ACTIVELY SOLICITED
THE FRIENDSHIPS OF MAJOR U.S. POLITICAL FIGURES, AND MADE PAYMENTS TO THESE
POLITICAL FIGURES, WHICH IN SOME CASES MAY HAVE BEEN IMPROPER.
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, ENGAGED IN BILLIONS OF DOLLARS OF LARGELY
ANONYMOUS TRADING IN THE US WHICH INCLUDED A VERY SUBSTANTIAL LEVEL OF MONEY
LAUNDERING, WHILE CAPCOM SIMULTANEOUSLY DEVELOPED SIGNIFICANT TIES TO IMPORTANT
U.S. TELECOMMUNICATIONS INDUSTRY EXECUTIVES AND FOREIGN INTELLIGENCE
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
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.
INVESTIGATIONS OF BCCI TO DATE REMAIN INCOMPLETE, AND MANY LEADS CANNOT BE
FOLLOWED UP, AS THE RESULT OF DOCUMENTS BEING WITHHELD FROM US INVESTIGATORS BY
THE BRITISH GOVERNMENT, AND DOCUMENTS AND WITNESSES BEING WITHHELD FROM US
INVESTIGATORS BY THE GOVERNMENT OF ABU DHABI.
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.