Feds Stall Bank Fraud Probe, D.A. Charges : Allegations: The New York investigator says the Justice Department refused to cooperate in an inquiry into a Luxembourg bank linked to two U.S. firms.

New York Dist. Atty. Robert Morgenthau criticized the Justice Department on Thursday for refusing to cooperate in an investigation by his office of money laundering and fraud allegations at a Luxembourg bank.

Morgenthau said his two-year investigation of the Bank of Credit & Commerce International has been slowed by the Justice Department’s refusal to grant him access to a key witness, rejection of offers to share evidence and failure to return repeated telephone calls.

“We run many cooperative investigations with federal agencies,” said Morgenthau, a top prosecutor for 16 years. “This is the exception, not the rule.”

In his most detailed public remarks on the case, Morgenthau told a Senate panel that he is investigating evidence of bank fraud, making false statements to regulators and money laundering.

At the center of the inquiry is BCCI and its alleged secret acquisition of control in two U.S. banks, First American Bankshares in Washington and Independence Bank in Encino. Morgenthau said no decision has been made on whether there is enough evidence to prosecute anyone.

Two subjects of the New York investigation are known to be Clark M. Clifford, a prominent Washington lawyer and political adviser, and his law partner, Robert K. Altman. Both men, longtime executives with First American, have denied any wrongdoing.

The Justice Department, the U.S. attorney’s office in Tampa, Fla., and the Federal Reserve Board have also confirmed that they are conducting investigations related to BCCI and its U.S. operations.

Paul L. Maloney, a senior Justice Department lawyer, said the department intends to cooperate with Morgenthau and other agencies. “There are, however, some procedural matters that may prevent a full exchange of information, at least at this time,” he said.

Morgenthau and Maloney testified at a hearing by a subcommittee of the Senate Banking, Housing and Urban Affairs Committee on a bill to give federal regulators new authority to monitor foreign banks operating in the United States. The bill grew out of BCCI’s guilty plea early last year in Tampa to charges that it had laundered drug money. The bank was also used to launder millions of dollars by former Panamanian dictator Manuel A. Noriega.

The New York investigation began after an investigator for Sen. John Kerry (D-Mass.) complained to Morgenthau in the spring of 1989 that federal prosecutors and bank regulators were not pursuing evidence that BCCI secretly controlled First American, the largest banking company in Washington, and other U.S. banks.

For a decade, the Federal Reserve had been unable to prove rumors that BCCI was the secret owner of First American. When four Middle Eastern investors associated with BCCI acquired First American in 1981, the Fed approved the deal only after repeated assurances by Clifford and others that BCCI would have no relationship with the Washington banking company. Clifford has maintained that, if BCCI owned an interest in First American, he was unaware of it.

The Fed’s top lawyer, J. Virgil Mattingly, testified Thursday that the regulators would not have allowed BCCI to acquire a U.S. bank because the international bank was not regulated tightly enough.

Mattingly said that rumors persisted for years about BCCI and First American, but attempts to uncover the facts were thwarted by lack of access to bank records and concealment by BCCI officials.

“There was a concerted effort by people known to us to keep information from the Fed,” Mattingly said. “This concealment began in 1981 and lasted right through the decade of the ‘80s.”

Not until last December did the Fed receive evidence that a series of loans had given BCCI a large stake in First American, Mattingly said. The information, which Mattingly described as “critical,” was provided by Morgenthau.

It enabled the Federal Reserve to order BCCI to stop doing business in the United States in March and to sell its hidden stake in First American.