Fed Seeks to Ban Saudi From U.S. Banking System : Fraud: Ghaith Pharaon is accused of concealing that he was acting for scandal-plagued BCCI in purchasing Encino’s Independence Bank.
The Federal Reserve Board moved Friday to bar Saudi Arabian businessman Ghaith R. Pharaon and three others from banking activities in the United States and asked federal prosecutors to launch a criminal investigation into the alleged ownership of Independence Bank in Encino by the Luxembourg-based Bank of Commerce and Credit International.
The board’s action was an important development in the efforts of regulators in the United States, Britain and other countries around the world to shut down what they believe to be a global bank-fraud scheme by BCCI aimed at influencing Western foreign policy toward the Middle East. Just a week ago, regulators seized BCCI operations in 32 countries.
In its complaint against Pharaon and the others, the Fed charged that Pharaon concealed that he was acting on behalf of BCCI in the purchase of Independence, the San Fernando Valley’s largest bank, six years ago.
In addition to Pharaon, the Federal Reserve took action against BCCI founder Agha Hasan Abedi, and two other BCCI officials, Kemal Shoaib, who was chairman of Independence, and Swaleh Naqvi, who was allegedly the man to whom Shoaib reported in Luxembourg.
At the request of U.S. Atty.Jay B. Stephens, who already has been investigating BCCI’s alleged ownership of First American Bank in Washington, the Federal Reserve temporarily deferred assessing civil penalties against the four pending completion of Stephens’ investigation.
Separately, it was learned that Pharaon also has owned 4.9% of the stock of Metrobank, a medium-sized business bank in Los Angeles. The Federal Reserve Board action, when final, would bar him from owning any portion of any U.S. bank, including Metrobank. A Metrobank spokesman said he doesn’t know whether Pharaon still holds the shares.
Pharaon’s attorney, Richard F. Lawler, declined to comment on the Fed action, saying he had not seen the order. “I will say that Ghaith Pharaon has not done anything wrong,” Lawler said. “I’m not going to try this case in the press.”
Before the Fed’s order becomes final, the four men and their lawyers will have an opportunity to answer the charges at a hearing in New York on Sept. 10.
The Fed is also expected to act soon to name a trustee to sell BCCI’s shares of Independence, although some questions have been raised in the past few days about its legal authority to do so. Although Independence is a state-chartered bank, the Fed regulates foreign ownership and bank holding companies. Any bank holding company wishing to gain more than 25% control of a bank must first receive Fed approval.
Pharaon, whose father was an adviser to Saudi kings, launched construction and engineering ventures in the Middle East in the 1970s, helped by his ties to Saudi Arabia’s royal family. Later, he expanded into the United States, with financial assistance from BCCI.
Authorities have maintained that Pharaon has acted for years as a front man in buying control of banks for BCCI. In 1978, apparently acting on BCCI’s behalf, Pharaon bought the National Bank of Georgia from financially troubled Bert Lance, ex-budget director and friend to former President Jimmy Carter.
In its complaint filed Friday, the Fed charged that Pharaon purchased Independence on April 30, 1985, for $23 million on behalf of BCCI and failed to disclose BCCI’s ownership of the bank or obtain Fed approval.
BCCI had been barred by the Fed from owning banks in the United States because, according to Fed officials, the multinational banking company appeared to be organized to escape the regulatory authority of any single country.
Despite the Fed’s opposition, officials said, BCCI decided to buy Independence based on the recommendations of employees who studied three possible acquisitions in California. In a letter to Abedi on Nov. 13, 1984, BCCI employees who had traveled to California wrote that “our acquiring Independence Bank will give us much required ‘freedom’ for our future growth and progress in this part of the world.”
By prior agreement, according to the complaint, Pharaon held 15% of the bank’s stock for himself and 85% for BCCI. Pharaon told California banking officials before the purchase that he intended to buy the bank with $8.5 million of his own money and the remainder borrowed from the First National Bank of Boston. Instead, the document said, he bought it with $8.5 million from BCCI.
In subsequent years, BCCI provided an infusion of about $17.5 million in capital to Independence, according to the Fed complaint. In addition, Shoaib allegedly sought Naqvi’s approval in 1986 to appoint a new director and in 1987 to hire a new executive vice president.
Pharaon was accused in the complaint of having made false statements to the Fed about the ownership of the bank, Abedi and Naqvi were charged with illegally acquiring the institution, and Shoaib was cited for assisting in these illegal acts.
