BCCI Used U.S. Bank for Fraud, British Officials Claim

First American Bankshares Inc. of Washington was secretly acquired in 1981 by the Bank of Credit & Commerce International, which used its First American holdings to help finance fraudulent activities around the world, according to Bank of England officials and informed sources in this country.

BCCI’s concealed ownership of First American, alleged earlier this year by Federal Reserve Board officials, was described in greater detail in dramatic statements this week by the Bank of England. Tuesday, Bank Gov. Robin Leigh-Pemberton portrayed BCCI as an institution with a “criminal” culture, in a statement to a parliamentary inquiry into the seizure of BCCI by regulators on July 6.

Lawyers for the British central bank, quoting from an investigative report by the Price Waterhouse accounting firm, referred to First American only as bank “WXYZ,” but U.S. sources confirmed Tuesday that the initials refer to the First American holding company, Credit & Commerce American Holdings (CCAH).

The Bank of England asserted that prominent Middle Eastern individuals who bought the First American parent company shares when the bank was taken over 10 years ago were “nominees” for BCCI all along and received fees from BCCI for helping conceal that BCCI was accumulating a controlling interest in the Washington bank in defiance of opposition by the Federal Reserve.

Moreover, almost all of the subsequent infusions of capital into First American--purportedly by the Middle Eastern investors--came in fact from BCCI, the Bank of England said.

The illegally held shares in First American became collateral for a maze of sham loans by BCCI that generated “fictitious” income and account balances, “thereby increasing funds for the fraud,” British authorities said.

The loans, which are assets on the books of a bank, thus helped conceal one of history’s largest bank frauds, disguising bad debts in other parts of BCCI and BCCI losses of about $849 million from speculative trading on financial markets from 1977 to 1985, the Bank of England said.

Much of the financial market trading, in government securities and foreign exchange, was done using the names of bank clients but was really on behalf of BCCI itself, according to the British authorities.

Washington attorney Clark M. Clifford represented BCCI and the shareholders throughout the takeover process and helped win Fed approval of the acquisition.

Clifford went on to become chairman of First American and he has maintained that he was unware of any hidden BCCI ownership.

Clifford also said BCCI never influenced his management of First American, and his attorneys said Clifford’s position on this point is supported by William Taylor, chief banking regulator at the Federal Reserve.

First American has said its operations are not affected by the investigation of BCCI but the future ownership of First American is in doubt because the Fed has insisted that BCCI sell its illegally acquired shares in the bank. Those shares are now under the control of a court-appointed BCCI liquidator in Britain.

The Fed recently issued a notice contending that BCCI acquired illegal ownership of Independence Bank of Encino through nominee loans to Saudi investor Ghaith Pharaon, the purported owner of Independence. The Federal Reserve is conducting a similar inquiry into the control of BCCI’s ownership of CCAH.