BCCI, 2 Founders Indicted; U.S. Imposes Record Fine


The Bank of Credit & Commerce International and two of its founders were indicted Monday for fraud, falsifying records and grand larceny in what Manhattan Dist. Atty. Robert M. Morgenthau termed “the largest bank fraud in world financial history.”

On another front in Washington, the Federal Reserve Board imposed a record $200-million fine on BCCI and sought to bar the founders and seven others from any involvement with U. S. banking organizations in the future.

The indictment, the biggest U. S. law enforcement action to date in the unfolding global banking scandal that could cost depositors more than $5 billion, represented just the tip of the investigative iceberg in Morgenthau’s 2 1/2-year probe.


“This is maybe 20% to 25% of what will result from this investigation,” Morgenthau said at a crowded press conference here.

Morgenthau said the grand jury is also investigating BCCI’s alleged secret control of First American Bankshares of Washington, and whether former U. S. Defense Secretary Clark M. Clifford and his partner, Robert A. Altman, “knowingly and intentionally” filed false documents camouflaging BCCI’s interest.

The wide-ranging indictment named BCCI, several affiliated companies and BCCI’s two key leaders during the alleged 19-year conspiracy: former BCCI President Agha Hasan Abedi, 68, of Pakistan, and former BCCI second-in-command Swaleh Naqvi, 57, of Abu Dhabi in the United Arab Emirates. Morgenthau is seeking to extradite both men.

Among other things, the indictment charged BCCI with money laundering, paying “bribes and kickbacks” of about $3 million to the two top officers of the Central Reserve Bank of Peru in exchange for deposits to BCCI, and stealing more than $30 million from American Express Bank Limited.

BCCI, which has operations in about 70 countries, was shut down on July 5 by banking regulators in seven nations, including the United States, Britain and France.

The Fed said its enforcement action stemmed from “evidence of secret arrangements” which allowed BCCI to surreptitiously gain control of First American, the National Bank of Georgia in Atlanta and CenTrust Savings Bank in Miami.


“BCCI resorted to these arrangements because BCCI was told it could not receive the necessary approvals from the Federal Reserve Board to acquire a bank in the United States,” the Fed said in a press release.

The Fed said the secret deals included loans to customers to purchase shares of First American, National Bank of Georgia and CenTrust. The BCCI customers who bought the shares were not required to repay the loans, the Fed said.

The action marked the first time the government has publicly linked BCCI with CenTrust, which was seized by regulators in June, 1990, at an estimated cost to taxpayers of $1.7 billion.

The Fed said it had made criminal referrals to the U. S. Department of Justice and had deferred the assessment of penalties on individuals pending completion of the U. S. attorney’s criminal inquiry.

Fed spokesman Joseph Coyne said that the $200-million penalty is “the largest fine we’ve ever assessed.” He acknowledged, however, that the Fed’s ability to collect the fine is in doubt, since BCCI is in such poor financial condition.

In Karachi, Pakistan, BCCI founder Abedi told the Associated Press in an interview that he will be cleared of all allegations of fraud involving the scandal-ridden bank.


“The truth will ultimately prevail,” Abedi said. “I have full faith in God. He’s always guided me.”

Abedi retired as president of BCCI in September, 1989, after undergoing a heart transplant and is presently confined to a wheelchair.

From its creation in 1972 in Luxembourg, Abu Dhabi and England, BCCI has portrayed itself as a bank dedicated to assisting economic development in the Third World. But from the start, Morgenthau charged, the bank was operated as “a corrupt criminal organization” that falsified records, laundered money for drug dealers and other criminals and paid bribes and kickbacks to public officials.

At the same time, Morgenthau charged, BCCI was also a huge Ponzi scheme, pulling in $20 billion in deposits by promoting the false impression that the bank was backed by some of the wealthiest men in the Middle East.

According to the indictment, “The schemers employed the ruling families of a number of Middle Eastern states and other purportedly wealthy businessmen as nominal shareholders. . . . The schemers falsely pretended, represented and promised that the nominees owned and financially would stand behind” BCCI and its affiliates.

Morgenthau termed this arrangement BCCI’s “rent-a-sheik” plan because BCCI essentially paid these men for the use of their names.


BCCI also used the “rent-a-sheiks” to bolster its balance sheet, the indictment charged. In a number of cases, the indictment said, the Middle Easterners provided “false confirmations” that they owed money to BCCI and its affiliates in order to fool auditors into believing that BCCI had more assets than it actually did.

Another key element of the scheme, the indictment charged, was incorporating BCCI in nations--Luxembourg and the Cayman Islands--whose bank laws are shrouded in secrecy. “By doing so, defendants guaranteed that there would be no comprehensive regulation on a consolidated basis by any single regulator,” according to the indictment.

The indictment also included eight counts of falsifying business records--”transactions which appear to be instances of money laundering,” Morgenthau said.

Though Morgenthau earlier this month told Time magazine that the Justice Department was “impeding” his investigation, he sidestepped a number of opportunities to repeat the charge at his press conference on Monday.

In Washington, Robert S. Mueller, assistant attorney general in charge of the department’s criminal division, said “the Justice Department has fully supported the work of Dist. Atty. Robert Morgenthau related to the bank’s Manhattan activities.” He added: “We have provided substantial information to Mr. Morgenthau and will continue to cooperate in the investigation.”

However, the Justice Department appeared to be one of the few agencies Morgenthau omitted from his office’s prepared statement on the case, heaping thanks on everybody from Federal Reserve Board Chairman Alan Greenspan to various officials of the Federal Reserve System and New York state officials.


The one-sided claim of cooperation illustrates Mueller’s eagerness to play down reports that the Justice Department has not answered Morgenthau’s requests for information.

Also reacting to Monday’s developments was Carl Rauh, an attorney for Clifford, the chairman of First American, and Altman, president of the bank. “We are studying the order of the Federal Reserve and the indictment issued in New York,” he said.

“Messrs. Clifford and Altman have always acted in the best interests of First American Bank. No depositor has lost a dime. Neither Mr. Clifford, Mr. Altman or First American ever participated in any wrongdoing that BCCI may have committed. Messrs. Clifford and Altman have cooperated with the authorities and will continue to do so,” Rauh said.

An American Express spokesman confirmed that its overseas banking unit “did maintain a routine corresponding banking relationship with BCCI.” But he said that the company lost no money in the alleged theft because it had deposits from BCCI that offset American Express’ loans to the now defunct bank.

Officials of the Peruvian Embassy in Washington did not return calls seeking comment. Morgenthau identified the officials of its central bank who received the payoffs as the bank’s former president, Lionel Figueroa, and its former general manager, Hector Neyra.

Naqvi, identified by the Bank of England as the key man overseeing the operation at the heart of the BCCI fraud, suggested last week that he may help investigators, the Associated Press said.


Individuals named in the Fed’s action to prohibit U.S. banking activities included Ghaith Pharaon, a key shareholder in BCCI who has been described by the Fed and others as BCCI’s front man in the United States. Pharaon also had ownership stakes in National Bank of Georgia and Independence Bank of Encino, Calif., and had business dealings with David Paul, former chairman of CenTrust.

A score of government agencies here and abroad are investigating BCCI and congressional committees are organizing hearings. Some are expected to look into reports that BCCI did considerable business with the Central Intelligence Agency.

“I don’t have any supervisory authority over the CIA,” Morgenthau said.

In addition to Abedi, Naqvi and Pharaon, the Fed’s order also named: Kamal Adham, the former head of Saudi Arabia’s intelligence agency; Faisal Saud Al-Fulaij, a former chairman of Kuwait Airways; Abdul Raouf Khalil, a Saudi businessman; Khusro Elley, who formerly headed BCCI’s office in New York and was a senior executive at First American Bank of New York; Hasan Mahmood Kazmi, a former senior officer of International Credit & Investment Co. (Overseas) Ltd., a company controlled by BCCI, and Sayed Jawhary, a personal representative of Adham.

The affiliates charged in the New York indictment are Bank of Credit & Commerce International Overseas Ltd.; BCCI Holdings (Luxembourg); International Credit & Investment Co. (Overseas) Ltd., and International Credit & Investment Co. Holdings.

Times staff writer Ron Ostrow contributed to this story from Washington.