Robert Morgenthau : The Man Who Took on BCCI: A Courtly DA Who Pulls No Punches

<i> Victor F. Zonana is a reporter at The Times New York bureau. He interviewed Robert M. Morgenthau in the district attorney's office</i>

The word that leaps to mind when first encountering Manhattan Dist. Atty. Robert M. Morgenthau is rectitude.

The 72-year-old prosecutor, who lit a fire under the Justice Department in the mushrooming Bank of Credit and Commerce International scandal, is not some two-bit politician out to grab headlines. As the son of Henry Morgenthau Jr., Franklin D. Roosevelt’s Treasury secretary, the district attorney is steeped in a heritage of public service. As such, he has nothing but contempt for those who served the rogue bank’s interests in Washington and enriched themselves by trading on their government experience.

Striding into his office, the lanky prosecutor sizes up visitors with clear blue eyes that light up when he confronts the intellectual challenge of a sprawling, global investigation like BCCI. Monday, when he brought the first major indictment in the BCCI scandal, Morgenthau charged, “BCCI was operated as a corrupt criminal organization throughout its entire 19-year history.” More than $5 billion was stolen from the $20-billion bank, he said.


Morgenthau has spent most of the last 30 years as a prosecutor, taking brief respites to run twice for governor, both times unsuccessfully--he is an uninspiring public speaker--and to work at a law firm. At the DA’s office, which he has headed since 1975, Morgenthau has furthered his reputation as a nurturer of legal talent and an able administrator.

To be sure, his office has received some bad reviews. His 1985 reelection race was marked by criticism, primarily from blacks, that his office had mishandled the Bernard H. Goetz subway vigilante case and others involving minorities.

At an age when many would be content to rest upon their laurels, Morgenthau shows no inclination of slowing down. In fact, he is taking on the biggest case of his career. He is also creating a new family with his second wife, Pulitzer Prize-winning, former New York Times reporter Lucinda Franke, 45. The pair wed in 1977, after Morgenthau’s first wife died of cancer. They are now raising a 7-year-old son, Joshua, and a one-year-old adopted daughter, Amy. He has five grown children from his first marriage.

Question: Your office was involved in the BCCI investigation for nearly 2 1/2 years. When did the magnitude of the criminal enterprise come into focus?

Answer: . . . . I guess when we got some of the internal management reports of BCCI last year, which showed how extensive the loans were, how inadequately collateralized . . . . The bank had very, very little capital. I guess it’s amazing, and a tribute to the people running the bank, that they were able to keep it going as long as they did with a very, very small capital base. As of the end of 1990, the capital base was minus-$50 million.

Q: The capital base appeared to have been inflated through what you’ve called BCCI’s “rent-a-sheik” plan--under which the bank bolstered its reputation by essentially borrowing the names of purportedly wealthy individuals in the Middle East.


A: What (BCCI) did was lend them the money, paid them for being the nominees (front men), and there was no personal liability. So, they were just straight nominees. And that was a very significant amount of their capital.

Q: Was there an analogous “rent-a-politician” plan in the U.S. and other Western nations?

A: Well, I think you could say that, yes.

Q: And will we be learning the names of some of these politicians?

A: Well, some of them have already been in the paper, like Jimmy Carter and Lord Callaghan. Some of them are already public, and I think there will probably be others.

Q: How did that system work? Did it always work the way it did with Carter, where BCCI donated money to his favorite charities, or were there bribes?

A: Well, we charge in the indictment . . . that $3 million was paid to the president of the Central Reserve Bank of Peru and the managing director. (BCCI) had a tremendous need for money. And two of the ways they got that money was by bribing officials to deposit with the bank and soliciting the traffic of drug dealers. And they bought 30 branches in Colombia.


Q: How did this case come to your attention?

A: Well, I testified before the (U.S. Senate) subcommittee on drugs, terrorism . . . chaired by Sen. (John) Kerry, in February of 1988 . . . . When I got the (subcommittee’s) report, there was a statement taken from . . . a BCCI official about money laundering . . . . In March of 1989, Jack Blum, who had been the special counsel to the Senate committee, . . . said: “I think there’s a lot more to the BCCI story than has come out.” And he said: “I think there has been extensive money laundering through New York.”

. . . . Well, as soon as I heard about the money laundering through New York, it interested me . . . . As we got into it, we learned of the allegations that (BCCI) controlled First American Bankshares. And First American Bankshares has a holding company in New York that has 43 branches . . . .

Q: Did anything overseas pique your interest?

A: We learned that the Commonwealth Secretariat, which is the representatives of the Commonwealth countries . . . were having their annual conference (in July, 1989). And they invited us to come, and we wanted to go--because BCCI was on the agenda because of its money laundering and smuggling activities. And one of the things that intensified our interest was by the time we got there, it was taken off the agenda. That didn’t prevent it from being discussed in the halls, but it was no longer an official agenda item.

Q: Does that suggest a cover-up to you?


A: It suggests that somebody on behalf of BCCI had complained and had had it removed from the agenda. In fact, the lawyers from BCCI were there to make sure that it was not on the agenda.

Q: American lawyers?

A: British.

Q: Among the Britishers there, who led the effort to take it off the agenda?

A: I don’t know. We were guests. We didn’t want to be that rude . . . . I remember looking at Moody’s, which is a guide that I’ve turned to many times when a strange bank pops up, and looked up First American Bankshares. Find out it’s owned by First American Corp., a wholly owned subsidiary of Credit and Commerce American International, chartered in the Netherlands, which, in turn, is a wholly owned subsidiary of Credit and Commerce American Holdings in Curacao. You say to yourself: “Looks like somebody’s trying to hide something.”

And then you wonder, too: How did the Federal Reserve Board, in 1982, ever let this thing go by? And I called up a friend of mine, who is an adjunct professor up at Yale’s School of Business and Public Administration and is an expert on banks and insurance companies . . . . I said, “Do you understand this, have you ever seen anything like this?” And he said, “No.” He said, “But there must be a good explanation. Why don’t you talk to the Federal Reserve about it?” Which we did, and we didn’t get any ready explanation.

But we did get their cooperation, and then we started to try to get the documents and, I guess, we issued our first grand-jury subpoena in April of 1990 . . . .


Q: In addition to BCCI’s lawyers, there appeared to be others who attempted to impede your investigation. You have used such words as “stonewalling” and “impeding” to describe the U.S. Justice Department’s posture toward your investigation. Is that still your feeling?

A: I said that, and that was true at the time I said it. The Justice Department has now said that they want to cooperate with us, and I’m accepting that commitment, and I hope that it will be carried out.

Q: Robert S. Mueller, assistant U.S. attorney general in charge of the criminal division, spoke on Monday of cooperating with you regarding BCCI’s activities in Manhattan. That seemed rather pointed. Do you consider your mandate limited to the bank’s activities in Manhattan?

A: I think that our mandate is limited to activities which have a nexus or connection to Manhattan. And, as I say, 99.5% of all U.S. financial transactions go through Manhattan . . . . Take the payments to the bank officials in Peru. That originated in BCCI Grand Cayman, went to one bank here in New York, went to another bank here in New York, went to a bank in Panama in one account, went to two other accounts in Panama.

Q: The first two people indicted are quite far away from Manhattan, and there’s some doubt they will ever see a Manhattan courtroom. Are (founder Agha Hasan) Abedi and (former chief operating officer) Naqvi as likely to escape prosecution as they were to escape effective regulation?

A: Time will tell that. We’ll make every effort to have them extradited. It may mean they’ll never be able to leave their home countries. But, sooner or later, you catch up with a lot of fugitives.


Q: On Monday, you indicated that the grand jury was looking into whether Clark Clifford and his partner, Robert Altman, knowingly falsified documents in connection with the purchase of First American. Can you go further than that?

A: What I’ve said is we’re looking into whether representations that First American was not controlled by BCCI were false. And you see those representations were made to the superintendent of banks in New York, as well as the Federal Reserve Board, because they had a bank-holding company here in New York.

The other thing I’d just throw in here because I think people don’t understand it: A foreign bank doing business in the United States has the option to be regulated by either the state or the federal government. So, BCCI Luxembourg elected to be regulated by the superintendent of banks in New York and in Florida. BCCI Grand Cayman, operating in California, elected to be regulated by the California banking commission. So you have these three separate commissions regulating two related banks, which made it very difficult.

None of them were being regulated--none of the branches or agencies were being regulated--by the Federal Reserve. That’s the main story . . . .

Q: What does this tell us about global bank regulation?

A: Well, I think what it illustrates is that the United States cannot afford to have a foreign bank doing business in this country that is not regulated by any strong central bank, and is protected by the secrecy laws of its headquarters operation . . . . If they do business here, they’ve got to be regulated by the Federal Reserve, in conjunction with the states. But they should not be able to evade regulation by our central bank.


Q: Who are the real victims in this case? Are there some real folks, some poor people, who are out real money?

A: I think there will be. I think a matter of great concern is the deposits of the central banks of perhaps a dozen Third World countries. We don’t have up-to-date information, because we don’t have access to all the records. But as many as 12 Third World countries had a major part of their reserves on deposit with BCCI.

The other thing is, of course, to the extent that poor people--and they are--are victimized by the drug traffic, they are victims of BCCI. BCCI is a facilitator of the drug traffic.

Q: How does this compare with other high-profile cases you have prosecuted?

A: In terms of dollars, and in terms of the geographic spread, I guess it’s got to be the biggest . . . .