Hidden BCCI, S&L; Ties Link Major Scandals


Two of the great financial scandals of the early 1990s--the collapse of the savings and loan industry and the strange case of the Bank of Credit & Commerce International--are starting to converge as federal investigators unravel hidden ties between the two.

Uncovered only in the last few days, the link between the S&L; mess and the BCCI affair already is threatening to lead to a new round of charges of political influence-peddling in Washington. It also is prompting a growing sense among investigators that, just as the S&L; debacle mushroomed over time, the scope of the BCCI scandal may prove to be much larger and more difficult to fully unearth than had been anticipated.

So far, two failed S&Ls;, Centrust Savings Bank in Miami and Viking Savings in Santa Monica, Calif., have been found to have had either direct or indirect connections to BCCI. The Pakistani-owned international bank, which was shut down by regulators on July 5, had murky ties throughout the Arab world and allegedly assisted terrorists, drug dealers, money launderers and spies.


Ironically, both S&Ls; with connections to the Arab-influenced bank were run by American Jews who were strong supporters of Israel and who actively used their financial clout in American political circles.

In fact, investigators sifting through the wreckage of both the BCCI and the S&L; scandals have been puzzled by such seemingly contradictory political ties and have yet to figure out the reasoning behind BCCI’s investments in thrifts in the United States.

“We really don’t know why they (BCCI) were doing it,” said Virgil Mattingly, general counsel for the Federal Reserve Board, which regulates the banking industry. “But we just discovered this link, so we don’t know a lot yet.”

In the biggest S&L-related; case, federal investigators are now probing BCCI’s secret 1989 acquisition of a 28% ownership stake in Centrust Savings Bank of Miami. Centrust was a high-flying thrift run by the flamboyant David Paul, a major fund-raiser for the Democratic Party and a strong booster of Israel, where he has helped the country develop new housing projects for Soviet immigrants.

Centrust, which once had more than $8 billion in assets, was seized by federal regulators in February, 1990. Paul has become the target of a series of civil and criminal federal investigations alleging that he looted Centrust in order to finance an extravagant lifestyle replete with mansions, yachts and luxurious offices in Centrust’s $100-million tower in downtown Miami. The collapse of the federally insured S&L; eventually cost American taxpayers $1.7 billion, making it one of the biggest thrift failures on record.

Although regulators have been combing through Centrust’s records for more than a year in an effort to build a case against Paul, it has only been in recent days that they discovered BCCI’s link to the S&L.; The Federal Reserve charges that Ghaith Pharaon, a Saudi Arabian financier who openly acquired the 28% stake in the thrift, was acting as a front man for BCCI.


Federal Reserve officials say that the only evidence of BCCI’s ownership of Centrust was hidden in London in a secret cache of BCCI documents, which detailed the bank’s far-flung network of investments and secret operations.

Based on that revelation, investigators from a wide array of agencies and congressional committees have begun to probe the as-yet unexplained ties between BCCI and Centrust. A federal grand jury in Miami has launched a criminal investigation of the link, and the House Banking Committee is expected to discuss the issue in hearings on BCCI in September.

In addition, the Office of Thrift Supervision, the federal agency that regulates savings and loans, is seeking more than $30 million in restitution from Paul for his actions at Centrust. The agency is planning to hold administrative hearings on Centrust and Paul soon, and is now expected to probe the BCCI link as well.

Paul could not be reached for comment, but Abbe Lowell, a Washington attorney working for Paul, stressed Friday that “there is no evidence that Paul knew of BCCI’s involvement in Centrust.”

Still, the ties between BCCI and Centrust have raised red flags in Washington, largely because of Paul’s close ties to leading Democrats, including Sen. John Kerry (D-Mass.), who has been aggressively investigating BCCI through the Senate Foreign Relations Committee. While Kerry was chairman of a key campaign committee for Senate Democrats in the late 1980s, Paul was chairman of the committee’s fund-raising arm.

Republicans, burned by charges that the Bush Administration long ignored the growing BCCI scandal and attempted to squelch early investigations of the bank by federal regulators, are now trumpeting the ties between Paul, Kerry and other Democrats.


Sen. Orrin G. Hatch (R-Utah) has just issued an extensive report detailing Paul’s meetings and phone conversations over the years with Kerry and other Democratic senators in an attempt to prove that the Democrats are not blameless in the BCCI mess.

In the House, meanwhile, Minority Leader Robert H. Michel (R-Ill.) has asked the General Accounting Office to investigate the ties between BCCI, Centrust and political leaders in Washington.

In the case of the much smaller Viking Savings of Santa Monica, the connection with BCCI is less direct than at Centrust but equally provocative.

In a criminal case in U.S. District Court in Los Angeles in March, Michael Goland, an independent contributor to pro-Israeli candidates around the nation, was convicted of secretly acquiring Viking in 1986 to use the thrift to help finance his far-flung political activities. Viking failed in 1989 and was eventually acquired by another S&L.;

Goland was charged with conspiring to take over the small institution by getting friends and associates to pose as independent investors in the thrift and funding the purchase in part with $900,000 borrowed from state Sen. Alan Robbins (D-Tarzana).

Federal prosecutors who handled the Goland case now say that Robbins, a longtime Goland business partner, obtained the money for Goland’s secret acquisition from Independence Bank of Encino, which at the time was covertly owned by BCCI. BCCI and its Pakistani founder, Agha Hasan Abedi, had acquired Independence by once again using Ghaith Pharaon as the front man.


A spokeswoman for Robbins, who was never charged in the Viking case, said Friday that Robbins did not know at the time that BCCI owned Independence Bank. Goland and his Washington attorney, Nathan Lewin, could not be reached for comment.

By the time he acquired Viking, Goland, a former Woodland Hills developer, already had gained notoriety in political circles for his free-lance political activity. He first gained attention for taking up legal residence in Illinois during the 1984 Senate campaign between Republican Charles Percy and Democrat Paul Simon. Goland poured millions of dollars into the race to mount his own negative television advertising campaign against incumbent Percy, who Goland believed was anti-Israel.

Ultimately, Percy lost the election to Simon, even though Simon had publicly disavowed Goland. On the night of his election defeat, Percy went on national television and bitterly blamed Goland’s intrusion in the race for his defeat.

Later, the Federal Election Commission charged Goland with election fraud for pouring money into the 1986 California senatorial campaign that pitted Sen. Alan Cranston against then-Rep. Ed Zschau. To buoy Cranston, Goland gave money to a third-party candidate in hopes of reducing Zschau’s support and in 1990 was sentenced to three months in jail and 1,000 hours of community service for his actions.