Key BCCI Figure Falls From Grace : Banking: Ghaith R. Pharaon, who allegedly arranged the secret purchase of Independence Bank in Encino, was a favorite of Saudi Arabia rulers before they got burned.

TIMES STAFF WRITER

As with almost everything in the kingdom of Saudi Arabia, family standing in the royal court was what counted most in the rise and fall of Saudi business tycoon Ghaith R. Pharaon.

He is a central figure in the scandal surrounding the Bank of Credit and Commerce International's alleged secret purchase of three American banks, one of them Independence Bank in Encino. More important, in the Saudi social context, he is also the son of the late Dr. Rashad Pharaon, personal physician and senior adviser to three Saudi kings.

This powerful connection made the Pharaon family in this sultry Red Sea port city and business capital one of the most prominent, influential clans in the kingdom.

But when Dr. Pharaon, the Syrian-born patriarch of the family, died two years ago, the royal link--already strained by Ghaith Pharaon's high-flying lifestyle and Western habits--was finally severed.

"I think it is safe to say that Ghaith Pharaon is not one of the most popular people here these days," said an Australian businessman who has worked in the kingdom for years. "Too many people, including members of the royal family, lost money with him. We are talking telephone-number-sized amounts--telephone numbers with area codes and country codes and everything."

After graduating from Harvard Business School in 1965, Pharaon used the family connection to build a business empire with international interests ranging from Pakistani cement to a suburban Paris theme park.

As son of the "physician to the court," he was a much-sought-after business partner for foreign firms trying to make inroads in the emerging, oil-rich Saudi economy. As one of a handful of Western-educated Saudis of that time, he was trusted with the money of many prominent families.

And during the incredible boom years of the late 1970s and early 1980s, suave, multilingual Pharaon--equally at home in Paris or the Pakistani Punjab--made and spent millions. His 1983-84 entry in the reference book "Who's Who in Saudi Arabia," published by a company he still owns, listed him as "chairman of board of 22 local and international corporations."

He used some of his fortune to build a block-long, walled marble palace in the exclusive Rawdah section of Jidda. The home, equal in grandeur to the palaces of the upper-elite princes in the Wahabite dynasty here, features massive carved wooden doors, a domed entry hall and eight turreted towers like those found on medieval crusader castles. The grounds are planted with date palms and brilliantly colored bougainvillea bushes.

In a February, 1985, interview with the English-language Arab News here, Pharaon said he was the largest cement dealer in the country, importing 20 million tons in the years 1978-84. That was the period when Saudi Arabia launched many of its most ambitious public works projects--billions of dollars worth of construction dedicated to bringing the kingdom into the 20th Century.

But by 1985, when the interview with the Arab News appeared, the boom was mostly over. The full extent of the slide was not yet clear. Pharaon, however, used the interview to warn bankers to be more conservative in their lending policies.

"By simply looking at the published results of the banks in Saudi Arabia and banks dealing with the Saudi market," he said, "one can conclude that the number of classified (unsecured) loans is rising rapidly, and prudent as they are, those bankers could not foresee this kind of situation. Therefore, they did not curtail their lending limits to their clients. This has resulted in an increase in substandard or classifiable loans not in accordance with good banking practices."

But Pharaon did not necessarily practice what he preached. Later the same year, according to a report by the Federal Reserve Board, BCCI secretly lent Pharaon $23 million to act as a front man in the purchase of Independence Bank. The largest bank in Southern California's San Fernando Valley, its current assets are listed at $667 million. According to federal investigators, the loan was unsecured and was obtained on the basis of false information, exactly the kind of loan that Pharaon had warned about in his interview.

Pharaon also has been named as the alleged front man in the purchase of banks and savings institutions in Florida and Georgia, including First National Bank of Georgia, once owned by Bert Lance, President Jimmy Carter's close adviser and budget director. Pharaon also is under investigation for his links with several insurance companies in California and Georgia. He was named an unindicted co-conspirator by a grand jury investigating the BCCI scandal in New York. The Federal Reserve is seeking to ban the Saudi financier from the U.S. banking industry.

Because of his BCCI links, Pharaon, 51, is being sought for questioning in several countries. According to a Price Waterhouse audit of BCCI, Pharaon had outstanding loans with BCCI totaling $316 million at the end of 1989. He is among a half dozen BCCI insiders believed to have received a total of almost $2 billion in questionable loans from the self-described "poor man's bank."

Despite the stir that the BCCI scandal is causing outside Saudi Arabia, neither Pharaon nor Sheikh Kamal Adham, another prominent Jidda businessman said by Price Waterhouse to have received more than $313 million in unsecured loans from Luxembourg-based BCCI, have been mentioned by name in local newspapers.

"Hiring a guy to act as a front man is a highly accepted practice in Saudi Arabia," said a Western diplomat. "They would see nothing wrong with it."

A July 29 Time magazine cover story on the bank was heavily censored here. Government foreign media watchers normally spend their time excising photographs of women's breasts and other bared body parts considered immodest by religious authorities. This time, they cut out all four of the magazine's pages that mentioned Pharaon and Adham before they allowed it on newsstands.

That does not mean there was no public interest in the case. Although there are no BCCI branches in Saudi Arabia, many Saudis and foreign workers in the country are believed to have deposited savings in BCCI branches outside the kingdom.

U.S. Consulate officials, who received unexpurgated copies of the Time magazine article in their diplomatic mail, said they received requests for facsimile copies of the missing pages from prominent Saudis. Fax machines, the main dodge to censorship in the kingdom, hum through the night with the latest stories from American and British newspapers.

Among Saudi newspapers, only the English-language Arab News has devoted much space to the BCCI scandal. Even that coverage has focused on what editor Khaled A. Maeena called a "witch hunt" by the Western press against BCCI, hailed as the world's first international Third World bank after it was founded by Pakistani financier Agha Hasan Abedi.

"The way the press has treated Pharaon," said Maeena, "is like the William Kennedy Smith case. He has already been convicted of rape before his trial starts."

Saudi Arabia has a tradition of downplaying foreign news involving its citizens. Few stories, for example, ever appeared in the Saudi press about controversial arms merchant and international jet-setter Adnan Khashoggi, reported to be a regular customer of BCCI. A recent visitor to Riyadh was surprised to find Khashoggi still in the good graces of several key members of the royal family, despite his international notoriety.

But in the BCCI case, most of the concern about publicity appears to involve Sheikh Adham, whose connections to the royal family are even stronger than those once enjoyed by the Pharaons. Adham, 71, former chief of intelligence for the kingdom, is still considered one of the richest men in Saudi Arabia. His widespread interests include an international construction company with branch offices in London, Paris, New York and Beirut.

His connection to the crown comes from his sister, Ittaf, widow of the late, revered King Faisal. Credited with winning the fight for educating women in the conservative Islamic state, she is considered by many to be one of the most influential women in modern Saudi history.

Like Pharaon, the distinguished, low-key Adham found himself seriously overextended in the post-boom period in Saudi Arabia. His friends suggest that this is why he agreed to join the group of mainly Arab investors, secretly backed by BCCI, that purchased the politically powerful Washington, D.C., bank, First American Bankshares. Adham is also listed as a major stockholder of BCCI. Several attempts to meet with Adham in his sprawling, pink, ranch-style palace were unsuccessful.

Unlike Pharaon, Adham's royal contacts remain very much intact.

According to relatives here, Pharaon spends only a few days each month at home in Jidda. In the 1983 biographical item in "Who's Who in Saudi Arabia," he listed his hobby as "worldwide travel." Said to have been expected to return last week, Pharaon has spent most of the time during the unfolding BCCI scandal cruising on his yacht in the Mediterranean Sea. Attempts to reach him via facsimile and telephone were unsuccessful.

Pharaon's failed investment schemes alienated people at the highest levels of Saudi society. Among the most notorious flops was a multimillion-dollar investment in Mirapolis, an ill-planned, disastrously unsuccessful theme park in Pontoise, about 25 miles outside Paris.

Conceived as a rival to the still-under-construction Euro-Disneyland project in suburban Marne-la-Vallee, Mirapolis featured a huge model of the Rabelais character Gargantua. The character was visible for miles in the French countryside, swilling a goblet of wine and eating a whole beef carcass impaled on a giant fork. Not only was the theme of the project offensive to teetotaling Saudi Muslims, but it lost money from the day it opened.

Back in Saudi Arabia, Pharaon's cement and frozen-food empire, managed through the Jidda-based Saudi Research and Development Corp., also fell on hard times. Beginning in 1985, the overextended Pharaon was unable to meet interest payments on loans estimated at more than $300 million from banks unconnected with BCCI.

"Beginning in the late 1970s," said a Western diplomat based in Saudi Arabia, "there was already a cooling of relations with the royal family. Pharaon was a miniature Khashoggi. Like Khashoggi, he was always flying around on his own jet airliner. Many Saudis found him too high profile, too embarrassing."

Still, it is hard for many people here to believe that Pharaon, son of the king's doctor, is a crook.

"He always has such a nice broad smile on his face," said his cousin, prominent Saudi dentist and real estate developer Ghassan Pharaon. "Ghaith is very shrewd, but I don't think he would ever do anything wrong."

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