COLUMN ONE : BCCI: Odd Bank With Air of Cult : From its roots in Pakistan until its closure by regulators, the institution’s story is one of secretive clients, powerful friends and global fraud.
Agha Hasan Abedi sounded more like Darth Vader than the founder of the Bank of Credit & Commerce International when he spoke to his executives about the force driving the bank at a conference in Miami one Sunday late in 1985.
“Mr. Awan, may I ask you, do you feel the force within, which within you drives you?” Abedi asked Amjad Awan, an official in the bank’s Washington office. “How many times do you feel? And what does it make you feel? What do you become when you feel that? What does it taste like? What does it feel like?”
“Sir, I certainly feel the force,” Awan replied. “Off and on. Not all the time.”
The philosophical ramblings of the man referred to by employees as “Agha Sahib” are integral to what made BCCI one of the world’s strangest financial institutions. For it was Abedi, faced with the nationalization of his first bank by Pakistan, who structured BCCI from the outset to avoid the scrutiny and control of any single regulator or government.
From the ruins of that enterprise, investigators and regulators now are piecing together an unprecedented picture of global fraud, deception and influence-peddling--all aided by the tangled structure of a bank that was offshore everywhere.
So far, the picture shows a rogue bank that catered to an array of shady characters, from dictators and drug cartels to intelligence agencies and terrorists. It cultivated the powerful on every continent. While some of them provided it with a patina of respectability, others helped conceal stakes in four U.S. financial institutions.
Along the way, BCCI allegedly used depositors’ money to cover its own mistakes, payoffs and bad loans, rolling up losses estimated at $5 billion to $15 billion and leaving thousands of victims in some of the world’s poorest countries.
More pieces of this puzzle will be revealed this month with a new round of congressional hearings and, probably, additional criminal charges. Already the saga of BCCI appears to have earned its epitaph as the world’s biggest financial scandal. And enough evidence has surfaced to demonstrate that Abedi’s creation operated as no other financial institution, propelled by forces of culture and history, more cult than bank.
“The culture of the bank is criminal,” Robin Leigh-Pemberton, governor of the Bank of England, said on July 5, the day regulators worldwide began shutting down BCCI.
BCCI’s roots are in the troubled soil of modern Pakistan, a nation that was cleaved from the Indian subcontinent in bloodshed and protest in 1947 as the British departed. The new country was a homeland for India’s 10 million Muslims. Among them was Agha Hasan Abedi.
The son of a chef for one of India’s prominent families, Abedi had joined Habib Bank in Bombay in 1946 after graduating from Lucknow University. The bank had been formed as part of the Muslim nationalism movement and, when Pakistan was created, Abedi moved with the bank to Karachi, the business center of the new nation.
In the late 1950s, Abedi left Habib and, bankrolled by a wealthy Pakistani family, started the rival United Bank Ltd. While building United into Pakistan’s second-largest bank, he met and courted Sheik Zayed ibn Sultan al Nuhayan, ruler of the Persian Gulf sheikdom of Abu Dhabi.
It was an important relationship, for Abedi’s rise was cut short when Zulfikar Ali Bhutto wrested control of the country from the military in January, 1972, and began to nationalize industries. Abedi and other leading bankers were placed under house arrest.
Soon after his arrest, Abedi summoned a colleague from United Bank, Masihur Rahman, to his house. Abedi and his right-hand man, Swaleh Naqvi, wanted to recruit Rahman for a new dream.
“He explained to me at that meeting, for the first time, he very much wanted, together with some people like me, to start a world bank, a global bank for the Third World,” Rahman told a Senate subcommittee in August. “There could be a unique banking structure which could be very, very useful socially and also very profitable.”
With the loss of his United Bank a certainty, Rahman recalled Abedi saying fervently: “I don’t want to face this and you shouldn’t face this ever again.”
Abedi said the dream was close to reality. He had lined up backing from Sheik Zayed. All that was left was to find a big international bank to provide the instant prestige to break out of the confines of the Third World.
Abedi had raised the idea with several American and European banks, which were trying to get new business in the Mideast. With his Muslim heritage and Arab backing, Abedi offered an opportunity to cut through cultural barriers and distrust of Westerners.
The Bank of America Connection
In February, 1972, shortly after his arrest was rescinded, Abedi sat in a suite at the Waldorf-Astoria in New York City with Roy P. M. Carlson, a Bank of America official who supervised Mideast operations. As Carlson listened, Abedi described his vision of a new financial empire that would draw on disenchanted Pakistani bankers and his own contacts in the Mideast. The bank would cater to the growing trade and finance needs of the Arab world and other developing countries.
Over the next few weeks, plans were drawn up for B of A to invest $2.5 million for a 25% interest in the new bank. Final approval was celebrated by Abedi and B of A executives at a luncheon atop the U.S. bank’s headquarters in San Francisco in June, 1972.
In its eagerness to expand in the Mideast, Bank of America granted Abedi control over the administration and field operations of the new institution, which would be called the Bank of Credit & Commerce International. The logo of B of A, then the world’s biggest bank, would appear on its letterhead.
The new bank had its legal headquarters in Luxembourg, a tiny European duchy noted for its lax regulation, although its operating headquarters were in Abu Dhabi and later London. An offshore secrecy haven in the Caribbean, the Cayman Islands, was home for a second portion of the bank’s operations.
In those early days, Roy Carlson frequently accompanied Abedi on trips to the Mideast. Often he found himself seated on the floor of an ornate palace on a dusty road, sipping sweet tea with men dressed in long, flowing robes.
“You didn’t make calls in offices,” he said. “That was not the way business was done. Mr. Abedi would arrange luncheons, dinners and receptions at which I would meet some of the bank’s customers or potential customers.”
Loans on a Handshake
BCCI’s early growth occurred mainly in the Gulf region and places where immigrant Pakistani workers were concentrated, such as London. Thousands of these workers used BCCI to send money to families at home, and they would remain loyal customers to the end.
After the oil embargo of 1973 flooded the Gulf with petrodollars, the bank’s expansion accelerated sharply. The bank catered to the new class of sheiks, using their aura of unlimited wealth to grow worldwide. Assets skyrocketed from $200 million in 1973 to $2.2 billion in 1977. Branches soared from 19 in five countries to 146 in 32 countries. Abedi proclaimed BCCI the fastest-growing bank in the world.
The upper staff of the bank was almost exclusively Pakistani. Many had been recruited by Abedi’s promise that the bank was a family where they could enjoy lifetime jobs and by his persuasive pitch that the bank had a mission higher than profits. As a result, BCCI employees tended to work longer hours for lower pay than counterparts at other banks.
“We were believing in what Mr. Abedi was talking about as to the future of the bank and us being shareholders of this bank,” said Rahman, who had become the bank’s chief finance officer in 1975. “He would say that within 10 years we will be millionaires.”
Rumors were circulating in banking circles that BCCI fueled its growth with unconventional personal services. A visiting sheik could call BCCI in London at any hour and get a suitcase of cash. Expensive gifts were lavished on favored clients. Cash was moved secretly out of countries that had tight currency restrictions.
“We are attuned to the Arab way of working,” Ameer Siddiqui, a BCCI executive in London, told a reporter in defending the bank at the time. “Arabs want personal service, Asian courtesy at its zenith.”
That meant huge loans on a handshake. For instance, among the first customers of BCCI in 1972 were the Gokal brothers, who ran a fledgling shipping line out of Karachi. By 1977, they had borrowed $80 million from BCCI to finance a dramatic expansion. It was the equivalent of two-thirds of the bank’s capital at the time, according to a later audit by Price Waterhouse, yet there was little documentation for the deals.
Gaining Secret Control
Bank of America’s internal auditors noticed the absence of documentation for loans. When Alvin Rice, a senior B of A executive and member of BCCI’s board, raised the issue with Abedi, he recalls the Pakistani banker telling him: “I know these people personally. Do not worry.”
But officials at B of A were worried. In 1976, an internal memo raised concerns about “special patronage” between BCCI and Persian Gulf rulers. A year later, Bank of America internal auditors questioned the financial condition of BCCI.
The memo, which would prove prescient, said that BCCI had engaged in widespread insider loans to its shareholders and that cash reserves to cushion against losses were grossly inadequate. These factors were particularly troubling to the auditors because the bank had concentrated so much of its lending in the Gulf.
Bank of America reached a friendly agreement to sell its stake at a big profit in 1978. The sale took place quietly over several months.
The California bank had played its role, midwifing BCCI onto the world stage. But even when B of A pulled out, it retained a banking relationship with BCCI. Some of its own executives quit to join BCCI.
For instance, longtime B of A officials Yves Lamarche, J. D. Van Oenen and Cliff Twitchin sat on BCCI’s board through the ‘70s and ‘80s. Roy Carlson was recruited by Abedi to run the National Bank of Georgia in 1979 after its purchase by Ghaith Pharaon, a Saudi Arabian tycoon and BCCI shareholder.
U.S. regulators now say that National Bank of Georgia was one of four U.S. financial institutions that were secretly controlled by BCCI through front men and hidden agreements. The others were Independence Bank in Encino, Calif., CenTrust, a failed savings and loan association in Miami, and First American Bankshares in Washington.
Former presidential adviser and Democratic Party statesman Clark M. Clifford helped Arab investors associated with BCCI to gain control of First American, the biggest bank in Washington, in 1982. The Fed now says those investors were bankrolled with BCCI loans that gave the bank control of First American. Clifford, who is under investigation by two grand juries, says he was duped.
BCCI’s rapid growth brought a disparate collection of customers.
In 1981, a $60-million account was opened at the Park Lane branch in London for Abu Nidal, the Palestinian terrorist. Last July, the former manager of the branch told the British Broadcasting Corp. that Abu Nidal had used the branch as his office. Sometimes, the manager said, he had taken the terrorist on shopping trips.
With offices in some of the world’s most notorious corners, the bank was well-suited to the needs of the Central Intelligence Agency too. A CIA official has acknowledged that the bank was a conduit for payments to agents, although he denied that there was any illegality. The CIA is conducting an internal review of its relationship with BCCI.
Intelligence agencies also used BCCI as a convenient window on Abu Nidal. In testimony at a Senate hearing in August, a State Department counterterrorism expert said the terrorist’s activities were monitored through his BCCI account with the cooperation of some bank officials. British intelligence maintained a similar watch, according to press reports there.
The U.S. government apparently used BCCI to funnel aid to Afghan rebels fighting the Soviets. A 1987 internal bank memo says the U.S. Agency for International Development had asked the bank to buy 1,000 mules for the rebels to use in the mountains.
Numerous Third World governments deposited funds with BCCI, often lured to the bank through its network of influential friends. For example, the bank received the first-ever presidential waiver allowing a foreign entity to buy a Colombian bank. It was arranged with the help of a former Colombian finance minister.
When Peru was trying to hide its hard cash from international creditors, $250 million was deposited with BCCI. A New York grand jury has accused BCCI of paying $3 million in bribes to Peruvian banking officials for the deposit.
In Panama, BCCI was a favorite of former strongman Manuel A. Noriega, who opened an account with the bank in 1981.
“This will be a secret account,” Noriega explained to BCCI’s Amjad Awan in opening the account, according to Awan’s later statement to Senate investigators. “You must keep it highly confidential. None of the staff at the bank must know about the account, particularly the Panamanian employees.”
The account was entered on the “manager’s ledger,” a list of numbered accounts to which only a handful of employees had access. Through it, Awan paid for lavish trips and spending sprees by Noriega and his family and made payoffs to politicians for Noriega. In exchange for such service, Noriega referred money launderers and drug dealers to BCCI as customers.
Laundering Dirty Dollars
For years, BCCI avoided serious government scrutiny by splitting its operations between Luxembourg and the Cayman Islands. Until 1986, the bank had two accounting firms auditing its books. The scheme enabled executives to conceal transactions and cover huge losses in such areas as bad loans and commodities trading.
Although the Bank of England had tried to restrict BCCI’s growth in Britain and the Federal Reserve had raised questions about the acquisition of First American by BCCI-related investors, no one had a clear picture then of the bank’s far-flung operations.
J. Virgil Mattingly Jr., general counsel at the Federal Reserve, described the task of trying to regulate BCCI this way: “When the evidence is located all over the world and deliberately concealed, the difficulties are very greatly magnified.”
This started to unravel as a result of another manager’s ledger account in Panama.
In mid-1986, the U.S. Customs Service in Tampa, Fla., opened an undercover investigation into money laundering for the Medellin cocaine cartel. Customs agent Robert Mazur posed as a financial consultant with a network for laundering dirty dollars.
In the summer of 1987, he began moving illicit Colombian cash through the BCCI branch in Panama City. In November, there was a minor problem with a transaction and Mazur got a call from a trainee at BCCI in Panama. The young banker, Syed Aftab Hussain, wanted to meet Mazur in Miami to discuss his dealings with the bank.
In interviews, Customs agents said they feared that Hussain was going to blow the whistle on the operation. But that was not what Mazur found out when he met with the young banker in the lobby of a Miami condominium one Saturday morning in December, 1987.
“We are totally, all the confidentiality, all the secrecy,” said Hussain, according to a transcript of the conversation, which Mazur recorded through microphones hidden in his briefcase. “Even sometimes our own staff doesn’t know what is happening.”
Hussain, eager to bring in new business, described a safer way for Mazur to launder money through BCCI. A key element of the scheme was a confidential manager’s ledger account in Panama. He also promised to introduce Mazur to BCCI officers in Miami.
“They know how to talk and when to talk,” Hussain assured the undercover agent. “They don’t talk loose.”
One of the bankers whom Mazur met through Hussain was Amjad Awan, who had recently been transferred to Miami. With his assistance, Mazur laundered millions of dollars in drug proceeds through BCCI offices in Miami, Panama and Paris.
What the Customs agents discovered was that BCCI had created a sophisticated system for using its vast network of branches to move hot money out of the reach of authorities.
For instance, Mazur would send drug money electronically from Tampa to BCCI in Panama, where it would be placed in a certificate of deposit. Then he would receive a loan for the same amount, minus the bank’s fees, through a BCCI branch in Paris or Switzerland. All passed through front companies. Presto, clean money from drug money.
Mazur cultivated relationships with BCCI bankers. So when he and undercover agent Kathy Ertz announced their “wedding,” Awan, Hussain and assorted other BCCI employees were invited. When the guests assembled for a party at the posh Innisbrook resort outside Tampa on Oct. 8, 1988, the day before the ceremony, the men in the group were hustled off to waiting limousines for a trip to a bachelor’s bash.
When the limousines arrived at a downtown skyscraper, instead of strippers and prostitutes, the bankers found a bevy of federal agents with guns and handcuffs. Eight BCCI employees and the bank itself were among 84 individuals and four businesses indicted on charges of money laundering and drug conspiracy.
More than the U.S. Customs Service, however, was required to bring down the bank, which by that point had $20 billion in assets at 400 branches in 73 countries and had influential friends in many places.
Ultimately, the bank pleaded guilty to money laundering and paid a record $15-million fine. Five bankers, including Awan and Hussain, were convicted of similar charges in Tampa; two were convicted in London, and one awaits trial.
During the undercover operation, Mazur had come across information that BCCI had hidden control of First American Bank. After the arrests, the Customs agents wanted to pursue those allegations and other leads about the bank.
But law enforcement authorities say they were delayed because they had to prosecute the case at hand. Sen. John Kerry (D-Mass.) and others have charged that the investigation was actually called to a halt, and Congress is looking into the matter. Separate investigations of BCCI, however, did not stop.
In the belief that the Justice Department was failing to pursue the case, Kerry investigator Jack Blum took the matter to Robert M. Morgenthau, the Manhattan district attorney.
At a meeting in the spring of 1989, Blum persuaded Morgenthau to launch an investigation, since First American owned a bank in New York City as well. Morgenthau too found roadblocks. Last May, he told senators that the Justice Department had refused to cooperate with him and had slowed his investigation.
The district attorney did find help at the Federal Reserve, where a full-scale investigation of BCCI was begun in late 1990 after Morgenthau provided hard evidence of BCCI’s hidden interest in First American. As a result, BCCI was ordered by the Fed to sell its interests in First American and Independence Bank last March.
By that time, alerted to possibly deep problems at BCCI by the bank’s own in-house audits, the Bank of England was alarmed enough to order Price Waterhouse to perform a special audit at BCCI and report its results to the regulators.
The findings, delivered late last June, were startling. The bank had lost billions in bad loans and commodities trades. A secret bank-within-the-bank had covered the losses with depositors’ funds. Loans to big shareholders and major customers had never been repaid. For instance, more than 70 companies associated with the Gokal shipping brothers owed more than $700 million. The Bank of Credit & Commerce, Price Waterhouse said, may never have earned a legitimate profit.
Finally, the response was swift. In a coordinated sweep led by British and U.S. regulators, BCCI offices were shut down in seven countries on July 5. The unprecedented action led regulators in dozens of other countries to close or to restrict BCCI offices.
Before the month was out, Morgenthau’s office indicted the bank and Abedi on charges of grand larceny, bribery and money laundering. “This indictment spells out the largest bank fraud in world financial history,” Morgenthau told reporters. “BCCI was a corrupt criminal organization throughout its entire 19-year history.”
In a coordinated action the same day, the Federal Reserve in Washington imposed a $200-million fine on the bank and sought to bar Abedi and many of his associates from the banking industry.
Morgenthau, the Fed and regulators worldwide are continuing investigations. The Justice Department says BCCI is under federal investigation in Atlanta, Miami, Tampa and Washington. Three congressional committees also are investigating.
At his home in an affluent district of Karachi, where he is still seen as a national hero, 69-year-old Agha Hasan Abedi has given a handful of press interviews. He is frail and his speech is halting, the result of two heart attacks, a heart transplant and a stroke. But he is steadfast in denying any involvement in wrongdoing at his bank.
“God knows better,” he told a Pakistani editor not long ago.
Key Figures in the BCCI Scandal
* Agha Hasan Abedi: A Pakistani banker given to mystical ramblings. He founded BCCI and made it the fastest-growing bank in the world with the help of powerful friends. Frail and ailing, he has been indicted in New York, but Pakistani authorities oppose his extradition.
* Swaleh Naqvi: Abedi’s right-hand man since their days at United Bank in Pakistan. He allegedly ran a secret bank-within-the-bank that used depositors’ funds to cover up billions of dollars in BCCI losses. He became chief executive in 1988 when Abedi fell ill, and he was indicted along with Abedi.
* Sheik Zayed ibn Sultan al Nuhayan: The revered ruler of Abu Dhabi, a small, rich city-state on the Persian Gulf. His image was tarnished because he provided early backing to Abedi. When BCCI nearly failed in 1990, he came up with a $1-billion bailout and became the bank’s majority owner.
* Ghaith Pharaon: This Saudi Arabian tycoon was a BCCI shareholder who was lent $288 million by the bank. The Federal Reserve asserts that Pharaon was a front for BCCI’s secret stakes in Independence Bank in Encino, Calif., CenTrust Savings in Miami and National Bank of Georgia.
* Manuel A. Noriega: BCCI was a favorite bank of the deposed Panamanian strongman. He used his secret account there to finance high living for himself and his family, and he referred drug dealers and money launderers to the bank. Noriega’s trial on drug charges is set for Thursday in Miami.
* Alan Garcia: President of Peru when $250 million of the country’s reserves were deposited in the BCCI branch in Panama. Two officials of Peru’s central bank have been accused of accepting $3 million in bribes from BCCI, but Garcia has denied any wrongdoing.
* Clark M. Clifford: Influential adviser to Democratic presidents. He collected millions through BCCI after persuading federal regulators to approve Arabs’ purchase of First American Bankshares. The Fed says BCCI secretly financed the deal; Clifford says he did not know that.
* Robert Altman: Clifford’s protege and the husband of actress Lynda Carter of “Wonder Woman” fame. Altman served as president of First American’s parent company for nearly a decade while Clifford was its chairman. He too earned hefty profits on stock transactions financed by BCCI. He also has denied any wrongdoing.
* Robert M. Morgenthau: The longtime Manhattan district attorney took on the BCCI investigation in the spring of 1989 at a time when it was dormant at the Justice Department. His office returned indictments against Abedi, Naqvi and the bank in July.
* Sen. John Kerry: Massachusetts Democrat and former prosecutor who kept hammering at the BCCI case when colleagues objected and Clifford told him there was nothing to investigate. His hearings have provided key information about what went on inside the bank.
* Jimmy Carter: The former President received $8 million in donations from Abedi for his own charitable foundation and traveled the globe with the BCCI founder promoting good works. Carter aides have said that he had no idea of questions about the bank or Abedi when he accepted the money.
* Bert Lance: Former Carter Administration budget director. He organized BCCI’s first attempt to acquire First American and later sold his shares of National Bank of Georgia to Ghaith Pharaon. Lance introduced Carter to Abedi in 1981.