Fed Told in Early 1989 That BCCI Owned Washington’s Biggest Bank, Officials Say : Regulators: Statement conflicts with testimony by agency’s chief counsel. A full-scale inquiry was not started until almost two years later.
Federal banking regulators were offered evidence that the Bank of Credit & Commerce International owned Washington’s First American Bank nearly two years before opening a full-scale investigation of the linkage, law enforcement officials say.
Two senior IRS agents described allegations about BCCI’s secret ownership of First American Bankshares to a Federal Reserve System official at previously undisclosed meetings on Feb. 1 and 2, 1989, according to federal authorities familiar with the sessions.
The IRS agents were taking part in a joint IRS-Customs Service investigation that led to BCCI’s indictment for money-laundering in October, 1988, in Tampa. They offered to provide the Fed with four or five witnesses to detail the connections between the banks, the sources said.
But the Fed official said that his agency would need documentary evidence before it could act, the sources said. And, only two weeks later, the Federal Reserve approved an application by First American, the largest bank in the nation’s capital, to buy a small bank in Pensacola, Fla.
Disclosure of the February, 1989, meetings appears to contradict testimony by Fed general counsel J. Virgil Mattingly Jr., who told the Senate that the only contact his agency had with the investigators in Tampa was a two-minute telephone call from authorities in December, 1988.
Moreover, the Fed did not begin a full investigation of BCCI and First American until late 1990. Last March, the regulators ordered BCCI to sell its hidden stake in the Washington bank. In July, the Fed fined BCCI $200 million for allegedly deceiving the Fed.
Two congressional committees are examining the Federal Reserve’s handling of the BCCI-First American case. Critics contend that the Fed did not respond quickly enough to long-standing allegations that BCCI owned First American.
But Fed officials have insisted that they acted as soon as they had hard evidence.
Attempts last week and on Tuesday to interview Fed officials about the February, 1989, meetings were unsuccessful. Frank Keith, an IRS spokesman in Washington, confirmed that two agents met with a Fed official in February, 1989, but he said that he did not have any details.
However, sources close to the Justice Department’s criminal investigation of BCCI described the meetings and the information that they said was passed to the Fed. The move was intended to blunt criticism that the Tampa investigators had been slow to provide information to regulators.
The agents are said to have provided results of a yearlong undercover inquiry in which a customs agent recorded at least three conversations in which a BCCI officer boasted that the bank had secret control of First American and other U.S. banks.
After BCCI and eight of its employees were indicted on money-laundering charges in October, 1988, other witnesses provided investigators and prosecutors in the U.S. attorney’s office here with more evidence of the bank’s link to First American.
In testifying before a Senate panel last May, Mattingly said that the only effort by the Tampa investigators to pass information to the Fed was a two-minute telephone call on Dec. 27, 1988, placed by IRS agent David Burris to William Ryback, a Fed bank supervisory official.
However, law enforcement sources said that, on Feb. 1, Burris and his supervisor, Maurice Dettmer, flew to Washington to meet with Ryback.
Although the primary goal of the two agents was to obtain information for the upcoming criminal trial, the sources said, they provided Ryback with a full rundown on the evidence that had been obtained about the BCCI-First American link.
“They said they could produce four or five witnesses who would describe how BCCI owned First American,” said one of the sources, who spoke on condition that he not be identified, as did the others. “But Ryback said he needed documents.”
Rumors that BCCI controlled First American had circulated since at least 1982, when a group of Arab investors associated with BCCI obtained approval from the Fed to buy the Washington banking company, which operated banks in five states.
Clark M. Clifford and Robert A. Altman, the two Washington lawyers for BCCI who became executives of First American after the acquisition, denied that there were any financial ties between the two banks.
Concerns about BCCI were raised again at the Fed after the Tampa indictment. At the time, First American was seeking Fed approval to buy the small bank in Pensacola. The Fed conducted a special inquiry but found no ownership link between BCCI and First American.
In a letter to Altman approving the Florida purchase, the Fed said that its investigation found no financial ties with BCCI. The letter was dated Feb. 16, 1989, two weeks after Burris and Dettmer visited Ryback.
The Fed did not begin a full investigation of BCCI and First American until December, 1990, after Robert M. Morgenthau, the Manhattan district attorney, told regulators that an audit of BCCI showed $854 million in loans to First American shareholders, using the bank’s stock as collateral.
Last March, the Fed ordered BCCI to sell its hidden stake in First American. Later, in fining BCCI $200 million because of the deception, the regulators charged that the international bank had controlled First American since at least 1984.
BCCI, which had offices in 73 countries and assets of $20 billion at its zenith, was shut down on July 5 by regulators in several countries after an audit uncovered massive losses and apparent fraud. The bank is the target of several criminal investigations and its two founders have been indicted in New York City. More indictments are expected.