Theft From BCCI Foiled by a Missing New Moon : Scandal: Manager in Sri Lanka took $10 million. But a bank in Oman didn’t close for holiday on schedule.

It wasn’t easy to get caught stealing at the Bank of Credit & Commerce International, the scandal-ridden financial empire that investigators have described as a global network tailor-made for crooks and con artists.

In the case of Imtiaz Ahmad, for example, it was only through the grace of a tardy new moon that police managed to trace the biggest bank fraud in the history of this remote Indian Ocean island state to BCCI and its renegade local executive.

Imtiaz was a BCCI veteran who used the offshore banking branch he managed here to steal more than $10 million from four international banks, including his own. He spent months plotting his crime seven years ago, using his post at BCCI to create his own Swiss bank accounts.

He hired two Sri Lankan accomplices who owned a small telex shop in town, and he stole the coded computer chip that was the signature of a telex machine at BCCI’s banking operation in the Middle Eastern nation of Oman. Imtiaz had worked there before he was transferred to Sri Lanka. He left a paper trail of clues a mile long during the weeks he put his plan in place, investigators later found.

But no one at BCCI took even the slightest notice.

On the night Imtiaz slipped into the small telex office here in Colombo, a visit he timed to coincide with the sighting of the new moon that heralds the Islamic holiday of Eid al Fitr and closes all banks and commerce in the Mideast for three days, the Indian-born executive was confident that, even if his bank bosses suspected his plan, they were looking the other way.

Within minutes that night, Imtiaz used the stolen telex chip, which identified him as BCCI’s National Bank of Oman, to transfer dollars and yen totaling more than $10 million from two banks in Tokyo and one in New York into his own account at a Swiss bank often used by BCCI. In Zurich, his two waiting Sri Lankan accomplices withdrew the money in cash moments later.

It was only after the Swiss bank made a routine check with the bank in Oman, which, unknown to Imtiaz, was open because an Islamic committee in Saudi Arabia had failed to sight the moon the previous night, that the Sri Lankans were caught. They later led investigators to Imtiaz.

Even then, it was only after the personal intervention of the BCCI national manager in Sri Lanka, a man who was fired from the bank years later for challenging irregular practices by top BCCI management elsewhere in the world, that Imtiaz was prosecuted and sentenced in 1986 to four years in a Sri Lankan prison.

The Imtiaz case is still largely unknown outside Sri Lanka. But as charges of multibillion-dollar fraud by BCCI and its international network of branches and subsidiaries mount by the day, Imtiaz’s case is emblematic of how the scandal-ridden bank brought a culture of crime, corruption and its own brand of cowboy banking to even remote parts of the world.

The fraud case is just a small sampling of BCCI’s record in this isolated state. Here, BCCI and its officials pursued a decade of loose banking, money laundering, corner cutting and political pandering. Several BCCI officers said it was typical of the bank’s deliberately decentralized operations in many of the more than 70 countries where it gained footholds, largely by selling itself as a financial champion of the Third World.

As occurred in India, Liberia, Sudan and Kenya, local managers in Sri Lanka have been criminally charged with traveler’s check irregularities; several cases involved laundering “black money”--illegal cash assets that are undeclared to avoid stiff taxation--into foreign exchange destined for legal accounts abroad. In other cases here, former BCCI officers said the bank put key Finance Ministry officials or relatives on the bank’s payroll and helped finance trips abroad for other government officials to curry political favor.

That was a widespread practice throughout BCCI’s international network, largely fueled by the gung-ho policy of the bank’s Pakistani founder, Agha Hasan Abedi. Abedi publicly pledged in 1972 to build BCCI into the world’s largest bank in just 25 years.

Based on recommendations made by BCCI’s regional managers in South Asia, for example, BCCI in London hired a retired Sri Lankan Central Bank supervisor who was instrumental in approving the bank’s license to operate here in 1979. The son of a former Sri Lankan Central Bank governor got a job in BCCI’s Africa division.

And BCCI sources said the bank helped pay for foreign trips and lavish entertainment for a former Sri Lankan finance minister, now facing criminal charges of overbilling the government for his state visits abroad. (The official has denied the charges, asserting they are part of a political vendetta against him.)

One former BCCI officer in Sri Lanka said the bank used a travel slush fund, held in accounts outside this nation, to pay for trips by Sri Lankan police officials to international law-enforcement conferences in Europe. That move, the bank officer asserted, provided BCCI’s top Pakistani managers assigned here with virtual immunity to criminal investigation and prosecution.

The former BCCI officer cited the case of a former national manager who was pressing the staff of a local bank branch to aggressively market newly introduced traveler’s checks several years ago. In his zeal, the Pakistani manager approved the issuing of unsigned traveler’s checks. But, when one Sri Lankan branch employee was arrested for doing just that, the Pakistani manager somehow escaped prosecution.

It was only through the unyielding efforts of another Pakistani general manager of BCCI’s Sri Lankan operations that Imtiaz was prosecuted and jailed for his 1984 embezzlement--even after Imtiaz was caught holding a mountain of incriminating evidence.

Khalil Zobairi, who headed BCCI’s Sri Lankan operations from 1981 until 1985, said in an interview that he had recommended to senior bank management that the Imtiaz case be brought in Oman, site of the defrauded BCCI subsidiary, rather than in Sri Lanka. Oman imposes much more severe penalties for offenses such as fraud.

“But no one seemed to care about it,” recalled Zobairi, who said he was later passed over for promotions and fired last year because he challenged irregularities and illegalities he uncovered in many of the bank’s worldwide operations during his 25-year BCCI career.

“I was mainly concerned with this fellow (Imtiaz) because he was on the international staff. So when Oman showed no interest in the case, I turned him over (to local police) here, and I took it upon myself to follow up on the case. Even after I was transferred, I kept coming back to Colombo to testify.”

But except for Zobairi’s involvement, BCCI’s corporate headquarters was so uninterested and uncooperative in the case that A. R. C. Perera, the Sri Lankan prosecutor who took the matter to trial, said Imtiaz’s two accomplices were acquitted after BCCI declined to supply witnesses and evidence.

Still, it was during the tenures of Zobairi and several other top Pakistani managers who followed him as general manager of bank operations here that BCCI also built up a huge portfolio of bad and doubtful loans.

The Sri Lankan record of often wild, zealous lending stands as a miniature mirror image of the morass of bad debt that BCCI built up in its worldwide operations, which the Bank of England cited when it shut down BCCI’s operations in July.

The far-flung but secretive bank has since been seized by regulators worldwide and has been linked to laundering profits for drug traffickers, brokering Scud missile deals and possibly bribing politicians in the United States and abroad.

In pursuit of global profits, and under Abedi’s constant pressure for the bank to grow swiftly, local BCCI officers in capitals such as Colombo found themselves routinely extending millions of dollars in loans without any security or collateral.

“It was total mismanagement,” said one Sri Lankan bank officer who served with BCCI for seven years. “In the last year or two, the management of credit was going from bad to worse here. Two months ago, I complained that we had something like 1 billion rupees (about $25 million) outstanding in loans that were likely to go bad. I was told to just forget about it.

“There was also a common practice by the bank here to hand out huge promissory notes to commodities merchants in town,” he said. “Everyone knew what these fellows were up to. These commodities traders were sitting on huge safes in their offices filled with black money, and they were using these notes to launder it. This was the sort of service they (BCCI) offered everywhere they did business--private banking.”

Another facet of BCCI’s Sri Lankan operation was an utter lack of interest in the local branch by the bank’s top management in London. That, too, was a hallmark of BCCI founder Abedi, who stressed a philosophy of decentralizing operations as much as possible. But the structure, former bank officers such as Zobairi said, invited crime and corruption.

Only once did London voice even mild concern to Colombo, several Sri Lankan officers recalled. That was in the mid-1980s, when the branch had overextended itself to the Sri Lankan government--an exposure of more than $50 million in high-interest loans. Ironically, these had resulted from the kind of political favors that BCCI executives had been instructed to win at the highest government levels around the globe.

Ultimately, that debt was repaid. And, when the local bank was closed--temporarily, it turned out--by the Sri Lankan Central Bank on the same weekend that the Bank of England acted against BCCI last month, the government here was a large BCCI depositor, not a debtor.

Most senior Sri Lankan bankers interviewed on the subject suspect that fear of losing those deposits motivated the Central Bank’s extraordinary--and, some say, technically illegal--action to reopen BCCI’s branch here last month.

Whatever the motive, the government’s scramble to pick up the BCCI pieces here was yet another reflection of the global scope of the bank disaster.

In a recent interview, the Sri Lankan Central Bank governor, H. N. S. Karunatilake, said he personally put together the deal that enabled BCCI to reopen here July 29 because he was concerned about the impact of a failed bank on Sri Lanka’s already tattered image in international trade and finance.

With most of the country’s modest budget going to Sri Lanka’s military efforts to put down an ethnic insurgency in the north, the nation has been surviving largely on international aid. A bank closure now could stop the trickle of multinational investment that is just beginning to help Sri Lanka rebuild its war-torn economy, the governor indicated.

“Also, we have to look after the depositors,” Karunatilake said, justifying his decision last month to seize BCCI’s Sri Lankan operations on behalf of the government and to hand them over to another private bank. It has agreed to meet all of BCCI’s obligations under a management contract with the Central Bank.

“There are some 2,300 depositors, and it is their welfare that matters,” he said. “We took it over in the national interest. If we had kept it closed for long, it certainly would have reflected badly on the image of the government and its resources.”

Whether the move was legal is up to international courts and lawyers to decide, said the governor, who described himself as an “aggressive, take-charge” bureaucrat.

But in the process of trying to paper over the potential disaster still lurking in BCCI’s books here, which former bank officers estimated may well contain as much as $10 million in uncollectible loans, Karunatilake said he got a shocking, firsthand glimpse of BCCI’s global financial nightmare.

On four separate occasions, while the Sri Lankan Central Bank was hammering out its BCCI takeover, he said he sent urgent messages to the bank’s international headquarters and to its court-appointed liquidator in the Cayman Islands, the official head offices of BCCI-Sri Lanka.

“I heard nothing whatsoever from them,” he said. “I gave them a time limit. And still, nothing. They simply never replied. What kind of liquidator is this chap? Under what kind of circumstances is he working? And what sort of bank was this?

“Imagine, I was taking over their bank, and I didn’t get even an acknowledgment from anyone in the BCCI or anywhere else.

“It’s all just a very sorry state of affairs.”

A Land of Tea, Turf Battles

Formal Name: Democratic Socialist Republic of Sri Lanka

Area: 25,332 square miles

Capital: Colombo

Population: 17 million

Languages: Sinhalese, Tamil, English

Religions: Theravada Buddhism, Hinduism

Per capita income: $400

Economy: One of the world’s leading exporters of tea, Sri Lanka also produces rubber and coconuts for export. Half the working population is engaged in agriculture. Othere industries: manufacturing, cement, textiles, garments, chemicals, petroleum refining, steel, gemstones. Political history: After nearly 4 1/2 centuries of domination by Portugal, the Netherlands and Britain, Ceylon won independence in 1948 and changed its name in 1972. Since then, a segment of the Tamil Hindu minority has pressured the Sinhalese Buddhist majority for a separate homeland. Violence broke out in 1983 and escalated to civil war. An Indian peacekeeping force failed to resolve the conflict. Meanwhile, violence by anti-Indian Sinhalese revolutionaries has further imperiled the parliamentary democracy’s integrity and damaged its economy.