Fed Looking Into Loans to U.S. Officials in BCCI Case

From Reuters

The Federal Reserve is investigating loans to U.S. officials by First American Bankshares Inc., the bank that was secretly owned by scandal-ridden Bank of Credit & Commerce International, a Fed official said Friday.

Fed General Counsel Virgil Mattingly told the House Banking Committee that First American, Washington's largest bank with branches in several states, made loans to government officials.

"Those . . . are being gone over with a fine-tooth comb," Mattingly told the committee. He declined to provide details but said it was "a very limited situation."

Robert Black, president of the Federal Reserve Bank of Richmond, Va., said examinations of First American since it was taken over in 1982 by a group of Middle Eastern investors who acted as front men for BCCI have uncovered no evidence of irregularities in First American's business practices.

Black told the panel that the Richmond Federal Reserve failed to uncover evidence of BCCI's alleged secret ownership despite eight examinations in nine years.

"Neither the reports of our First American inspections nor any of the reports of examination prepared by other federal and state regulators contained comments or criticisms regarding involvement of, influence by or improper payments to BCCI," Black said.

Regulators around the world shut down Luxembourg-based BCCI on July 5, and the Fed slapped a $200-million fine on the bank for concealing its ownership of U.S. banks from regulators.

"This is the biggest fraud that we have ever encountered," Mattingly said.

Fed officials told the panel that they were frustrated in their efforts to find the evidence they needed to throw BCCI out of the country, even though they heard rumors in 1988 of its alleged secret ownership of First American.

House Banking Committee Chairman Henry Gonzalez (D-Tex.) accused the Fed of giving "unbelievably light treatment" to the Internal Revenue Service tip.

"The Federal Reserve ran a cursory check of the tip by going back to the same people who had given the original assurances," Gonzalez said.

The Banking Committee has been investigating BCCI's links with First American. Members repeatedly asked Fed officials why it took so long to uncover the alleged secret ownership of First American and other U.S. banks.

Mattingly said government jurisdictional problems hampered the Fed's effort to uncover the proof it sought.

The IRS investigated money-laundering charges against BCCI in 1988, but secrecy laws prevented it from sharing its information with the Federal Reserve, he said.

The tax agency did not provide the names of witnesses who could testify on the alleged BCCI links until 1990.

"During 1989 and continuing into 1990, Federal Reserve efforts to pursue reports of a BCCI-First American link were often frustrated by our inability to obtain the documentary or corroborating evidence necessary to initiate actions," Mattingly said.

"I think there should have been more cooperation between the agencies of government," he told the panel.

Mattingly said former First American Bank President Robert Altman assured the Federal Reserve in 1990 that BCCI held no interest in the bank.

Altman's law partner and mentor, Clark Clifford, the Democrat power broker and presidential adviser, was chairman of the bank. Both resigned last month under pressure from the Fed.

Altman and Clifford denied in testimony before the House Banking Committee earlier this week that they knew of BCCI's alleged secret ownership of First American.

New York Federal Reserve President E. Gerald Corrigan said the Fed knew in 1989 that BCCI had made loans to the Middle Eastern investors who bought First American.

But officials did not learn until earlier this year that the loans were used to finance stock purchases in First American's parent, Credit & Commerce American Holdings.

That was a violation of a 1981 agreement with the Fed that allowed the Middle Eastern investors to purchase First American.

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