Ex-Officials Got Loans From BCCI-Owned Bank, Fed Says : Probe: The disclosure is first statement of possible ties between First American and former U.S. government personnel. An investigation is under way.
Authorities are investigating loans to former U.S. government officials by the Washington bank that was secretly owned by the scandal-plagued Bank of Credit & Commerce International, the Federal Reserve’s top attorney disclosed Friday.
J. Virgil Mattingly Jr., general counsel at the Fed, said that Fed officials and others are investigating loans to former officials by First American Bank here. But he refused to name them or describe the nature of the loans.
Sources said later that a federal grand jury in Washington is examining a handful of loans as part of its investigation of ties between First American’s parent company, First American Bankshares, and BCCI. The sources said that Manhattan Dist. Atty. Robert Morgenthau also has been looking into some of First American’s loans.
The Federal Reserve has charged that BCCI illegally controlled 60% of First American’s stock through secret loan agreements with front men. Regulators worldwide shut down various BCCI operations in July after uncovering widespread fraud and massive losses at the international bank.
The disclosure by Mattingly represents the first public acknowledgment that investigators are examining links between First American and former U.S. government officials. He said that there was no indication of BCCI loans to current or former U.S. officials.
Earlier reports had said that First American lent money to the 1984 presidential campaign of former Sen. Gary Hart (D-Colo.), but the loans appeared to be routine and were repaid.
There have been persistent rumors that First American, which was run by Clark M. Clifford, who had longtime ties to the Democratic Party, and law partner Robert Altman, who have since resigned, made sweetheart loans to government officials. Mattingly refused to say whether the loans appeared to be improper.
“If there is information of any kind of impropriety, we have provided it to law enforcement agencies,” Mattingly said under questioning by Rep. Paul E. Kanjorski (D-Pa.) at a hearing of the House Banking Committee.
Mattingly, saying he did not want to interfere with ongoing investigations, provided no details of the loans but said they appeared to represent a “very limited situation.”
A persistent question in the unfolding scandal has been the motive for BCCI’s hidden acquisition of First American and two other U.S. banks, Independence Bank of Encino, Calif., and the National Bank of Georgia.
Most attention has been focused on First American, the largest banking company in Washington. The president of the Federal Reserve Bank of Richmond, Va., testified Friday that repeated examinations have uncovered no evidence of illegal activity at First American.
“This (BCCI) is the biggest financial fraud we have uncovered,” said general counsel Mattingly. “Why they wanted to buy an American bank? We don’t know the answer, and we’re trying to get to the bottom of it.”
Congressmen criticized the Fed for failing to discover BCCI’s covert network of U.S. banks until this year, despite rumors and investigations reaching back to 1978. After recalling the failure of other regulators in the savings and loan scandal, the committee chairman, Rep. Henry B. Gonzalez (D-Tex.), said: “BCCI is one more sleazy addition to this mosaic of regulatory failure.”
E. Gerald Corrigan, president of the Federal Reserve Bank of New York, disagreed, saying he was proud of the monumental effort by Fed investigators to pierce the “patterns of lies and deceit” concealing BCCI’s illegal activities.
“The Federal Reserve does not have the power to coerce truthful testimony from uncooperative criminal conspirators. Nor can the Federal Reserve offer immunity to those willing to come forward,” said Corrigan, who joined the other officials in arguing for new investigative powers contained in pending legislation. Fed officials said that they also want to beef up their criminal investigations division.
For instance, Fed officials said they were unable to obtain documentary evidence of tips from an IRS agent in late 1988 and 1989 that BCCI officers had said the bank owned First American.
Not until 1991 did the Fed obtain what officials call proof of secret BCCI loans to Arab investors to finance the 1981 purchase of First American.
Also, earlier this year, they learned of BCCI loans that enabled Clifford and Altman to buy stock in First American’s parent company in 1986. They sold the stock 18 months later at a profit of $9.8 million and repaid the loans. Altman did not disclose the loans in 1989, when asked by the Fed about any BCCI loans to First American shareholders.
When asked whether Altman should have disclosed the loans, Mattingly said that was part of the Fed’s continuing investigation into the roles at First American of Clifford and Altman, who served as chairman and president, respectively, for nine years.