Motives Behind BCCI’s Secret Push Into U.S. Perplex Officials : Finance: Some believe the scandal-plagued bank sought respectability. Others think the goal was to gain new funds or political influence.
After months of investigating the Bank of Credit & Commerce International, one issue remains unresolved for U.S. investigators: Why was the bank so anxious to do business in the United States?
The question arises primarily because BCCI executives showed such unflinching determination to expand their global banking network in the United States, even though their efforts to buy banks in this country were firmly opposed by the Federal Reserve Board.
To circumvent U.S. law, BCCI resorted to an elaborate scheme of deception to purchase three U.S. banks--First American of Washington, D.C., the National Bank of Georgia and Independence Bank of Encino, Calif. Unlike all other BCCI-owned banks around the world, these three institutions never publicly identified themselves as being part of the Abu Dhabi-controlled banking empire.
Moreover, internal bank documents obtained by The Times show that executives of the scandal-ridden bank were still plotting further moves to expand their operations in the United States--particularly in California--when U.S. law enforcement authorities finally began to catch up with them a few years ago.
Government investigators who are probing the BCCI scandal offer three possible reasons that BCCI officials wanted so desperately to expand their operations inside the borders of the United States:
--Some think BCCI came to the United States in search of respectability--to gain a foothold in the world’s most reliable banking system and create an aura of stability for future depositors around the globe. Most international transactions are denominated in American dollars.
--Some believe that BCCI was simply looking for new revenues to feed its Ponzi-style business empire, which auditors now say had been drained by billions of dollars in foolish investments and bad insider loans.
--Still others believe that BCCI’s purpose was purely political--an effort on the part of the sheiks who owned the bank to influence U.S. policy in the Middle East.
Whatever their purpose, no one outside the top managers of the bank knows for sure. The issue remains what one knowledgeable government investigator described as the “one big missing piece to the whole thing.”
“We’ve seen them buy these banks, but we’ve yet to see substantial activity in the U.S.,” one official involved in the investigation said. “Why did they go to the trouble to buy these U.S. institutions? . . . There’s still a heck of a lot to find out there.”
Even former First American Chairman Clark M. Clifford, the Washington lawyer and former presidential adviser accused of assisting BCCI in secretly acquiring control of First American stock, says he cannot adequately explain the bank’s objectives in the United States.
“I am mystified by the actions of BCCI,” Clifford insisted. “What did BCCI have in mind? Why did they accumulate this stock? . . . I don’t understand what they were up to.”
Founded in Pakistan in 1972, BCCI began buying banks in the United States shortly after the Bank of America ended a financial relationship with the bank in 1976. BCCI secretly purchased the National Bank of Georgia in 1978, bought First American in 1982 and took over control of Independence Bank in 1985, using surrogates such as Saudi businessman Gaith R. Pharaon. Using Pharaon, BCCI also obtained 28% interest in CenTrust Savings Bank of Miami.
From the outset, internal bank documents show, top BCCI officials viewed the three U.S. banks as a single entity--their United States subsidiary, in effect, and the embryo of what they hoped would grow into a full-service U.S. financial network before the year 2000.
While BCCI officials have never told investigators why they wanted to expand in the United States, former Senate investigator Jack Blum says he has little doubt that BCCI founder Agha Hasan Abedi intended to transform his Third World institution into “a U.S.-based bank with the United States as its center.”
Blum says BCCI officials realized that their existing corporate structure, which was registered in both Luxembourg and the Cayman Islands, two jurisdictions that allow bank secrecy, caused many bankers to look askance at BCCI. Neither Luxembourg nor the Cayman Islands has a central bank--or lender of last resort--to regulate and shore up commercial banks.
“The bank was acutely aware that this cast a pall on its ability to function,” Blum said. “Abedi understood that.” In short, Blum asserts, Abedi wanted BCCI to be headquartered in the United States in order “to make them credible.”
Ultimately, BCCI encountered difficulty moving into the United States. The Federal Reserve shared the widespread view that BCCI was an inherently risky institution, and it blocked BCCI efforts to openly buy U.S. banks. Still, Abedi and his lieutenants clearly never gave up hope that the legal obstacles could be surmounted.
At one point, according to a former BCCI official, bank executives even contemplated a novel scheme whereby First American would buy out BCCI, thus circumventing the legal obstacles posed by the Fed. But investigators say there is no evidence that this idea was ever seriously pursued by BCCI officials.
As BCCI did in other countries, it sought to use political influence in the United States to further its business interests and overcome its regulatory problems. Investigators say the assistance of Clifford, a highly respected Washington insider, helped to ease the fears of federal regulators about the sale of First American to a group of Arabs linked with BCCI.
BCCI executives are believed by some investigators to have harbored a hidden political agenda as well as a hope of influencing U.S. foreign policy on behalf of Arab nations. But so far, there is little documentary evidence to support that suspicion.
In fact, Abedi’s carefully nurtured relationship to former President Jimmy Carter and his former United Nations ambassador, Andrew Young, did more to increase BCCI’s stature in the Third World than in Washington, where Carter was viewed by some as discredited following the end of his term as President. Moreover, political contributions distributed by David Paul, president of the BCCI-linked CenTrust Savings Bank, went entirely to supporters of Israel.
While seeking to exert political influence, BCCI officials clearly were planning to expand in the United States despite the political and regulatory obstacles that they faced.
In late 1987, Abdur R. Sakhia, the top BCCI official in North America, wrote a series of memos to Abedi indicating that the bank was preparing for a period of aggressive expansion in the United States, focusing on California. Among other things, he proposed buying an existing bank in San Francisco, even suggesting two possible institutions--one of them Hibernia Bank, which later was purchased by Security Pacific National Bank.
At the time, BCCI was running several so-called “agencies” under its own name in the United States, including three in California. Under U.S. law, these offices could accept deposits only from foreign citizens and foreign companies. In Sakhia’s view, the BCCI officials involved in running these offices were prepared to do more.
One of BCCI’s “objectives in establishing agencies in the U.S. was to let our officers gain some experience in U.S. banking while our strategy for a more full-fledged entry to this country was being decided,” he wrote. “We now have more than six years of experience in this market. We should now try to make a major thrust in the U.S. market. . . . “
In the United States, Sakhia asserted, BCCI could appeal for depositors among the growing immigrant population from the Third World. “(The) United States is a land of immigrants,” he said. “Our own experience since the beginning of our operations here confirms that U.S. customers will do business with us if they can meet their standards of service and quality, notwithstanding that we are a foreign bank. We believe that . . . the U.S. is the first industrialized country where we will find a high degree of acceptability.”
He noted such a move would also “open our doors” to the U.S. deposit base of $3 trillion. “Capital and reserves of (BCCI), its liquidity and its dividends, are expressed in U.S. dollars,” he noted. “The home of (BCCI) is U.S. dollars. The flag of (BCCI) is U.S. dollars. It is therefore quite surprising that (BCCI) does not have a real presence in the home of the dollar--the United States of America.”
In his memos, Sakhia acknowledged it would take “a much longer time for obtaining regulatory approval” for BCCI to purchase a U.S. bank. Inexplicably, however, he failed to mention that the Federal Reserve--whose approval would have been necessary for such a purpose--had previously rejected BCCI’s attempts to acquire other banks and would likely do so again.
Sakhia also raised the possibility of establishing a BCCI subsidiary in California, a move which also would have required Fed approval and a large capital infusion.
Although BCCI did not act on either of these proposals, Sakhia’s memo has provided investigators with some hints about why BCCI was trying to establish itself in the United States.
Among other things, it mentioned that owning a U.S. subsidiary would enable BCCI to obtain an independent credit rating, would qualify it to do business with such global agencies as the Agency for International Development and the World Bank and would make it easier for BCCI to attract business from U.S. banks that were “reluctant” to deal with a foreign bank. “Being based in the U.S., the subsidiary will have a lender of last resort in the U.S.,” Sakhia explained. “This will enhance our credibility in the U.S. market.”
Instead of buying a new U.S. bank or establishing a subsidiary, BCCI eventually chose to upgrade its Los Angeles agency office to a branch bank. To do so, however, it had to submit to increased Fed supervision and to deposit $23 million with the state of California.
At the same time, BCCI’s Latin American division, which included Florida, was also considering buying a medium-sized bank in Miami. Investigators have found a memo in which the bank’s officials mapped out a massive expansion for the Latin American division in the 1990s. “By 1993,” the memo said, “. . . we would be a well-established commercial bank with branches in 13 Southern states in the U.S.A. with an asset base of $3.5 billion.”
Although bank regulators consistently were led to believe that BCCI did not own First American, the National Bank of Georgia or Independence Bank, it was no secret among BCCI executives in the United States that these institutions were a part of the bank’s empire.
Whenever top BCCI officials held planning meetings, representatives of First American and the National Bank of Georgia were invited, according to others who attended the meetings. According to one source, Kemal Shoaib also may have attended the meetings when he was chairman of Independence Bank.
At one meeting of BCCI’s “Americas Coordinating Committee,” Khsuro Elly, then the head of BCCI’s New York office, told the bank’s executives: “In America, we are sitting on $7-billion assets, and this is just the beginning.” He was referring to the revenues of the three banks that BCCI owned under what now has been branded as false pretenses.
As BCCI expanded in the United States, so did its illegal activities, investigators say. Although there is no evidence to date that the banks were looted, officials say it is clear that BCCI played an active role in their management and used its hidden holdings in First American to improve BCCI’s own weak financial picture.
After BCCI suffered huge losses in 1986, First American agreed to buy the Georgia bank from Pharaon for an inflated price, and Pharaon, in turn, turned over $150 million from the sale directly to BCCI. The result of these transactions was to move money from the coffers of First American into the hands of its secret owner, BCCI.
According to Price Waterhouse, BCCI’s accounting firm, the bank also used its holdings in First American to bolster its own financial outlook. Among other things, BCCI carried on its books more than $1.4 million in non-existent loans to the Arabs who bought First American, including $573 million in interest payments that never had been collected.
In June, 1985, when stock in the holding company for First American dropped from $5,000 to $2,200 a share and then climbed back again to $6,000, BCCI drew down a total of $231 million from the accounts of the nominal Arab owners and moved it into other BCCI accounts.
So far, the only charges filed against BCCI officials in the United States have related to money laundering through the bank’s offices in Florida. The Fed has brought civil complaints in connection with BCCI’s illegal ownership of the three American banks, and investigators say criminal charges are expected in the future.
Staff writers Douglas Frantz in Washington and James Bates in Los Angeles contributed to this story.
