CIA Says It May Have Made a Mistake on BCCI : Banking: Proper agencies should have been notified about possible wrongdoing, a top official says.

The acting director of the CIA acknowledged Friday that his agency may have erred in failing to notify proper authorities about early evidence of wrongdoing by the scandal-plagued Bank of Credit & Commerce International.

Richard Kerr told a Senate subcommittee that the CIA learned in 1985 that BCCI had secretly gained control of Washington’s largest bank holding company four years earlier. He said the agency did not alert the Justice Department or the Federal Reserve Board, the agencies that could have acted to end BCCI’s control.

Kerr said the CIA’s report on the matter went only to the Commerce Department and the Treasury. Failure to notify the other agencies was “an honest mistake,” he told the Senate Foreign Relations subcommittee on terrorism, narcotics and international operations, which has been holding hearings on the worldwide BCCI scandal.

Sen. Hank Brown (R-Colo.), a subcommittee member, said the CIA “should look with greater care in the future” to the issue of which agencies should receive its reports and assessments. “When there’s a fire, you don’t call the city manager’s office, you call the fire department.”

Kerr said the CIA is constantly reviewing the list of agencies to which it issues reports, and “we believe there is room to improve.”

The handling of the information linking BCCI to the Washington bank contrasts with the CIA’s actions on another matter involving the international banking enterprise, which was shut down in July by regulators representing several countries.

Kerr said that in 1983 and 1984, the CIA discovered evidence that BCCI was laundering drug money and handling bank accounts of terrorists. He said the agency promptly reported the findings to the FBI, the State Department and Treasury.

Washington attorneys Clark M. Clifford and Robert A. Altman, formerly the top officers of First American Bankshares Inc., the firm that BCCI secretly acquired in 1981, have repeatedly denied knowledge of the acquisition.

Kerr acknowledged last summer that the CIA used BCCI’s far-flung banking system in the 1980s to move money around the world for its intelligence-gathering activities. He reiterated Friday that “these were perfectly legitimate and legal operations.” He told the subcommittee that the CIA simultaneously was filing reports on the bank’s activities and did not “assist or encourage” wrongdoing.

The bank was unaware that it handled any CIA money, Kerr added.

Sen. John Kerry (D-Mass.), the panel’s chairman, asked Kerr if he knew that Mideast arms broker Adnan Khashoggi had been involved in a BCCI-financed deal to ship $10 million worth of missiles to Iran through a Canadian business group, and that the transaction had fallen through.

“The CIA had no knowledge of any BCCI involvement in the sale of arms to Iran,” Kerr replied.

Separately, investor Ghaith Pharaon has flatly denied that he acted as BCCI’s front man in the United States, according to papers from a New York federal court obtained Friday by the Associated Press.

In his first formal defense of Federal Reserve charges that he played a central role in BCCI’s infiltration of the U.S. banking system, Pharaon denied that he helped BCCI and a subsidiary acquire 85% of the small Independence Bank of Encino.

Pharaon acquired Independence in 1985 for $23 million. He also disputed allegations that BCCI founder and chairman, Agha Hasan Abedi Abedi, appointed a BCCI executive, Kemal Shoaib, as chairman of Independence Bank.