Saudi Tycoon, 2 Ex-Heads of BCCI Indicted

Saudi Arabian tycoon Ghaith R. Pharaon was indicted Friday along with two former presidents of the Bank of Credit & Commerce International on racketeering charges in connection with the acquisition of Independence Bank in Encino, Calif.

The federal indictment charges that Pharaon helped BCCI gain secret control of Independence in 1985 by masquerading as the bank’s sole owner. It alleges that Pharaon acted as a front for BCCI and owned only 15% of Independence while BCCI controlled the remainder.

The transaction was part of a grand scheme by BCCI and its top management to obtain hidden interests in U.S. financial institutions after federal regulators had found BCCI unfit to own banks in this country, according to Jay Stephens, the U.S. attorney here.

Along with the Independence deal, the defendants were charged with fraud in BCCI’s purchase of $25-million worth of bonds issued by CenTrust Savings Bank, a Miami thrift that failed in 1989. Justice Department officials said the purchase helped prop up CenTrust when regulators were questioning its financial health. A year later, the thrift failed at an estimated cost to the taxpayers of at least $2 billion.

Pharaon, 50, was indicted by a federal grand jury in Washington on charges of racketeering, conspiracy and fraud. Charged with him were Agha Hasan Abedi, the Pakistani founder and former president of BCCI; Swaleh Naqvi, long-time Abedi aide and also a former BCCI president, BCCI Holdings and three subsidiaries.

Assistant Atty. Gen. Robert S. Mueller III said arrest warrants had been issued for all three men and attempts would be made to bring them to trial. Pharaon has homes in the United States, France, Saudi Arabia and Pakistan, and Mueller said efforts to find him were under way.

Abedi is in Pakistan, and authorities there have said he will not be extradited. Naqvi is under arrest in Abu Dhabi, the Persian Gulf sheikdom whose ruling family owns 77% of BCCI.

In an interview with The Times last spring, Pharaon maintained that he owned 100% of Independence Bank. On Friday, his attorney, Richard F. Lawler, said the charges were motivated by politics and that Pharaon had done nothing wrong.

“This indictment is clearly the result of the clamor in Congress and the criticism in the media of the Department of Justice for the perceived failures by the Department of Justice in their investigation of BCCI,” Lawler said. “Ghaith Pharaon believes he has not violated any United States laws and has acted properly in his ownership of Independence Bank and in all of his dealings here.”

Lawler said he did not know Pharaon’s whereabouts and would not comment on whether the Saudi businessman will surrender to face the charges. Attempts to reach Abedi and Naqvi in the past have been unsuccessful.

Mueller characterized the indictment as a major step in the federal investigation of BCCI’s activities in the United States, and he responded to criticism that the Justice Department has been too slow in bringing charges in BCCI cases.

“We are working at top speed while still building our cases with the utmost care,” he told reporters here. “The BCCI case continues to have the highest priority within the department, and the many facets of our investigation are continuing to move forward.”

Justice Department officials have said that grand juries in five cities are examining BCCI cases. One of the cases involves allegations that BCCI used front men to obtain control of First American Bankshares, the biggest bank in Washington.

Regulators in numerous countries shut down BCCI in July after the Bank of England uncovered evidence of fraud. The victims potentially include many of the bank’s 1.2 million depositors in the approximately 70 countries in which it operated. Deposits were frozen when the bank was seized.

Independence Bank has been trying to distance itself from Pharaon and BCCI since the scandal broke last spring. The bank has been plagued by troubled loans, and federal regulators are trying to arrange its sale.

“To the extent that this (indictment) is part of the process of disassociating ourselves from the existing shareholders (BCCI and Pharaon), this is a good step forward,” Fulvio V. Dobrich, the chief executive of Independence, said.

Pharaon’s extensive worldwide business interests have long been intertwined with the affairs of scandal-plagued BCCI. At one point, he was a major shareholder in the bank; and audit reports last year listed him as a major borrower. But the federal indictment provides new details of the relationship.

According to the charges, Abedi wanted to buy a bank in California in 1984 as part of his worldwide expansion of BCCI. One of his employees identified Independence as a potential acquisition.

But U.S. banking authorities had refused to allow BCCI to acquire banks because of concerns about its ownership and finances, so Pharaon was used as a front for the Independence deal, said the indictment.

In April, 1985, Pharaon signed an agreement to buy Independence for $23 million. A month later, the indictment said, he signed an agreement with a BCCI subsidiary assigning 85% of the shares to the subsidiary.

According to the indictment, BCCI had secretly arranged the financing for the acquisition and provided Pharaon with loans that it agreed he would not have to repay. Those arrangements were kept from federal and state banking regulators, according to the charges.

In July, the Federal Reserve Board sought to bar Pharaon, Abedi and Naqvi from U.S. banking for the alleged illegal acquisition of Independence. At the time, the Fed referred allegations about the transaction to the Justice Department task force examining BCCI.

Pharaon’s Independence shares have been frozen, along with his other assets, by a federal judge in New York at the request of the Federal Reserve. This has complicated attempts by regulators to clean up problems at Independence and sell the bank, which has been hit hard by problem loans.

Federal Reserve and state banking officials are working on a novel plan in which at least $50 million of the $257 million in BCCI assets seized in the United States would be injected into Independence. About half of that would be designated as a reserve to protect against further loan losses, and the rest would increase Independence’s capital.

The CenTrust aspect of the alleged conspiracy involved BCCI’s purchase of $25 million of a $150-million junk-bond offering by the Miami thrift at a time when Pharaon was one of its major shareholders.

CenTrust was under scrutiny by regulators, and the BCCI purchase helped prop up the ailing institution. Six weeks later, the indictment said, the bonds were sold back to CenTrust at full price under an arrangement negotiated by Pharaon and Naqvi.