More Evidence of Officials Ignoring BCCI Warnings : Thrifts: A 1978 report told of severe financial problems, but it mysteriously disappeared from government files.
A federal bank examiner warned in 1978 of severe financial problems at the Bank of Credit & Commerce International, which collapsed last year in the biggest international banking failure in history, a Senate hearing was told Wednesday.
Examiner Joseph Vaez said in his report that Bank of America, with a large investment in BCCI, was “painfully aware of its risk exposure . . . in this potentially hazardous relationship.”
Vaez’s report mysteriously disappeared from the normally complete files of the Office of Comptroller of the Currency and didn’t surface again until he gave his personal copy to the Senate Foreign Relations subcommittee on terrorism, which made the document public at a hearing Wednesday.
The Central Intelligence Agency prepared its own report on the financial misdeeds of BCCI in 1984, and this document has also vanished from government files, said Sen. John Kerry (D-Mass.), the subcommittee chairman.
Kerry and other members of Congress are particularly disturbed and angry that federal officials knew about BCCI but failed to sound an alarm to financial regulators, who could have blocked BCCI from its entry into the U.S. banking business.
“A full accounting of BCCI’s criminal activity has yet to be uncovered,” Kerry said. Sen. Hank Brown (R-Colo.) joined Kerry in expressing dismay at Wednesday’s hearing that BCCI’s activities to infiltrate the U.S. banking system remained unchallenged for years.
Overwhelmed by massive fraud in loans and by its involvement in laundering drug money, BCCI was shut down by regulators last July.
The bank pleaded guilty to federal charges including the illegal ownership of Independence Bank of Encino, and First American Bankshares Inc. of Washington, D.C., the capital’s largest bank holding company. BCCI agreed to forfeit $550 million in U.S. assets, with half the money going to cover losses at the illegally owned banks in the United States, and the rest reserved for BCCI depositors in foreign countries.
In his original report, Vaez told his superiors in Washington that Bank of America became increasingly worried that it could not exercise management control over the institution. BCCI relied heavily on deposits from wealthy but mysterious investors from the Middle East.
Bank of America terminated its investment in 1980.
The strongly worded examination report by Vaez emphasized that BCCI’s methods of operation are “so incongruous to the Bank of America’s management philosophy that B of A is painfully aware of its risk exposure and most certainly would expedite the disposition of this investment to terminate this potentially hazardous relationship.”
Witnesses and committee members were unable to explain Wednesday why Vaez’s lengthy report was missing from the files of the Comptroller of the Currency. “There were extensive multicolored, coded files by bank,” said Robert Bench, a former deputy comptroller. The BCCI report should have been in the Bank of America’s red or green file, he said.
The CIA discovered that BCCI secretly gained control of First American and informed the Treasury Department, but failed to notify the Federal Reserve Board, which is responsible for foreign banks seeking to operate in this country.
Douglas Mulholland, the State Department’s assistant secretary for intelligence, told the hearing Wednesday that he received a CIA report on BCCI in 1985 when he was a CIA employee assigned to the Treasury Department.
Mulholland said documents indicate that he showed the report to then-Treasury Secretary Donald Regan. But there was no effort to share the damaging information about BCCI with the Federal Reserve. Mulholland said it wasn’t his job to give the report to other agencies.
An irritated Kerry said to Mulholland: “The buck stopped somewhere else.”
