BCCI: Caught in the Coils of Cash

Harr;J tof'Iell Villains From Victims in this International Mess

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By Mark Hosenball Trade & Investment Company Inc. re- unprofitable, infinitely leveraged company
ceived a BCCI loan; American investigators which has not yet achieved the revenues
E
YEN THE growing crowd of scandal
and conspiracy buffs salivating over
the BCCI case have fundamental
problems figuring out the intricate story.
For example, it's sometimes hard to tell the
villains from the victims.
Take the Georgia politicians now squirm-
ing over allegations about BCCI-financcd
lobbying and junketing: Are they venal and
greedy hacks? Or suckers drawn into an
international web of mtrigue and chicanery
by a rapacious gang of swindlers?
The dimensions of the BCCI story are
colossal. If BCCI IS not the Mother of Scan-
dals, as some enthusiasts suggest, it may be
the Harlot of Scandals, a tale of corruption
in some of tbe highest and lowest corners of
the world. Presidents, prime ministers, con
men and terrorists all were drawn in by
BCCJ's promiscuous and seemingly limitless
supply of cash, perhaps in some cases be-
cause BCCI seems to have postured as an
enthusiast for Third World development,
backing causes and public figures that could
give it an aura of respectability, while also
engaging in regular business.
It will take years for ihvestigators to
make sense of the mountains of paper the
scandal has generated. For now, scandal
junkies need only wander through the piles
of evidence to find gems illustrating the
extent of the BCCI net. Here are a few,
drawn from formerly secret documents:
The Terrorist Connection. Documents
have surfaced providing hard proof of wide-
spread allegations that BCCI was a banker
for one of the world's most ruthless terror-
ists, Abu Nidal. Part of the minutes of a
BCCI board of dlrectors meeting shows that
some time before july 10, 1986, someone
called Samir H. Najmeddin "and/or S.A.S.
Mark Hosmball i.r a productr for !.he NBC
N6WS program "Ex/JO#."
say the "DCCI board only approved loans ]sic] levels it had expected." What did the
over $10 million. An earlier BCCI financial company do to JUStify the bank's invest-
document, originally obtained by the Lon- ment? According to the documents, its mis-
don Sunday Times, also shows Najmeddin sion was Mto focus primarily on offenng con-
receiving a total of $9.6 million in credit suiting services to domestic businesses
from BCCI prior to 1984. working to achieve sales to various Third
The document describes Najmeddin as a World countries ... relying largely upon
Mmiddle-man" who Mhas been known to us name recognition and Third World political
for over 2Yt years and has routed various contacts." Its employees included Stoney
large transactions through the branch earn- Cooks, a long-time Young lieutenant, and
ing us considerable commissions." Accord- Young's daughter, who "also has some ex-
ing to testimony given last month to the perience in foreign relations, having testi-
Senate Foreign Relations Committee by A. fled before a Senate subcommittee subse-
Peter Burleigh, the State Department's top quent to traveling with former Attorney
terrorism expert, notorious" Najmed- General Ramsey Clark to Nicaragua on a
din also is the chief financier for Abu Nidal, fact-finding mission."
who, in the wake of BCCI's apparent lar- Another BCCI board minute dated Sept.
gess, launched a series of international ter- 2, 1985 reports that in 1983 BCCI had do-
rorist atrocities. nated $100,000 to a nonprofit group, Young
British legal documents also obtained by Ideas, set up by Young, and that Young per-
the Sunday Times report that a former sonally asked for a further $50,000 dona-
BCCI London branch manager had reported tion in 1985. which was granted.
that Abu Nidal maintained a personal bank In a telephone interview last week,
account at BCCI under the nom-de-guerre Young stressed that he did not learn until
Shakir Farhan (Abu Nidal itself is the nom- recently about the Bank's alleged criminal-
de-guerre of a man born Sabri AJ-Banna). ity. MAs far as I was concerned, it was a sol-
T1te Andrew Young Connection. The for- id respectable bank." he said. Some of the
mer U.N. ambassador and Atlanta mayor money, he said, was given to Young Ideas to
has acknowledged a financial relationship pay for the travel of African leaders to a
with BCCI, but documents in the hands of conference sponsored by the group, but he
investigators give new details of how much could not say whether this accounted for all
money his companies rece1ved and the the BCCI donations. Young added that he
terms on which it was given. did not personally receive any money.
Loan papers from the National Bank of .He said the loans to his consulting firm
Georgia, which was sold by Carter admin- were secured by his house and that of his
istration budget boss Bert Lance to BCCI partner, Cooks. According to Young, BCCI
front-man Ghaith Pharaon, and later sold by eventually wrote off the loans in heu of de-
Pharaon to First American Bankshares of livery of a retainer which the firm had been
Washington (now alleged to have been an- promised-but had not reqeived-for de-
other BCCI front), show that in 1982 and velopment work it was supposed to do for
1983 a consultmg firm called Andrew BCCI in Angola, Mozambique and Namibia.
Young Associates was loaned $200,000. He said he wasn't sure if Andrew Young
The money was loaned even though the Associates ever performed any work in con-
National Bank's credit analyst concluded nection with the retainer.
that Young's company was "a smaU_.jlliquid, The Kennedy Smith Connectfpn. A sheaf
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of documents circulating among various
investigative bodies describes a curious ep-
isode in which money from BCCl ended up,
unwittingly no doubt, with one of the favor-
ite charities of a Kennedy family matriarch,
Jean Kennedy Smith.
The documents relate to a gala event
which was organized in Paris in january
1988 for the benefit of Very Special Arts
Lnternational, a charity headed by Jean Ken-
nedy Smith that supports mu-
sicians. The event included a concert to
inaugurate the Paris Philharmonic Orches-
tra, a musical group headed by Lalo Schi-
frin, the composer of the Impos-
sible" theme. The concert's sponsors in-
cluded leading Paris aristocrats and coutu
riers, as well as the American ambassador
to France and Ghaith Pharaon, the Saudi
front-man for BCCI. Presiding over this
glittery affair was Madame Danielle Mitter-
rand, wife of the French president.
Documents show that also on the scene
were Mr. and Mrs. David Paul, high-profile
socialites in Miami, where David Paul head-
ed the largest savings and loan. CenTrust
Savings. A cable from Pharaon in Paris
shows Pbaraon asking CenTrust to reim-
burse him for an 80,000 franc ($13,920)
donation which Pharaon, debiting his ac-
count at BCCI's office on the Champs
Elysees, made to Very Special Arts on
Paul's behalf.
High rollers apparently rece1ved the ad-
ditional cachet or :In invitiltion to i1 post-con
cert dinner at the American ambassador's
residence, catered by s1x of France's top
chefs, mcluding Lyon's legendary Paul Bo-
cuse. More money was raised by auctiOn at
that dinner: David Paul won a second dinner
catered by the same French chefs, duly
flown to Miami for the event.
A knowledgeable Miami source said Paul
supported Jean Kennedy Smith's event on
the understanding that Smith would support
a M1ami fund-raiser for one of Paul' s favor-
ite charities, Miam1's World Sympho-
ny. Smith allegedly backed out of the quid-
pro-quo because one of her {not
William) was sick. Reached in Miami; where-
he is under investigation by numerous law
enforcement agencies after his bank's col-
lapse, Paul refused to comment on the dOc-
uments or his trip to Paris. A spokesperson
for Very Special Arts said that the organ-
ization "never agreed to raise funds for Mr.
Paul. It's preposterous to suggest anj im-.
propriety in accepting Mr. Paul's 1988con-
tribution to help disabled artists." " -
T
here are other bizarre items strewn
throughout the documents: a twa:-
page security memo from the Ceo-
Trust security department to David Paul,-
stamped "CONFIDENTIAL" and warning-
its recipients that "Visitors to Bogoti, Me-
dellin and Cali must take careful measures
to reduce the risks of kidnapping and' assa:
sination." What appears to be a covedetter
on Paul's stationery, dated six days" later,
exclaims: "1'o Dr. Pharaon: We must both
be crazy." (A source close to CenTrust"COn-
firmed the memo's authenticity, but said no
known trips were made to Colombia li_y Paul
or by Paul and Pharaon together). _
And another CenTrust memo offers tati-
talizing hints of what might have the
ultunate international financial fiasco: Gel)
Trust (by then partly owned by Pharaon}
appears to have been reviewing a
sent by California's Lincoln Savings, and
Loan, the once-soaring institution beaded
by S&L kingpin Charles Keating. A.fter a'
cursory financial analysis, the memo
eludes that, for the moment. CenTrus.t.
should probably "pass on the deal, because
. the "large distance between here arid Cal-
ifornia stretches management and limits
Significantly any market synergies."
The pit which now threatens to. engulf
many of those who dallied with DCCI-swal-
lowed up both CenTrust and Lincoln before
any mega-deal coqJd be consummated. :
MARY McGRORY
P ~ ~ ~ & J 91
Summer
Of the
octopus
0
NE THJNG in the sad murk is
clear: Before he died, Danny
Casolaro saw an octopus. He
told his friend BiU Hamilton about it.
The tentacles reached into all the
scandals we are grappling with in
this summer of conspiracies
unlimited.
The body of free-lance writer
joseph Daniel Casolaro was found in
the bathtub o( a West Virginia motel
on a week ago Saturday. His arms
were slashed. Martinsburg police
prooounced it a suicide and
proceeded to embalm the body with
extraordinary haste-before they
got around to notifying Casolaro's
family, which finally heard the news
last Monday.
His brother Anthony, an Arlington
physician, doesn't believe it was
suicide. Nor does anyone who knew
~ talked to him in his last days.
One reason foe the skepticism was the
intia1 report that some wounds were
jagged and supposedly self-lnJiicted
with a broken beer bottle found next
See McGRORY, C ~ CoL
Mary McGrrn7 is a Waslsmgtcm Post
coiU1ft11i.st.
,.IJIBI
"1c I
MARY McGRORY
Summer of the Octopus
McGRORY, From Cl
to the tub. A crime
reporter-Casolaro was a
correspondent for Washington
Crime News Service-would have
known better.
But it was Casolaro's
temperament and prospects that
argue even more strongly. He was a
happy, outgoing, gregarious person,
the kind who cracks wise with
secretaries and waitresses and
endears himself to children. The day
before he died, according to the
Martinsburg Morning Journal, he
told a Pizza Hut waitress that he
liked her brown eyes, that he was a
member of the Edgar Allan Poe
Society. He quoted "The Great
Gatsby" to her.
He told his brother. his girlfriend,
Hamilton and others that he was on
the point of cracking the case that
.had absorbed him for a year. He had
begun investigating the lnslaw case,
a tangled affair or government
perfidy and international intrjgue
that has been in litigation since
1983. ln his explorations, he found
out about possibly related
scandals-BCCI. s&Ls. lra!Kontra.
the "'ctober surprise -but until
two weeks ago, he had found
nothing about lnslaw. Then, he
joyfully told friends. he hit bingo.
One more interview and the case
was cracked.
Suicides do not tell their intimates
within days of taking the hemlock
that they are uecstatk:" or
ueuphoric: Casolaro did. Nor do
they attend family birthday parties,
as Danny Casolaro was planning to
do hours before he died. The last
known can he made was to his
mother in Fairfax. He told her he
was on Interstate 81 in
Pennsylvania. He would be late, but
he was headed home. A
rnanic-<iepressive might then kill
himself. Nobody ever suggested that
Danny Casolaro was one.
All the circumstances beg for
disbelief, none more than a supposed
suicide note. "I'm sorry, especially
to my son''-from a man who lived
by words-just doesn't ring true.
Casolaro wrote a novel, a children's
book. His prose style-at least as
displayed in an outline he subrrutted
to Little, Brown of a book he
proposed to write about the octopus,
called "Behold, a Pale Horse" -is on
the florid side. Such a terse farewell,
unless composed or dictated at
gunpoint, is entirely unconvincing.
Subsequent reports about a
second note, a razor blade in the tub
and Casolaro's financial problems
don't end the mystery .
T
he man who could have
resolved the Inslaw case, Dick
Thornburgh, resigned as
attorney general to run for the
Senate in Pennsylvania on the day
the West police came
fol'ward with the.ir autopsy. Excess
was the hallmark of Thornburgh's
farewell ceremony: an honor guard,
a trooping of the colors, superlatives
from subordinates. Wtlliam P. Barr,
his deputy and possible successor,
spoke of Thornburgh's "leadership,
integrity, professionalism and
fairness--none of which
Thornburgh displayed in his
handling or Inslaw.
Although the case involves the
alleged theft of computer software
by the Justice Department in the
time of Ed Meese, Thornburgh took
it to his bosom. Bill Hamilton, .a
perfectly nice midwesterner who
owned a Washington firm called
lnslaw, had invented Promis, a
software especially adapted to aime
statistics, which he sold to justice.
The second year, Justice stopped
making payments. Hamilton and his
wife, Nancy, believe that cronies of
Meese were given the franchise to
sell around the world. Promis has
turned up in Canada and Pakistan.
The link with the ''October surprise"
is Earl Brian, a former Reagan
political associate who allegedly paid
off the Iranians to keep the hostages
until after the 1980 election-and
allegedly was paid off himself with
huge profits from Promis.
Thornburgh refused to discuss
the lnslaw case with the Hamiltons
or their counsel, Elliot Richardson.
He did not answer Richardson's
letters. He did not return his phone
calls. He refused to receive his
distinguished predecessor. The
Hamiltons have been to court many
times. Judges have recused
themselves. Witnesses have
disappeared or recanted. The man
who knows the most, Michael
RK:onosciuto, was picked up in
Washington State on drug charges
and is in jail. What was merely
sinister has now turned deadly.
Thornburgh calls lnslaw ua little
contract dispute" and refused to
testify about it to the House
Judiciary Committee. Richardson
thinks it could be "dirtier than
Watergate" and, as a victim of that
scandal, he should know.
Thombugh's conduct is the most
powerful argument for believing that
Danny Casolaro really saw an
octopus before he died.
1
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1
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I. '
Exposing BCO's FaultS
Investigators accuse it of bribery,
fraud, money laundering and influ.-
ence peddling. But apart from any
crimes the Bank of Credit and Com-
merce International may have com-
mitted, it wasn't a very good bank.
BCCI defied the most common-
sense rules of finance, according to
congressional testimony by a former
top BCCI executive and a thick stack
of internal BCCI audit reports that
became available last week in Wash-
mgton and London.
Contrary to industry convention,
BCCllent more than $700 million to
a single customer-a shipping group
run by three brothers close to
BCCI's Pakistani founder-and the
group's failure to repay nearly
wrecked the bank. It speculated on
world financial markets at a dizzying
pace, rolling up $849 million in Joss.
es and nearly erasing the bank's cap-
ital base. At one point in 1989, it
lent $3.3 billion of its $20 billion in
assets to just 22 customers-much
of it secured only by vague personal
guarantees or BCCI stock.
BCCI also mocked the trust that
clients place in their bankers, the au-
dit reports showed. It regularly di-
verted customers' deposits to cover
other shaky bank operations. It falsi-
fied records to hide its actions. It
freely commingled customers' mon-
ey with its own. It made unautho-
rized loans to itself in customers'
names without their knowledge.
And BCCI stayed one step ahead
of its auditors and international reg-
ulators by creating a "special duties"
department, the responsibilities of
which included falsifying documents,
creating fictional financial back-
See DCCI, AlO, CoL 1
I
i
I
l
I , ___
BCCI. P'ro111 AI
grounds for fake clients and opening
bogus accounts.
Finally, in early 1990, some BCCI
executives and its auditing firm,
Price Waterhouse, woke up to the
bank's way of doing business. A spe-
cial task force of four BCCI execu-
tives, assigned to examine the un-
raveling financial disaster and report
to BCCI's board, bluntly expressed
ita "considerable surprise and disap-
pointment at such obvious flaws in
basic banking procedures."
The task force said if the bank did
not clean up these practices. the au-
ditors could not issue a clean bill of
health in BCCI's annual public re-
port.
"Without this, there is now a
grave and real danger of a serious
'run' on the bank, worldwide. result-
ing in an uncontrolled situation
which would even close the entire
group with senous consequences to
the 1.3 million customers, the $17-
billion-plus deposits, the over $2 bil-
lion due to correspondent banks as
weU the future of over 14,000 em-
ployees, all of which will be in seri-
ous jeopardy, the task force said.
Last month, the task force proved
prescient. Citing widespread and
continuing fraud, bankmg regulators
seized the baoldng giant. froze its as-
sets and promised to begin liquidat-
ing the institution and its operations
in more than 70 countries.
The action touched off a world-
Wide uproar as depositors in Europe
and Asia sought access to their mon-
ey and lawyers gathered in New
York and London courts to argue
aVe! which creditors would be paid
-
weeks ago the scandal wid-
ened when BCCI's former top two
officers, Agha Hasan Abedi and Swa-
leh Naqvi, were indicted in New
VOrk on fraud charges. Abedi is in
l'd.kistan and NaqVl is in Abu Dhabi
while authorities wrestle over extra-
questions that must be re-
sOlved before they can stand trial.
"'BCCl's former chief financial offi..
df and the man who beaded the
task force, Masihur Rahman, told a
Stnate subcommittee last week that
orily Abedi, Naqvi and a handful of
officials at BCCIImew of
the abuses at the bank. However, he
also said management supervision
.,.3s so lax that low-level BCCI offi-
cials were allowed to make mistakes
that cost the bank millions of dollars
aQd exposed it to criminal prosecu-
tion.
audit reports, released last
showed bow BCCI used its
cOffers to help its friends and its
shareholders. many of whom are re-
lated to the ruling families of the
United Arab Emirates and Saudi
1\fclbia. The bank lent hundreds of
millions of dollars without obtaining
IQan agreements or other documen-
tation. For example, the task force
said the history of loans to one BCCI
A.R. Khalil, makes
really sorry reading."
the auditors pointed out.
had not been ''in contact" with the
bank since 1985 and bad not paid in-
terest on his debts for years. None-
t.beless, Khalil's borrowings kept in-
q;easing each year, reaching $150
riill.lion by the end of 1989.
. "Mr. Khalil is a high net-worth
saudi Arabian businessman: the
tJsk force's report said. "The task
force feels that he should be urgent-
l}l contacted to unwind his position
with the BCC group."
Most of Khalil's loans were se-
cured by shares in the holding com-
pany that owns Washington-based
First American Bankshares, while
about 20 percent were unsecured,
tbe auditors said.
' The Federal Reserve Board al-
leged last month that BCCI, with
headquarters in Abu had ac-
q\li.red secret control of First Ameri-
ean's holding-company stock
through such loans to Khalil and oth-
ers. Because the loans had never
repaid-if the loans were gen-
uine at all-the Fed alleges that
BCCI owoa the stock.
The Fed has ordered BCCI to sell
its illegal in First American
and fined BCCI $200 million for al-
leged violations of U.S. banking law.
Investigations continue into
whether First American's top offi-
cers, Chairman Clark M. Clifford and
President Robert A. Altman. knew
of BCCI's role in First American.
Both men have said they, not BCCI,
ran First American.
A Depressing Finding
It is bard to teD, investigators coo-
ceded, whether BCCI intended to
operate illegally when Abedi founded
it with Arab and American money in
1972 or whether it went bad later
But by the late 1970s, the audit re-
ports make clear, sour loans and oth-
er ac-
celerated tne oanks plunge toto
extraordinary-and apparently ille-
gal-solutions.
Rather than set aside reserves to
cover the growing losses, which
would expose their problems to pub-
lic scrutiny, BCCI's management
juggled its books "to create the im-
age of success," according to a Price
Waterhouse audit report prepared
for the Bank ol EngtaDd, a report
which led to the BCCI shutdown last
month. "They apparently believed
that the disclosure of the full extent
of the losses .. would have jeopar-
dised the very existence of the
bank."
"There is insufficient information
available with which to recreate the
bank's accounts, Price Waterhouse
said. "But on the basis of the losses
which have been concealed it would
appear that the bank has generated
significant losses over the last de-
cade and may never have been prof-
itable in its entire history."
At the end, according to investiga-
tors. BCCI may have been t:cying to
cover up losses of more than $5 bil-
lion.
Perhaps the most devastating
loans were those to the Gulf Group,
a London-based shipping company
founded by three Pakistani-born
brothers-Abbas Gokal, Mustafa
Gokal and Murtaza Gokal. Gulf
Group grew with the Middle Eastern
oil industry, at one point owning
more than 100 ships and chartering
140 more, according to the audit
documents.
The Gulf Group borrowed heavily
from BCCI to fund its expansion, but
the company ran into trouble in the
late 1970s and 1980s when its at-
tempts to diversify fizzled and oil
prices subsequently sank.
The problems of Gulf Group were
BCCI's as weU. In 1981, according
to Price Waterhouse, Gulf Group
had $254 million in outstanding
BCCI loans. more than half the
bank's total consolidated capital of
$462 million.
"The bank believed that the f3il-
ure of Gulf Group wouJd have crys-
tallised large losses which would
have eroded the bank's capital base
and put its very survival in doubt,"
Price Waterhouse said.
To bide the troubled loans from
auditors and regulators, BCCI jug-
gled funds in the Gulf Group's ac-
counts, but "the position of the bank
was so compromised" that "more
complicated manipulation was oece&-
sary," Price Waterhouse said.

---- ----------
man lSiands subSt!llary oegan to taKe
money from other depositors and
shovel it into Gulf Group accounts.
The subsidiary then covered the
missing funds by shifting money
from still other accounts.
Sometimes, the auditors said, the
bank wookl create new depositors
out of whole cloth-with documen-
tation from the duties" de-
partment-to make it appear that
additional funds were available to
BCCl to shift into delinquent Gulf
Group accounts.
'111is was a full-time occupation
which involved the manufacture of
documentation, inflation of account
turnover, concealment of funds flow,
etc," according to the report.
It wasn't until March 1990, how-
ever, that Price Waterhouse, in its
capacity aa BCCl's regular auditor,
suggested that the bank take a hard
look at Gulf Group, listing 47 subsid-
iaries to which BCCI had lent $191
million, but "for which we have seen
no loan agreements."
Tbe special task force closely ex-
amined the Gulf Group loans. con-
cluding that matters were even
worse: Altogether, 71 Gulf Group
subsidiaries. most of them shell com-
panies had received loans. Many of
the were "parked" at BCCI
subsidiaries to make them harder to
trace. And Price Waterhouse found
that many of the Gulf Group's assets
had previously been "mortgaged to
other banks in priority to BCCI."
The Gulf Group's total loan expo-
sure was $705.53 million, the task
force said. Investigators noted
mon patterns of initiation, activity,
fund flow, weak documentation
vague explanations. The
"This part of the bank's act1Vlty IS
perhaps the most depressing part of
our findings."
Fooling the Auditors
For Price Waterhouse. which had
audited seers Cayman Islands sub-
sidiary for years and bad acted aa
the bank's sole external auditor
since 1987, preparing the Bank of
England report may have proved to
be something of an embarrassment.
Rahman. BCCl's chief financial of-
ficer until he quit in disgust after
heading the special task force,
blamed Price Waterhouse in Senate
testimonY last week for failing to
spot danger signs and warn bank o.f-
ficials before disaster struck. In one
1985 fiasco, Rahman testified,
BCCI's
its exposure trom the specUlative in-
vestment of bank funds to run as
high as $11 billion-virtually the en-
tire assets of the bank-because DO
one was watching the transactions.
This adventure cost BCCI $430
million in four months, and "if the
guidelines had been maintained, and
if Price Waterhouse had been doing
anywhere near their job, there is no
way this . .. could have happened,"
Rahman said.
Price Waterhouse said in its 45-
page report to the Bank of England
that "much of the information con-
tained in this report is based on re-
cords which have previously been
concealed from us, as auditors.
Whatever Price Waterhouse's re-
sponsibility for failing to detect the
problems earlier, its auditors be-
came more aggressive in early
1990. Assisting Rahman's task
force, the accountants uncovered
one can of worms after another.
The Price Waterhouse report for
the Bank of England, which was
made available last week to The
Washington Post, is a draft that uses
code names to identify BCCI and
other companies. Customer names
are blacked out But earlier Price
Waterhouse reports, released by the
Senate subcommittee on terrorism,
narcotics and foreign operations
when Rahman testified last week.
1
named names.
Price Waterhouse said, for exam-
ple, that Faisal Saud Al Fulaij, a Ku-
waiti businessman and First Ameri-
can investor, held $147.9 million in
BCCI loans with "very little perfor-
mance on any of these accounts" and
DO loan agreements, cus-
tomer instructions or promissory
notes supporting this An-
other Price Waterhouse report
found accounting transactions in the
Cayman lslands branch "!alae and
deceitful"
The task force, for its part, noted
that BCCI's efforts to reconcile
questions about its First American
Baokshares loans bad foundered. 1
Five shareholders had confirmed
their holdings, the task force said. c
Two shareholders, identified as "the 1
ruler of Fujairah and ruler of n
Ajmao," both in the United Arab 1
Emirates, refused to confirm $294
million in loans. The task force rec- n
ommended that BCCl write off their l
loans and keep the First American
shares that secured some of the bor-
rowings. Customer A.R. Khalil,
meanwhile, could not be reached at
all
The 1985 trading debacle, a wa-
tershed "disaster," according toRah-
man, was simply the fmal spasm in
an eight-year catastrophe in which
BCCI's treasury department lost
$849 million speculating in certifi-
cates of deposit, treasury bonds, for-
eign currency and other financial in-
struments.
The general manager of the trea-
sury department covered up the
losses, Price Waterhouse found, by
routinely repo.rting profits. Some-
times, the treasury department sim-
ply failed to report the losses at all;
They were booked "against client ac-
counts, bogus loans or the other un-
orthodox forms of funding," Price
Waterhouse said. And in another
pJoy, the bank induced major cus-
tomers to confirm false fund levels in
their accounts to auditors in ex-
change for preferred treatment.
The general manager's name is
blacked out in the Price Waterhouse
report, but Rahman identified him as
Ziauddin Akbar, who he said, was
"gently" allowed to resign "with car
and benefits." Rahman said Akbar
eventually reappeared as a director
of Capcom, 'a brokerage company
that had common shareholders and a
line of aedit from BCCI. Price Wa-
terhouse said BCCI paid Akbar $32
million in "blackmail" to keep him
quiet.
To recapitalize, the bank took
$150 million from a BCCl employee
pension fund held at the Internation-
al Credit and Investment Company,
a BCCl Cayman Islands subsidiary
that it used as a kind of "bank within
a bank." This, Rahman testified, was
news."
1
Invisible Accounts
As BCCI's financial condition
worsened, the bank turned to even
more elaborate schemes, the audits
show. It accepted deposits, but did I
not record them on the bank's
books, instead applying the money
directly to other cash-poor bank op-
1
eratlons. When the customer de- 1
manded his money, the bank would
shift it from somewhere else. Price
Waterhouse said BCCI held $569
J million in unrecorded deposits by the
end of 1990.
l As end-4-year audits approached,
BCCI officials moved money from
,account to account to make it appear
1
that nonperforming loans were actu-
' ally earning interest. Bank officials
. ;W!ted an.
- .... --- -------------
JUSt oerore au<lttors checked It-
then shifted it elsewhere after the
auditors had moved on.
In some cases. the bank was al-
most brazen about the way it abused
customers' funds. Perhaps most no-
table was the case of a customer
with the code name "Tumbleweed"
in the Price Waterhouse report to
the Bank of England. The Wa1l
Street Journal and Financial Tunes
of London have reported that Tum-
bleweed was Faisal Islamic Bank of
Egypt, headed by Prince Moham-
med bin-Faisal at-Saud of the Saudi
ruling family.
Tumbleweed began doing busi-
ness with seer in the late 1970s
and by 1982 had $171 million on de-
posit, an amount that grew some-
what over the next few years. Tum-
bleweed instructed BCCI to invest
the mooey in commodities, in accor
dance with lsla.mic law, which basi-
cally forbids Western-style interest-
earning investments.
However, Price Waterhouse re-
ported, "We have seen no evidence
to suggest that the bank actually en-
tered any commodity contracts. In-
stead, BCei put Tumbleweed's mon-
ey to its own use as yet another
unrecorded deposit.
Tumbleweed funds were used to
cover a loan related to the takeover
of First American Bankshares, to J
"recreate" another customers' miss-
ing deposits of $62 million and to
make it appear that interest was be-
Ing paid on various of the bank's bad
loans, Price Waterhouse said. . 1
H Tumbleweed wanted access to
the money, BCCI replenished the ac-
count, Price Waterhouse said. But
1
whenever auditors came around the
account would be emptied-all but
invisible on the bank's books so that
the auditors would not attempt to
check the amount with the deposi
tor.
Price Waterhouse said seers lia-
bility to Tumbleweed totals $358
million, making it one of seers big-
gest creditors and perhaps the larg-
est single source of the unrecorded
deposit funds manipulated by BCCI
over the past decade.
But it was not the only one. In
1984 BCel set up an Islamic Bank
ing Unit in London to solicit deposits
from Islamic investors, Price Water-
house said. The business was highly
successful-at its peak in 1989 the
Islamic Banking Unit had $1.4 billion
in deposits.
But some of the money was im-
properly shifted into other accounts
to cover losses, then made up with
new deposits from the Islamic cus-
tomers, Price Waterhouse said. For
example, $30 million was placed in
an account in seers Grand Cayman
branch known as u Accoont 500" that
was "used for the purpose of fraudu-
lently routing funds," Price Water
house said.
Even wben BCCl carried out the
commodity transactions for Islamic
Banking Unit customers, Price Wa-
terhouse said, it listed the bulk of
the funds on an "off-balance-sheet"
basis, so that they did not show up
on the BCCI books-reducing the
company's assets and liabilities by
more thCJn $800 million each in
1989.
"It is apparent that the senior
management of [BCel] have abused
their responsibilities to depositors.
shareholders, investors, regulators
and to the bank itself," the Price
Waterhouse report said. Ufrom the
scale and complexity of the decep-
tion it is clear that most of the senior
management . . were or should
have been aware of certain elements
of the fraud."
Staff mearchn' Lucy Shackelford
and staff writer Slwrt AaurlNJch,
reporting from London, contributed
to this report.
]
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:peel Adept at Courting the Powerful and Rich
By Stuart Auerbach
Watllinataa r..t Stoll Wric<r
LONDON, Aug. 6-Soon after he lost his bid
for reelection, former president Jimmy Carter
was honored at a charity dinner here. Sitting
with him at the head t<lble were former British
prime minister James Callaghan and Agha Hasan
Abedi, founder of the now defunct, scandal
wracl(ed Bank of Credit and Commerce Interna
tiona! (BCCO.
Callaghan said that Carter introduced him to
Abedi that night in 1981, and the Pakistani bank
er immediately offered a large contribution to
one of Callaghan's favorite charities, the Cam
bridge Commonwealth Trust, which brings stu
dents from Britain's former colonies to Cam
bridge University. "No doubt that Mr. Abedi was
a great asset to the trust, said Callaghan, the
highest-ranking British political figure to be as
,sociated with Abedi and BCCI.
Around the world, BCCI officials made a con
scious effort to gain the goodwill of people of in
fluence and then, according to investigators,
used it for their own ends .
Abedi and his chief assistant, Swaleh Naqvi,
"created the appearance of respectability by per
suading world leaders to appear with them [as
they] defrauded thousands of depositors,
both small and large, who relied on that appear
ance of respectability," New York District Attor
ney Robert M. Morgenthau said last week as he
announced fraud and money laundering charges
against BCCI, Abedi and Naqvi.
The Price Waterhouse audit report on BCCI
activities, which led the Bank of England and
regulators in other countries to shut down the
bank on July 5, reinforced this notion when it
noted that Abedi "cultivated people of influence,
particularly in the Middle East."
See BCCI, A22, CoL 1
A22 WEDNESDAY, AUGUST 7, 1991
BCCl,FromAl
It is a pattern of behavior common
throughout much of the Middle East
and South Asia, where businessmen
and others often cultivate relation-
ships with powerful figures not so
much for immediate goals but in the
belief that these contacts eventually
will bear fruit.
In the United States, BCCI re-
cruited influential Washington law
yer Clark M. Clifford in 1978 to rep-
resent it in banking matters. Former
Carter administration director of the
OffiCe of Management and Budget,
Bert Lance, was a key contact in
Georgia a decade ago, and more re-
cently BCCI forged links with Flori-
da savings and loan executive David
Paul, who was known for his wide-
spread political contacts.
In London, it is not clear what
Abedi got for his efforts beyond a
measure of respectability in the
closed and stodgy world of London
high finance for a bank that had its
roots in the Third World nation of
Pakistan.
"I just don't know how they
wormed their way into the hearts
and souls of high levels of govern-
ment the way they did. It seemed
that over a period of time BCCI had
pretty good access to the govern-
ment, the Finance Ministry, the
Bank of England." said a senior offi-
cial at an American bank here.
"Maybe they did it just to establish
themselves in the community. May-
be they thought it was the normal
process of getting known in the
banking community."
Pakistanis who have known Abedi
since the start of his banking career
noted that be has always based his
business on servicing the needs of
customers. When he first opened a
branch of Uruted Bank of Pakistan in
Karachi, early in his career, they
said, he sent bank officers out seek
ing depositors and he fired them if
they failed to get them. When he ex-
panded into the Persian Gulf before
the sheikhdoms were as rich or pow-
erful as they are now, he cultivated
relationships with the rulers to get
their a.ccounts. Among other things,
he would bring them back to Paki-
stan to practice falconry.
In this country, though, no evi
dence has surfaced yet that BCCI re-
ceived any favors from the officials it
befriended. Callaghan, the former La-
bor Party prime minister who was
made a life peer in 1987 and now is
known as Lord CaUaghan of Cardiff,
staunchly defended BCCI last year in
the House of Lords after it was con-
victed of money laundering in Florida.
"I don't believe he [Abedi) was an
evil man," Callaghan said in an inter
view Monday. "I felt he was genuinely
concerned, that he had ideals. I found
him a man I would honor.
"A year ago I would have had no
hesitation of saying that Mr. Abedi
acted out of altruism. Maybe I was a
sucker."
To get close to statesmen such as
Carter or CaiJaghan, BCCI offered
large contributions to favorite chari-
ties. Carter's charity, Global 2000,
received more than $8 million from
Abedi, according to its chief fund-
raiser James Brasher, with almost all
the money earmarked for a world-
wide campaign to eradicate the Guin-
ea worm, a waterborne parasite that
is devastating to the health of millions
in developing nations.
"Abedi asked us to find a project
that would have a lot of impact in Pa-
kistan," said Brasher. The money that
eventuaUy came from Abedi was only
a fraction of the estimated $100 mil-
lion cost of the project worldwide, he
noted.
Over the years, Brasher said, Cart-
er saw Abedi "three or four times"
and "he came across as a saint fve
met a lot of shysters, but this guy
didn't have an agenda. He came
across as a warm, caring man."
While he was uncertain just how
Carter met Abedi, Brasher said it
could have been through Saudi finan-
cier Ghaith Pharaon, who had close
links to BCCI and was active in philan-
thropic causes in Georgia.
In London, Abedi launched the
Third World Foundation in 1979, giv-
ing $100,000 prizes each year to such
luminaries as the former West Ger-
man chancellor, Willy Brandt, and
then-president Julius Nyerere of Tan-
zania. One year, the awards were pre-
sented by Princess Anne. The founda-
tion's launching was attended by
Jamaican Prime Minister Michael
Manley, Lord Callaghan and the
then-general secretary of the com-
monwealth, Sir S.S. "Sonny" Ram-
phal. Callaghan was a trustee of the
foundation.
BCCI also had links to U.N. Secre-
tary General Javier Perez de Cuellar.
U.N. spokesmen have acknowledged
that BCCI put a Boeing 727 jet at his
disposal for trips to Haiti and Peru in
1986 and 1987, but said the secre-
tary general "never did anything for
BCCI," according to the Financial
Times.
But court documents, Senate testi-
mony and allegations by former em-
ployees showed that BCCI and its top
officers courted other influential peo-
ple by more insidious means: bribes,
loans that never were expected to be
paid back, presents of expensive jew-
elry and high-priced prostitutes.
"Abedi worked on the principle that
every man bad his price," said a Paki-
stani officer at the London branch of a
Western bank. The officer has ob-
served firsthand how BCCI operated
here, in the oil-rich Persian Gulf and
in Pakistan.
"The level of entertainment BCCI
offered to people of wealth and influ-
ence was extraordinary," the bank of-
ficer said. "As a result, people in pow
er, people who had money, would do
anything for this bank."
I
--
BCClaupported favorite charity
For instance, a 1988 memo from
Senate investigator Jack A. Blum, en-
tered in the record of last week's For-
eign Relations subcommittee hearing,
said BCCI got its license to operate in
Panama through the intervention of
former Panamanian strongman Omar
Torrijos, who, the memo stated,
"liked good-looking women." Accord-
ing to the memo, a BCCI official told
Blum that Torrijos and a bank manag-
er had some 'wonderful times' at the
bank's expense in London."
Further, the New York indictment
of BCCI and its two top officials alleg-
es that two unnamed senior officials
of the Central Reserve Bank of Peru
were paid a $3 million bribe in ex
change for gaining Peruvian deposits
in BCCI, a charge the Peruvians have
denied.
In Britain, two senior Conservative
THE WASHINGTON POST
JAMES CALLAGHAN
a trustee of Abedi' a foundation
members of Parliament and one for-
mer member listed themselves as
consultants to BCCI-part of what
has been described as a global net
work of highly placed advisers.
They are Sir Julian Ridsdale, a for
mer defense minister; Julian Amery;
and former Parliament member Sir
Frederic Bennett, an honorary direc
tor of BCCI in Hong Kong until1986
who received $10.000 a year from
BCCI, according to the Sunday Ob-
server. Amery declined to tell the Ob-
server how much he received and
could not be reached for comment
here, but he has said he advised the
bank on international affairs. All three
political figures listed the affiliation,
as required by British law, in the Reg-
ister of Members' Interest
There have been no allegations
here that Lord Callaghan or the three
senior British Conservative politicians
helped the bank fend off British regu-
lators or gain special privileges.
. - - ~ " ' ........ --...
Germany Jails Pakistani
In Nuclear Arms Probe
Retired General Linked to BCCI
By Maud S. Seelman

BONN, Aug. 6-A retired Pakis-
tani military officer suspected of
involvement in his country's at-
tempts to develop nuclear weapons
has been arrested in Germany, of-
ficials said today.
The retired brigadier general,
identified as Inam ui-Haq, has been
linked to the scandal surrounding the
Bank of Credit and Commerce Inter-
national, which allegedly helped
bankroU several countries' attempts
to develop nuclear weapons.
In Washington, justice Depart-
ment spokesman Doug Tillet said
the United States has begun efforts
to extradite ul-Haq.
He is accused of directing a Ca-
nadian businessman convicted in
the scheme to purchase high-
strength steel that needed an ex-
port license. Documents Canadian
police found in the businessman's
house showed that the steel pur-
chase was to be financed by an arm
of BCCI, Tillet said.
Ul-Haq, who told German author-
ities he was a salesman, has been
held in custody in Frankfurt since
his arrest july 11 at Frankfurt In-
ternational Airport, said Hans-Her-
mann Eckert of the Hesse state
prosecutor's office. The Wall Street
Journal reported his arrest Monday.
The United StateS seeks ui-Haq's
extradition on charges he falsified
export applications so "metals for
nuclear use" could be transported
from the United States, Eckert
said. It was not clear whether any
materials reached Pakistan. A
statement released by tbe German
Border Patrol office in Franklurt,
which made the arrest, said the SU.
pect sought to export the metals 3b
well as "fissionable materials" frdm
the United States.
Ul-Haq, 62, reportedly worked in
Pakistan's military engineering ser-
vice. Western intelligence agenCies
have said he was a buyer for Pakii-
tan's atomic energy commission. :
In the Pakistani capital, 1)11-
mabad, a government spokesman
denied ul-Haq was working for the
government. He spoke on condition
of anonymity.
At tbe time ul-Haq purportealy
was active in the program,
was ruled by the military under
president Mohammed Zia ui-Haq.
Asked about reports linking the
general to BCCJ, his attorney,
Hans-Wolfgang Euler, said: "That's
the first time I heard something like
that about my client."
m-Haq was seized on an inter-
national arrest warrant after a flight
from Karachi, Pakistan, Eckert
said, adding that offiCials were
awaiting a formal extradition re-
quest from the United States.
Pa.kistan's nuclear program has
strained relations between Isla-
mabad and Washington. Pakistan
insists its,nuclear program is peace-
ful, largely to generate nucfaar
power for industrial growth. .But
some governments contend Pakis-
tan crossed the nuclear threshold in
1990 and has the capacity to make
nuclear weapons.
.-
--
Peru's Congress to Probe
Deposit of Reserves in B C ~
...
-
Reuter
LIMA, Peru, Aug. 6-Peru's Con-
gress prepared today to name a pan-
el to probe alleged wrongdoing
linked to the Bank of Credit and
Commerce International as former
president Alan Garcia denied in-
volvement in the BCCI scandal.
Senate chief Felipe Osterling told
local radio that Congress, when it
opens its ordinary session Monday,
would consider various motions re-
questing the appointment of a panel
to investigate the deposit of millions
of dollars of reserves in the BCCI.
Garcia, now a senator, told local
journalists Monday night that he was
aware that up to $270 million in re-
serves had been deposited in the
bank but that he bad nothing to do
with placing them there.
"The management of the reserves
is the exclusive responsibility of the
central reserve bank and its offi-
cials," Garcia said in statements
broadcast on Radio Programas del
Peru. He also denied that be knew
anything of bribes said to have been
paid to two former central bank of-
ficials.
"' can' t believe this," Garcia said,
referring to the allegation by New
York District Attorney Robert Mor-
genthau that former central bank
chief Leonel Figueroa and bank gen-
eral manager Hector Neyra had ac-
cepted $3 million in bribes.
"But if this is true, all the perti-
nent investigations must be carried
out, Garcia said.
ALAN GARCIA
ex-president denies involvement:
Osterling said: "We have to name
a commission that acts and expands
this probe." An.other congressional
panel is already investigating allega,-
tions that Garcia enriched hi.m8etf
while in office, stashing millionS:of
dollars in BCCI bank accounts. ~
cia has denied the allegation. _
The deposits to BCCI were made
when Peru had sharply limited its
debt payments and was vulnerable to
having its assets seized.
Fernando Olivera, head of the pan!
el investigating Garcia's alleged self-'
enrichment, called Monday for lifting'
of Garcia's immunity so the case'
could be passed to the courts.
Audit: BCCI Used D.C. Banli Funds
TramferMtgr({rst American Disguised Losses, Report Says
of First American," the report said. on the CCAH loans that it had not
This appears to have generally been really collected, aiJowing BCCI to
the case"-although the report also make itself look much healthier than
notes that Clifford consulted a top it actually was.
By Mark Potts
IWt Sloll Writ
The Bank of Credit and Com-
merce International took advantage
'of its secret ownership of Washing
ton's F'JtSt American Bank to inflate
BCCI's profits and to raise hundreds
of millions of dollars through book
keeping tricks to cover massive
tiading losses at the international
banking company during the past de-
cade, according to an auditor's re-
port.
The details of the money transfers
are contained in an audit of the bank
given to the Bank of England in late
june by the accounting finn Price
Waterhouse and obtained in London
by The Washington Post. They de-
scribe how BCCI used its hidden
holdings in the parent corporation of
First American to improve BCCI's
finances through a series of sophisti
cated bookkeeping maneuvers.
The Price Waterhouse report was
the basis for the seizure and shut
down of BCCI by the Bank of Eng
land and other authorities.around
the world on July 5.
seers use of its ownership posi-
tion in First American to pad ita own
finances apparently had no direct ef.
feet on the Washington bank, and
First American's operations contin-
ue unaffected.
At the same time, the report ap-
pears to offer some support for First
American Chairman Clark M. Cllf
ford's contention that BCCI never
interfered with the management of
First American.
The report describes BCCI as a
Msleeping partner" in Credit and
Commerce American Holdings, First
American's parent company. BCCI
"at no time" exercised Many control-
ling interest over the management
BCCI executive about some First The audit report indicates that
American personnel matters, includ First American was far from the only
ing the recruitment of one senior of BCCI subsidiary whose operations
fidal for the bank. were used surreptitiously and improp-
ln its report, Price Waterhouse erly to pump money into the perenni
said BCCI listed on its books more ally cash-strapped BCCI. BCCI began
than $1.4 billion in nonexistent loans suffering losses from bad loans and in-
allegedly made to a group of Arab vestments in the mid-1970s and the
businessmen to buy CCAH, on problems became acute by the mid
BCCI's use of its
ownership position
in First American to
pad its own finances
apparently had no
direct effect on the
Washington bank,
and First

operations continue
unaffected.
BCCI's behalf. Then, as the value of
CCAR increased, BCCI siphoned off
hundreds of millions of dollars
through additional Hunauthorized
loans" that BCCI then used to prop
up its operations elsewhere.
The bank also counted as profit
$573 million from interest payments
'80s, according to the audit report.
The Bank of England has said it is
possible BCCJ, founded in 1972, nev
er made a profit.
"It now appears that a significant
amount of account manipulation has
gone on," Price Waterhouse said in
the report. Among the ways that
BCCI shuffled its books to make it
appear that the bank had much more
capital and profits than it actually did
were fictitious loans and the con-
stant shifting of money through
BCCI's far-flung operations, accord
ing to the report. Price Waterhouse
described the scheme as "probably
one of the most deceptions
in banking history."
According to the report, BCCI
used its holding in CCAH to financial
advantage in two ways, both of them
related to the roughly $1.4 billion in
"loans" that BCCI had made to the
eight nominal oWners of First Amer
ican's parent.
The first involved the "unautho-
rized loans," under which BCCI list
ed on its books additional money
supposedly borrowed over the past
decade by the front men for the bank
in the CCAR takeover. In fact, BCCI
kept this money for itself, through
"drawdowns" of the loan accounts,
and used it to adjust the balances of
other, unrelated accounts.
In part, the audit report says, this
scheme took advantage of the fact
that over time, the value of CCAH's
privately traded stock rose-in part
because of apparent manipulation by
BCCI-and additional shares of
stock in the company were issued
periodically. That increased the val-
ue of the nominal owners' ''holdings"
in the company, making them eligi
ble for additional loans without pro-
viding moae collateral.
One such transaction occurred in
June 1985, at a time when CCAH
stock went on a roller-i:Oaster ride
from $5,000 to $2,200 and then
back up to more than $6,000 a share
in a five-day period through a series
of apparently manipulated transac-
tions. During this time, BCCI drew
down a totaJ of $231 million from
the accounts of several of the nomi
nal owners of First American's par
ent. This money was pumped into a
variety of other accounts at BCCI
that had become delinquent.
' In another case, last faU, BCCI
took out four loans totaling $404
million in the names of CCAH's nom
inal owners and used the money to
pay off four previous unauthorized
loans that had been made between
June 1986 and April1989.
All told, Price Waterhouse esti-
mated, BCCI's secured loans to
CCAH's nominal owners and the
$573 million listed as interest in-
come from those loans adds up to
$1.45 billion worth of problem loans
on the company's books, Price Wa-
terhouse said. With BCCI's affairs in
disarray and First American up for
sale on orders from the Federal Re-
serve, Price Waterhouse said, the
potential loss from those loan liabffi.
ties now is "unquaotifiable."
Staff writer Stuart Auerbach
contribulld lo this nfx>rlfrom
London.
THE WASHINCTON POST
. / ~
l
,.,
M.CLIFFORD
, .. report appeara to back chainlwl
No BCCI ~ o n g d o i n g Found ~ n Iran Arms
Investigators who examined
the sales of arms to Iran in 1985
and 1986 found no evidence of
wrongdoing by the Bank of Cred
it and Commerce International,
according to a spokesman for
Lawrence E. Walsh, the Iran
contra independent counsel.
Walsh's investigators deter-
mined that BCCI did nothing
more than handle several money
transfers at its branch in Monte
Carlo.
A key participant in the weap
ons sales, Adnan Khashoggi,
maintained a regular account at
the Monte Carlo branch and
used it to loan money to Iranian
middleman Manucher Ghorbani
far, according to Walsh's
spokesman.
Ghorbanifar borrowed money
from Khashoggi and two other
BCCI account-holders to finance
the arms transactions.
The money went into Swiss
accounts maintained by Lake
Resources, a company secretly
used by White House National
Security Council aide Lt. Col.
Oliver L. North to handle arms
transactions with Iran and with
the Nicaraguan contras.
Audit: BCCI Used D.C. Banli Funds
TramferMtgr({rst American Disguised Losses, Report Says
of First American," the report said. on the CCAH loans that it had not
This appears to have generally been really collected, aiJowing BCCI to
the case"-although the report also make itself look much healthier than
notes that Clifford consulted a top it actually was.
By Mark Potts
IWt Sloll Writ
The Bank of Credit and Com-
merce International took advantage
'of its secret ownership of Washing
ton's F'JtSt American Bank to inflate
BCCI's profits and to raise hundreds
of millions of dollars through book
keeping tricks to cover massive
tiading losses at the international
banking company during the past de-
cade, according to an auditor's re-
port.
The details of the money transfers
are contained in an audit of the bank
given to the Bank of England in late
june by the accounting finn Price
Waterhouse and obtained in London
by The Washington Post. They de-
scribe how BCCI used its hidden
holdings in the parent corporation of
First American to improve BCCI's
finances through a series of sophisti
cated bookkeeping maneuvers.
The Price Waterhouse report was
the basis for the seizure and shut
down of BCCI by the Bank of Eng
land and other authorities.around
the world on July 5.
seers use of its ownership posi-
tion in First American to pad ita own
finances apparently had no direct ef.
feet on the Washington bank, and
First American's operations contin-
ue unaffected.
At the same time, the report ap-
pears to offer some support for First
American Chairman Clark M. Cllf
ford's contention that BCCI never
interfered with the management of
First American.
The report describes BCCI as a
Msleeping partner" in Credit and
Commerce American Holdings, First
American's parent company. BCCI
"at no time" exercised Many control-
ling interest over the management
BCCI executive about some First The audit report indicates that
American personnel matters, includ First American was far from the only
ing the recruitment of one senior of BCCI subsidiary whose operations
fidal for the bank. were used surreptitiously and improp-
ln its report, Price Waterhouse erly to pump money into the perenni
said BCCI listed on its books more ally cash-strapped BCCI. BCCI began
than $1.4 billion in nonexistent loans suffering losses from bad loans and in-
allegedly made to a group of Arab vestments in the mid-1970s and the
businessmen to buy CCAH, on problems became acute by the mid
BCCI's use of its
ownership position
in First American to
pad its own finances
apparently had no
direct effect on the
Washington bank,
and First

operations continue
unaffected.
BCCI's behalf. Then, as the value of
CCAR increased, BCCI siphoned off
hundreds of millions of dollars
through additional Hunauthorized
loans" that BCCI then used to prop
up its operations elsewhere.
The bank also counted as profit
$573 million from interest payments
'80s, according to the audit report.
The Bank of England has said it is
possible BCCJ, founded in 1972, nev
er made a profit.
"It now appears that a significant
amount of account manipulation has
gone on," Price Waterhouse said in
the report. Among the ways that
BCCI shuffled its books to make it
appear that the bank had much more
capital and profits than it actually did
were fictitious loans and the con-
stant shifting of money through
BCCI's far-flung operations, accord
ing to the report. Price Waterhouse
described the scheme as "probably
one of the most deceptions
in banking history."
According to the report, BCCI
used its holding in CCAH to financial
advantage in two ways, both of them
related to the roughly $1.4 billion in
"loans" that BCCI had made to the
eight nominal oWners of First Amer
ican's parent.
The first involved the "unautho-
rized loans," under which BCCI list
ed on its books additional money
supposedly borrowed over the past
decade by the front men for the bank
in the CCAR takeover. In fact, BCCI
kept this money for itself, through
"drawdowns" of the loan accounts,
and used it to adjust the balances of
other, unrelated accounts.
In part, the audit report says, this
scheme took advantage of the fact
that over time, the value of CCAH's
privately traded stock rose-in part
because of apparent manipulation by
BCCI-and additional shares of
stock in the company were issued
periodically. That increased the val-
ue of the nominal owners' ''holdings"
in the company, making them eligi
ble for additional loans without pro-
viding moae collateral.
One such transaction occurred in
June 1985, at a time when CCAH
stock went on a roller-i:Oaster ride
from $5,000 to $2,200 and then
back up to more than $6,000 a share
in a five-day period through a series
of apparently manipulated transac-
tions. During this time, BCCI drew
down a totaJ of $231 million from
the accounts of several of the nomi
nal owners of First American's par
ent. This money was pumped into a
variety of other accounts at BCCI
that had become delinquent.
' In another case, last faU, BCCI
took out four loans totaling $404
million in the names of CCAH's nom
inal owners and used the money to
pay off four previous unauthorized
loans that had been made between
June 1986 and April1989.
All told, Price Waterhouse esti-
mated, BCCI's secured loans to
CCAH's nominal owners and the
$573 million listed as interest in-
come from those loans adds up to
$1.45 billion worth of problem loans
on the company's books, Price Wa-
terhouse said. With BCCI's affairs in
disarray and First American up for
sale on orders from the Federal Re-
serve, Price Waterhouse said, the
potential loss from those loan liabffi.
ties now is "unquaotifiable."
Staff writer Stuart Auerbach
contribulld lo this nfx>rlfrom
London.
THE WASHINCTON POST
. / ~
l
,.,
M.CLIFFORD
, .. report appeara to back chainlwl
No BCCI ~ o n g d o i n g Found ~ n Iran Arms
Investigators who examined
the sales of arms to Iran in 1985
and 1986 found no evidence of
wrongdoing by the Bank of Cred
it and Commerce International,
according to a spokesman for
Lawrence E. Walsh, the Iran
contra independent counsel.
Walsh's investigators deter-
mined that BCCI did nothing
more than handle several money
transfers at its branch in Monte
Carlo.
A key participant in the weap
ons sales, Adnan Khashoggi,
maintained a regular account at
the Monte Carlo branch and
used it to loan money to Iranian
middleman Manucher Ghorbani
far, according to Walsh's
spokesman.
Ghorbanifar borrowed money
from Khashoggi and two other
BCCI account-holders to finance
the arms transactions.
The money went into Swiss
accounts maintained by Lake
Resources, a company secretly
used by White House National
Security Council aide Lt. Col.
Oliver L. North to handle arms
transactions with Iran and with
the Nicaraguan contras.
CIA Move Irks House Panel

'
Byr1Plqn Attacked in Rare Open Session
7 :
r . usual public challenge to Byrd, wh<{
By Kent Jenkins Jr. in recent months has used his pow
W.tollioi(OII,_SIII!Wrilet !l-
Area lawmakers, hoping to fend
off an attempt by Sen. Robert C.
Byrd to transfer 3,000 CIA employ-
ees to West Virginia, received a
major boost yesterday wben mem-
bers of the secretive House Intel-
ligence Committee attacked the
plan as a "covert action."
In a rare public session, commit-
tee members repeatedly asked CIA
Director William H. Webster to ex-

in June that the West V1rginia facility
be built. They also that
they had no advance warning of the
proposal, was promoted by a
handful of key senators, including
Byrd, a West Vtrginia Democrat.
reoresented an un-
et as chamnan of the Senate Appro..
priations Committee to move sev!
era! federal installations, and 3,400
federal jobs, from the Washingtoa
area to West Virginia. Those agen;
cies include an FBI fingerprinting
facility and a facility for the Bureal(
of Publi<; Debt. ;
Rep
1
t pave McCurdy
chainrian of-the House Intelligence
.Committie,...said his panel found
that the CIA ignored standard
eral procedures for selecting a Jo!
cation, and chose a site in West Vir-
ginia over objections from its own.
real estate consultant.
"Clearly, the normal process
not followed here," McCurdy said,
"!'here's no reason for this to
Ree CJA. MI. (', 1, :1
CIA, From Al
cloaked in secrecy .... This doesn't
have to be run like a covert action."
Although McCurdy said he did not
know if Byrd played a role in choos-
ing the site, he joked, think the
boundaries of the state [of West Vir-
ginia) are important considerations."
Byrd said yesterday that he in .
troduced legislation setting the pro--
ject in motion but that neither he
nor anyone e.lse had done anything
improper. "These were appropriate
procedures," Byrd said, "and [they]
were foUowed every step of the way
.... This is a good proposal, and it
is in the longterm interest of na-
tional security."
The tough talk from McCurdy and
other House members raises serious
questions about the future of the
West Virginia project and another
proposed compound in Prince Wil-
liam County, to which 3,000 other
CIA employees would be trans
ferred. The proposed moves were
announced last month by Byrd and
Sen. john W. Warner (R-Va.).
The Prince William facility would
house science and research ana
lysts; the West Virginia facility
would include data-processing and
other support staff. The employees
now work in 21 offices scattered
through Northern Virginia.
The fuU Senate has approved
both new compounds, but intelli-
gence legislation passed by the full
House includes neither; a confer-
ence committee will not take up the
issue until September or later.
Both the House and Senate Intel-
ligence committees alm?St always
meet in private. But emotions on the
House side were running high yes-
terday, and the public bearing was
designed to deliver a message to
Webster and the Senate panel.
"'t seems to me if this wasn't so
pathetic, it would be funny," said
Rep. David O'B. Martin (R-N.Y.).
The West Virginia plan "is sort of
like the Baltimore Colts sneaking
out of town on the back of a truck
some years ago. This casts a pall on
the entire intelligence community."
Rep. Frank R. Wolf (R-Va.), who
testified before the committee, has
emerged as a leading critic of the
plan. Wolf said that no one at the
White House bad asked for the re-
location plan or was aware of it when
Webster and the senators gave it
Challenges Byrd's Plan to Relocate CIA
IYIIOY __ IIC_
CIA Director W11liam H. Webster, left, coafen with B.M. Hutratutler, deputy director for adminlltratioa, at tbe heariDc.
their approval. Wfalk about a group
of"people out of control," Wolf said.
Wfhis appears to raise serious con-
cerns in any procurement process.
Both Democrats and Republicans
in the House criticized the CIA for
going outSide customary channels to
find the West Virginia site. Although
the location was not identified yes-
terday, Jefferson County developer
Howard lookers has told The Wash-
ington Post that a consultant repre-
senting the CIA has asked him to
take 500 acres south of Charles
Town off the market. McCurdy con-
firmed that the Jonkers site is the
CIA's first choice.
Almost all government agencies
lease and buy real estate through
the General Services Administra-
tion, which maintains a siiable bu-
reaucracy for that purpose. The
CIA, for example, leases offices
across the Washington area, and
most of those leases were obtained
through General Services.
But a 1949 law allows the CIA to
handle its own real estate transac-
tions in some instances. The agency
exercised that option when planning
the two new compounds and hired a
private real estate finn to conduct a
site study.
According to McCurdy, the finn
evaluated more than 200 potential
sites and selected the top 10 in late
January. The Jefferson County site
did not make either list. ,
But in late April, the firm pre-
pared a list of four finalists, and the
Jefferson County site was one of
them. McCurdy said yesterday that
House investigators had been told
that CIA officials instructed the
firm to include the Jefferson County
property, but Webster denied that.
Webster and other CIA officials
said the Jefferson County land ini-
tially was eliminated by the consul-
tant because it was too far from the
agency's Langley headquarters. But
this spring, CIA officials decided to
build two compounds, including one
where regular commutes to Lang-
ley would not be necessary. They
said that the West Virginia site is
suitable under those guidelines.
McCurdy and Rep. Bud Shuster
(Pa.), the committee's senior Re-
publican, sa.id that their concerns
about the move are so serious they
are considering stripping away the
CIA's power to make land deals on
its own. "Lay out a procedure, tell
us what it is and follow it,"
McCurdy told Webster. "If you can-
not do that, we'll tum it over to oth-
er people.
Webster defended the decision to
go to West Virginia, saying there
are "strong arguments'' for locating
in an area where land prices are low
and for acting when the real estate
.market is in a lull. But under ques-
tioning, he also acknowledged that
''you can make a strong argument"
for suspending the plan until ques-
tions about it are answered.
FBI Investigating BCCI' s
Effort in Georgia.
By Jim McGee clear the way for the sale of National
and Charles R. Babcock Bank of Georgia to First American.
W1111i11J1411PootSuiiWriwo An amendment to state banking law
The FBI said it is investigating
whether the Bank of Credit and
Commerce International (BCCI)
tried to manipulate the political pro-
cess in Georgia to permit the sale of
a financially troubled Atlanta bank it
controlled to First Ame.rican Bank-
shares Inc. of Washington, which
regulators said also was under
BCCI's control.
Sources said the National Bank of
Georgia paid Georgia lobbyist
Charles Jones and his Rinesville,
Ga., law firm $1.25 million to help
persuade the state legislature to
was required. The Georgia bank also
financed trips to London and Fort
Lauderdale, Fla., and other enter-
tainment for some of the lawmakers,
according to informed sources. '
A year later, the state legislature
did as BCCl had hoped and the sale
of NBG to First American'took -1
Ia
I
p ce.
Now the lobbying effort is
by the FBI, a bureau
official has confirmed, as part of a
multistate probe of the Luxem-
bourg-based BCCI, which last week
See GEORGIA, Al3, CoL 3
Audit say BCCI poid.lront men. $47 million. in. bank deal. Page A12
Tnt WASIIINGTON PosT
SUNDAY, AliGUST4, 1991 A13
FBI Probing BCCI' s Georgia Lobbying Effort
GEORGIA, From Al
was indicted in New York for bribery
and fraud after being shut down by
regulators.
The Georgia lobbying effort inter-
ests investigators as an example of
how BCCI forged links with political
f1gt1res around the world to get what
it wanted.
"The FBI is aware of allegations
stemming from the Manhattan Dis-
trict Attorney's investigation and
the Federal Reserve's investigation
and the congressional investigation.
... that indicates influence peddling
may have taken place in the state of
Georgia to facilitate passage of the
Interstate Banking Act," William
Hinshaw, special agent-in-charge of
the FBI's Atlanta office, said in an
interview.
"In consultation with the U.S.
Attorney's office, the FBI is review-
ing the allegations and reviewing
previous investigations" involving
public offiCials in Georgia, Hinshaw
added. He declined to elaborate or
specify what possible violations of
law the FBI is looking into.
The First American purchase of
National Bank of Georgia is a key
chapter in a 100-page filing by the
Federal Reserve Board outlining
what it said were repeated violations
of banking law by BCCI over more
than a decade.
At the center of BCCI's activities
in Georgia was Saudi investor
Ghaith Pharaon, who presented him
self as the owner of the Georgia
bank, but was in fact a front man for
BCCI. concealing its control of the
institution, the Fed said in its report.
In 1986, Pharaon was in fmancial
trouble and BCCI feared his credi-
tors might seize NBG, thus possibly
jeopardizing BCCI's investment, the
Fed report said, so BCCI "caused"
First American to buy NBG for $220
million.
That assertion contrasts with the
statements of First American Chair-
man Clark M. Clifford and President
Robert A. Altman. They have said in
interviews that the acquisition of
NBG was Clifford's idea and Altman
negotiated the purchase from Phar-
aon.
Altman said he often consulted
with Agha Hasan Abedi, then presi-
dent of BCCI, who, Altman said,
served as a.n intermediary and advis-
er to First Ame.rican shareholders.
Clifford and Altman have denied any
wrongdoing in connection with their
dealings with Abedi and Pharaon,
and have insisted that BCCI never
influenced any decisions made by
First American's management
However the sale was carried out,
it could not go through without a
change in Georgia banking law gov-
erning acquisitions by banks in
Maryland and the District of Colum-
bia.
Jones hired J.R. "Jake" Cullens, a
former state legislator, to help lobby
for the bill. Jones declined to com-
ment on his role in the lobbying.
The Atlanta Business Chronicle
reported Monday that Cullens was
paid as much as $400,000 for his
work on the bill. Cullens said in an
interview Friday night that he hasn't
been contactl:d by any investigators.
He said he did entertain legislators
during the session, but added that
any reports of uinfluence buying"
were n
"That wasn't necessary," be said.
''There was no opposition to the biU.
You couldn't pass legislation IJke
The sale could not
go through without
a change in Georgia
banking law
.
govemlng
acquisitions by
out-ofstate
institutions.
that if the big banks in the state
were opposed to it He declined to
discuss his fees.
The bill passed the state Senate
unanimously and was approved by
the House by a vote of 155 to 4. The
Atlanta Business Chronicle noted at
the time that the only beneficiary of
the bill was NBG. '1 sought passage
of the legislation for my client's ben
efit," Jones was quoted as saying in
the Business Chronicle. "The legisla
tion was sought by NBG primarily."
"By the summer of 1987, Georgia
law had been amended, due at least
in part to the lobbying efforts of
NBG, the Fed report said.
Although the sale kept Pharaon's
creditors at bay, the Georgia subsid-
iary is unprofitable, internal bank re-
cords show. Pharaon acquired NBG
in the late 1970s from former Cart-
er administration official Bert Lance
of Calhoun, Ga., and other owners.
On Friday Lance told the Associ-
ated Press that be has testified be-
fore a New York County grand jury
investigating the BCCI case, but has
not been contacted by federal au-
thorities.
Lance said that Abedi, a Pakistani
banker, introduced him to Pbaraon
in 1977 at a time when Lance owned
a part interest in NBG, which he lat-
er sold to Pharaon. "Everything that
was investigated with Pharaon indi-
cated be was acting on his own be-
half," Lance said.
The payments BCCI made in
Georgia are thought by investigators
1
to be only a part of its efforts to en-
list political help.
Last Thursday William Taylor,
the Federal Reserve Board's chief
1
bank regulator overseeing the BCCI
investigation, was asked during a
congressional hearing if the Fed had
obtained a list of American officials
who have received payments from
BCCI.
"I know of no list of individuals
who received payoffs," Taylor said. I
"I would like to have such a list."
Taylor said, however, that investi-
gators "have a few instances where
tbere are expenses paid for people
who take trips and attend confer-
ences and the like . . . any bill paid to,
a law firm, you have to know what's
behind that." l
I

f
A12 SuNDAY, AUGUST4, 1991
vww THE I'OST
Audit Shows BCCI Paid Front Men $4 7 Million
Jtice Waterhouse Report Details Payments in 1st American Acquisition, Other Activities
By Stuart Auerbach
w.......,onPwtStaii'Wrur
LONDON, Aug. 3-Seven Arab
business executives and companies
received as much as $47 million for
acting as front men for the illegal
takeover of Washington's First Amer-
ican Banksha.res lnc., according to an
audit for the Bank of England, details
of which were reported today by the
British press.
The audit by the accounting firm of
Price Waterhouse provides the first
complete details of how much the
Bank of Credit and Commerce Inter-
national (BCCI) paid the seven to act
as pbony stockholders to mask its
control of First American Bank-
shares.
The Federal Reserve Board last
week filed a civil action seeking $200
million from BCCI. Further, the Fed
sought to bar BCCI as well as its sev-
en front men and the bank's top two
executives, Agha Hasan Abedi and
Swaleh Naqvi, from any future in-
volvement in U.S. banking.
Abedi and Naqvi also were indicted
last week on criminal charges of fraud
and money laundering in New York.
The new details of BCCI's global
fraud were rontained in an audit that
was released Friday to the bank's
creditors in a sanitized version, with
all the names blanked out, although it
was possible to determine some of
the names and institutions from the
context of the material. The Bank of
England cited the audit as triggering
the july 5 decision to shut down the
bank.
Details of the audit were reported
today in three London newspapers-
the Daily Telegraph, the Financial
Times and the Independent.
The Price Waterhouse report is
written in the dry, dusty and arcane
language of accountants-broken by
the use of code names for BCCI, its
branch in the Cayman Islands and
Washington's First American.
But it provides new details about a
banking scandal the stretches around
the world and has touched govern-
ments and political leaders in the
United States, Great Britain, Peru,
Argentina and other countries.
In a detailed synopsis of the report
carried in today's edition of the Finan-
cial Times, Price Waterhouse said the
top management of BCCI was in-
volved "' m a massive and complex web
of fictitious transactions in what is
probably one of the most complex de-
ceptions in banking history."
This was all done to rover up total
losses of several billions of doUars,"
although Price Waterhouse said the
deception was so massive "that the
true financial history" of the 19-year-
---------- --- -- --
t
f
r
p
I
t
r
old BCCI "is unlikely to be able to be
recreated."
The purchase of Washington's
First American Banksbares, code-
named "WXYZ," involved the use of
loans by BCCI that were never in-
tended to be repaid, the report said.
The Fed, in its civil complaint, had
listed the seven fronts in the purchase
as Kamal Adham, Faisal Saud Al-Fu-
laij, A.R. Khalil, Sayed Jawhary,
Mashrig Holding Co., Hwnaid Bin Ra-
shid AI Naomi and Ali Mohammad
Shorafa. In addition to loans, they all
received various payments and fees.
The Price Waterhouse audit said
one of the seven was paid
$1,006,000, with most of the money
received last August. A second man
received $1.664 million from 1985 to
1990 while a third was paid $2.4 mil-
lion during the same period.
The report was less clear on how
much another nominee was paid. It
said he received $15 million plus a
possible $1 million to $2 million a
year. Another man was paid a possi-
ble $5 million, while the other two re
ceived $15.8 million and $6.5 million,
respectively. ;'
The audit blamed the massive db
ception squarely on the ailing, 68-
year-old Abedi, the Pakistani whll
founded .BCCI in 1972 and c1reamect.
of its becoming a global Islamic finan-
cial institution, and Naqvi, his chief.
executive.
The audit said 11 unnamed senior
officials-general managers or ac-
count officers-aided Abedi and
Naqvi. The audit, according to the Fi-
nancial Times, said Abedi "surround-
ed himself with a core team that was
responsible for the "creation and falsi-
fication of documentation and fraudu-
lent account entries and fund flows.
Although some executives took
part in the fraud out of "bbind loyalty,"
the report noted that senior manag-
See DCCI, A IS, CoL 1
BCCl,FromAJ2
ers "have. been provided. with
cant loans. . that are not necessarilY
repayable on leaving employment."
Other revelations of the audit, as de-
tailed in the Financial Times, include:
The manager of BCCI's London-
based investment operations report-
ed increased profits throughout the
1980s when in fact his department
"incurred significant losses. As the
losses rose, the staff misappropriat-.
ed deposits and trust funds and cre-
ated phony loans to make it appear
they were generating a profit for
BCCI The losses-and the phony
to $849 million.
When the manager was forced to
leave in 1986, he took his records
with him and two years later he
forced BCCI to pay him $32 million
to keep quiet about his activities.
The fraudulent activities
so pervasive in the BCCI operatiOn
: that the bank set up a special depart-
! ment that did nothing but falsify re-
: cords of deposits and loans to make
: the bank look richer than it was.
: One of the biggest _in-
: volved the Gulf Group, a
empire owned by the Gokals, ongJ-
: nally a Pakistani family, that was
: BCCI's largest single customer. Un-
1 repaid loans to that group were . so
l
extensive that the account was shift-
' ed to the bank's Cayman
branch code-named to avoid
: Bank of England regulation.
: Over a 15-year BCCI used
I ..
BASANABEDl
, , blamed for mwive decep,lon
l
750 different accounts to hide the .
losses from the Gulf Group as money
was moved from one account to an-
other to make it appear that interest
was being paid on loans. The bank
reportedly was concerned that if it
did not cover up the Gulf Group's
debts the shipping operation would
fail bring down BCCl with iL
In its audit, Price Waterhouse said
it had been "informed" that the ma-
jority stockholder of BCCl with 77
percent of its shares, the govern-
ment of the oilrich emirate of Abu
Dhabi, learned about BCCl's fraudu-
lent activities in April1990 but nev-
er informed the Bank of England.
Price Waterhouse left it unclear,
however, whether Abu Dhabi's rul-
er Sheikh Zayed bin Sultan AI Na-
hYcm, knew about BCCI's activities.
Senator: CIA
KnewBCCI

By Jim McGee
and Micbaellsikoff
W .......... PaotSIIIWritera
The Central Intelligence
Agency privately warned sev
eraJ U.S. agencies in 1986 that
the Bank of Credit and Com-
merce International (BCCO
bad gained secret control of
First American Banksbares In
Washington, in violation of
Federal Reserve Board re-
strictions, but the CIA never
told the Fed, according to a
member of Congress.
This detail from a special
CIA working paper oo BCCI
was disclosed by Sen. John
Kerry (I)-Mass.), c:bairman of
a Senate subcommittee that
will bold a hearing today oo
BCCI, the Luxembourgbased
bank that was indicted Monday
by a New York grand jury oo
fraud and bribery charges.
The Fed bad approved the
1981 takeover of First .Ame.ri-
can based on explicit assuranc-
es that BCCI would not own,
cantrol or manage the holding
company.
The CIA working paper also
contains allegations of BCCI
involvement in drug trafficking
and money laundering, sources
See BCCJ. A.S3, Col.l
DCCI, From AI
said. As outlined in the CIA docu-
ment, the drug and money launder-
ing activities of BCCI were
there was not any doubt," said one
congressional source.
But this document was not shared
with the Justice Department, a Jll!-
tice official said yesterday. The CIA
refused Kerry's request to release
the distribution list of the working
paper. But knowledgeable sources
said the agencies receiving the docu-
ment included the State Department
and the Treasury Department.
1986 the CIA knew that BCCI
was a criminal enterprise, and
owned the First American Bank, and
told a number of other government
agencies: Kerry said in a press re-
lease. is no evidence on re-
cord that any of these agencies told
the Federal Reserve what they
knew nor i.s there any evidence of
federal law enforcement taking any
action."
Federal Reserve Board general
counsel ]. Virgil Mattingly Jr. told
Cong:resS last May that the Fed did
not become aware of BCCI's interest
in First American until late 1990.
1'he fact i.s, the CIA told some peo-
ple--they told State and Treasury,"
said the source. 1'he question is,,
why didn't they tell the Fed?"
Yesterday, Kerry's office released
a letter from a CIA official that said
CIA Director William Webster
authorized me to advise you that you
may disclose the fact that this por
tion of the report states that BCCI
attempted unsuccessfully to acquire
or gain control of Financial General
Bankshares (the previous name of
Firsl American's holding company)
in later 1981, but that BCCI
achieved this goal six months later," I
wrote Stanley M. Moskowitz, CIA
Director of Congressional Affairs
exact nature of this control
was unclear."
The memo adds new fuel to the con-
troversy surrounding the handling of
a federal investigation of BCCI by
Customs Service officials in Tampa
that began in 1988, and the Justice
Department's decision two years lat
er to accept a plea bargain in the
case. The settlement required BCCI
to plead guilty to money laundering
charges and imposed a $15 million
fine, which Kercy and other congres-
sional critics said was a slap on the
wrist for the $20 billion international
bank.
In addition to the CIA. document,
federal ' agents and prosecutors in
volved in the Tampa investigation
received lengthy taped statements
of former BCCI officials describing
BCCI's secret ownership of First
American, the National Bank of
Georgia and Independence Bank o(
Encino Cali(. Such foreign ownership
would be Dlegal without the .Fed's
approval.
In the plea-bargain agreement,
the U.S. Attorney's office in Tampa
agreed never to charge BCCI with
ucommitting any other federal crimi-
nal offense under investigation or
known to the government at the
t i m e ~ at the time the agreement was
reached.
Kerry protested then that the
agreement allowed BCCI to walk
away from a federal criminal case
while the allegations about its secret
ownership of First American re-
mained unresolved.
thority," she said. "Customs doesn' t
do banks. It wouldn' t have made any
sense to us."
AnOther federal law enforcement
official also downplayed the signifi-
cance of the CIA working paper.
UJntelligence summaries have no
attribution," the official said. "They
don't say who said what, you can't
use them in court."
Justice Department spokesman
Dan Eramian said last night that the
department "has had for some time
four major investigations in BCCL
"'bviously, I cannot comment on
particulars, including what informa-
tion bas been collected for these in-
vestigations.
~ r t s easy for people to make
charges in the public domain.. But
justice officials have argued that
the restriction on further prosecu-
tion did not apply to other U.S. At-
torneys' offices and did not prevent
future action against First American
or the institutions secretly controled
byBCCL
Bonnie T'sschler, the chief of Cus-
toms enforcement in Tampa, Fla.,
and the law enforcement official su-
pervising the undercover investiga-
tion, said she recalls seeing a CIA
document about BCCI in the spring
of 1988. But she said she did notre-
member if it included the sentence
about the Washington bank.
But even if it did, Tischler added,
it wouldn't have been relevant to
Customs' criminal investigation.
uwe don't have any regulatory au-
prosecutors must present provable
evidence in court. ..
Last week the justice Depart-
ment's public affairs office arranged
a series of interviews on the BCCJ
case with Assistant Attorney Gener-
al Robert Mueller.
During those sessions be said that
Justice bas now given the BCCJ m-
vestigation a higher priority, and
stressed that Justice won the moo-
ey-laundering conviction.
Kerry has tried for many montha
to obtain a declassified veraion ol the
Sept. 30, 1986 CIA report after
leamiog that it was sent to former
Customs Cornm.issiooer William Von
Raab during the Tampa investiga-
tion by Robert Gates, then deputy
director of the CJA.
No BCO 'Foot Dragging,'
Says Top Justice Official
{ 1/l'l I By Jim McGee
1l'J Wooiqlon1'110tSbKW,...,
given the high-level staffing that was
set up to handle investigations such
as the 1988 bombing of Pan Ameri-
can Fllght 103 or the 1989 murder
of U.S. Appeals Court Judge Robert
S. Vance of Alabama.
The chief of the Justice Depart-
ment's criminal division, stung by
news reports that the investigation
of the Bank of Credit and Commerce
International (BCCO bas been stifled "There are allegations out there
because of alleged CIA links, said be and we are pursuing them, Mueller
has taken personal charge of the said, responding to charges of delays
probe and that 10 federal prosecu- made by Manhattan District Attar-
tors are working
00
various parts of ney Robert Morgenthau as well as
the international banking scandal. recent published reports.
"We are left with the appea.rance The BCCI case exploded into a
of, one, foot dragging, two, perhaps major international issue after bank-
a coverup .. or at perhaps best a ing authorities in Britain and a num-
lack of enthusiasm for aggressive- her of other countries shut the bank
ness: said Assistant Attorney Gen- down earlier this month, charging
eral Robert S. Mueller. "Nobody has that it had suffered huge losses as a
ever accused me of . . lacking ag- result of widespread fraud. British
gression. bank regulators claimed that BCCI
He said BCCI recently has been See BCCJ, A2li, CoL 1
Hocue Banking Commiltee plana September Morings on BCCI. Poge B9
DCCI, Prom Al
acquired hidden control of stock in
Washington's First American Bank-
shares through undeclared loans to
shareholders.
Mueller rejected assertions in the
current issue of Time magazine that
the "U.S. is trying to cover up its
ro1e in the BCCI scandal in part be-
cause Wte CIA may have collaborat-
ed with a "black network" of 1,500
BCCI operatives who, according to
Time, were involved in smuggling,
ludnapping and possibly murder.
"' don't know but the CIA may
have used BCCI" bank accounts for
operations, Mueller said. "But is that
a violation that we ought to be inves-
tigating? What's the violation of
United States criminal law that gives
me the right or the FBI the jurisdic-
tion to investigate?
"If they (the black network) mur-
dered somebody in the United
States, if they-extorted somebody in
the United States, if they murdered
or extorted Americans overseas, we
potentially would have jurisdiction.
We are not the world's ombuds-
man-at least the justice Depart-
ment is not..!..and we have to focus
on those credible allegations that we
have in hand that deserve our re-
sources. All I'm doing is expressing
my Crustr.itioo.w
Mueller said that no one from the
White House or from the various in-
telligence agencies has attempted to
interfere. "Has our investigation in
any way been influenced or inter-
fered with by the White House or
the CIA or NSA (National Security
Agency) or any other agency?"
Mueller said. "The answer is no. And
we will not allow it be influenced, pe-
riod."
At another point during an inte.r-
view in his office at the justice De-
partment, Mueller said that so far,"'
have no evidence to, I have no rea-
son to believe ... that the CIA was
in any way involved in BCCI's illegal
activities .... I have seen nothing to
support the bold allegations that are
made in Time.w
A CIA spokesman, Mike Mans-
field, said yesterday, "Any allega-
tions of unlawful use of BCCl by the
agency are without foundation. The
allegation the CIA collaborated with
a so-called black network .. are ab-
surd."
Mueller defended the work of fed-
eral prosecutors, noting that they
may have m11ved with less fanfare
than prosecutors with the Manhat-
tan District Attorney's Office, who
first obtained evidence that BCCI
had gained control of First American
Bankshares' holding company. Muel-
ler argued that it was a 1988 federal
money-laundering case in Tampa
that first revealed BCCI's illegal ac-
tivities in the United States.
U.S. attorneys in Tampa, Miami,
Atlanta and the District are investi-
gating different aspects of the case,
ranging from BCCI's alleged involve-
ment with CenTrust Savings and
Loan in Miami to allegations by the
Federal Reserve that it was misled
when it approved the 1981 takeover
- ~ ..!. __
- - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - = - ~
ot .l''ll'st JUIIencau.
Mueller argued that the investiga
tion mushroomed recently as a re-
sult of inquiries by the accounting
firm of Price Waterhouse, which ex
amined BCCI's books at the request
of the Bank of England.
~ T h e broader allegations that
have been made have been based on
revelations ft'orn the Price Water
house report that only became pub-
lic or was produced by Price Water
house in the last month, Mueller
said.
The current issue of Time maga-
zine asserts that u .S. investigators
now say openly that the Justice De-
partment has not only reined in its
own probe of the bank, but is also
part of a concerted effort to derail
any full investigation. Says Robert
Morgenthau, the Manhattan District
Attorney, who first launched his in-
vestigation into BCCI two years ago;
We have had no cooperation from
the justice Department since we
first asked for records in March
1990. In fact, they are impeding our
investigation, and justice Depart
ment representatives are asking wit
nesses not to cooperate with u8:
At least two congressional com-
mittees plan public hearings on
BCCI in the near future.
Mueller said there have been con
flicts with Morgenthau in part be-
cause different prosecutors are pur
suing many of the same matters.
"We are aggressively pursuing the
allegations,w Mueller said. "And, as is
often the case, when you have juris-
dictions that may have overlapping
inte.rests, you bump up against each
other .. .. We have talked with
[Morgenthau), we're meeting next
week to see if we can resolve some
of those differences:
Morgenthau said yesterday that
he is willing to cooperate with the
federal prosecutors but needs access
to documents and witnesses they
control. "I have no interest in having
a fight with anybody in the Justice
Department," be said.
.I MONDAY,JULY22 1991 A11
Jim Hoagland p tJP('-
7
: : z /
0
~ )
Spies and Banker's
LONDON-Modem spying is more cloak
and bankbook than cloak and dagger. The
big secrets of the CIA, MI-5 and perhaps
even the KGB now involve their bankers,
not their assassins.
Two banking scandals, one here and one
in America, pierce the bidden financial core
of the espionage business. Both scandaJs are
centered on the Persian Gulf. Taken togeth-
er, as they should be, these scandals will
cost American taxpayers and British deposi-
tors billions of doUars when the final ac-
counting is done.
The close relationship between bankers
and spies is a necessary one. Uke you or me,
spies have a lot of bills to pay. But they must
frequently pay them in odd, scary or merely
surreptitious ways to odd, scary or merely
surreptitious people in faraway places. To
buy or rent these people, it takes money,
skill and discretion-but mostly money.
It also takes the benign neglect of banking
regulators and other government officials
who tum a blind eye to fishy balance. sheets
and hidden cash flows that would nonnally
trigger audits and fraud investigations.
Spies need bankers, and bankers need
friends in high places.
William Casey understood that, and he
used his time as Securities and Exchange
Commission chairman under Richard Nixon
as an apprenticeship to become Ronald Rea-
gan's spymaster. And Robert Gates, Casey's
The CIA has issued a
curiously worded
denial of accusations
that it had close
working relations with
BCCL
would-be successor once-removed, has fre-
quently said that the agency must improve
ita understanding of finance and economics.
A curiously worded denial by the CIA of
accusations that it had close working rela-
tions with the Luxembourg-based, Arab-
owned Bank of Credit and Commerce Inter-
national (BCCl) that helped underwrite
arms shipments to lran, Iraq or both, raises
new questions. The agency was not involved
m any "unnawful use of the fraud-infested
BCCI, according to the denial published
... ...-----"'---il",_ W ........
) .
here by The Flnincial Times.
Well, nothing is Illegal until it is so proven
in court. The CIA public affairs wordsmiths
were predictably silent on the presumably
"lawful" use the CIA made of a bank that
was seized by British authorities th.is month
after allegedly defrauding depositors around
he world of $4 billion. .
The,British press and La-
PMtv are having a field' day with new
disciosu that alarmed BCCl
wrote privately months ago to government
officials to describe the BCCI scam. The
bank' s auditors, Price Waterhouse, com
a report in March, 1990-that's right,
1990-listing in detail fraudulent loans and
other fake transactions with the rich Arab
businessmen who set up the bank.
Nothing was done about the letters or the
auditors' report. The money kept corning in
and then flowing out to a bunch of reverse
Robin Hoods, who lined their pockets with
money from the poor. Many BCCI deposi
tors are from developing nations. Britain's,
financially struggling municipal govern
ments put more than $200 million in BCCI
to earn its higher interest rates.
Reading the list of the Persian Gulf Hood
Robins that the Price Waterhouse report
fingers is a trip down memory lane for me. I
had come across several of the scandal's key
characters when I was living in Beirut in the
rnid-1970s and working on a series about
Arab rnoneymeo.
The intriguing aspect-then and now-is
the close connections the oil-money entrepre-
neurs had to Western intelligence services
and to arms merchants who pocketed billions
of government-financed weapons sales.
There seemed to be a seamless web of money
and influence, and a pervasive odor of corrup-
tion, linking them all in a world in which
everything was for sale.
BCCI's aggressive pursuit of deposits in
Panama from drug traffickers suggests an
internationalization of the Middle East pattern
in the 1980s. How BCCI flourished under a
leader named Manuel Noriega, whose name
just may be familiar to the CIA and to George
Bush, is outlined in detail in a book recently
published in Panama by Daniel Gonzalez. the
farmer deputy manager of BCCI there.
The same pattern of official benign neglect
toward odd banking practices is present in
the Banco Na.zionale del Lavoro (BNL) scan-
dal in the United States.
The Atlanta branch of the Italian bank
continued to underwrite Iraqi credit in the
United States long- after a prudent banker
would have stopped oc would have been
stopped by alert bank regulators. The Bush
administration continued to push doing busi-
neSs "lith Iraq_ long after Saddarn Hussein's
destructive regional ambitions bad bankrupted
his c:oontry. A sericlm congressional investiga-
tion should find out why these things happened.
The banldng and spying joint ventures have
grown into monsters, corrupting both free
enterprise and espionage. The CIA is off on
the same track again as it tries to make up for
lost time by hastily recruiting Iraqi agents to
help depose Saddam.
At first, the agency put on its payroll Iraqi
dissidents uncertain ability and integrity. The
agency seemed to be buying up people simply
because they were for sale and the United
States had the money. But the operation is
becoming more profe5l!ional as it expands. Deo.
spite its conupting experience in mutual
u1ation with the banks, the learning that
espionage is among the problems that are not
' eolved by throwing money at them.

Delays Plan to Dismantle BCCI .

7. ees and BCCI depositors, who hope and several other countries took "no hesitation" in brushingaside tbe
by Steven Mufson
................ !toi!Wril<r
LONDON, July 30-A British
court today delayed dissolving the
Bank of Credit and Commerce Inter-
national for four months to give the
ruler of Abu Dhabi ti.lre to come up
with a rescue plan for the allegedly
fraud-riddled institution.
The court decision dealt a blow to
the Bank of England, which wanted
to permanently shut down BCCI im
mediately, but elated BCCI employ-
that Abu Dhabi's Sheikh Zayed bin control of BCCI operations on July 5 Bank of England's objections to tbe
Sultan al-Nahyan will save their jobs a.fter off-.cials said audits and investi- delay and said that giving more time
and savings. gations showed widespread evidence for a rescue plan was ,"in the irlteJ.,.,
The government of Abu Dhabi of wrongdoing. New York authori- ests of the depositors as a whole-"
and its ruler today deposited 50 mil- ties announced the indictment of Rakesh Shah, a BCCI employee in.
lion pounds ($84 million) in the Lon- BCCI Monday on fraud charges, and Loodon who has money deposited ld;
don branch of the Jlfational Bank of the Fed said it was seeking $200 the bank, said he was
Abu Dhabi to cover partial payments mill.ion in fmes from BCCJ. the outcome. "'t is a great
to BCCI's smaU depositors and tore- Since the July 5 seizures, the fu- logical victory against the Bank fJ
sume the payment of salaries to ture of the banks bas in ques- England (which) is only intenst1
BCCI employees in Britain. tion. ed in closing down BCCI and is not>
Government officials in Britain, The judge, Vice CbanceJior Sir Ni- interested in its depositors
Luxembourg, the Cayman Islands colas Browne-Wilkinson, said he had See DCCI, A6, CoL 1 :
. .
.
t
t
IIUl[JI
BriUJh lawmaker Keith Vu b conHtulated by DCCI employeu in London yesterday after court ruling. VaziUpported the employees In u effort to restructure bank.
r
t
, ;
l
BCCJ, From Al
holders," be said after cramming
himself into the crowded courtroom.
The fate of BCCI now rests with
Sheikh Zayed, his son and the gov-
ernment of the Persian Gulf emirate.
'they now own 77 percent of BCCI,
having increased their stake last
year in an effort to resale the trou-
bled bank.
So far, they have injected more
tban $1 billion into BCCI, and bll-
liPns more may be required to save
the institution, rife with bad loans.
Sbeikb'Zayed's willingness to con-
sider further cash infusions for BCCI
h3ls become as much a matter of
honor as of business, bankers and
political analysts say. Although an-
gered by the sudden seizure of
BCCI,"the Abu Dhabi ruler is being
portrayed as wanting to maintain his
good business name, and be has the
oil wealth with which to do it
"The Arabs never like to lose
face," said a British bank executive
who bas talked to Abu Dhabi officials
about joining a restructured BCCI.
He said that Abu Dhab1 was consid-
. . . --- _, ..
enng salvaging part of the HCCluc-
work, which extended to 69 coun-
tries.
Other bankers, however were
skeptical about whether bank
could ever be reopened without a
run on deposits after so much ad-
verse publicity.
Similar to Britain's legislated de-
posit protection plan, the Abu Dhabi
fund for BCCI will give depositors in
the United Kingdom three-quarters
of their money up to a maximum of
5,000 pounds ($8,250). Under Brit-
ish law, depositors could receive as
much as 15,000 pounds ($24,750)
from a fund raised from other British
banks. The Bank of England had de-
manded that Abu Dhabi match the
maximum set in British legislation.
That would have required an addi-
tional 39 million pounds ($65.5 mil-
lion).
The former head of BCCI, Swaleh
Naqvi, who allegedly kept 6,000 files
that were the accounts of the "bank
within a bank" at the heart of the al-
leged BCCI fraud, is in Abu Dhabi.
housed in luxurious quar-
ters, 1t IS not clear whether he is
free to leave the emirate. One re-
port said his passport bas been con-
fiscated, but Naqvi has refused to
comment to reporters there.
The irony of the Bedouin ruler of
Abu Dhabi, once a British protector-
ate, coming to the aid of the Bank of
England and British citizens bas not
been lost on the British public. Sev-
eraJ members of parliament and
British newspapers have commented
on the spectacle of the Bank of Eng-
!and closing BCCI, then dispatching
tts governor, Robin Leigh-Pember-
ton, to Abu Dhabi to ask for money
to pay off depositors and creditors.
Sheikh Zayed was born in 1917
long before oil was discovered in
desert realm. He came to power in
1966 when he overthrew his broth-
er, who is said to have kept his mon-
ey in his tent.
In 1971, when Britain withdrew
from its protectorate role for the
..., -
small Arabian Peninsula states
Sheikh Zayed played an important
part in bringing together seven of
the states into the new nation of the
United Arab Emirates. Rulers of two
of the seven have been named by the
Federal Reserve as acting as fronts
in the covert and illegal ac-
QWSttion of Washington-based First
American Bancshares. Sheikh Zayed
has not been named. Although the
UAE rulers are familiar with one an-
other, relations between them can
be strained and their interests often
differ, political analysts note.
Abu Dhabi is the biggest of the
seven emirates, the biggest oil pro-
ducer and the richest in oil reserves.
the UAE exported $15.7
btlhon worth of oil in 1990 and Abu
Dhabi accounted for 82 percent of
total production. Its production ca-
pacity is expected to nearly double
by the rnid-1990s.
Sheikh Zayed's rule has been rela-
tively progressive. His city state has
good educational and health facili-
ties. His old palace is a national ar-
chive housing documents on the his-
tory of the gulf states. He has
planted more than a million trees
and lush gardens.
Zayed, however, is a man of the
desert and it is an old custom for the
wealthy sheikhs of the Persian Gulf
to go to Pakistan with their trained
hawks and hunt the hubara bird the
desert pheasant. It is a newer 'cus-
tom, dating from the boom in Per-
sian Gulf oil wealth, for the sheikhs
to turn into the prey of business peo-
ple who are more fox than pheasant.
In the early 1970s, when Paki-
stani banker Agha Hasan Abedi
needed money to found BCCI, he
flew to Abu Dhabi to enlist Sheikh
Zayed's support.
Although Sheikh Zayed bas been
an important shareholder in BCCI
its founding in 1972, he is be-
lieved to have kept a passive interest
until last year.
Though his financial support was
Families ot BCCI employees demoDJrate o11talde Lcmdon eourt. A jlldge delayed for f011r lllOD1ha dlnlantliq of the but.
crucial to the growth of BCCI, he
has not been implicated in any
wrongdoing, according to the Bank
of England.
In 1990, as the magnitude of
BCCI's troubles began to emerge in
reports of its auditors, the Bank of
England turned to Abu Dhabi for
help in restructuring BCCI.
In consultation with the British
central bank, Sheikh Zayed and the
Abu Dhabi government injected
about $1.1 billion into BCCI and in-
creased stake to 77 percent.
They pledged to restructure the
bank and move the headquarters out
of the relatively unregulated bases
of the Cayman Islands and Luxem-
bourg. Three new units would be
based in London, Abu Dhabi and
Hong Kong.
Abu Dhabi also gave BCCI $1.4
billion in deposits and agreed to take
responsibility for $3 billion to $4 bil-
lion worth of shaky loans.
New executives were recruited
from respected major banks in Lon-
don, including two high-ranking offi-
cials of Lloyd's Bank. Final talks
were to be held with the Bank of
England on the same day British au-
thorities moved to close down BCCL
Analysts say that Abu Dhabi may
have wanted to buy seer to llelp
build up the non-petroleum sector of
its economy. Abu Dhabi has become
a reexport zone, importing fabrics
from Pakistan and India, making tex-
tile goods and reexporting them. It
is also a major distribution and ser-
vice center for the Persian Gulf re-
gion.
And it had some ambitions to be-
come an offsllore banking center like
Hong Kong or Singapore. The Abu
Dhabi government "was going to
build BCCI up as a flagship
said one of the executives who was
to become a key financial officer of
the restructuring plan scotched by
the July 5 shutdown.
-
A
4
M.,.o.,,Aucusrs, 1991 J.f
TKt: WASKII'fC'I'()N PosT
--
Fed Document Challenges Clifford, Altman
Questions Are Raised on BCCI-Backed Stock Deal, Management Policies at 1st American
By Jim McGee
W ......... ,_ SUI!Wrilol'
The names Clark M. Clifford and
Robert A. Altman are barely men-
tioned in the Federal Reaerve'a
lOO.page document alleging that
their bank company, First American
Bankahares Inc. of Waahlngton, waa
secretly and illegally cootrolled by
the Bank of Credit and Commerce
International (BCCI).
But on two key questions, the Fed
document, released July 29, appears
to directly challenge paat statements
by the two Washington lawyers de-
scribing how they ran F"ll'lt Ameri-
can for a decade.
Did the loans BCCI made to Clif
ford and Altman in 1986 to buy $18
million in First American stock vio-
late a formal commitment they made
to the Fed in 1981? The Fed was
wary of the Luxembourg-based bank
having any role in financing the pur
chase of shares in First American's
bank holding company. Before it
would approve the takeover by a
group of foreign investors in 1981,
the Fed demanded a promise that
BCCI loans would not be used to buy
shares in the Washington-based
company.
The Fed alleges, however, the
pledge was violated when BCCI fi..
nanced First American stock pur
chaSeS from 1982 to 1990, a period
that would include the BCClloans to
. Clifford and Altman. Representa
tives for Clifford and Altman have
argued that the 1981 restriction on
BCClloans applied only to the origi-
nal takeover of First American, not
to any subsequent stock purchases.
Was BCCI involved in the manage-
ment of First American through par
ticipatioo in hiring dedsioBS and key
acquisitions despite assurances to
the Fed from Clifford and Altman
that BCCI would have no role in run
ning American?
The Fed report said BCCI was in-
volved with F'lfllt American in ways
that violated the 1981 commit
ments. Clifford and Altman have said
BCCl never influenced their running
of the bank. Clifford is the chairman
of First American and Altman is the
president.
The Fed document is a kind of qv
il indictment that seeks to bar BCCl
officials and four First American
shareholders from the American
banking industry and a
$200 million fme against
which bas seized by regulatots over
seas and were indicted by a New
York grand jucy for fraud and bnb-
ery.
As part of its investigation of the
BCCI-First American relationship,
Fed ie continuing to examine the
actions Clifford and Altman. The Fed
last Monday did not charge tlifford
and Altman with wrongdoing.
But the Fed. regulators, who have
questioned Clifford and Altman for
several days and listened to argu
ments from their team of defense
lawyers, did allege that BCCI con
trolled First American, Washing
ton's biggest bank holding company.
Legally there are two kinds of
control a bank can have over anoth-
er: it can own a controlling block of
stock, and it can exercise what the
Fed calls influence over
management decisions.
lA its charges against BCCl, the
Fed cited examples of both kinds of
BCCI control over First American,
beginning in 1981 when BCCl se-
cretly fmanced the acquisition of
First American through the use of
Middle Eastern front men.
Through their lawyers, both Clif
....--
r

(
.
t
ft

l;
f
f
t
i
I
I
i
I
I
l
I
1
ford and Albnan declined to be inter
viewed for thls article and their tes-
timony before the Fed bas not been
released.
In an Interview last year with re-
porters from The Washington Post,
Clifford said: no time has BCCI
ioterferred in any way in any judg
menta we have made on behalf of
F"IrSt American Banksbarea..
Altman, in the same Interview,
said: think that the Fed totally
understands the relationship with
BCCI and the function BCCI would
perform.
Carl Raub, a Washington attorney
who repre!ents Clifford and Altman,
said last week: "None of the charges
that the Federal Re!erve has leveled
against BCCI suggests to us that
The Fed seeks to bar
BCCI officials and
four First American
shareholders from
U.S. banking and
proposes a $200
million fine against
BCCL
BCCI controlled any decision by Mr.
Clifford or Mr. Altman or the First
American boards of directors. BCCI
did not in any way control those de-
cisions. And the Fed order does not
suggest to us the contrary.
As to BCCI's illegally acquired
ownership of First American, Clif.
Cord and Altman have said that if
BCCI did gain secret control, they
bad no knowledged of it and were
duped.
But if Clifford and Altman were
duped, it was by clients and business
associates with whom they dealt
regularly, and who bad arranged for
them to earn many millioos of dol
Iars, according to the Fed report and
previous Washington Post inter
views with the two lawyers.
The Fed identified former BCCI
president Agha Hasan A.bedl, former
BCCI chief executive Swaleh Naqvi
and First American shareholder Ka
mal Adham as the architects of the
secret takeover of FJrSt American.
Clifford and Altman have said they
dealt frequently with these men in
guiding the affairs of First Amen
can.
During extended interviews with
reporters for The Washington Post
in 1990 Clifford and Altman said
about four times a year
With seruor BCCI executives, in ei
ther London or New York, to brief
them on First American's budgets,
performance, future plans and any
need for additional capitaL They said
BCCI was their "communications
link" with the Middle Eastern share-
holders.
"Naqvi sat in a lot with Abedi "
Clifford said. was the dre;m;.
er, the conceptualist. And Naqvi was
the numbers man. Clifford said that
"what we were doing was reporting
to our owners and to our investors
wbo were represented by Kamal Ad:
bam and Mr. Abedi.
Clifford said last year he was of
fered the post of First American
chairman in 1980 over lunch in Lon-
don with Abedi and Adham. He said
Adham told him: "Mr. Clifford, we
would like you to operate the prop-
erty. The veteran Washington law
yer said he accepted immediately on
one condition: "I will take the re-
sponsibility if I am also given total
control and authority."
In August 1981 the Fed approved
the takeover of First American
based on assurances from Clifford
that BCCI would have "no role" in
the ownership or management of
Ftrst American beyond serving aa an
adviser to individual shareholders.
Clifford said the promise was hon-
ored.
One btstance in which the Fed
said BCCI did intrude, however, was
th.e creation of a First American sub-
sidiary in New York in 1983. Altman
said in The Washington Post inter
views that he oversaw the creation
of the First American Bank of New
York (FABNY), including the hiring
oC key executives and negotiating
the acquisition of established bank
branches from Bankers Trust Co.
"What we were, in effect, doing is
starting a bank from scratch," CJif.
ford said last year. He said Altman
took a hand&-on approach during the
early years. "Bob did most of it:
Clifford said.
Altman hired Khsuro Elley, then
head of BCCI's New York office, and
Aijaz former generaJ man-
'"""' .. . _. ..,_
ager at BU.:l.
"During his tenure at FABNY
Afrldi continued to keep in close con:
tact with BCCI, speaking almost dai
ly with BCCI's London office," the
Fed alleged.
"We were looking for individuals
who had foreign experience," Clif
ford said last year. During this peri
od Bruno Richter, a veteran New
York banker, was named FABNY
chief executive after three meetings
with Abedi The Fed said Richter
and Afridi had been recruited by
Abedi.
When Richter tried to hire an as-
sistant, the Fed claimed, "before the
individual could be hired he had to
go through two sets of interviews:
one with Elley and Altman, and an
other in London with Abedi, Afridi
and Naqvi."
Altman and Clifford said last year
they consulted BCCI on the hiring of
Richter and others because they want
ed BCCI's advice and hoped to win
more BCCI business; but they made
the final decision. "There has been no
participation, directly or indirectly, by
BCCI: Clifford said last year.
Under a section titled "BCCI Partie
ipated in the Purchase of Branches for
FABNY; the Fed said, Elley "contin
ued to negotiate for the acquisition of
the branches, ostensibly on behalf of
FABNY. BCCI, however, continued to
control the negotiations, including -
such terms as price: Clifford and Alt
man said last year they were in charge
of the negotiations.
After Elley became a First Ameri
can executive he continued to re-
ceive a "financial benefit" from
BCCI, the Fed said, and provided
regular reports on First American's
performance to BCCI's "Americas
Coordinating Committee.
At one such meeting, according to
the Fed, Elley told the assembled
BCCI executives, "'n America we
are sitting on $7 billion [in] assets
and t!Us is just the beginning." The
combmed assets of First American
National Bank of Georgia and
BCCI's U.S. operations were $7 bil
lion, the Fed said.
In September 1990 a Washington
Post reporter asked Clifford if he or
Altman attended meetings of a BCCI
coordinating committee. "Neither
Mr. Clifford nor I ever attended any
meeting of such a group, nor, for
that matter, have we ever heard of
such a committee, Altman said.
.. ......
.... ......... .......
------------------------------..-----.......
The second Firat American acqui-
sition cited by the Fed involved the
December 1986 decision to buy Na-
tional Bank of Georgia (NBG). The
Fed alleged that BCCI decided to
have First American acquire the
Georgia bank, which It owned se-
cretly through Saudi Financier
Ghaith Pbaraoo, as a way of improv-
ing BCCI's balance sheet and ward-
ing off Pbaraoo's creditors.
"BCCI caused (}TU"St American's
holding company) to agree to pur-
chase the shares of NBG from Phar-
aon for $220 million" the Fed al-
leged, and BCCI funded the
purchase through loans.
The aCquisition of what became
First American Bank of Georgia was
the holding company's biggest acqui-
sition. Clifford told The Post last
year that buying NBG was his idea,
which be got from reading the trade
press. "I started it, in a call to Abe-
di," said Clifford, who stressed that
First American bad to bid against a
competing bank.
Another section of the Fed's sum-
mary addresses the question of how
long a commitment is good for.
The Fed approved the 1981 take-
over of First American's holding
company based on assurances that
BCCI was not ftmding the purchase
of shares.
In 1986 and 1987 Clifford and Alt-
man purchased shares in First
American with $18 million lent to
them by BCCL Within 18 months
Clifford and Altman sold a portion of
their shares to another First Ameri-
can shareholder for $32 million.
They earned a cash profit of $9.8
million on the sale and gained full
ownersltip of their remaining
shares-valued at $7.4 million to
$22.9 million.
The Fed's allegations described
BCCI's manipulation of the atock
price just before the sale to Clifford
and Altman, which enabled them to
buy the shares at a markedly low
price. "BCCI financed each purchase
and the acquired shares were
pledged to secure the loans," the
Fed said.
Clifford and Altman's representa-
tives insisted the 1981 promise that
BCCI would not fund the acquisition
of shares in First American's holding
Jlftlideat of Itt Aaericaa
company applied only to the original
takeover and not to any subsequent
purchases of shares in First Ameri-
can's holding company.
But a aenior Fed official has said
the Fed viewed that commitment as
permanent. The Fed's allegations
described at length the representa-
tions that "BCCI not fund the acqui-
sition of shares. The Fed quoted
the original a lication, which said
"Neither is it I ) a lender, nor
will it be." The Fed also cited a 1981
letter from the comptroller of the
currency that noted assurances that
BCCI would not be involved in fi-
nancing the acquisition.
"This commitment is critical, both
now and in the future, said the
comptroller's letter, which was re-
ferred to during a 1981 Fed hearing
on the takeover attended by Clifford
and Altman.
Thornburgh: More BCCI Indictments Coming
Aaeodated Preaa
Additional indictments against the
Bank of Credit and Commerce Inter
national are expected "very soon,
the ~ t of them probably in a month
or six weeks, Attorney General Dick
Thornburgh said yesterday.
The Luxembourg-based bank, the
center of a growing international
uproar, was indicted by a state grand
jury in New York last week on
charges of bribery and fraud. The
bank's operations have been abut by
regulators in a number of countries,
including the United States.
Thornburgh, appearing on CBS's
"Face the Nation, said the forth
coming indictments would be in the
areas of money laundering and bank
regulatory violations, but he de-
clined to give details.
Federal grand jury Investigations
of BCCl are underway in Tampa,
Miami, Washington and Atlanta,
Thornburgh said.
Thornburgh declined to say
whether any federal officials are
under investigation. He also said be
has no indication that the ClA,
which has said it moved large
amounts of money through BCCI,
was involved "in any illegal actions
relative to BCCI."
Thornburgh said there is no truth
to criticism that the Justice Depart-
ment was slow to pursue wrongdo-
i.ng by the bank.
William voo Raab, customs com-
missioner in the Reagan administra-
tion, said on CNN's "Newsmaker
Sunday" that both the Justice and
Treasury departments "shouud have
done more than they did."
He said no customs agents had
said "they thought anyone was ac-
tively discouraging them from in-
vestigation-only that nobody was
encouraging them and they got a
feeling this was not going to belp
their careers."
"We don't have a villain. We don't
have someone to string up," von
Raab said. "We also don't have a
champion. We don't have a U.S.
attorney who is on this case."
Thornburgh, in a sharp response
to such criticism, said: "We don't
deal In sound bites. We have to
present evidence in court."
He said the cases are complex,
but the investigation is continuing
and "l expect we will reach indict-
ments very soon.
"' expect in the next month or six
wee.ks we wm have the first of the
indictments," he said. "l am satis
fied we have had a vigorous and
proper investigation of every alle-
gation that is credible."
.. -
BCCI Scandal:ff.Behind the of Crool{S and Criminals'
; ;,
1
) J By Steven Mufson
f1 Jim McGee
.......... "'*Sui! Wrilon
More than 12 years ago, a major
U.S. bank decided not to do any
business with a Luxembourg-based
institution called the Bank of Cred-
it and Commerce International
One of the American executives
recalls that something about BCCI
just didn't add up. -They were re-
luctant to provide information
about the sources and uses of
funds," he says now. "We got bad
vibes from them .. . so we just put
them on our internal blacklist.
A lOt of other people got bad
vibes from BCCJ, and among bank
ers it acquired the nickname of
"Bank of Crooks and Criminals ...
But it took a dozen years for regu-
lators overseeing BCCI's far-flung
empire in Britain, Luxembourg,
the Cayman Islands and elsewhere
to reach the same conclusion.
In tbe interim, BCCJ wove what
its auditors, Price Waterhouse, be-
latedly discovered and now describe
as "probabby one of the most com-
plex dec.eptions in banking history
BCCI made phony loans, con
cealed deposits, hid huge losses,
and was the bank for a host of
shady customers ranging from ter-
rorists and spies to drug runners
and dictators.
Its unmasking bas provoked a
slew of questjons about how a fi-
nancial scmlaJ of such magnitude
was covered up for so long while
1.2 million individuals and compa-
nies-most of them from Third
World countries-entrusted their
money to BCCL
Where were the regulators?
What blinded the auditors? To
what extent were various intellj.
gence agencies, including the CIA,
involved? What were BCCI's links
to with drug kings and dictators?
According to British authorities,
BCCI committed fraud on a grand
scale: keeping separate books for a
within the bank" that han-
dled illegal transactions, making a
$32 million payoff to silence one of
its own managers, using clients' ac-
counts to hide its own losses, and
shuffling money among different
affiliates to disguise the bank's true
financial condition.
One of the pieces of the scheme
was Washington-based First Arner
ican Bankshares Inc. For a fee,
prominent Middle Eastern individ-
uals served as fronts for BCCI in
See DCCI, Al6, Col 1

-.....
BCCJ. fnlm Al
gairq control of the Washington
bank iD 1981. These illegally held
in F'u:st American were then
uaed II oollateral a second time by
BCCI to raise about $600 million in
new loaDs, said a source investigat-
ing the affair for British authorities.
8CCI uaed that money to cover up
loaet elaewbere, be said.
Oil July 5, the Bank of England
gaw up oo efforts to clean up the
baaluad shut its doors, alleging that
the fraud was so "massive that
8CCI muld not be reformed. "The
culture ol tbe bank is criminal, said
Bank of England Governor Robin

AIDoog the UDSOlved mysteries:
Where did the eatimat.ed $5 billion
bole ill the blnlc'a balance sheet go?
Eftll DOW, It remains unclear wheth-
er 8CCI aecutives stole money to
euricb themlelves or whether they
simpiJ tried to la!ep a crumbling en-
terprile tocether by any means.
"'ra DOt dear that the money bas
lODe ywbere at aU except to Joss..
ea IDd dodgy bu1a," said one person
in\'Miptinc DCCI for British au-
tboritiea. "We haven't established
tbat ..,._ stashed a pot of money
ellewbere. , . The end might have
bee&. to keep a bank going when it
lle'lef a.de a profit so that its offi-
cen ClOak! continue to be very im-
IICil1llt pecple ol great status."
aca was founded in 1972 by a
PlldltD banker named Agha Hasan
Abedi, who bad previously been
Pftlideat oltbe United Bank Ltd. of
PalclltaL Bank of America initially
bad a 25 percent interest; Sheik
Z.,.., bin Sultan aJ..Nahyan, ruler of
Abu Dbabi, and other wealthy indi-
Yidulla from tbe Persian Gulf also
bid interests.
A former Pakistani finance minis-
ter calla Abedi a Mman of tremendous
intellect. committed to economic
de9elopmeut in tbe Third World and
intereeted in Sufiism, Islamic mysti-
c:ilal:.
.\. former customer says Abedi
SIJOf!:8 iD a low monotonous tooe of
voice aod that his hair stood up like
be bid fcqotten to brush it after
rettiaa out of bed. He occasionally
intMupted business talks to discuss
soq.t values.
Hill bank was very profitable in
Pakiet3n and became a re-
spected figure.' BCCI gave away a
tresbendoos amount of money in Pa-
kiltiD for health and education.
the bank also curried favor with
peo,ple of influence, often hiring
thetn or their relatives to be its
branch managers. These people in
tum could bring large accounts to
the, bank.
In Jordan, for instance, according
to L.rival banker, BCCI hired the
brq_tJaer-in-law of the then-army
and obtained bank ac-
counts ol the Jordanian army.
")'ou really felt these were people
good connections," said a
fomler customer. uAbedi could walk
just [n and out of [then-Pakistani
preSident Gen.] Zia's office. They
to the top in Third
counmes.-
All this contrasts sharply with
BCCI'a reputation among bankers.
"We always felt it was a good or-
to keep away from," said
an executive of another major inter-
naUCDal bank.
Hii institution wasn't alone. When
BCCI waa shut down earlier this
moat11. there was hardly a single ma-
jor -.ablisbed bank that had any
tied up in BCCI, whereas a
DOl'1ilal bank that size would have an
endie web of interlocking transac-
tions 'With other big banks.
Iii 1980, Bank of America pulled
out ita investment in BCCI. It never
gav.:-a reason, but a source dose to
Bankof America said that "it just
didlit-smen right:
.....
Hoi the Fraud Worked
America's withdrawal was
tbe liast of BCCI's problems at the
to a submission in a
LoodOa court by the Bank of Eng-
Ianct Around that time, BCCI's fraud
waa Jrowing on a huge scale, British
authorities said.
the frauds began the man-
of BCCI was attempting to
deal With two principal problems"
that could have jeopardized the
bank existence, the Bank of Eng-
landpid.
Tliie fii'St was losses on currency
anclJ15lcrunodity trading. From 1977
1985, the red ink totaled
$849 million. And the losses contin
ued-right up to the end.
IB 1990, according to the Bank of
EQflland submission, losses mounted
to a-staggering $495 million. Little
is 1mQwo publicly of these losses, yet
the)' lie at the heart of BCCI' s fail-
ure,_ .
In addition, BCCI bad made bad ,
loans to prominent businesS people
in tbe Middle East British authori-
ties and banking sources say that
BCCI often failed to obtain the re-
quired documentation for major
ioaJIIL The Bank of England said,
-DCCI had lent to debtors whose
ability to repay was at least doubt-
ful."
BCCI's problem loan portfolio is
now .$3.1 billion, according to the in-
te!Mtional accounting firm Touche
This includes a net of $1.1 bil-
lion-of bad loans that have been
transferred to the government of
Abu Dhabi foUowing Sheik Zayed's


BANK OF CRmiT AND COMMERCE INTERNATIONAL CHRONOLOGY

1972
AGHA HASAN AlllDI
1977
BCCI Is founded
In luxembourg by
a group of
Pakistani bankers
led by Agha
Hasan Abedi.
"' _.,_ ' ' .
\.., .f
.
o\
- .
t..
8CCI suffer.; first In a series of losses
speculating In linanclal markets. Losses
total $849 million by 1985 and trigger
fradulent ctNerUp by 8CCI.
1981
Arab Investors,
some with a stake
In BCCI, acquire
First American
Bankshares Inc. of
Washington,
Insisting it will be
operated separately
- from BCCI. Clark M.
ClARK CUFfOftO
1983
Clifford, who
represented the
Investors, Is named
First American's
chairman.
First American acquires two Manhattan
bank branches from Bankers Trust
1985
GHAITH PHARAOH
8CCI, acting
through Ghaith
R. Pharaon, a
Saudi financier,
secretly
acquires
control of
Independence
Bank of Encino,
Calif.
1986
First American purchases National Bank
of Georgia from Pharaon, who acquired
It from former Carter admlnistnltlon
otlicial Bert Lance.
1990
Jan.: Two BCCI subsidiaries plead guilty
in federal court In Tampa to money-
laundering
April: Abu Dhabi and Its ruler, Sheik
Zayed aJ.Nahyan, purchase majority
stake In BCCI.
July: Five BCCI officials and,a
Colombian businessman are convicted of
conspii'BC)' to launder $32 mlllloo In
cocaine profits.
Oct.: Price Waterhouse gives the Bank
of England a report exposing millions of
dollars worth of bad loans and improper
accounting procedures.
1991
March: BCCI agrees to give up its stake
in First American Bankshares alter
reports lhat BCCI misled federal
regulators. Chairman Clifford says he
never knew BCCI owned the bank.
PMy: The Washington Post reports that
1108RT AL TMAH
Clifford and
his law partner,
First American
President
Robert Altman,
earned $9.8
million on First
American stock
In a deal
financed by
BCCI.
June: Price Waterhouse gives Sank of
Engjand more negative reports on BCCI,
alleging widespread fraud In the bank's
operations. '
July !5: Regulators In the United States,
Britain, Luxembourg. the Cayman
Islands and other nations seize 8CCI.
Many of BCCI's deposlters around the
world suffer losses. First Armirtcan
Bankshares is not affected.
Jufy 8: A court In Luxemboul'!l discloses
BCCI lost more than i1s entire net worth
In 1990.
July 17: Wall Street Journal reports that
a few senior executives at 8CCI received
$50 million In hush money.
July 21: London Sunday Times rep011s
that Abu Nidal's terrorist group used
accounts at 8CCIIn England. Time
r
magazine claims that BCCI maintained a
"black networll" of employees who
engaged In smuggling and money
laundering and collaborated with the
CIA.

July 22: British
otliclals reveal
that BCCI used
First American
Banksha.res
stock as
collateral for
loans used to
ctNer up fraud
to BCCI and that
BCCI probably
was never profitable.
SHEIK ZAYED
July 23: Robin
Leigh-
Pemberton,
JlOYI!mor ol the
Bank of
England, places
blame for the
fraud at BCCI
on the bank's
top executives,
and asks 8CCI
OWI1el' Sheik
Zayed to protect
depositors.
Sounles: The Woshlnp)n Post Hlws 11.-!dl
Center: Aesodllld Press

\
r
purchase of controlling interest in
the bank m 1990. Many were big
loans given to individuals with close
ties to BCCI or its eXeCutives.
As much as $1 billion may have
gone to just three borrowers, ac-
cording to the Wall Street Journal:
Saudi financier Ghaith Pharaon, for-
mer Saudi mtelligence chief Kamal
Adham and the Gulf Group, a ship-
ping and trading conglomerate con-
trolled by three brothers, Abbas,
Mustafa and Murtaza Gokal.
Thus, in effect, the bank that al-
legedly was intended to help the
poor was taking deposits from the
poor and giving big loans to the rich,
without much collateral. ln some
cases, British authorities say, no
payments had been made on the
loans for years.
To cope with these set.backs,
BCCI increasingly resorted to de-
ceptive banking practices. It was,
Price Waterhouse $aid, "a full time
occupation which involVed the manu-
facture of inflation of
account turnover, concealment of
funds flow etc. and involved some
750 accounts over a fifteen year pe-
riod."
BCCI concealed deposits to bring
its accounts into balance. Altogeth-
er, BCCI hid more than $600 million
in deposits, the Bank of England as-
serts.
The biggest chunk, $358 nullion,
came from an institution identified
only as '"Tumbleweed" by the Bank
of England. BCCI then loaned money
to depositors against the unrecorded
deposits.
At least three other institutions
were involved in the scheme. An in-
stitution identified by the Bank of
England with the code name "Fork"
helped set up accounts for BCCI to
rout funds. Sources said Fork was
the Cayman Islands-based bank
known as International Credit and
Investment Corp. (ICIC) Overseas
Ltd.
ln a more carefully regulated en-
vironment such as the United
States, BCCI's actions presumably
would have attracted attention. But
for many years. BCCI operated al-
most without regulatory oversight
BCCI's official bases were in Lux-
embourg and the Cayman Islands,
but the operation there was rela-
tively nominal, according to Touche
Ross. Its main office was in London.
"lt wasn' t until 1987 that this
very amorphous worldwide group
had a single group auditor; said
Leigh-Pemberton in testimony to a
committee of the British House of
Commons.
The Byzantine internal workings
that would confuse outside auditors
also became too difficult for the bank
itself to fathom and soon the scheme
spiraled out of control ,,
''The solutions to the initial prob-
lems had to be solved using the same
deception but on an ever-increasing
scale," the Bank of England lawyers
said to the court. "Unrecorded de-
posits and fictitious loans had to be
repaid and funds under Fork's man-
agement had to be replaced. To do
that further unreco'rded deposits,
fictitious loans and funds under
Fork's management had to be used."
Aside from banking the.re
was more to the dark side of 8CCI.
Perhaps it was BCCI's thirst 'for
new deposits. Perhaps it was the '
convenience of BCCI's multinational
network. Perhaps it was that BCCI
appears never to have asked its cli-
ents too many unpleasant questions. ]
But it seems clear that BCCI was . I
at least a frequent conduit, if not an
outright collaborator in questionable
activities.
An investigation of BCCI by the
U.S. Customs Service in
showed that the bank's representa-
tives in Florida were happy to do
business with an undercover agent
posing as a drug operative anxious to
launder millions of dollars in drug
money through bank accounts to
conceal its origin.
BCCI was quite active in South
America, with offices in Argentina,
Brazil, Uruguay, Paraguay,
Venezuela and Colombia.
According to one BCCI source, by
far the largest operation was in Co-
lombia, where BCCI ran essentially a
full-service bank, with branches in
the centers of drug production. The
bank developed a reputation for ask-
ing no questions, dealing in large
amounts of cash aod generating a lot
of wire transfers of the kind that can
be used to launder mooey, sources
said.
Ghaith Pharaon, the Saudi
cier and BCCI client, said in April
that his bank and others were in-
volved in money laundering. Testify-
ing in his libel suit against an
tine journalist, Pharaon satd,
launders drug money, ev-
eryone is a criminal, but only the Ar-
ab bank is attacked," he said. "There
is a campaign against the Arab
bank." He later clarified his remarks,
saying he did not know of
BCCI money-laundering and 'was
merely stating what he thought was
obv_ious.
Also in 1988, BCCI employees
alerted Bank of Eng,land officials that
Palestinlan terrorist Abu Nidal was
using an account at a BCCI branch in
London.
The wave of newspaper articles
about BCCI in the past month have
embellished such views of BCCL
The London Sunday Times re-
ported a week ago that the Nidal ac
counts had "helped fund a decade-
long terrorist campaign. Tens of mil
lions of pounds passed through the
accounts in 1990 .... "
Time magazine built a cover story
around the claims of an unnamed
source they called "Mustafa" who in-
sisted he was part of a 1,500-man
"black network" of BCCI thugs who
collaborated with the CIA.
A source who is familiar with
"Mustafa's" assertions said that
there apparently was a group of
thugs and fixers in BCCI's employ
who smuggled currency, arms and
drugs, and sometimes committed
acts of violence; but the source said
Mustafa appears to be speculating
about any links to the CIA.
A CIA spokesman denounced the
claim as "absurd," and CIA Director
William Webster ordered an internal
investigation. Informed source .. ar-
gue that the CIA and other U.S. in-
telligence agencies routinely make
use of foreign companies overseas, -"
including banks.
BCCI had a wide network in the
Middle East and Africa and was es-
pecially dominant in Pakistan. It was
the favored bank under the regime
of former Pakistani president Zia,
for instance, the deceased U.S. ally
whose government was assisting the
CIA's funding of the Afghan rebels.
MAbedi could walk just in and out of
Zia's office," said a former customer.
"They knew how to get to the top in
Third World countries."
First American's Role
A key piece of the BCCI puzzle
was First American Bankshares, the
------.M:.::!,_ _____________ -----------------
"You not only have a chainnan and a
board that want to look into this
closely, you have a staff that is livid,"
said one officia I.
Both Clifford and Altman have
testified before a federal grand jury
and given extensive depositions be-
fore the Fed. Their lawyers stress
that both men were duped jUst as
badly as the British and American
regulators. ,
As recently as May 23, William
Taylor, the Fed's chief regulator,
testified, "Continuing reviews and
examinations of First American and
its banks failed to provide, and con-
tinues to fail to provide evidence
that would substantiate involvement
in thetr operations by BCCL Offi-
cials stress, however, that the vari-
ous investigations involving Clifford
and Altman are far from complete.
Recent action by the Fed reveals
its expanding knowledge of BCCl's
relationship with a number of U.S.
banks, in addition to First American.
On july 12, the Fed issued a no-
tice seeking to bar Saudi financier '
Ghaith Pbaraon, Abedi and former
BCCI chief executive Swaleh Naqvi
from banking in the United States.
The Fed claimed in the notice that
they concealed seers ownership of
the Independence Bank in Encino,
Calif.
The notice described incriminat-
ing memos, telltale bank transfers
and transactions with ICIC, the Cay-
man Islands "bank within a bank"
controlled by Abedi and some close
associates.
ICIC has come up at least once in
the various First American investi-
gations. As first reported by the
Wall Street $74 million of
First American's capital was for a
brief period placed into certificates
of deposit at ICIC.
The mooey was eventuaUy repaid
with interest, but a key question is
why the First American funds were
placed with the BCCI-cootrolled en-
tity when safer investment vehicles
were readily available? Lawyers for
Clifford and Altman said the transac-
tion was perfectly legal and consis-
tent with sound banking practices.
The list of unanswered questions
about First American seem endless.
Was the secret ownership planned
from the beginning, or did it evolve
over time? What did BCCI stand to
gain from being the secret owner of
an American bank that never paid
Washington-based company with
294 branches in Virginia, Maryland
and the District. For a fee, regula-
tors allege, prominent Middle East-
em individuals served as fronts for
BCCL in gaining control of First
American.
BCCI kept those shares, which
conferred illegal control, and then
used those shares as collateral a sec-
ond time to raise about $600 million
in new loans, according to a soUrce
investigating the affair for British
authorities. The proceeds concealed
losses and bad loans elsewhere in
the BCCI empire, he said.
Lawyers representing First
American Chairman Clark M. Clif-
ford and President Robert A. Altman
quest.ion whether BCCI's alleged
control of F'trSt American has been
established, but investigators say
the evidence is overwhelming.
Poring through the ftles of BCCI
in Abu Dhabi, Federal Reserve in-
vestigators have reportedly discov-
ered documents that conftrm the
BCCI's secret First American own-
ership.
Clifford, one of the capital's most ,.
prominent Democratic lawyers, and
Altman, his law partner, have said
they did not know about any secret
BCCI investment in First American.
Both men themselves acquired valu-
able shares in First American with
BCCI loans, describing this as com-
pensation for their services to the
bank.
Knowledgeable official sources
said in recent interviews there still is
no conclusive evidence that First
American was harmed, although
there is circumstantial evidence that
First American was used as a "paslr
through" institution for BCCI's mon-
ey laundering.
Carl S. Raub, a lawyer represent-
ing Clifford and Altman, said last
week that First American "bas been
operated honestly and in compliance
with all U.S. laws, and did not partic-
ipate in any way in any fraudulent.
activities with BCCI."
To Federal Reserve officials! the
cardinal sin is not that First Ameri-
can was damaged but that regulators
were deceived about BCCI's secret
ownership.
When the foreign investors pur-
chased F"trSt American in 1981, it
was Clifford, the bank company's
new chairman, who assured the Fed
that BCCI would exercise no control
over the Washington bank.
Now the regulators feel betrayed.
Was it a way of bypassing
the resiStance of bank regulators? Or
was BCCllooking to gain political in-
fluence in the nation's capital?
"That's one of the mysteries
here," said a senior official. "'t's hard
to see where this type of ownership
was of any great use to BCCL ...
the whole thing doesn't make
sense."
Where Were Regulators?
Looking back, the dramatic unrav-
eling of BCCI seems almost inevita-
ble, but various sources argue that
authorities waited too long to act. A
1988 federal money-laundering
prosecution in Tampa established
that BCCI was a full-service center
for drug dealers with cash to bide.
The Federal Reserve did extensive
audits of BCCI's operations in the
United States and entered into a
consent agreement with BCCI in
1989. A Senate report in 1990 drew
attention to allegations that BCCl
was involved with Firat AIDerican. as
did published reporta. 1
New York District
ert Morgenthau seized the
BCCI allegatioos in 1990 'lnd pur
sued information published lrl the
U.S. press.
Eventually his office joiDed forces
with the Fed and together
tablished that BCCI CootroUed
American's stock.
By contrast. the Justice J)epiut-
ment. according to critics. chose to
let its investigation in Tampa lan-
guish, providing few, if any, reaourc-
es to the complex case until the 1
scandal unfolded in public. Last week.:
Assistant Attorney General Robert;
Mueller, the bead of the depart-
ment's criminal
an unusual media bliu to declare, ,..
that the federal government bad ...
been investigating BCCI since 1986,F '
when a federal money-laundering ....
prosecution ensnared BCCI. ...
Sen. John Kerry <D-Mass.> araues
that much more was ignored. During
1989, Jack Blum, then a apecial
counsel to the Senate Foreiln Rela-
tions Committee, interViewecl BCCI
officiala.
Hoping to help tbe TamPa qents,
Blwn debriefed his eources in hotel
rooms equipped with aovernment
tape recorders. The luatice Oeput
ment was left, Blwn says. with hours
of
tiona of HCCI'a relationship with
American banks.
Blum says he evenw.Jly c:ooveyed
tbe same information to Morgen-
thau. I
"What happened to Tampa and
the tape recordings we made?" Blum
said. All of that was in their [the
Justice Department's] hands in
1989, and instead of following up 00
the leads talking to tbe people.
they restricted the investigative au-
thority of the agents and entered a
plea agreement. And, that's ioexpti-
cable. It was the ssme evidence es-
sentially, that led Morgenthau tbe
point be's at today.
In effect, no authorities seem to
have taken full responsibility for a
bank that spanned 69 countries.
Most finanCiers in l.olldoo blame
llank of England governor Leigh,
Pemberton because BCCI was rill\
from London for mosf of
buck's got to stop somewhere,
satd one London banker. "The aim ..
pie questions were never asked."
.. tbe view of
evtdence of pool! banking .. t 1
emerged'" only at the beginning ofo'1
1990. But bank closings are very
rare in Britain, and tbe Bank of
land still did not see sufficient evi-
dence of fraud to close down BCCL
It was only at the beginning of this
year that the Bank of England or
dered a more detailed audit from
Price Waterhouse, which finally
prompted the British authorities to
close down BCCI, Leigh-Pemberton. ,
said.
'1'hls abowed eY1dence of
and widespread fraud going back
over a number of years," be said. It
implicated board members, still ac-
tive executives and representatives
of Sheik Zayed. }
In less than two weeks, BCCI was i
closed down. ..:. J;
The Next Step ""
1
:
Officials and bankers following the -1
evolv!ni BCCl scandal oaw say that
1
.
tbe Bank of England, other regula-
tors responsible for banking fraud in j
the United States and elsewhere and I
. I
-----------------
Sheik Zayed will an try w restore /
their damaged honor.
Regulators, especially in the Unit '
ed States and Great Britain, bave re-I
ferred evidence of wrongdoing tq
prosecutors.
1
Meanwhile, Sheik Zayed must de-
cide before a Tuesday court hearing
in London whether he wants to res-
cue BCCI or cut his losses. Aa one oi.
the richest men in the world, he
could write off his losses and walk
away. A banker who was to have
joined a restructured BCCl before
the Bank of England closed it down
says the sheik might try to salvage
the Middle East operations and allow
branches in Asia and Europe to be
shutdown. .
Last week, Leigh-Pemberton_:
went to Abu Dhabi and tried to
soothe the angry mooarcb while at
the same time asking him to cough
up even more money to protect
positors .
Leigh-Pemberton is an
aristocrat, former chairman oi. Na-
tional Westminster Bank, a British
Tory, and lieutenant governor of
Kent-MaU tbe pedigree required
from a prominent Englishman," says
one banker. The sheik, by compari-
son, grew up in a Bedouin family be-
fore oil was discovered in his desert
realm and bas used his oU wealth to
transform Abu Dhabi into a city
state with modern amenities and
lush gardens.
But the sheik did not show up. He':
let his adviser. deal with the BritiaA!
central bank governor. And the com-!
ing days will teU whether the sheikh
is any more forthcoming with'BCCL
Mu/Stm reported this story from
Washington and McGee frOm -
Wasllingtmt. Qwrt.rpondntt Eugmi-,
Robi11S011 cont-ributed from But7UJS
Aires.
Fed Seel\S to Fine BCCI $200 Million
Bank Charged With Secret Control of First American Since 1978
By Jim McGee
,......_
The Federal Reserve Board yes-
terday said it will seek a record
$200 million fme against the Luxem-
bourg-based Bank of Credit and
Commerce International after find.
ing that BCCl secretly owned First
American Bankshares of Washington
and influenced major Investment de-
cisions at the bank for more than a
decade.
Beginning in 1978, the Pakistani
officers of BCCI conspired with a
group of Middle Eastern frontmen to
take control First American without
FBD,FromAl
Clifford and Altman have asserted
that they were unaware of BCCI
ownership and have denied that
BCCI bad any influence over First
American's operations.
In addition to seeking the $200 mil
lion fine, the Fed moved to bar per
manently from U. S. banking former
BCCI President Agbas Hasan Abedi;
former BCCJ chief executive officer
Swaleh Naqvi, former BCCI executive
Hasan Mahmood Kazmi; Saudi finan-
cier Gbaith R. Pharaon; First Ameri-
can senior executive Kbasuro Elley,
and the four original First American
shareholders, Kamal Adham, Aisal
Sau Al-Fulaij, A.R. Khalil and Sayed
Jawbary. The Fed's order can be con-
tested in public bearings.
The Fed's action is expected to
have little impact on the day-to-day
operations of First American, whose
funds are guarded by a Fed order.
The Fed's today does not af-
fect the operations ol any of the banks
in the United States over which BCCI
gained control," said First American
President Jack Beddow.
Officials said that the Fed investi
gatioo and a parallel criminal inquiry
by a New York county grand jury
continues. Incidents that involve
the knowledge of American bank Long after Clifford and Altman
regulators, who would not permit took command of First American in
BCCI to acquire a U. S. bank, the 1982, the Fed said, BCCI exercised
Fed said in a summary of evidence a direct influence on major manage-
gathered so far in its investigation. rnent decisions, including the 1983
The lOG-page Fed report sharp- acquisition of bank branches in New
ens the central bank's confrontation York, the 1984 hiring of key execu-
with two of Washington's most tives and the 1986 purchase of the
prominent attorneys, Clark M. Clif- National Bank of Georgia (NBG).
and Robert A. Altman, thJ:. _. The Fed said that BCC arranged
cha1rman and president of First a series of transactions in First
American. Their assurances that American bank stock that produced
BCCI would have no involvement in a trading profit of $9.8 million for
First American was pivotal in regu- Clifford and Altman-a profit they
lators' decisions to permit the Mid. said was compensation for their ser-
dle Eastern investors to acquire the vices to First American.
Washington-based banking company. "' See FED, A7, CoL 1
both Clifford and Altman are men-
tioned at several points in the Fed
summary, but they were not the
subject oi action by the Fed yester-
day. '7be investigation is not com-
plete: said Fed General Counsel
Virgil Mattingly. '"The case is not
completed. The Fed is continuing to
investigate this matter to determine
all who are responsible."
Clifford and Altman declined
through an attorney to be inter-
viewed yesterday. "Mr. Clifford and
Mr. Altman continue to maintain
that they have always acted in the
interests of First American," said
Washington attorney Ro6ert Ben-
nett. "No depositor has lost a penny.
BCCI never exercised controlling iJr
fluence, or made management deci-
sions for First American. Mr. Clif-
ford and Altman have cooperated
with the authorities, and will contin-
ue to do so."
Why BCCI engaged in one of the
great deceptions of banking history
remains one of the mysteries of the
First American saga. The Fed's ac-
count begins with the efforts of Abe-
di desire to acquire a bank in the
United States over the objections of
regulators but offers no theories
about Abedi's motives.
Because BCCrs far-flung opera-
tions lay beyond the reach of bank-
ing supervisors in any one country,
American regulators refused to per-
mit BCCI to own any American
banks outright.
On Jan, 30, 1970, BCCI executive
Abdus Sami sent a teiex to Abedi
that he bad retained Clifford to han-
dle Fed approval and was lining up
names to use of frootmen or nomi-
nees, as they are described in the
Fed report. Sami added, "We must
be careful that our name (BCCI)
does not appear as financier to most
of (the investors) for this acquisi
tion," said the telex, one of many
documents the Fed bas culled from
BCCI files.
During
a special April 1981 hearing on the
acquisition, Altman said there was
"no connection" between BCCI and
YII'St American, while Clifford said,
"There is no function of any kind on
the part of BCCI. . . . I !mow of no
planned future relationship."
ln fact, said the Fed, BCCI funded,
often through an entity known as In-
ternational Credlt and Commerce
International (ICIC) Overseas Ltd.,
virtually all of the capital Adham and
other nominees placed into CCAIL
The Fed said BCCI also loaned Ad-
bam $30 million so that he would un-
derwrite a $50 million syndicated loan
purportedly arranged by the Paris-
based Banqe de Advertissement In-
vestisement Intemationale (BAll).
"None of the loans extended by
BCCl or ICIC overseas for the Pur-
chase of CCAH shares held in the
name of Adham bas been repaid .
except through other loans from
BCCI or ICIC Overseas: the Fed
summary said. CCAH refers to First
American's parent company, Credit
and Commerce American Holdings.
.. BCCI paid Adham at least $2
millioo to compensate him for acting
as its nominee."
The Fed said that in early 1986
"BCCI's auditors discovered enor-
mous losses" from foreign exchange
trading that threatened to wipe out
BCCI's capRaL At the same time,
said the Fed, another BCCI front-
man, Ghaith Pharaon, was in trouble
and was in danger of having credi-
tors seize another BCCI asset, the
National Bank of Georgia.
Consequently, BCCl undertook a
desperate series of transaction that,
in the view of regulators, revealed
just how deeply involved BCCl was
in affairs of First American and adds
detail to the stock transaction that
benefited Clifford and Altman.
BCCI recruited a new financial
backer, the Mabfouz family of Saudi
Arabia, which agreed to help if it
could acquire, according to docu-
ments obtained by the Fed, 30 per- ,
cent of BCCI and 30 percent of
CCAH.
BCCI agreed and arranged a se-
ries of transactions that concluded
with a CCAH rights offering July 25,
1986, that lowered the price of
CCAH shares during a two-day peri-
od from $5,000 per share to $4,044
and then to $2,216, at which point
Clifford and Altman were allowed to
acquire 6,742 shares, using funds
loaned to them by BCCL Four days
later the CCAH stock price returned
to $6,094 per share.
The CCAH shares Clifford and
Altman purchased were taken from
a block of shares that were allocated
for a front company known as Mash-
riq Holding Co.
Within 18 months, Clifford and
Altman sold 60 percent of the shares
they purchased to another CCAH
shareholder for $6,800 per share,
thereby earning a total profit be-
tween them of $9.8 million.
An informed source familiar with
the details said that, from Mashriq's
point of view, the transaction makes
little economic sense.
04shingto1t ost
sections
l
A News/Editorials
B Metro/Obituaries/Comics
C
D Sports/Classified
E Business
I Mth:HMIIh
Detailtd itulu 1111 Pap A2
TUESDAY, JULY 30, 1991
II
Prioeo Moy Vary In Ateu OotJide
M<trapalitan Wallinalcm(See Box011 A3) 25
BCCI Is Indicted on Fraud Charges
N.Y. Prosecutor
Calls Bank Case
History's Worst
By Mark Potts
and Robert J. McCartney
.. PeotSUIIWnten
The Bank of Credit and Com-
merce InternationaJ, its founder and
another executive were indicted yes-
terday on charges of fraud, money-
laundering, bribery and theft by a
New York grand jury in a scheme
that District Attorney Robert M.
Morgenthau called "the largest bank
fraud in world history."
BCCI is "one of the most complex
and secretive criminal organizations
we have ever encountered," he said.
"The best estimates indicate at this
time that upwards of $5 billion bas
been lost through this fraud.
The indictments were the most
serious criminal charges brought to
date in the widening scandal sur-
rounding the Pakistani-founded, Ar-
ab-owned and Luxembourg-based
BCCI, which was shut down and
seized by reguJators in Britain, Lux-
embourg and the Cayman Islands
earlier this month. BCCI also is the
MOVING AGAINST BCCI
M
anhattan District Attorney Robert Morgenthau announced an indictment against
BCCI and its top executives for violations of state banking law including:
Fraud, by allegedly misrepresenting Its ownership and financial condition to potential customers.
larceny, arising from a $30 million loss by Amer!can Exptess Bank ltd. when BCCI was seized by
authorities July 5.
Bribery, involvlog an allegaf $3 million payment to senior officials of the Central Bank of Peru in order
to obtain deposits for BCCI. Peru's account lit BCCI once held as much as $270 million in 1987.
ROIIRTMORGENTHMJ
An alleged failure to report cash deposits of $10,000 or more on eight separate occasions, an apparent
effort at money laundering.
Morgenthau said his Investigation Is aboUt one-quarter completed.
THE FEDERAL RESERVE
The Fed is seeking a $200 million
fine against BCCi and an Ofder barring
BCCI founder Agha Hasan Abedi and
other foreign Investors from doing
banking business In the United
States. The Fed said BCCI secretly
controlled First American for more
AGHA HASAN ABEDI than a decade.
THE SENATE SUBCOMMtnEE ON TERRORISM
Sen. John F. Kerry (0-Mass.)
will hold hearings Thursday on the
Federal Reserve's regulation of
First American, the alleged bribery
by BCCI of Peruvian central
bankers, and reported links
between the Central Intelligence
Agency and BCCI. SEN. JOHN F. KERRY
THE JUSTICE DEPARTMENT '
Four U.S. attorneys-In the District,
Miami, Tampa and Atlanta-;Jre conducting
separate parts of a criminal investigation -
intoBCCI.
At the Federal ReseM!'s request, the
U.S. Attorney In the District is investigating
Qt
whether Clark Clifford and Robert Altman, chairman and
president d First Amerlean Bankshares, deceived regulators
aboUt Arst American's true ownership by BCCI.
Clifford and ' arm
Altman have
denied doing so.
ROBERT ALTMAN CI.AJUCCLIFFORD

I
subject ot mvestlgaoons m Hntam
and other nations.
Morgenthau told a news confer-
ence in New York that the indict-
ments brought yesterday covered
"maybe 20 to 25 percent of what will
ultimately result from this investiga-
tion." He declin.ed to elaborate.
The specific charges in yester-
day's indictment include defrauding
individual and corporate BCCI cus-
tomers-including American Ex-
press Bank Ltd.-by misrepresent-
ing t ~ e bank's ownershi(> and
financial health; laundering money
for drug dealers and organized cnine
by failing to properly report large
cash deposits; and bribing officials of
Peru's central bank.
The New York charges are simi-
Jar to a wide range of allegations
about BCCI's operations being inves-
tigated by authorities all over the
world.
See BCCJ, A7, CoL 1
DCCI, Prom AI
The 12-count indictment names
as defendants BCCI and several of
its affiliates; Agha Hasan Abedi, the
Pakistani businessman who founded
the bank in 1972 and ran it until
1989; and Swaleh Naqvi, who was
the bank's chief operating officer un-
til1990.
The reclusive Abedi, who sold
controlling interest in BCCI to
Sheikh Zayed bin Sultan ai-Nabayan,
ruler of Abu Dhabi, in 1990, told the
Associated Press in Pakistan yester-
day that he believes he will be found
innocent of the charges. "The truth
will ultimately prevail," Abedi, who
is 68 and in ill health, told the news
service.
Naqvi, who lives in Abu Dhabi,
could not be reached for comment.
: Morgenthau said he would seek to
' , extradite both men to the United
States for prosecution. Abedi and
Naqvi could face prison terms of 25
years or more each, and BCCI and
- its affiliates could be liable for mil-
lions of doUars in fines if convicted.
: Included in the indictment are a!-
. legations that BCCI fraudulently so-
licited deposits (rom customers in
the New York area and elsewhere
by falsely representing BCCI as a
healthy bank when it was in fact vir-
tually insolvent for several years.
"The essence of the scheme was
to convince depositors and other
banking and financial institutions, by
means of false pretenses, represen-
tations and promises that the BCC
. Group was a safe financial repository
and institution for funds," according
to the indictment.
Morgenthau said BCCI used what
he called a "rent-a-sheik pJan to gain
credibility, paying Arab businessmen
to pretend to be tl)e owners of the
bank and help it gain respectability
with potential customers, competi-
tors and regulators. \
"You use the name of the sheik,
you pay him some money for the use
of his name, and he had no fmancial
stake in the bank," Morgenthau said.
The defendants systematically falsi-
fied' financial and ownership state-
ments of BCCI "to make it appear as
though it was a solvent, profitable
bank secured by the backing of
wealthy businessmen from the Mid-
dle East. In fact, much of the bank's
capitalization [financial underpin-
ning) and assets were fictitious and
its backing illusory."
Among those who put money into
BCCI as a result of its fraudulent as-
HOW BCCI GOT TO WASHINGTON
sertions, according to the indict
ment, were American Express Bank '
Ltd., a New York-based subsidiary of
financial services giant American
Express Corp. The indictment said
American Express lost $30 million in
deposits in sec1 from foreign cur-
rency trading and other transactions
when BCCI was shut down July 5.
Because the money was obtained
fraudulently, losses are thefts,"
Morgenthau's office said, subjecting
BCCI, Abedi and Naqvi to charges of
grand larceny.

$ LOANS $
CCAH
An American Express spokesman
said the company's bank, which op-
erates exclusively overseas, did have
a routine relationship with seer, but
said it had "no net credit exposure
with BCCI." A banking source famil.
iar with the situation said the Amex
bank had more than $30 million in
BCCI's money on deposit when
BCCI was shut down, offsetting any
losses.
Morgenthau, who bas been prob-
ing BCCl's affairs for two years,
pulled no punches in his descriptions
of seCJ in a press statement and
news conference announcing the in-
dictments.
"seCI was operated as a corrupt
criminal organization throughout its
entire 19-year history, the district
attorney said. "It systematically fal-
sified its records. It knowingly aJ.
lowed itself to be used to launder the
illegal income of drug sellers and
other criminals. And it paid bribes
and kickbacks to public officials:
The bribe and kickback charges
involve, among other things, a $3
million bribe seer allegedly paid to
two former senior executives of the
Central Reserve Bank of Peru-
identified by Morgenthau in his
press conference as president Leo-
oeJ Figueroa and general manager
Hector Neyra-in exchange for de-
posits from the bank. Figueroa,
Neyra and Peruvian central bank of-
ficials could not be reached for com-
ment yesterday.
The indictment also alleges "the
payments of bribes and kickbacks to
agents ot other banking and financial
institutions to get their business, al-
though it provides no details. It was
not clear whether those bribes and
payments were made to Americans
qr foreigners, and Morgenthau de-
clined to comment
The charges of money laundering
followed a guilty plea last year by
two BCCl divisions and five bank of-
ficials to federal charges in Tampa,
Fla., that the bank laundered money
from drug dealers. BCCI agreed to
fodeit a record $14 million in assets
in that case.
The new indictment alleges that
BCCI helped launder money from
drug dealers and organized crime by
failing to report to federal officials
cash deposits of more than $10,000
on several occasions. "These trans-
actions appear to be instances of
money-laundering," Morganthau
said. "For money laundering, it
(BCCil was used by a broad spec-
trum of people."
Morgenthau said the New York
county grand jury is continuing to
hear testimony on BCCI's acquisi-
tion of Washington-based First
American Bankshares, which has 42
branches in New York, and the rela-
tionship between seCI and Wash-
ington lawyers Clark Clifford and
1
During the 1980s,
BCCI secretly lent
money to a number of
Arab investors.
2
The Arab Investors
used the money to buy
shares In CCAH, the
holding company of
First American Bank-
shares, on BCCI's
behalf. This gave BCCI'
effective control of First
American.
3
BCCI owned more than
60% of CCAH stock bY
1991, according to the
Federal Reserve.
Robert Altman, who are First Amer-
ican's top executives.
In a statement accompanying re-
lease of the indictments, Morgen-
thau, who has been feuding with the
Justice Department over handling of
BCCI, pOintedly thanks Federal Re-
serve and New York State banking
officials for their help.
Deputy Attorney General Robert
5. Mueller m issued a statement in
Washington, however, saying that
the Justice Department "bas fully
supported the work of District At-
torney Robert Morgenthau related
to the bank's Manhattan activities.
We have provided substantial infor-
mation to Morgenthau and will. con-
tinue to cooperate in the investiga-
tion." A justice Department
spokesman declined to say when fed-
eral prosecutors might announce
charges in the case.
Potts nf>orled this story from
Washington; McCarlnq reporld
from New Yom S14ffwri.Jers]im
MeG, Stephen Levine and
Kath/Hn Day also contributed from
Washington.
CUFFORD AND THE FEDERAL RESERVE
"l"!''p,li!Eo;:;u Statement by Clark Clifford, April 21, 1981
ClARK M. CLIFFORD
to the Federal ResetVe Board while It
considefed the .cqulsltfon of Fll'lt American
by Middle Eastern Investors:
"There is no function [Involving First
American] of any kind on the part of BCCI ..
I know of no present relationship [between
First American and BCCI]. I know of no
planned future relationship that exists, and
other than that, I don't know what else there is
to say."
Statement by Fedenll Rnem, July 29, 1991:
"The application stated that BCCI would have no ownership Interest
in . First American; that BCCI was not funding the acquisition of
shares . . and that none of the [Middle Eastern) shareholders held his
interest as an unidentified agent for BCCI . In fact, BCCI funded the
acquisition .. and was the actual owner of First American In 1982."
;_Federal Reserve LinliS BCCI to ~
.-
The allegedly illegal purchase of
large blocks of stock has linked the
scandal-plagued Bank of Credit and
Commerce International with some
politically well-connected American
bankers around the country-David
L. Paul of CenTrust Savings of Mi-
ami and former Carter administra-
tion official Bert Lance at National
Bank of Georgia.
Documents released by the Fed-
eral Reserve yesterday show that
BCCI reached far beyond Washing-
ton's First American Bankshares
Inc. and its chainnan, Clark M. CliC-
ford, for ties to people of influence..
In announcing its $200 million fine
against BCCI yesterday, the Fed
charged that BCCI seaetly, and ille-
gally, acquired substantial ownership
stakes in CenTrust and the Natiooal
Bank of Georg13, as well as First
American. The Fed said it has also
referred some findings to the Justice
Department for criminal investigr
tion.
BCCfa interest in the two inatitu-
tions is likely to fuel allegations that
' a bank considered an international
rogue--with drug dealers and ter-
' rorists for customers-was trying to
buy influence in Washington.
BCCI, the Federal Reserve
charged yesterday, owned as much
as one-quarter of the now-defunct
CenTrust Savings, a savings and
Joan whose failure is expected to
cost taxpayers up to $2 billion. The
Miami S&L was reputed to be one of
the most profligate members of the
industry. At CenTrust's helm was
Paul, a spender of legendary propor-
tion who has drawn particular scruti-
ny for his efforts to cultivate Demo-
cratic politicians in Washington.
Fed officials looking into BCCfs in-
volvement with First American said
they were startled when they discov-
ered in recent weeks that the interna-
tional bank was smack in the middle
of yet another scandal: the U.S. sav-
ings and loan debacle. The Fed
charged that BCCI's secret acquisi-
tion of as much as 25 percent of Ceo-
Trust's voting stock was a violation of
banking law, which requires the Fed
board of governors to approve pur-
chases of more than 5 percent.
Similarly, the Fed said that BCCI
illegally acquired more than 25 per-
cent of the voting stock in the Na-
tional Bank of Georgia and coocealed
its stake from the Fed.
In both instances, said the Fed,
Saudi financier Ghaith Pharaon was
at the center of the deception. Pbar
aon is a Conner BCCI shareholder
and longtime client of the bank.
The Fed charged that Pharaon
acted as a front man in BCCI's acqui-
sition of more than 1.5 million
shares of CenTrust stock during
1988 and 1989. Phara9n borrowed
the money for the stock purchases
from BCCI-pledging the stocks
themselves as collateral-and on
April14, 1989, be signed over con-
trot of his voting shares to BCCI, the
Fed said.
CenTrust was closely allied with
another highflyiog S&L-Charles
Keating's California-based Lincoln
Savings and Loan. Both were avid
customers of Drexel Burnham Lam-
bert Inc.'s junk bond wizard, Michael
In both instances,
said the Fed, Saudi
financier Ghaith
Pharaon was at the
center of the
deception.Pharaon
is a former DCCI
shareholder and
longtime client of
the bank.
Milken, and are the targets of nu-
merous federal lawsuits and investi-
gations.
A Miami grand jury is reportly in-
vestigating allegations that BCCI par-
ticipated in an effort in early 1988,
while CenTrust was undergoing an
examination by regulators, to make
the failing S&L look healthier than it
.. . _.,
Miami, --Georgia Banks
was. The Muuni Herald has reported
that BCCI bought $25 million in junk
bonds issued by capital-starved Cen-
Trust, spurring a lackluster market,
then sold the faltering bonds back to
CenTrust for 100 cents on the doUar
when regulators left.
A congressional source who has re-
viewed CenTrust examination re-
cords and other bank documents said
they contain evidence of almost daily
phone calls and messages from Phar-
aon to CenTrust officials in 1987 and
1988 from points around the globe,
including Paris, Saudia Arabia and
New York.
Congressional investigators are
trying to detennine whether any poli-
ticians intervened with regulators on
behalf of CenTrust. Sen. Orrin G.
Hatch (R-Utah) may be close to com-
pleting a report on CenTrust for his
antitrust subcommittee. He and other
Republicans in Congress have com-
plained that the former Federal Home
Loan Bank Board in Washington twice
rejected their Atlanta field office's
recommendation that enforcement
action be taken against CenTrust, and
they draw parallels between Ceo-
Trust and Lincoln Savings, which
spawned the MKeatiog Five" scandal
involving Keating's contributions to
five senators .
Lists of Paul's political contacts
obtained last year by the House
Banking Committee from his desk
calendar and limousine records and
other sources show frequent meet-
ings, some of them aboard his luxuri-
ous yachtf with politicians including
former president Jinuny Carter and.
Senate Banking Committee mem-
bers Donald W. Riegle Jr. (D-Mich.),
Bob Graham (D-Fia.), John F. Kerry
(D-Mass.) and Timothy E. Wirth
(D-Colo.). Paul gave hundreds of
thousands of dollars to campaigns of
prominent Democrats.
Pharaoo was also instrumental in
BCCI's ownership interest in the
National Bank of Georgia, the Fed
said, in a way that mirrored his al-
leged Ceo Trust involvement
Pharaon had purchased the Geor-
gia bank from Bert Lance, who also
helped BCCI acquire its ownership
stake in First American Bank.
Lance, a longtime adviser to Carter,
was forced to resign as director of
the Office of Management and Budg-
et in 1977 amid an investigation of
his Calhoun First National Bank in
Georgia.
Pharaon owed money to BCCI in
connection with other businesses, the
Fed charged. When those businesses
got into trouble in 1985, BCCI's audi-
tor, Price Waterhouse, demanded
BCCI reduce its exposure to Pharaon.
BCCI took control of $220 million in
National Bank of Georgia stock that
Pharaon had pledged as collateral on
his loans from BCCL
BCCI then sold the stock to its
holding company, a transaction that
required a change in Georgia banking
law, which was accomplished "at least
in part to the lobbying efforts" of the
Georgia bank, the Fed said
~ e C I A ~ s BCCI Laundry
An Agency Self Portrait Scrubs at the Scandal
r rrt' r h.;j 'lj
By Mark Hosenball
T
HE CENTRAL Intelligence Agency
bas launched a public relations cam-
paign to put its own "spin" on the
growing scandal surrounding the Bank of
Credit and Commerce International.
Through a campaign of hints, leaks and
unusual public pronouncements, the agency
appears to be trying to keep ahead of the
scandal by admitting a certain range of
knowledge and involvement with a dubious
financial institution that former CIA deputy
direetor Robert Gates once reportedly nick-'
named the "Bank of Crooks and Criminals."
Lurid rumors and allegations have sug-
gested that the agency used the bank for
. covert operations, secret deals and even
unauthorized "off-the-shelf' . dirty trick
schemes which could be perpetrated with-
out repercussions for the agency by using a
"black network" of thugs and assassins run
out of the bank's head office in Pakistan.
The agency's tactic has been to admit
that it was aware of the bank's involvement
with criminals and that it used the bank to
move money around the world. But the
agency has insisted that its own involve-
ment with the bank was entirely legal.
Ten days ago, the agency allowed a con-
gressional subcommittee investigating
BCCI to release a sliver of one of the CIA's
own secret reports on the bank. In the 1986
report, the agency indicated it was well
aware of the bank's involvement with drug
Mark Ho.senbaJI is a producer for the NBC
News program Expos&,.
-
money and also had sought at an early stage
to blow the whistle on the bank's control of
Washington's First American Bank, a fact
which only came publicly to light in the last
few months.
The agency's present deputy director,
Richard J. Kerr, then used the curious fo-
rum of a speech to high school students to
confirm that the agency had maintained its
own accounts at the bank but began to "ex-
tricate" itself "once we discovered it was a
See CIA, C2, CoL 1
, .. .. ' .
'.\ . ';>.:.' .-... . ... .... _.;:..;, , ...... .. .. ... .. . . . -"\
.. . . "-' .... . ., .... .:;:: .. . ........ : _::..
The CIA's BCCI Laundry
CIA, From Cl
dirty bank." All the while it used the bank,
Kerr added, the agency "very aggressively"
collected information on BCCI's multifar-
ious illegal activities.
Without access to CIA files, it is impossible
to tell if the agency is putting out a fair account
of its own dealings with the bank or a totally
self-serving one. But some new evidence has
now emerged to suggest that the agency is
using its statutory veils of secrecy to-at the
very least-portray its activities in a more
favorable tight than they deserve.
T
he texts of two CIA reports on BCCI,
both still classified "secret" but made
available to NBC News, show that in the
: information and analysis about the bank which
. it presented to other agencies of the U.S. gov-
ernment, the agency was both general and
vague about the extent to which it possessed
any hard evidence about the bank's illegal ac-
tivities. At the same time, the agency said
: nothing about its own entanglement-legal or
;otherwise-in the bank's worldwide fmancial
tentacles.
: The frrst CIA report, a working paper pre-
: pared in 1986, appears to be the same docu-
.: ment a snippet of which the CIA permitted
Sen. John Kerry (D-Mass.) to release 10 days
\;
1
J ago. The relevant passage: "In 1981 BCCI
made an unsuccessful attempt to acquire or
, ' gain control of Financial General Bankshares, a
Washington-based multistate bank holding
company; BCCI achieved its goal half a year
later, although the exact nature of its control is
not clear." (In a passage not declassified, the
-) ...
'. \ ',' '' u'
".
CIA also said that BCCI intended to expand in
the United States, "particularly into the Dako-
tas, but available information does not indicate
whether this has been accomplished.")
The agency has pointed to the declassified
passage as proof that it was onto BCCI's du-
bious involvement in Washington before other
government agencies. While this may indeed
be true, law enforcement officials argue that
this kind of unsupported assertion is basically
useless when it comes to putting it to practical
use.
In reality, apart from references to "unor-
thodox and unconventional practices," "money
laundering" and "narcofinance"-and an inter-
esting but imprecise report of an allegation
that BCCI had been manipulating the "Euro-
dollar" certificate of deposit at the expense of
the American Express Co.-the five-page doc-
ument is matter-of-fact in tone and hardly a
call to action for American law enforcement
agencies. Former customs commissioner Wil-
liam Von Raab, whose agency brought the fll'St
American criminal case against BCCI, said that
when he first asked the CIA about the bank,
the agency sent him a brief report which he
found as bland as "porridge." The 1986 CIA
report fits this description.
A second secret CIA document, dated May
1989, is more spicy but equally problematical.
This 30-page document-containing mini-pro-
files of BCCI managers and long tists of BCCI
branches and shareholders-is more assertive
in tone, suggesting at the outset that the
bank's rapid growth is "at least in
part ... attributable to illegal transactions
with narcotics traffickers."
r
The document offers a broader but stW cu-
riously circumscribed account of some of the
controversies that were swirling around BCCI
at the time, but is indefmite about the weight
to give its allegations:
A "source of undetermined reliability" re-
ported that ''BCCI established a Washington,
D.C., presence in late 1987 with the purchase
of First American Banking Corporation" and
that "this company moved money in and out of
1
the United States in a series of unusual-but
typical of BCCI-transactions with London."
The document continues: ''BCCI/Madrid Pres-
ident Aga Hasan [sic) Abedi handled 3-4 trans-
fers from London, always preceded by a tele-
phone call from London telling the Washington
personnel not to mention any name in connec-
tion with the transfer."
This suggests a closer working relationship
between BCCI and First American than First
American officials like Clark Clifford have ad-
mitted, but law enforcement officials might 1
weU be excused if they found it Jess than a
mandate for indictment. According to the doc-
ument's distribution list, while it was sent to
Customs, the FBI, the State Department and
the Drug Enforcement Agency, it was not sent
to bank regulators at the Federal Reserve.
The document reports that because of po-
litical uncertainties and a U.S. money-launder-
ing indictment against BCCI in Florida, BCCI's
office in Panama is "no longer attractive as a
haven for capital ftight from other Latin Amer-
ican countries. BCCI/Panama City is still try-
ing to attract Colombians who want to launder
narcodollars in Panama, but does not have the
level of trafficker business it enjoyed in pre-
vious years." But it omits any mention at all of
Panama's chief money launderer (and reputed
CIA ctient) Manuel Antonio Noriega, then still
reigning as Panama's military strongman.
Another "source of undetermined reliability"
7-
reports that BCCI is implicated in a major fi-
nancial scandal in India, which reaches into the
family of the late Indian leader Rajiv Gandhi.
One allegation is that "BCCI is alleged to pro-
vide fmancial backing to Indian companies en-
gaged in narcotics trafficking." But intelligence
corrununity "consumers" of the CIA's report
could have gotten some of the same infonna-
tion from news stories that surfaced in the
American and Canadian press in 1987.
The CIA report goes on at length about
BCCI's roots in the oil-rich states of the Mid-.
dle East and its sometimes Wlusual banking
practices; to wit: "Branch managers are in-
' structed to accept deposits or provide over-
drafts to an account number without requiring
that the depositor provide positive identifica-
tion." It adds: "BCCI has a reputation for doing
business with anyone, and using whatever
means are available to preserve anonymity
when the depositor requests it." But there is
no mention anywhere in the report's 30 pages
about alleged BCCI involvement with the Mid-
dle Eastern terrorist Abu Nidal, even though
the State Department's top counter-terrorism
official, A. Peter Burleigh, told Congress ear-
lier this month that in 1986 the "intelligence
.. .. community" had "developed and disseminated
infonnation that linked [the Abu Nidal organ-
ization] to a BCCI branch in Europe." .
.... .. :I :,. : \o
"':... . .
I

In addition to making no mention '!
connections with the CIA's foreign friends,
such as Noriega, the two CIA reports also omit t
any mention of the agency's now self-con- r
fessed use of BCCI to move its own funds !
around the world-certainly a fact that other r
; ..
U.S. government agencies considering action
against the bank might have found relevant. So
bland are the documents that a conspiracy-
minded person might conclude that they were t .>:.: , ..
put together by agency propaganda experts as I
press releases with a "secret" cachet. I
Ceferino Epps, a CIA spokesman, said last I
week that the agency had "fulfilled our respon- t ....
1
sibility" in informing other government agen-
cies about what it knew about possible malfea-
sance at BCCI: "When we discovered 'informa-
tion that we thought should be brought to the
attention of other agencies, that's what we
did," he said. But he said that because"he did
not have the 1986 and 1989 CIA rePorts in
front of him, be was unable to respond 'to pos-
sible debate over their contents.
Because the business of modem spying is so
bureaucratic, CIA headquarters at Langley un-
doubtedly possesses documents detailing the
agency's zealous pursuit of BCCI's relationship
with terrorists and its own-entirely legal of
course-financial activities at the bank. But
the fact that such infonnation was omitted
r
''
from two major CIA reports on BCCI which ,
were prepared for circulation to other govern- :..
ment agencies hardly vindicates the agency's
assertions of prescience.
The documents suggest that even as it is
trying to appear forthcoming about its connec-
tions with BCCI, when the usecret" stamps and
intelligence mwnbo-jumbo are stripped away,
the CIA still finds it hard to be candid with
government agencies it is to serve.
I \o ' .,

1 "
0 - '
The Lawyer Who
Broke Open The Bank
\
\
C\ \Investigator Jack Blum, Baring the BCCI Scandal
'( \)
) 1 Accordingly, at ' his 50th-birthday party the weekend before
By Phil McCombs last, Blum's friends held a roast and presented him with a bullet-
w........,,.Staw.- proof vest. ADd they put up a sign, for potential assassins, at the en-
From the miasma of what has come to be called the Bank of tra.nce to their Annapolis neighborhood: "HE LIVES DOWN
Crooks and Criminals scandal emerges a quintessential Washington THERE, with an arrow.
type, a somewhat pudgy figure of medium height. middle-aged, with What Blum described in his testimony was an' alleged intema-
strong eyeglasses- an unlikely combination of legal smoothie tiona! criminal conspiracy of almost unbelievable proportions-be-
rogue investigator in a beige suit. "The phone has not sbJptJl nng- ginning to daw on the American consciousness now, but which, for
ing, says Jack Blum with satisfaction. "Every newspaper, radio a long time, Blum said, he could not get the justice Department or
television station from here to Tierra del Fuego wants the story. other federal law agencies seriously interested in. He was joined at
Koppel filmed him in his downtown Washington law office. So the witness table by former U.S. customs commissioner William
did "MacNeil/Lehrer." Most others he turned down. von Raab in speculating on why.
In testimony Aug. 1 on BCCI (Bank of Credit and Commerce "High-priced anesthesia" in Washington, was the way Blum put
lnternationaO before Sen. John Kerry's <D-Mass.) Foreign Rela- it after von Raab alleged that "influence peddlers" such as Clark
tions subcommittee on terrorism, narcotics and international opera- Clifford, Robert Altman, Robert Gray and Frank Mankiewicz creat-
tions, it was Blum who recounted the inside details of how the Sen- ed an among senior U.S. officials "that BCCI was proba-
ate investigation be headed-stumbling and frustrated at times, but bly not that bad because all these good guys that they play golf with
helped bring about on July 29 the indictments by a all the time were representing them."
New York grand jury against 'the bank and two of its officers on "'t's like the cesspool overflowing on the front lawn," said
charges of frnud, money-laundering, bribery and theft. Blum, ever blunt and colorful in his own reassuring, plodding way.
And that, officials said, is just scratching the surface of a larger
scandal involving drugs and international politics. See BLUM, D2, CoL 1
----- -- -------- . __ ......... -
(Mankiewia, wOO with Gray works
for the public relations firm HiB aod
Knowlton, later issued a statement
c:alling von Raab's testimony "inc:rtm-
bly irrespoosible and totally false. Nei-
ther I, nor Robert Gray, oar anyone
else from HiB and Knowlton eYer con-
tacted, on behalf ci BCCI. anyooe in
the Department of Justice or . in the
executive branch or . on Capitol
Hill." He also noted in a tdephooe in-
terview that Blum had not named him
Clr' Gray in his testimony, adding. "'
have no problem with Jack Blum at
aD.")
"Mr. Blum," said Sen. Alan Cranston
(I)-Calif.) at one point in the beariog, '1
admire yoor courage it taDlg the risks
that you took. knowing the sort ci
pie that wouldn't like what you were
up to."
Indeed, Blum's tale bas its hair-
raising moments-meeting a shady
source in a warehouse near the Miami
air)lort, attending an adversarial meet-
ing in a Miami law <ifice "where I was
the only one in the room not wearing a
weapoo," entertainiQg a BCCI infutmer
it his home after warnings &un law
eab cement friends that it could be
dqerous. "And I said," be I'PO)III'Ud
in his testimony, 'Why is that?' And
they said, 'These people are murder-
ers, drug dealers, they are actuaUy
dealing in the narcotics, and you are
taking a great risk.' ,.
BNm did it anyway, and got a lot ci
good information as a result
"''ve always assumed you take your
cbaoces doing whatever you do." be
says easily in an interview in a Wash-
ington restaurant. "''ve had a lllUDber
ci threats. I don't like to dwell on
them."
The only dWd ci a ~ and a
teacher, Blum was born in the Bconx
aod grew up in Elizabeth, NJ., m a
. bouse his grandmotber had lived in
since 1902. He attended high school at
an Orthodox yeshiva on the Lower
East Side ci Manhattan. and entered
Bard College with the class ci 1962.
There, he came under the powerful in-
fluence ci two refugees &un Nazi Ger-
many, philosophy professor Heinrich
Bluedler and his wife. .Hamab Arendt,
whose "'rigins ci TotaJitarianism' was
already a classic. and who was tbeo at
work on "&:bmann in JeN!alem."
'1 spent time in their apatbneut in
New York. where W.H. Auden and
Mary McCarthy were regular visitors;
he recalls. "' remember they were so
worried about Auden, becal.l8e he IM!d
this derelict life. so the two WOOieQ
went to tbe Lower East Side and
cleaned his apartment.
~ eJiperieoces shaped bim. ,
,. .. .., , ..
"""""
saw the importance or me me ot me
mind, of. ideas, not material values."
Now, '1 feel ahnost like I'm in. ancient
Egypt, where people buried their
wealth. When I saw a picture of the Po-
tomac home of [First American Presi-
dent) Robert Altman, I thought of the
Chinese emperors. You 1\M to ask,
what are you domg bere and why do
the things you do, and is the fundamen-
tal thing the accumulation of wealth?
And what are you going to offer your
society? This is basic stuff. How did I
wind up in a society that's forgotten
bow to revere its elders and care foc
its children. which has been the busi-
ness of an mankind toreverr
Bluecher and Arendt urged him to
think about wbat happened it <Jerma-.
ny, ua country so civiiUJed on one level,
and so monstrous on another." He
learned, he says, bow evil comes on lit-
tle by little, his prolessol' drumming it
in that "passivity and a willingness to '
accept each new affront as it comes
along, incrementaDy, means that sud-
denly you find the whole monstrous
mess in your lap because you've waited
too long."
LikeBCCI.
Blum originally wanted to be a
muckraking journalist, aod started his
own weeJdy newspapa in oollege, but
decided against it because he came to
feel that joumatism involves "a kind <i
perpetual adolescence, a reacting to
everything as if it were fresh. I wanted
to be an actor rather than an observ-
er."
He went to Columbia Law School
and then came to Washington in 1965,
first working at the FCC and then
quiddy switching to antitrust investiga-
tion for Sen. Philip Hart. Later he
probed rrr in Chile and Lockheed's
overseas payments for Sen. Frank
Church. He bad returned to private
practice when, several years ago. by
bappetastanre, be first heard ci. tbe Pa-
.
Clockwise ttomlop, lawyer Jack Blwn. BCCrs London branch, a.od Seo.Joho meeting wilh Blum.
.....
kistani-founded, Arab-owned and Lux-
embourg-based BCCI: An American
banker said his bank didn't want any-
thing to do with it.
Blum testified that be thought this
"odd" at the time, and in the best gum-
shoe tradition "just stored the informa-
tion in the back of my head."
In 1987, at Kerry's invitation, he
came to the subcommittee to investi-
gate the relationship between interna-
tional dnlg trafficking and foreign poli-
cy. A strong Democrat. he says he
thought it was "a good time to return
to the Hill. lraJH:ontra was on the ta-
ble. Reagan was out soon, and there
seemed to be a break in the political
wan I had fared for six yean/' of Re-
publican hegemony in Washington.
One day in early 1988, be recalled in
his testimony, a witness used a chart
labeled " 'Noriega's Criminal Empire.'
And at the center of the chart, he had
'BCCI.' Suddenly. the information I had
parked in the back of my head years
befure became reJevant. And I began
to seek out more information about
BCCL"
By "'uck," be found a senior BCCI of.
ficer who told him. "You have to tmder
stand, the business d this bank is deal-
ing with roughly 3,000 high-net-worth
airninaJ clients, that most of the other
activity, the branch activity, the myriad
corporations, is not real banking busi-
ness for them." There were delays in
issuing subpoenas-a federal investi-
gation in Tampa might otherwise have
been jeopardized, Blum was told-until
mid-1988, but when they came out the
impact was stunning.
Blum received a call from an uniden-
tified woman in London. Talk to Ali
Akbar, she said. Blum called Akbar,
who turned out to work for BCCI. Talk
to Mr. Awan, he said. It was Awan
who came to Blum's home and, in an
eight-hour interview, made it "clear
that this bank was a major aiminal en-
terprise.".
Things really heated up from there,
according to Blum's testimony. The in-
tense lobbying in Washington. BCCI of-
ficials allegedly revving up their shred-
ding machines. And Blum's frustration
as the work of the committee closed
down in October 1988 because of the
approaching presidential election, with
the end of his own contract and his ap-
proaching return to private practice.
"We ran out of time," says Blwn.
" ... The only option was to hun what
we knew over to federal authori-
ties..
Who, in the time-honored tradition,
"said they'd be back in touch, and there
was no further contact at that point"
As be was packing up the contents
of his desk, Blum another hot
tip and followed it. debriefing a key
source for three days in the Embassy
Suites Hotel near the Miami airport.
Customs and IRS agents had wired the
room, and bad trouble because "Em-
bassy Suites uses cinder block between
rooms, and you can't driB through cin-
der block to run a wire through the
wall."
The resulting taped material was
shocking-involving, among other
things, the use of the bank to purchase
First American Bankshares in 'Wash-
ington-and Blum offered the witness
and the material to the Justice Depart-
ment Then, he testified, '1 waited for
something to happen. [There was! no
follow-up. And I began to worry that
something was very wrong with this
case."
In early 1990, federal in
Tampa obtained a guilty plea from two
BCCI five bank officials to
a:
r

I
..
f
~
&"
i
..
r
charges of laundering money from
drug dealers. BCCI paid a $14 million
fine, but, Blum testified, he was ''per
sonally infuriated. I had taken what I
considered to be considerable risk and
gone to I thought great length to put
serious evidence in front of the Depart-
ment of Justice. The agents !mew ..
well knew, that there was more to this
case."
As a precaution, Blum had already
approached New York District Attor
ney Robert M. Morgenthau with the
sensational material, and Morgenthau
had nm with it, declaring the case "the
largest bank fraud in world history."
"Morgenthau really did the investi-
gation," Blum testified. "He finished
out the piece that I couldn't."
.Modesty becomes. For his part,
Mike Cherkasky, Morgenthau's chief
of investigations, is wild with praise for
Blum. Cherkasky says his office wasn't
working on BCCI at the time, "and]ack
Blum literally walked into my office in
March of '89, and after talking to him
it was like my head was spinning, and I
didn't think we could do it He told the
story that is now literally occupying
hundreds of investigators and report
ers, and he substantially told that story
in March of '89. I marched him into
Morgenthau's office to meet with Mor-
gentbau and John Moscow [deputy
chief of investigations], and they hit it
off right away. He didn't bring any doc-
uments, but in the early part of the
case Jack was an enormous resource.
.He was the guy who started it."
Meanwhile, Blwn bad returned to
private practice at Lobel, Novins, La-
mont & Flug in Washington, working
for banks and other international cli-
ents who needed advice on how to
combat corruption. And-what the
beck-he ran in the Democratic coo-
gressionaJ primary in 1990 against
Rep. Tom McMillen in Maryland's 4th
District, winning 12 percent of the
vote in a campaign that cost him less
than $1,()()0-all his own rooney. ;
"' got totally disgusted that McMil
len got elected and tmned his office in-
to a funding operation," Blum says. "He
got a huge amount of money from
bank-related PACs, when he's on the
Banking Conunittee." McMillen bad re-
sponded to all this, during the ~
paign, by finding "a certain cynicism to
Jack's position that members of Coo-
gress can be bought and sold. l think I
have represented the district well on a
variety of issues, and the voters will
show confidence in me. ..
They did.
Which bothers Blmn not a whit '1
was totally unknown," he says with a
smile, "and I tormented him, and in-
flicted a lot of pain, I hope."
Peruvians
DefendBCCI
Deposits
Militant Leader Said
To Drive Off Others
By Eugene Robinson
............. , .... Soniot
Peru's large deposita five years ago
with the Bank of Credit and Com
merce International, which figure in
an indictment of BCCI yesterday in
New York, were less a matter of
choice than of financial necessity, Pe-
ruvian officials have argued in inter-
views with Lima-based journalists.
New York District Attorney Rob-
1 ert Morgenthau charged that BCCI
paid up to $3 million in bribes to se-
nior officials of the Peruvian central
bank in 1986 and 1987 in order to ob-
tain hundreds of millions of dollars in
.
In a press ccnference, Morgenthau
identified the officials as Hector
Neyra, who was then general manag-
er of the central bank, and Leone! F't-
gueroa, then president of the bank's
seven-member board of directors.
Neither man could be reached for
comment yesterday, but friends and
associates defended them as booest
civil servants.
According to reports in the Peruvi-
an press, Neyra-who currently
works with MacroConsult, a Lima-
based consulting finn-has defended
the decision to place funds with BCCI
as one of the few optioos then opeo to
the beleaguered Peruvian govern
ment
Those financial optioos began to
narrow after Alan Garda took office
as Peru's president in 1985. A young,
charismatic leader, Garcia sought to
carve out a roJe for himself as a lead- .
ing spokesman for the Third World.
He railed at the international banking
system, and backed up his rhetoric by
unilaterally deciding to limit Peru's
payments on ita foreign debt owed to
private banks and international lend-
ing agencies.
After leaving office last year, Gar
cia was widely criticized in Peru for
having helped precipitate the virtual
the economy during the 6-
naJ three years of his term. Political
opponents have been trying for
months to link him to BCCI and al
leged secret accounts, but nooe of the
chargee bas stuck and most have been
demonstrated false.
In 1986, Peru was keeping ita re-
serves-totaling at least $1 billion-
in the Bank of Intematiooal Settle-
ments in Basel, Switzerland. But as
Garcia's rhetoric became more and
more strident, afficiaJs ot the Swiss
Major international
banks declined to
bid for
business in the face
of President
Garcia's militant
stand.
institution became increasingly ner-
vous, according to an account given
recently by Neyra Finally, Neyra has
said, bank officials asked that Peru's
funds be withdrawn.
Neyra said recently, In an inter-
view with the Lima correspondent for
the F'mancial Times, that major inter-
national banks declined to bid for Pe-
ru's business in the face of Garcia's
militant stand. But BCCI apparently
was interested.
A technical study by the central
bank's staff recommended depositing
$100 million with BCCI, Neyra re-
portedly has said, but $200 million
was placed with the bank because offi-
cials could not find another suitable
place for the funds. In exchange for
the deposita, Peru received a $60 mil-
lion line of credit, which eventually
was doubled to $120 million.
The Peruvian government bad to
pay 1.25 percent above the prime in-
terest rate to borrow against the
credit line-a charge that has been
called excessive since the borrowing
was fully secured by the deposited re-
serves. Central bank officials defend-
ed the interest charges as necessary
to cover administrative costs.
The decision to deposit funds with
BCCI was made by the seven-mem-
ber board of directors headed by Fi-
gueroa. The board is autonomous, al-
though the Peruvian president e.ijoys
some infJ.uence over the board's deci-
sions.
Neyra bas reportedly said that
BCCI paid competitive interest on the
central bank's reserve funds.
At no time, Neyra has told local re-
porters, did the amount of central
bank reserves in BCCI's Panama
branch exceed $250 million-or
about one-third of the COW!try's dwin-
dling reserves. Some congressional
critics have put the amount at $270
million, and some press accounts have
pegged it even higher. The Peruvian
funds apparently were withdrawn in
late 1987 after consulting firms
raised questions about BCCI. All toJd,
the Peruvian reserves were kept in
the bank for about one year.
CIA Reported BCCI Allegation
Iii!
7 /ZBJ By Michael

years ago. that the Justice

w.....,..,..Sal n...... ........... failed ,_,
to pursue uuorma-
The Central Intelligence Agency tion about the bank that had been pro-
provided federal law enforcement vided by Iris panel and other sources,
agencies five years ago with a classi- including the CIA.
fied report about the of CIA spokesman Mark Mansfield
and Commerce International that m- said yesterday that the agency bad re-
cluded allegations of illegal drug and sponded to a request from Kerry for
money lawxlering activities, congres.- the information it bad about BCCI and
sional and administration sources said what the CIA provided to other gov-
yesterday. ermnent agencies. A Kerry aide de-
The five-page report outlined the dined to comment on the CIA's re-
agency's knowledge of the internatioo- spoose, saying that the subcommittee
al bank's origins, owners and activi- intends to hold hearings next week.
ties, the sources said. But the customs According to a federal official, the
official who was supervising an investi- CIA first prepared a report on BCCI in
gatioo into alleged BCCI money laWl- 1986 and sent it to other government
dering said in an interview the report agencies, including the Justice Depart-
was not relevant to that probe and re- ment and the Customs SerYice. For-
ceived little attention at the time. mer Customs Commissiooer William
Questions about the federal govern- von Raab has said in many interviews
ment's prior knowledge of BCCI activ- that Robert Gates, then deputy CIA
ities have sudaced in recent weeks director and recently nominated by
amid new allegations that the CIA President Bush to bead the agency,
used the bank for intelligence opera- told him in 1988 that BCCI was known
tioos and secret weapons deals. CIA as "the bank of crooks and criminals.
director William Webster tim week The official said the report was not
ordered a review of any past contacts written by Gates and did oot contain
the agency "may have had" with BCCL that phrase. He said the report was
Sen. John Kerry (0-Mass.), chair- updated in 1989 after BCCI was
man of the Senate subcommittee oo charged in a federal indictment in
narcotics and international terrorism, See 6
CIA Reported
BCO Allegations
BCCJ.rro.n
Tampa, Fla., with laundering money
for drug traffickers.
Bonnie T'ISChler, the customs official
wbo oversaw the money laundering
probe, said yesterday sbe recalled see-
ing CIA material about BCCI prior to
the indictments, but it made little dif-
ference to ber probe. "It was nothing
that bad any tactical significance, she
said. -
Jim Hoagland I r
Across the Cultural Chasm
BCCI viewed from East and
PARis-Tricky Arabs aod Asians who
buy in1luence, run arms and milk rubes
out of their savings. That is the BCCI
banking scandal aeen through Western
eyes-a sucker's night in the Cubah
with a multibiJlioo.doUar sting.
The view from the Oriental side of the
cultural looking glass is the reverse. The
abrupt closing of the Bank of Commerce
and Credit International, followed by
cries that the West is shocked, absolutely
shocked, to learn of gambling at Rick's
Cafe, form another chapter in the long
saga of Western prejudice and exploita
tioo of the Third World.
The extreme version, popularized in
the Pakistani and Arab press, portrays
the crushing of BCCI as part of an
all-embracing imperialist-Zionist plot
against Muslims. Many Asian and Arab
depositors in London hurt by the abrupt
shutdown of the bank find it easier to
bathe their wounds in paranoia than to
aduut they made a costly choice of banks.
There is just enough truth in both
stereotypes to make the cultural looking
glass a key element of the BCCI scandal
Western prejudice created an opening
for BCCI to exploit. Artful dodgers from
the Middle East rose to the occasion.
Now, Christian and jewish bank regula-
tors, district attorneys, judges and legis-
lators in the West will have their say on
Muslim financiers and many of their
Muslim depositors.
This is happening only a few months
after the most massive assault by es-
sentially Cbristian armies on a Musllm
nation since the Crusades. It will be
tempting for Middle East and Asian Mus-
lims, and those in the West who identify
with their causes, to see BCCI as an
extension of Operation Desert Storm.
We need to recognize that the cultural
clash between East and West and the
mind-sets it produces on both sides have
created "a 8ash point . . which now
presents a global danger," as British
writer Anthony Sampson puts it.
But the cultural and psychological con-
text should not be allowed to obecure or
excuse the wrongdoing that has occurred
in the BCCI case. Such a result would
allow the fast-buck guys involved to ex-
ploit their Muslim/Third World identities
twice over.
The victimization theme was sounded
by Ghaith Pharaon, a Saudi Arabian fi-
nancier involved 10 the BCCI case. Testi-
fying last April in a hbel suit he brought
against an Argentine journalist, he com
plained:
"Everyone launders drug mooey, ev-
eryone is a criminal, but only the Arab
bank is attacked. There is a cam-
paign against the Arab bank."
Pbaraon's legal responsibility in the
BCCI case is still to be determined. But
he speaks as a member of an Arab elite
that often benefits from shifting atten-
tion from what they have done to what
the Crusaders and other Westerners
have done unto them.
The BCCI case has its roots in this
cultural chasm. BCCI was started by a
Pakistani, Agha Hasan Abedi. But its
pivot became the Persian Gulf sheikh-
dom of Abu Dhabi after Abedi persuaded
Sheikh Zayed bin Sultan al-Nahyan in the
early 1970s to put his prestige and his oil
fortune behind a global bank for Muslims
that would abide by Islamic financial
practices..
"Abu Dhabi lacked serious banking
regulation, and Abedi told Sheikh Zayed
it was his Muslim duty to support an
Islamic bank," says a European banker
who knows Abu Dhabi well. "'t was the
perfect anchor for BCCI."
London, with its growing Asian and
Arab population, was the Western an-
chor. If you are an Arab or an Asian,
opening a bank account in Britain is an
ordeal; says an Arab businessman based
in London. "You will be treated like a
crook who personally stole the riches of
the British Empire."
Accumulating criminal charges and
civil suits in Britain and the United
States suggest that BCCI globalized a
pattern of in1luence buying, commission
skimming and personal aggrandizement
that infected most of the Middle Eastern
oil states. Rulers treated national trea
suries as their own personal purses not
subject to rules or inspection, Too many
businessmen and bankers adopted the
same attitude.
But Sampson, in The Independent
newspaper in London July 24, makes the
other point that we muat keep in mind:
"It is Western humbug to suggest that
BCCI alone was a cover for such deals.
Tbe Swiss banks, and banks in other
havens of secrecy like the Cayman Is-
lands and Liechtenstein, may be more
responsible in their accounting; but they
too have thrived oo providing anonymous
hiding places for arms deals, drug mon-
ey, slush funds and loot from corrupt
dictators around the world.
The failure of Swiss Banking Control
Commission to actively track down the
accounts controlled by Saddam Hussein
and his half-brother, Barzan. and to free
that loot for feeding Iraq's starving peo-
ple is a current and flagrant example of
such Western complicity in Middle East-
emcrime.
It is the international culture of crime,
not the culture of different peoples, reli-
gions and natioo.s., that is at the heart of a
global scandal much bigger than BCCI.
i
!
~ " ' " '
AS MONDAY, AUGUST 5, 1991 THE WASl
AN INDEPENDENT NEWSPAPER
BCCI and the CIA Memo
A
T BEST, the BCCI case is a classic exam-
ple of ineptitude on the part of several
federal departments and agencies. Wheth-
er it is worse than that is now the chief business
before three congressional investigations. The
Bank of Credit and Commerce International is
accused of a catalogue of crimes that are aston-
' ishing in their variety and gravity. But there's a
far more disquieting issue facing the investiga-
tors: whether BCCI was being actively shielded
and helped from within the government itself.
The CIA memo is the latest piece of troubling
evidence to float into sight. In 1988 the Customs
Service, pursuing drug smugglers, was getting
interested in BCCI. The then commissioner of
Customs, William von Raab, called Robert Gates of
the CIA to ask what he knew about iL Mr. Gates
replied by sending over a CIA memo on the bank.
Shortly after, the Treasury told Mr. von Raab to
stay out of the case and leave it to others. It is true
that Mr. von RatiJ is a zealous and vociferous
conservative who was a thorn in Treasury's side.
But, since nothing much happened thereafter, the
story leaves a question hanging in the air.
The CIA allowed Sen. John Kerry (I)-Mass.) to
read the memo, and declassified enough of it to
allow him to characterize it in an open hearing.
The memo, according to Sen. Kerry, was written
in 1986 and makes it clear that the agency was
then well aware of the bank's involvement in
criminal activities. The memo also said that the
CIA had known since 1982-that is, from the
beginning-that BCCI had illegally and secretly
bought control of First American Bankshares.
The memo had been disseminated to other feder-
al agencies including, it seems, the Treasury. But it
never got to the Federal Reserve Board, which
regulates banks and had allowed a group of Arab
investors to buy First American only after the most
explicit assurances that BCCI would have nothing
whatever to do with it. Those assurances were
provided by the investors' lawyer, Clark Clifford,
now chairman of First American. So far there is no
explanation of this failure of one part of the govern-
ment to tell another that a solemn pledge had been
broken almost as soon as it was made.
Sen. Kerry's hearing was generally devoted to 1
the warnings about BCCI that began to emerge in
the late 1980s. Justice vehemently defends itself
against charges of excessive delay, asserting that
it is hard at work on a series of criminal investi-
gations of BCCI but that, in a case of great
complexity, it is unreasonable to expect rapid
results. Fair enough-but if the CIA was circu-
lating a memo five years ago on BCCI's illegal
activities,' why was there so little response at that
time among the officials who received it? Or
weren't they reading their mail?
The focus of the investigations is no longer the
renegade bank. The focus is, unfortunately, the
integrity of the United States government.
- ~ -
Hill Sets
MoreBCCI
H . s
niewton
To Be Questioned
By Mark Potts
........., ..... _'lt'ricor
The chairmen of the House and
Senate Banking Committees yester-
day stepped up their inquiries into the
apparent failure of regulators to catch
the alleged rampant wrongdoing at
the Bank of Credit and Commerce In-
ternational.
"The BCCI scandal is a prime ex-
ample of the inadequacy of intema-
tkJJal bank regulation," Rep. Henry
B. Gonzalez (D-Tex.), chairman of the
House banking committee, said yes-
terday. 'There is no reason why ~
U.S. should allow a foreign bank like
BCCI to operate in the U.S. if that
bank is intent on hiding behind sw.-
pect bank secrecy Jaws and a lax reg-
ulatoty environment.
"'t is essential that we learn bow
BCCI successfully penetrated the
U.S. banking system, and why its ac-
tivities were not discovered by U.S.
banking regulators for several years,
said Sen: Donald W. Riegle Jr. (0-
Mich.), chairman of the Senate Bank-
ing Committee. "This failure and
breakdown in regulatory supervision
bas to be fully understood and correc-
ted."
The House Banking Committee
voted yesterday to subpoena records
from banking regulators, the CIA and
others in connection with the probe,
and has scheduled a Sept. 11 hearing
for testimony from Clark M. Clifford
and Robert A. Altman, the Washing-
ton lawyers and top executives at
First American Bankshares who have
repeatedly said they were unaware of
BCCI's ownership of First American.
The Banking Committee bearing
will come one day after the Federal
Reserve has scheduled a hearing into
the charges contained in its detailed
lOG-page summary, released Mon-
day, that BCCI used a group of Arab
front men to secretly purchase First
American .
Riegle's committee, meanwhile,
plans to ask for subpoena power after
Congress returns from recess in Sep.
tember and will then schedule a new
round of bearings to foUow up on ses-
sions it held in May on the regulatory
oversight of BCCI.
Others on Capitol Hill also got into
the act yesterday, anootmcing plans
for BCCI-related hearings.
Sen. John Kerry (D-Mass.), a mem-
ber of the Senate Banking Committee
and chairman of its subcommittee on
terrorism, narcotics and intematiooal
operations, said he would hold a hear-
ing Thursday into foreign policy and
drug policy implications of the BCCl
scandal, including the allegations that
BCCI bribed officials of the Peruvian
central bank in exchange for deposits.
In addition, Rep. Charles Schumer
(I)-N.Y.), chairman of the House sub-
committee on crime and criminal jus-
tice, said his panel would hold a bear-
ing Sept 5 into allegations that the
Justice Department was slow to act
on BCCI and that it has impeded in-
vestigations by New York officials and
others.
1st Amerie4n
Role in BCCI
Documented I
District Bank Used
To Aid Criminal Acts
1) - , 4 / 1Q 1
By Jim McGee and Steven Mufson
Wationglott Post Stott Wnrero
First American Bankshares Inc. of
Washington was secretly acquired in
1981 by the Bank of Credit and
Commerce International (BCCI),
which used its First American hold-
ings to help finance fraudulent activi-
ties around the world, according to
Bank of England officials and in-
formed sources in this country.
BCCI's concealed ownership of
First American, alleged earlier this
year by Federal Reserve Board offi-
cials, was described in greater detail
in dramatic statements this week by
the Bank of England. Yesterday,
bank governor Robin Leigh-Pember-
ton portrayed BCCI as an institution
with a "criminal" culture, in a state-
ment to a parliamentary inquiry into
the July 6 seizure of BCCI by regula-
tors.
Lawyers for the British central
bank, quoting from an investigative
report by the Price Waterhouse ac-
counting firm, referred to First
American only as bank "WXYZ," but
U.S. sources confirmed yesterday
that the initials refer to the First
American holding company, Credit
and Commerce American Holdings
(CCAH).
The Bank of England asserted
that prominent Middle Eastern indi-
viduals who bought the First Ameri-
can parent company shares when
the bank was taken over 10 years
ago were "nominees" for BCCI all
along and received fees from BCCI
for helping conceal that BCCI was
accumulating a controlling interest
in the Washington bank in defiance
of opposition by the Federal Re-
serve.
Moreover, almost all of the subse-
quent infusions of capital into First
Americanpurportedly by the Mid-
dle Eastern investorscame in fact
from BCCI, the Bank of England
said.
The illegally held shares in First
American became collateral for a
maze of sham loans by BCCI that
generated "fictitious" income and ac-
count balances, "thereby increasing
funds for the fraud," British authori-
ties said.
The loans, which are assets on the
hooks of a bank, thus helped conceal
One of history's largest bank frauds,
disguising bad debts in other parts of
BCCI and BCCI losses of about $849
million from speculative trading on
financial markets from 1977 to
1985, the Bank of England said.
Much of the financial market trad-
ing, in government securities and
See BCCI, A6, Col, 1
1

tions are not affected by the investi ernor LeaghPemberton sa1d ev1 ..
foreign exchange, was done using galion of BCCI, but the future own- of of BCCI by "terror-
the names of bank clients but was ership of First American is in doubt sst" orgamzatsons had surfaced as
really on behalf of BCCI itself, the because the Fed has insisted that as three years tha,_t the
British authorities allege. BCCI sell its illegally acquired of the bank ss cnmmal.
Washington attorney Clark M. shares in the bank. Those shares are Lesgh-Pemberton. told the House
Clifford represented BCCI and the now under the control of a court-ap- of Commons c.?mmsttee that a
shareholders throughout the take- pointed BCCI liquidator in Britain. mer told .the m
over process and helped win Fed ap- The Fed recently issued a notice March 1988 that certam terrorsst-
c d
. . . related accounts had been and were
proval of the acquisition. liffor contending t_hat BCCI acqusred ille- being operated at BCCI," according
went on to become chairman of First gal of t?e to news agencies. Leigh-Pemberton
American, and he has maintained Bank of Encmo, Calif., through noms- did not say what terrorists had ac-
that he was unware of any hidden nee loans to Saudi investor Ghalth counts at BCCI, but news reports
BCCI ownership. Pharaon, the purported owner of In- said that the Palestinian Abu Nidal
Clifford also said BCCI never in- dependence. The Fed is conducting organization was among them.
fluenced his management of First a inquiry the of Leigh-Pemberton quoted a Price
American, and his attorneys said BCCI s ownershsp of Credst and Waterhouse report as showing uevi-
Clifford's position on this point is Commerce American Holdings and dence of massive and widespread
supported by William Taylor, chief is considering further enforcement fraud going back a number of years
banking regulator at the Federal Re- proceedings. and involving not only past manage- r
serve. In his statement to a parliamenta- ment but members of the existing
Groups rv
I ''1 Al. 'L 4-tt--vi..-G fiJI.,
.md coidil1ufrrg management
representatives of the main share-

As Leigh-Pemberton was testify-
ing, Labor Party leader Neil Kinnock
peppered Prime Minister John
with questions about the handling of
BCCI during an angry exchange.
Ksnnock pressed Major about
whether Major had early knowledge
of BCCI's wrongdoing and had failed
to act to protect depositors or to
close down BCCI accounts, including
those allegedly used by terrorists.
Major said he first learned of
BCCI's fraud on June 28 of this year.
Le1gh-Pemberton told the Treasury
Select Committee that he had not in-
formed Major of the fraud earlier.
Leigh-Pemberton also said that suffi-
cient evidence of widespread fraud
was obtained only in June with the
completion of the most recent of
several accounting reports by Price
Waterhouse.
This week's statements by British
authorities lend credence to the
work of Manhattan District Attor-
ney Robert Morgenthau, whose in-
vestigators first discovered eviden.ce
of the nonperforming BCCI loans-
those not earning interest-secured
by shares in CCAH and conveyed
that evidence to the Fed. The disclo-
sures also reinforce criticism of a
plea bargain agreement that federal
prosecutors reached with BCCI in
1990.
BCCI pleaded guilty to charges of
money laundering in U.S. District
Court in Tampa and paid a fme. Al-
though specific allegations about
BCCI's ownership in First American
surfaced in that investigation, there
is no indication that the Justice De-
partment pursued the irlformation
on First American. Federal prosecu-
tors have said that they never
stopped investigating BCCI.
The current investigations of the
BCCI-First American relationship
are moving along two tracks: civil
regulatory inquiries by the Fed and
criminal investigations by Morgen-
thau's office and U.S. attorneys in
Tampa and the District. The Fed,
the Bank of England and Morgen-
thau's office have cooperated exten-
sively in the investigations.
Morgenthau has complained that
federal prosecutors have not cooper-
ated suffsciently with his probe.
MufS011 reported for this arlick from
lAndo" otuJ McGee from
Waslli"lton.
U.S. Let BCCI Probe
Languish, Hill Told
Ex-Officia Blames Lobbyists' 'Pounding'
..,( 1/ '\
Former U.S. Customs Com-
missioner William Von Raab yes-
terday blamed high-powered lob-
byists, concern about the pros-
ecution of deposed Panamanian
leader Manuel Antonio Noriega,
and a general malaise among
investigators for the U.S. gov-
ernment's failure to vigorously
pursue the case against the Bank
of Credit and Conuilerce Inter-
national for the past three years.
Von Raab's comments came in
a day-long Senate hearing that
revealed new details of the gov-
ernment's handling of allegations
of drug-trafficking, money-laun-
dering and fraud in U.S.
branches of the giant interna-
tional bank.
In separate, prepared testimo-
ny released late yesterday, A.
Peter Burleigh, State Depart-
ment coordinator for counter-
terrorism, said the "U.S. intel-
ligence community" had infor-
mation in 1986 that "linked" Pal-
estinian terrorist Abu Nidal's
organization, in ways Burleigh
did not specify, to an unidentified
BCCI branch in Europe.
The panel is attempting to
find out how much was known
about the Luxembourg-based
BCCI's alleged criminal activi-
ties during the last decade. BCCI
was shut down in Britain, Lux-
embourg and the Cayman Is-
lands last month and indicted on
bribery and fraud charges Mon-
day by a New York grand jury.
Von Raab, customs commis-
sioner from 1982 to 1989, over-
saw the initial Customs Service
See BCCJ, A16, CoL 1
Ooud Over a Rising Star
BCCI Ca$e Puts Career at Risk

By Sharon Walsh
Wubiftcton Poet Stl1r Writer
Wrth his venerated law part
ner, Clark M. Clifford, in the fore
and his glamorous television star
wife, "Wonder Woman" Lynda
Carter, by his side, Robert A. Alt
man was the local boy who made
good.
His Potomac mansion is peo-
pled with white-gloved servants
and friends from political, legal
and entertainment circles. It was
decorated by George.town design-
er Carol Lascaris, who bas done
the palaces of a number of Saudi
princes, and is fil.led with posters
and photographs of Carter, ac
cording to some who have been
guests there.
His law practice at Clifford &
Warnke boasts political insideri
and Fortune 500 companies as
clients, and for 10 years he has
headed the largest bank holding
company in Washington-First
American Bankshares Inc.
But the brilliant future that lay
ahead of this glittering career
now rests very much with Feder
al Reserve Board regulators and
federal prosecutors in the Dis
trict of Columbia who are probing
his involvement with the Bank of
Credit and Commerce Intema
tiona!, the shadowy foreign bank
that was indicted for fraud and
bribery in New York this week.
The regulators and prosecu-
ROBERT. A. ALTMAN
future rests with regulators
tors want to know how BCCI se-
cretly and illegally acquired con
trot of First American over the
explicit opposition of the Federal
Reserve and the assurances of
Clifford and Altman that they-
not BCCI-would run Washing-
ton's biggest bank holding com
pany.
Clifford, the chairman of First
American Bankshares, and Alt
man, its president, say that if the
regulators were deceived, they
were as well.
See ALTMAN, A14, CoL 1
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BCC1, Prom Al
into BCCI, which fo-
cuSed on a drug money-laundering
at the bank's branch of
fice in Tampa. He said he was Man
noyed when indictments issued in
October 1988 did not reach top
bank officiaJa, and was appalled
when the Tampa case was allowed
to'l)eter out in a January 1990 plea
bargaining agreement.
"'' think it was a shameless agree-
ment. Von Raab told the Senate
subcommittee on terrorism, narcot
ics and international operations.
The agreement required BCCI to
plead guilty to money-laundering
and imposed a $15 million fine-
"'ess, Von Raab said, the
6ank had made from its money-
faundering activities."
The Justice Department main
t;tins that it has never stopped in
vestigat.ing BCCI's activities in the
United States. At the time of the
Tampa indictments, that case rep-
resented the largest fme ever as-
sessed against a bank for money
laundering.
In sworn testimony, he sharply
criticized high-lever "inffuence ped
dlers," including Washington public
relations finn Hill & Knowlton.
.4 . The subcommittee, chaired by
;:,en. John Kerry (D.Mass..), also
beard testimony and received de-
positions from officers of the Fed
eraJ Reserve and State Depart
ment, as well as Jack Blum, a for
mer counsel to the subcommittee
who conducted his O'Nil investiga
tion of BCCI.
, Von Raab's departure from Cua-
toms came amid controversy
prompted by his repeated charges
that top Reagan and Bush admin
istration officials had failed to ag-
gressively pursue the federal anti-
drug effort. He acknowledged yes--
terday that his superiors "felt that I
was ovenea.lous," and offered this
as the reason he was "cut out" of
the BCCI probe 1D early 1989.
: He described in detail a request
said he made in 1988 to CIA
Deputy Director Robert Gates for
information on BCCI. Gates, Von
Raab said, Mquipped that It [BCCI]
was kno'Nil among his colleagues,
tbe agency, as the 'Bank for Crooks
-nd Criminals International.' "
' Von Raab said Gates told him
that the CIA had prepared a "piece"
on BCCI in 1986 and would send it
(o him. The CIA memo, Von Raab
"described the origins of the
. its .MO . operandi],
who they thougnt tlle owners were
at that time, and characterized it in
fenns that implied that certainly it
was involved in lots of questionable
Qr at least criminal activity.
Von Raab said the memo Mdidn't
prove to be particularly useful to us
as an investigative tool." It did,
however, "give me a sense of the
type of people who owned the
bank..
In a Wednesday press release,
Kerry said the memo contained in
formation that BCCI had secretly
Controlled the Washington-based
First American Bank since 1982
without the permission of the Fed-
eral Reserve. Calling BCCI Ma crim-
inal enterprise," Kerry charged that
the memo raised "obvious and se-
rious questions about why the in-
formation it contained was not
passed along to federal regulators
and the Justice Department
; The Burleigh statement will like-
ly add to the debate over U.S. gov
emment knowledge of alleged BCCI
misdeeds prior to last month's in-
dictments. Burleigh said that
group-which bas been de-
by the State Department as
'!the most dangerous terrorist or
ganization in existence" -con
ducted "significant business oper
ations" through front companies
that traded in weapons, construc-
tion aervices and other commodi-
ties. ;:
But his testimony did not elab-
on the nature of Nidal's re-
to BCCI, or indicate
whether the State Department or
U.S. Intelligence communities ever
passect on their information to U.S.
law eQ{orcement officials. .
1
: State Department testimony
followed a report in the Sunday
Times of London last month that
laid that an audit of BCCI's London
flrancbes, conducted by Price Wa
terbouse for the Bank of England,
had identified more than 40 ac
eounts that were secretly con-
trolled by Nidal and other terrorists
and arms dealers.
: The Sunday Times report stated
that the Nidal accounts were Mmon
itored" by British intelligence, and
quoted a former London branch
'
,
manager, Ghassam Ahmed Qassem,
as saying the terrorist accounts
"had been set up with knowledge of
senior officials within BCCI."
A State Department spokesman
last night declined to elaborate on
Burleigh's prepared testimony, or
to identify which BCCI branch Bur
leigh was referring to that had
Nlinks" to Nidal.
Shortly after his 1988 conversa
tion with Gates, Von Raab said, the
U.S. Attorney In Tampa indicted
more than 70 BCCI officials. "' was
annoyed at the time .. that there
were not more significant indict
menta brought against higher-lev.el
BCCI officers and more significant
charges brought against BCCI as a
corporation, Von Raab said.
He added, however, that he ac-
cepted the U.S. Attorney's expla
nation that the evidence was insuf- 1
ficient to proceed further. Still, "I
had always hoped that that would
happen subsequently."
Instead, Von Raab said, the In
vestigation died away, and appeared
to end in "this bad plea bargain.
Von Raab blamed the foot-dragging
on a general softening of resolve
on the part senior U.S. officials"
brought on by "incred.ible pounding"
in Washington from high-powered
"influence peddlers" like Clark Clif
ford and Robert Altman, chairman
and president of First American
Bankshares, along with Robert
Gray and Frank Mankiewicz, of Hill
, and Knowlton, the public relations
firm hired by them.
"There wasn't a single influence
peddler who wasn't being used to
work this case," Von Raab said.
j "The result is that senior U.S. pol
icy-level officials were constanlly
under the impression that BCCl
was probably not that bad, because
all these good guys that they play
golf with all the time were repre-
senting them."
Hill and Knowlton Vice Chairman
Mankiewicz issued a statement dis
missing Von Raab's testimony as
"irresponsible and totally false."
Mankiewicz said I, nor
Robert Gray, nor anyone else from
Hill and Knowlton ever contacted,
on behalf of BCCI, anyone in the
Department of Justice or anywhere
else in the Executive Branch, or, for
that matter, on Capitol Hill."
THE POST

Sa. Kerry, left, lalb with .Jack Blum, ceater, a !ormer 1abcommillee and former CUllom commillloDer Voll Rub.
Clifford and Altman have ap-
peared before a District grand jury
in connection with a federal inves-
tigation of the relationship between
BCCI and First American. In public
statements, they have denied any
wrongdoing.
Von Raab said the BCCI inves-
tigation probably was slowed by the
Justice Department's desire to
gather evidence against Noriega,
indicted on federal drug trafficking
charges in February 1988. Inves-
tigators described BCCI as "No-
riega's bank."
"They wanted the best evidence
they could get against Noriega,"
Von Raab said. "It was believed that
BCCI was a repository for great:
evidence against Noriega ...
They saw the case much too much
as a place to collect evidence in an
other case."
The reluctance to pursue BCCI
because of the Noriega case, he
added, was "compounded. by a
"lackadaisical and sort of worked-
over" attitude by high-level officials
from fending off the public
relations assault: "Whatever the
Washington brokers got for their
involvement in protecting BCCI
from the federal government, they
earned every million dollars they
received.
Staff writer jim McGee co11tributed
to this report
fio111 AI
1
FDr Clifford, i'+.' a . .statesman whose reputation
, of the finest marble, the BCC1 case may ' )
be no more than a sad ending. Altman, 44, arguably may 1
bavl more at stake. It rtlgulators and prosecutors don't
acce'bt his explanations, BCCI may be the broken tie that
1
' derails him. ,. ')

..
, . .. ,.
;:;;;. Jo)
: Altman has not talked to reporters in several
months. But last spring, before tJie- BCCI scandal erupt-
. ed, Altman sat for several hours in the conference room
at Clifford & Warnke to answer a reporter's questions.
The furniture there was elegant but a bit tattered, and
one of the china cups set out on the sideboard for coffee
had a chip on it. Altman seemed at home there. He was
and absorbed in the questions. He sometimes
r shmiped down into the leather chair in a relaxed pose, as
if to take a reporter into his confidence.
He seemed at ease talking about the difficult, complex
worKings of the bank and its problems with regulators.
about his money and lifestyle made him bris-
tle. He abruptly declined to talk about how much money
he Jr his firm has made from his legal representation of
BCCI-Ciifford and Warnke represented the bank for
more than a decade--or of First American, saying only,
"we have been fairly compensated."
Some sources said the law firm has reaped tens of mil-
- lions of dollars from legal work for BCCI in a single year.
In addition, Clifford and Altman earned a $9.8 million
trading profit on First American's stock in a deal fi-
nanced by BCCL Altman's net profit was $1.3 million-
fair compensation for their services to First American,
the two lawyers said. Clifford has drawn a small salary
from First American; Altman received none at all, they
said.
Altman sat up straight in his chair when asked wheth-
er his Potomac home has 16 bathrooms. "Who told you
that?" said a surprised Altman when asked about the
number. He admits he doesn't know bow many bath-
rooms the house has.
In fact, Altman, his wife and their two small children
live in a 20,()00-square-foot Potomac estate with a li-
brary, a fully equipped exercise studio, 16 bathrooms, a
billiards room, a music room, separate living quarters for
the servants, a multicar garage, a tennis court and pavil-
ion, a pool and a specially designed waterfall that empties
into its own pond and is visible from the deck. The prop-
erty, foe which the Altrnans paid $2.6 million in 1987, is
estimated by real estate sources to be worth between $5
milfion and $7 million DOW.
His 1984 marriage to Carter, perhaps best known for
her tole in the 1976-1979 television series "Wonder
Woman" and as a model for Maybelline cosmetics, boost-
ed Altman's position in Washington social circles, where
a lawyer or a politician is commonplace, but a movie star
IJ!olkes the politicians stare.
Pacific Palisades wedding was a blend of Washing-
._"2bd California constellations, with political power-
like Clifford and his law partner Paul Warnke
miifing with Hollywood and television stars Loni An-
4tiDQn, Ed McMaboo. Valerie Harper and Barbara Man-
ibll.7 Also at the wedding was Agha Hasan Abedi, the
executive wbo founded BCCI in 1972.
' ::for those who don't know my wife, it may seem curi-
- --!.1 J4..L. - ., t .......
pas-, ne :scuu u1 utt: marnage. ne VOiunteerea mat, con-
to some press reports, the marriage is not in trou-
lile . .I'She and I have the same values," he said, pointing
wtthat she bas put her career on hold for the last sever-
to devote much of her time to their 3-year-old
Jlll!lie Clifford Altman (namesake of Clark Clifford),
8-month-old daughter, Jessica Carter.
has her own production company, Potomac
PrOdactions, and lately has spent a great deal of time in
trying to revive her television and movie ca-
'Ife,r.. But, "we very definitely don't want the children
ifsed out in L.A. because of the values there, n said Alt-
t1! who strongly supports his wife's career.
='fhose values include Altman's own vecy strong work
the fear that too much of the good and easy life
SfiQils children, he says, articulating bow the good life in
Hb'Dywood is different from the good life in Potomac.
will work," he said. "'ne of the real pleasures
ii'Jife IS not a house in Potomac; it's setting goals
ll.hieving them." '
the Sunday afternoons when the Washington Red-
play, the Altman bouse is often a meeting place for
several dozen friends, family members and their chil-
q. Among the Altmans' closest friends are Rep. John
(D-Mich.), chairman of the House Energy and
Gm1Jrnerce Committee and tt.e man who taught Altman
tShoot skeet, and his wife Deborah, a lobbyist for Gen-
Motors Corp. and the unofficial godmother of Alt-
rulfi's son. Transportation SecretarY Samuel Skinner
wife, Honey, former House speaker James
'WJ:Jght and his wife, Betty, President Bush's daughter
Blaine Trump (Donald Trump's
Sl&ter-m-law), Chns Evert and Martina Navratilova are
atr&nfidants of the Altmans.
';.'J:!le Altmans give spectacular Christmas parties, dec-
oi:ating the house With huge toy soldiers, sleds and
trees that could compete with Macy's, accord-
mg to those who have attended. A mixture of close
fnends, family and acquaintances share in a lavish ca-
rffMbuffet, and expensive presents are opened by fami-
W'"members whiJe, friends are presented with smaller
gifts.
'
"They're most at home with a bunch of friends and
family sitting around watching football," says Altman
friend Lawrence Barcella of Katten, Muchin & Zavis,
who has also done legal work for BCCI. "Everybody's
kids are running a.U over the place. It's a home, not a
house.
"He has friends who are glamorous, and he sure as hell
has friends who are unglamorous," says Barcella. "You
see them at a charity ball you get one impression. You
see him with his feet up drinking a beer, you get anoth-
er:
Feet up or feet down, theirs is a home where guests
must be announced at the front security gate and, even
when the dinner guests are in jeans, dinner is served on
silver trays by white-gloved servants.
When asked whether the recent press attention focus-
ing on the bank's ownership has affected their friend-
ships, Altman replied, "Not in the least There's been
none of that whatsoever." But. he also said: "This can be
a very tough town."
Both Altman and his wife are worried about the effects
of being in the midst of a controversial story, friends and
family members say. And some say that friendships have
grown cooler.
When Deborah Dlngell was called by a reporter and
asked to talk about the Altmans, she declined. "I would
prefer not to get into this," she said. "I would refer you to
my husband's office. . Lynda is my friend, but I would
prefer not to get into it"
John Dingell describes Altman as a complete gentJe-
man" and a "very competent attorney; adding that he
has no knowledge of Altman's business.
In 1969, when the dean of George Washington Uni-
versity's Law School got a call from the prestigious frrm
of Clifford & Warnke, which was looking for a law clerk,
they were given Altman's nllme. He was only a first-year
student, but he caught the eye of Clifford, who had just
returned to practice after leaving the Johnson adminis-
tration as secretary of defense.
"''ve watched the younger men come and go through
all these years rve been practicing law," Clifford said in
an interview this spring in his slow, melodious tones.
"There are those who have it, those who don't have it
. . . He was bright and he was industrious. Boy, would he
work. I liked that a lot in a young fella," he said with a
small laugh.
From his earliest days at Clifford & Warnke, Altman
worked around the clock for a variety clients ranging
from Knight-Ridder Newspapers Inc. and Schering-
Piough Inc. to former Carter administration officral Bert
Lance ruxfformer House speaker Wright.
It was during this time that he attached himself to Clif-
ford, the powerhouse lawyer and name partner of the
smaU firm of about 17 lawyers.
The work ethic was apparently in the genes. Altman's
father, Norman Altman, is a successful, Harvard-trained
housing lawyer. His mother, Sophie, is an attorney from
Yale Law School and the award-winning creator and pro-
ducer of the television quiz show "It's Academic." One
sister is a law professor at American University, another
until recently taught at Harvard Law, yet another is an
award-winning television producer and best-selling au-
thor.
Altman went to Wilson High School in Washington and
the University of Wisconsin as an undergraduate. When
he was applying to law schools, he said, he was ready to
come back to the Washington area, choosing George
Washington University Law School, where he !lecame
editor of its law review.
In the Altmans' Cleveland Park home, the motto
was: "'f you're going to be good, you have to be competi-
tive," said his mother, Sophie Altman. That included
studies and sports. In addition to being a top student, Alt-
man was a champion college swinuner, plays tennis with
the pros and skis with abandon.
"I'm very competitive," he said. "It takes a certain
amount of ego to operate in this town."
Altman's competitive nature comes out in the court-
room and on the tennis court. In the early 1980s a
pitched takeover battle was going on for First American
(then called Financial General Bankshares). A number of
the attorneys involved, including Altman, were avid ten-
nis players and used to joke that they'd play for the bank.
uHe never won a set from me, but every time we
started playing, he'd say he was going to kill me," re-
members attorney Martin Thaler. "It's just that he's an
extremely confident individual. He's had a lot of success.
And he just believes in himself. I was amused by it ...
Even when he was down 5-0, be still belined he could
win.H
Altman remembers differently. "He would never have
had me down 5-0," he said with a smile.
Another attorney who has worked with Altman ex-
presses his competitive nature differently. Altman, he
says, exemplifies what is often said of litigators: "Some-
times wrong; but never in doubt."
That lack of doubt has been most pronounced at First
American, say those who have worked with Altman
there. Although Clifford and Altman only rarely use the
First American headquarters offices at 15th and G
streets, Altman insisted that one of the elevators be set
to go only to the floor where their )ffices were.
SY-IUWTRIIITHlWASHNnON I'OSt
Alima and h1l wit&, Lynda Carter, at a book-1ipillg party tor Allmu'a law partner Clark Cliflord ill May.
A lawyer with no experienCe running a bank. Altman
became involved in personnel decisions in a bank with
6,700 employees, and often approved of or cut the sala-
ries of people he had never met, sources said. He was
brutal at budgeting sessions and took power from others
for himself, according to a numbe( of people who worked
for him. .. .
"He is the ultimate political animal who understands
power and loyalty," said one official who has worked
closely with Altman. "Small breaches of faith are dealt
with-in time, but they are always dealt with."
"You're either on his team or not," said Susan von
Raab, a former commercial lending officer at First
American Bank of Vtrginia who was let go by Altman.
She believes it was no coinddence that she was the only
person laid off in her area. Her husband, William von
_is former; co!Mlissioner of who began
mvestJgatmg BCCI s ties to money laundering in Florida.
Then there's the case of Eugene S. Jr., who was
a director of First American during the takeover battle
waged in the early 1980s by Middle .Eastern fuvestors.
At a board meeting, Casey dared to oppose Altman on
the takeover price. Several of those who were present
said Altman looked sharply at Casey. The next year, Ca-
sey was off the board.
Another high-level employee who left the bank said of
Altman: "He was going to tell us what to do and we were
going to do it. If we didn't like it, we could leave."
Altman, who has always spoken of Clifford in reveren-
tial tones and copied some of his mannerisms, has this
year bordered on rudeness toward Clifford at times
snapping impatiently at him when he doesn't
something, said sources close to them. Some said Clif-
ford has come to rely greatly on Altman, filibusterint in
!'leetings when Altman is late and depending on him for
mterpretations of budgets and reports involving num-
bers.
Said one former employee: AJtman wanted everyone
to know that he was the president of [First American]
Bankshares. You made no major decisions without con-
sulting him."
"Altman has been running the bank," said one high-
level officer. MHe was tofa)ly in control."
Some question whether Altman's control and knowl-
edge went beyond Clifford's.
,Most absurd," said Altman in an interview several
ago. "There was no action that he [Clifford]
d1dn't know about. .. . He was briefed in detail."
"I would be the main man in charge of the top strate-
gic decisions," Clifford said in a separate conversation.
"Altman gave a great deal of time to the bank. I needed
assistance and Bob Altman provided me with that assis-
tance. .. We have such a close working relationship.
Each kept th.e other fully informed as to what he was do-
I'
mg . . . so 1 wuuJan t oe surpnse<t and he wouldn't be
surprised," he said.
Wit_h Altman interviews recently and
f.riends and reticent .about discussing
him, 1t 1s not easy to determme how he JS weathering the
storm.
In past several months, Altman has virtually aban-
doned his role at the bank, closeting himself in his law of-
fices across Lafayette Park from the White House to
prepare for his defense .in various investigations involv-
mg the bank. sources saJd. But this week, with new alle-
BCCI. Altman suddenly took up
his posttion at FtrSt Amencan again, according to bank
insiders.
"It's as if he has a new lease on life," said one source at
the bank. "He's almost happy. It's as if the fact that the
accountants, feds and others were duped adds credibility
to their story."
Most observers of the First American-BCCI drama be-
lieve one of two basic scenarios will be played out. Either
Altman was deceived, as he says, or he was part of' the
deception. Either this tough, indsive, some say brilliant,
lawyer, remained ignorant of seers influence, which
seem to have been threaded through most of the
bank's ma,JOr events, or he knew all along, this reasoning
goes.
New York lawyer Samuel P. Sporn, who has taken de-
positions from Altman' in a legal case involving the bank
says, HJn addition to being lawyers, they were
and officers. . . . They were running the show. They
knew or should bave known."
One source who has worked with and knows Altman
and Clifford well takes a different view. "Both have an
unbelievable capacity, which also exists in politicians of
adopting a view of the facts that are internally
tent," he said. "But it's convenient for them to the point
where they come to believe it. . . The world has let
[Altman) do things other people would be held account-
able for."
But Clifford and Altman say they were the ones who
were misled. And one thing that virtually everyone who
knows Altman agrees on is his tenacity and his faith in
his own ability to win. He is, they say, the kind of lawyer
you. would want in a case where all the evidence is
agrunst you.
As for his own fight at First American, "he will never
give up," said one source. "He will fight to the end unless
he's forced out by the regulators or Clifford decides to
step aside."
.In ,conversation this spring, Altman was upbeat. "I
think 1t s going to be a surprise-the end of all this " he
said. are not always what they seem '
HAYNES JOHNSON
..
M
"
A Hotter-Than-Summer Scanda[
7
E
ach day brings more disturbing
revelations about the great BCCI
scandal, and each day the
evidence increasingly points toward one
conclusion: that the United States
government knew about this vast illegal
conspiracy and chose to do nothing
about it.
No longer can there be any question
about what government officials knew
and when they knew it: Clearly, they
knew Jots and knew it for a long time.
The latest link in this lengthening
chain came Wednesday with the
admission that the CIA has known about
criminal activities by the Bank of Credit
and Commerce International for at least
five years.
As Sen. John F. Kerry (I)-Mass.) told
reporters: '1n 1986, the CIA knew that
BCCI was a criminal enterprise and
owned the First American bank, and
told a number of other government
agencies. There is no evidence on
record that any of these agencies told
the Federal Reserve what they knew,
nor is there any evidence of federal Jaw
enforcement taking any action.
Kerry then posed the critical
question: "Yet despite the fact that a
number of agencies were told about the
secret ownership of First American by
BCCI, apparently no one did anything
about it. The question is, why?"
That question embraces much more
than complex worldwide operations of
BCCI, the "bank of crooks and
criminals." It goes to the heart of other
secret activities about which high
government officials claimed no
knowledge-:-and lied to keep that
knowledge from being known publicly.
Millions of dollars for secret
Iran-contra arms shipments are
reported to have flowed through BCCJ,
for instance. So did untold millions in
drug money laundered by Panamanian
dictator Manuel Antonio Noriega's
operatives, some of whom are in jail
today. For years, Noriega used BCCI as
his personal bank to launder proceeds
from. narcotics trafficking.
That connection between Noriega,
drugs, arms, Iran-contra and U.S.
intelligence agencies is now fully
documented. So is the link between the
CIA and the illegal military assistance to
U.S.-backed contra forces in Nicaragua.
Thanks to the recent court
acknowledgement by CIA official Alan D.
Fiers, the public now knows that top CIA
officials were deeply involved in those
operations. Fiers also has stated that,
contrary to previous official denials, his
superiors knew that proceeds from
secret U.S. shipments to Iran were being
diverted to assist the contras. Thua. the
contra resupply operation led by former
White House aide Oliver L. North was :
not, as claimed by Reagan administration
officials, a rogue operation or an
off-the-shelf operation disconnected from
the CIA. They were directly
connected-and apparently connected to
the operations of BCCI. -
There are allegations, not yet proved, .
that the CIA used BCCI as a channel to .
fund some covert operations. On top of
that comes the disclosure that the CIA ..,
not only knew that BCCI was a "criminal
enterprise" but shared that information ' ..
with other government agencies. . ~
So, again, the key question: Why
wasn't anything done a)>out it?
Here, the Noriega case is instructive:
As early as 1978, an agent of the
U.S. Drug Enforcement Administration'
was reporting information to superiors :.
that directly linked Noriega and illegal ~
narcotics trafficking. ln 1983, the
commanding general of the U.S. ..,.
Southern Command based in Panama. :
Gen. Paul Gorman, ordered an .:,
investigation into Noriega's .
"connections and activities." As a result.
the general raised questions about '
Noriega's possible involvement in
laundering of drug money with U.S.
Embassy officials there. In effect, they
told him not to worry about Noriega, -
that "things are okay," he later testified.
High U.S. officials also knew about
Noriega's criminal activities-and
looked the other way. A senior staff
member of the National Security
Council during the Reagan
administration in the early 1980s,
Norman Bailey, testified three years .
ago before the House Select Committee ,
on Narcotics Abuse and Control:
"Clear and inconvertible evidence
was, at best, ignored and, at worst.
hidden, and denied by many
government agencies and departments ,
of the government of the United States
in such a way as to provide cover and
protection for (Noriega's) activities,
while, at the same time, assuring that
they did the maximum damage to those
very interests that the officials involved
were sworn to uphold and defend."
The reason? Noriega was a means to
an end. Whatever means were
necessary to accomplish U.S.
intelligence goals were acceptable.
The same can be said about BCCI.
This is no summer sizzler of a scandal in
Washington, a convenient story to fill a
no-news void. This is the real thing, and
it is certain to grow worse.
)Jil f'v/ 'f'77 1/}gk

Mathias 'safeguards' bank
reviewing any dealings it may have
bad with the Bank of Credit and
Commerce International, a
spokesman said Thursday. Tbe banlt
bas been accued of massive fraud
and drug profit laundering, and
regulators 1n eight countries began
seizing its assets this month.
The CIA bad accounu 1n the bank
during the 1880s and used them for
aecret aid programs lor guerrillas 1n
Afghanistan, Nicaragua and other
countries, said law enforcement and
congressional sources.
Tbe agency decllned to discuss
whether it dealt with BCCI. But
Director William Webster asked the
agency's inspector general to
"review past contacu the CIA may
have had with BCCI," said spokes
man Mark Mansfield.
Tbe review "la not based on any
evidence of wrongdolng," he said.
"We are looklng at the records so
that a comprehensive report can be
shared with our congressional over.
sight committees," he said.
From Staff Reporta
Former U.S. Sen. Charles McC.
Mathias Jr., commentlng on press
accounts that he has helped pre.
serve depositor confidence 1n First
American Bank, said he was just
dolng his job as a director to pro.
teet the Institution.
Federal regulators have
reportedly llnked First American
to the Bank of Credit and Com.
merce International.
A W.U Street Joumll article last
Friday reported that Mr. Mathias
was trying to arrange for former
Federal Reserve chalrma.n Paul
Volcker to become a trustee for a
controlllng BCCI share 1n First
American, which has two branches
1n Frederick.
The arranaement. accordlng to
the report, would have given the
bank time to find another buyer
had overseas regulators not seized
BCCI.
In a recent lntervlew, however,
Mr. Mathias disputed whether
BCCI had any lnterest 1n First
American and sald such a rela.
tionabip would occur only If "cer.
tain shareholders had used their
bank stock as collateral for a loan
from BCCI and then defaulted."
"No one knows 'whether BCCI
bad an lnterest," the former
senator said.
However, he said be bas been
attemptlng to firm up the bank's
Image. He said his role "la to keep
the bank healthy and safe. We're
worldng on it."
He denied "run.nlng blocks" for
the bank and said his "duties as a
director are to safeguard a com.
pany. And that's what I've been
trying to do."
Bank
seeks to
break ie

First
Clifford resigns
as scandal simmers.
From wire llei'VIca
WASHlNGTON - Clark Clifford's
abrupt resignation as the beaCl of Fint
American Banbhares Inc. Is aimed at cut-
ting oU the banldug company from the wid-
ening BCCI scandal and reassuring jittery
depositors.
First American, a bank holding company
with '11 bllllon In assets and branches from
New York to Florida, announced yest.erday
that Clifford, ooe of the capital's most influ
entlal power brokers, was resigning as ita
chairman.
Clifford, 84, and Washington-based First
American have been under a darkening
cloud in recent weeks, following regulators'
charges that the Bank of Credit and Com
merce International illegally acquired First
American In 18U.
Banking offlclals said the Federal Re
serve Board and Charles McC. Mathias, the
former Republican senator from Maryland
who Is on First American's board, helped
force the resignations that commence the
latest chapter l.n the BCCI saga and the d.lz.
zying decline of Clifford and Robert A. Alt-
man, 44, from their highly lucrative bank
pol!lts. Altman, Clifford's law partner and
protege, also was leaving First American,
the company sald. Altman Is a director of
First American and president of one of its
aHlliates.
Mathias, who had taken a leading role in
managing the bank earlier this year wben
the 8CCI connection was first discovered by
the Fed, took the leading role In demanding
the ouster of Clifford and Altman, banking
officials said.
Mathias declined through a spokesman
to discuss the speclflcs of how the two were
forced out.
BCCI Is engulfed in what may be the big-
.. .. t- ... _,
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1'
gest banking scanaat m rustory mvotvmg 1u
leged massive fraud, laundering of drug
money and support of terrorists .
Last month, a New York grand jury an-
nounced an Indictment against BCCI, its Pa-
kistani founder and former chief executive
officer on charges of fraud, falsifying
records and stealing more than $30 mllllon.
"TTlt. is an overdue event ... for them to
be divorced from First American, said Bert
Ely, a financial l.nstltutions analyst l.n Alex
andria, Va. "Its value as an Institution is
damaged at this time.
Clifford and Altman said l.n a statement
they were leaving to protect First American
from the negative publicity surrounding
BCCI.
Neither Clifford nor Altman was named
In tbe New York indictment and they have
not been accused of wrongdoing. The two
have said they wer:e misled by the Arab in-
vestors.
Grand juries In New York and Washing-
ton are investigating whether Clifford and
Altman misled regulators about First Amer
ican'a relatiooahlp with BCCL
"Our position Is [the resignations] will
make no difference in our pursuit of the In
vestlgatinn, said Michael Cherkaslty, chief
of the lnvestiaaUon division in the Manhat-
tan district attorney's oUlce.
.
.
:
L\:.. ,' ? ~
B-8 THE FREDERICK POST REDERICK, MD., SATURDAY, OCTOBI
CIA failed to give
Justice BCCI data,
Kerr tells Congress
WASHINGTON (AP)- The acting
director of the CIA told Congress
Friday that the agency wrote hun-
dreds of reports about the outhw
Bank of Credit and Commerce
Ioternational but failed to lnlorm the
Justice Department of BCCI's illegal
ownersblp of a big U.S. bank.
A Republican senator said the
statement raised "major questions"
about bow the CIA operates.
The"CIA bad accounts at foreign.
owned BCCI but later found out about
its illicit dealings and used the bank
to monitor drug traHicken and ter-
rorists, Rlcbatd Kerr testified at a
Senate subcomm.ittee hearing.
When the CIA discovered in 1987
that BCCI bad secretly acquired
Firat American Bank!hares IDe. five
years earlier, the agency told the
Treasury and Commerce depart-
ments but not Justice or the Federal
Reserve, Mr. Kerr said. He said the
CIA believed t BCCI used Hlddle
Eastern front men to illegally buy
First American, a bank holding
company based in Washington.
"Wltb hindsight, we might bave
done It dlfferenUy," Hr. Kerr told
the Senate ForeigD Relations Sub-
committee on Terrorism, Narcotics
and Ioternationai Operations. The
panel, which held public hearings
this week on the DCCI seand.al, plans
to bear additional testimony from
lolr. Kerr next week in a closed ses-
sion.
"An awful lot of information was
being glven to people," said Sen.
John Kerry, D-Mass., the subcom-
mittee's chairman. "I'm not
assigning any conspiracy to It ... but
the lnformation you were generating
was not belog responded to."
Mr. Kerry told reporters after the
bearing that be considered the CIA's
action "a mistake of judgment."
The panel's ranking Republican,
Sen. Hank Brown of Colorado, said,
"If you know about a fire, you don't
call the clty manager's office, you
call the Fire Department."
"I think It raises major questions
about the way the CIA ls managed,"
Hr. Brown said.
Treasury spokeswoman Claire
Buchan said the department re-
ceived a report from the CIA in 1985.
on an unnamed Wasblogton bank
holding company said to have llnks to
BCCI.
"Whlle (the report) might have
been useful background information,
It wam't overly slgnUlcant to the
people who received It," Ms. Buchan
said.
Spokesmen for the Commerce
Department weren't Immediately
available for comment.
BCCI, which had branches In the
United States and many foreign
countries, has been accused of run-
ning an International network of drug
smuggling, arms peddling, money
laundering and bribing of public
officials.
Financial regulators around the
world shut down Beers operations In
July. A New York grand jury
Indicted the bank. Its Paklstan.l
founder and its former cblef execu-
tive officer for alleged fraud and
theft of depositors' funds.
Hr. Kerry disclosed this summer
that the CIA had done reports on
BCCI In the mid-19801, but lolr.
Kerr's testimony was the first indi-
cation the agency had generated a
large number of documents.
Hr. Kerr also defended the CIA's
own dealings with BCCI, dismissing
as "outrageous" a published report
this summer that the agency par-
ticipated In an alleged BCCI "black
network" of illicit activities around
the WOl'ld.
"CIA did not assist or encourage
... any wrongdoing on the part of
BCCI or lts employees," Hr. Kerr
said.
He also said the CIA did not lmpede
any criminal lovestlgatlons or
prosecutions of BCCI, and did not use
the bank In the sale of weapons to
Iran In the Iran-Contra arms-for-
hostages transactions.
CIA 'Mistalie'
Cited in Case
Of lst American
By Mark Potts
Wa>lwlatonl'ootSuHWnkr
The CIA's acting director yesterday said the
agency made an "honest mistake" when it
failed to send the Federal Reserve Board a
1985 report that revealed that the Bank of
Credit and Commerce International secretly
owned Washington's First American Bank-
shares Inc.-something the Fed did not dis-
cover until late last year.
Richard Kerr, the acting CIA chief, said the
agency sent the report to the Treasury De-
partment, assuming that it would be passed
along to appropriate officials in other depart-
ments. The Federal Reserve is an independent
agency that oversees bank holding companies
such as First American Banksbares.
RICHARD KERR
. .. CIA auumed report would be paned along
But two members of the Senate subcommit-
tee on terrorism, narcotics and international
operations sharply criticized the agency's han-
dling of its intelligence on BCCI's activities
and the way the information was disseminated
to other federal agencies.
tee's chairman, said it was a "mistake of judg-
ment" for the CIA not to tell the Federal Re-
serve what it knew about BCCI's alleged own-
ership of First American. "There's a major
breakdown of communications, of follow
through."
Sen. Hank Brown (R-Colo.) suggested that
authorities might have been able to act earlier
on had the CIA been more forceful about rais-
ing alarms about the bank's activities. "If you
At a news conference after the hearing,
Sen. John Kerry (D-Mass.), the subcommit- See FIRST AMERICAN, C7, Col. 4

I CIA's Kerr Cites 'Mistalie' in Banli Case

r ...
.''"t
'".; . ;,.,
....
FIRST AMERICAN, From Cl
know there's a ftre, you don't call
the city manager's office, you call
the ftre department," Brown said.
"They called the city manager's of-
fice."
During the hearing, however,
Kerr bristled at the suggestion that
the CIA fell down on the job. Point-
ing out that the agency had dissemi-
nated many reports on BCCI to
agencies throughout the govern-
ment, Kerr noted repeatedly the dif-
ference between the CIA's intelli-
gence-gathering mission and that of
a law enforcement ageney.
"We were focusing on a set of ac-
tivities that really went beyond
BCCI," he said, referring to BCCI's
money-laundering activities and the
bank's aUeged role as the banker for
terrorist organizations and the fi.
nancing of arms deals.
Kerr also rejected several news
stories that characterized BCCI as a
"CIA bank," and said the agency did
nothing more than maintafn a few
ordinary bank accounts that he said
were lawful and proper.
Kerry and Brown did not restrict
their criticism to the CIA, lashing
out at the agencies that got reports
from the CIA and failed to act. Not-
ing Kerr's testimony that The CIA
first distributed raw intelligence re-
ports aliout BCCI's alleged involve-
ment in money laundering in 1984,
Kerry said: "An awful lot of informa-
tion was being given to people. . ..
It just seems that nobody wanted to
respond ....
"Somewhere in this process you
would have thought somebody would
have leaped up and said there's a
major problem in this bank," Kerry
said.
Kerr said the agency had "dissem-
inated" several hundred reports,
many of them in the form of raw in-
telligence, over the past seven
years. He said an internal investiga-
...... ,
tion into the CIA's handling of
case had suggested that the agency:.::::.X
needed to improve the way it dis-.' *
seminates intelligence ..
to other agencies. :.;:;._
Kerr declined to elaborate, and ..
also declined to answer
questions from the senators
various personalities in the BCCI
ga, citing intelligence sensitivities. -.;
The subcommittee plans to hold a'.::;:
closed session with Kerr next :
to deal with those questions.
The subcommittee also heard tes- ::.
timony from Laurence Pope, a coun-.
terterrorism official at the State De-.:>;
partment. ::!
Pope said the State Department: .;:.
learned in 1986 that BCCI branches -: ,
in Europe had helped the Abu Nidal -:
terrorist organization trade in weap- .: ::
ons and other business enterprises ""
through front companies, and
BCCI was involved in
banking services for other terrorist::-:::
groups. -
..

THE WALL STREET JOURNAL FRIDAY, DECEMBER 13, 1991 AlS
Did the Canadian Mounties Pull Their Punches With BCCI?
OITAWA-Those who wear the scarlet
tunics of tht> Royal Canadian Mounted Po-
lice IRCMP J, legend has It, always get
their man. But following a special federal
Inquiry Into the case of the collapsed Bank
of Credit and Commerce Canada IBCCC J,
all the "Mounties" "got" was a lot of egg
on their collective faces.
The four Canadian branches of BCCC-
In Toronto, Montreal, Vancouver and Ot
tawa-were wholly owned subsidiaries of
the Infamous Luxembourg-based Bank of
The Americas
By Warren Kinsella
Credit and Commerce International
throughout Its nlneyear existence. On July
5. 1991, all four branches were shut down
by the Office of the Superintendent of Fi
nanclal Institutions, on the heels of an un
precedented International crackdown on
BCCl's global empire. Following the lead
of nnanclal regulators In the U.S., Britain
and five other nations, canadian aut11ori
lies took control of an estimated $208 mil
lion !Canadian l In assets and changed the
locks at the four branches.
Alarmed by reports that the bank's offi
cers allegedly were Involved In laundering
or drug money. arms sales and even the
funding of terrorist groups, Canadian
members of Parliament decided to launch
an Inquiry of their own. On July 30, mem
bers of the House of Commons Finance
Committee voted to examine the actlviliPs
of BCCC. One of thf.' commlttre's first
tasks was to find out whrther BCCC did
anything criminal-and, If so, what the
Mounties knew about it.
At hearings held from August to No-
vember of this year, the stunned parlla
mentarians discovered that the canadian
subsidiary of the rogue bank had been lm
plicated In no less than three moneylaun
dering conspiracies. In two of the cases,
the MPs were told, there had been success
ful prosecutions of co-conspirators residing
In the U.S. Bulin Canada, there had been
no prosecutions, no arrests and not even a
single formal Investigation of BCCC
launched by the RCMP. As Liberal Party
finance critic Herb Gray put It: "There is
something very puzzling here."
But the case of BCCC grew even more
puzzling In October, when members of
Parliament were told that the former dep-
uty commissioner of the RCMP-the man
who had supervised BCCCrelated probes
from 1987 to 1989- had gone to work for
BCCC as a paid consultant four months af
ter his retirement. Henry Jensen bad been
the second-most-senior officer on the force.
When questioned by the finance committee
In October about his BCCC job. Mr. Jensen
said he was hired to "protect" the bank
from money launderers. His conclusion
about BCCC's stated attempts to counter
money laundering: "Upon my examination
of their procedures and policies, I con
eluded they were exceedingly severe. In
effect, It was driving clients away."
But apparently not all clients were be
lng driven away by BCCC's "severe" anti
money-laundering policies. During the
course or the flnance committee's hear
lngs, .MPs were told about the following
cases:
In July 1988, the Ottawa branch of
BCCC was named by the FBI as being at
the center of a Libyan government-led
money-laundering conspiracy. During the
course of the successful U.S. prosecution
and deportation of six Libyan co-consplra
tors !al so Implicated In a plot to assassl
nate Oliver North 1. U.S. authorities dlscov
ered that the Libyans had opened well
nourished accounts at BCCC's Ottawa
branch In 1987. The money ostensibly had
been placed In Canadian banks to evade
the 1986 trade embargo against the Moam
mar Gadhafl regime.
Documents CIJed In the federal court In
Alpxandrla, Va., as part of a plea-bargain
agreement with the Libyans, reveal how
the BCCC accounts were used to pass on
hundreds of thousands of dollars to neo-
Nazl groups, the American lndlan Move
ment and the anti-Semitic Nation or Islam.
Representatives of the groups mentioned
In the plea bargain have conllrmed that
Libyan donations In various forms were re
celved. Mr. Jensen had iultlally assisted
the FBI In Its case, but concluded there
was Insufficient !'vidence to file criminal
charges in canada.
In 1989, an undercover RCMP lnvrstl
gallon tripped across BCCC In a money-
laundering Investigation dubbed Project
Albus. The Mounties Investigation focused
primarily on members of the lsmalll ~ i u s
lim sect who, they suspected, were laun
derlng millions of dollars through banks In
Toronto and Vancouver Into a Swiss bank
account. The suspects were found to have
a very large safedeposit box at the main
Toronto branch of BCCC. In which cash
and the phone numbers or several BCCC
ban.k managers were round.
While the RCMP's Investigations led to
no arrests in Canada, a U.S. Investigation
of the same group led to 11 successful pros
ecutlons ln Texas. Asked why the Mounties
did not have the same success In prosecut
lng their side or the Investigation, Mr. Jen
sen said that the RCMP Investigation went
nowhere because of Insufficient "re
sources."
Ln 1989, RCMP undercover agent
Paul Vldosa was probing money launder
lng In relation to Project Albus. When
agent Vldosa mentioned to BCCC bank om-
cers his supposed connections with mem
bers of the Ismalll sect, the officers alleg
Pdly promised an "unlimited" credit llne
at the Ottawa branch of BCCC. While
BCCC managPrs do admlt having met with
Mr. Vtdosa several times while he was un
dercover, they deny he was e:<trnded any
preferential treatment. The former agent-
whose Eastern Ontario borne was fire
bombed and burned to the ground in Sep
tember, shortly before he was to testify
before the finance committee's BCCC in
qulry-stands by hls story.
Other BCCCrelated cases discussed at
the finance committee have raised more
questions than they have answered. One Is.,
a drug money-laundering prosecution an
nounced In Vancouver In August, with al
leged BCCC Involvement; another case''
questions the decision of BCCC manageJ
mentto pour S27 million !U.S.!-more than
111% of the Canadian subsidiary's entirE"
capital base- Into questionable real-estate
investments In the Puget Sound area of
Washington state.
Unlike authorities In the U.S. and the
U.K., Canadian authorities havE" yet to de-
cide whether BCCC wrongdoing merits
criminal charges. And It appears unlikely
that they wlU ever do so-despite the star
tllng testimony heard by the House of
Commons Finance Committee. Asked why
the Mounties had not been more diligent
about the BCCJ's Canadian branches. cur
rent RCMP Deputy Commissioner Gilles '
Favreau testified: "To this day, to this '
day. we do not have grounds In Canada to
Investigate the BCCC. You just do not start
an Investigation when you do not have
grounds."
Mr. Jensen, meanwhile- whose employ
menl with what remained of BCCC was
terminated In September-sees nothing lm
proper in his relationship with the dis
graced bank. He said in October: "The
bank of Credit and Commerce Canada did '
not have a public reputation that was detrl
mental or that one ought to avoid .... I'm
still unaware of anything where BCC Can
ada acted Inappropriately, let alone crlrnl
nally."
Mr. Kinsrlln is nn Oltnwn nulhor His
book on Ubynn terrorism, "Unho/.lf Alll
nnres: is to be published nrrt spnng.
What the U.S. Knew
bout BCCI ... 't
W
HAT CRIMES BCCI may have commit-
ted, and which of its officials may go to
jail, is now a secondary issue. The larger
and' more troubling questions arise from the pecu-
liarly slow and slack handling of this case by a long
list of federal agencies, beginning with the Justice
and Treasury departments. Justice Department
proSecutors have now obtained indictments of six
forp1er officers of BCCI-the Bank of Credit and
Col;limerce International-in a welcome although
belated burst of activity. But why so little attention
ove.i the previous seven years?
The federal government began to pick up signals
of money laundering at BCCI as early as 1984. In
that, year a former courier for the bank, recently
fired, gave the IRS a statement and a handful of
BCCI documents. The following year an Iranian
drug merchant ushered a colleague-an undercov-
er agent for the U.S. Drug Enforcement Agen-
cy-'7into a BCCI office in Los Angeles, where an
officer explained to them the services that the bank
coufd provide to the heroin trade. Also in 1985,
sinli)ar undercover work brought investigators to a
BC(;I office in Chicago. Nothing much seems to
come out of these accumulating incidents.
In 1988 a Customs Service investigation in
fmally led to indictments for laundering
:here. But again, the Justice Department never
moved eyond that immediate case. Nobody seenis
to have been at all curious about the character of
this b , how it was run and what else it might
have b en doing. Nobody even seems to have
looked ough the files. until recently. Rep.
Charles E. Schumer (D-N.Y.) has made public a
report the staff of his House Judiciary subcom-
mittee oting that a review of the Drug Enforce-
mentA ency's records has turned up, so far, 125
cases th t show some connection to BCCI. Yet the
bank wa allowed to continue to do business in this
country nd some 70 others around the world until
two mon hs ago.
There are doubtless many conceivable explana-
tions for ese remarkably slow responses. Bureau-
cratic ri lries and jealousies might have accounted
for som of them. Inattentive administration may
be part the story, and pure lethargy. But there
are also arker possibilities. BCCI showed a talent
for subv rting the process of justice in other
countries and it may have been working on some-
thing s ar here. The great and central job for the
many in stigations now focused on BCCI is to
eliminate that possibility by disclosing exactly what
happened and why. Until that is fully accom-
plished, t e BCCI case will be much more than a
routine c inquiry.
f