Bank of America

Bank of America, then based in San Francisco, became in 1972 the first Western partner of the Bank of Credit and Commerce International (BCCI), supplying its initial capital. It announced the sale of its stake in January 1978, and the Senate report dates its withdrawal to 1980.¹²

The 1972 Investment

Agha Hasan Abedi needed, in the words of the Senate report of Senators John Kerry and Hank Brown, five things to create BCCI, among them "a source of capital, $2.5 million, which Abedi ultimately obtained from Bank of America," and "credibility in the international community, through a relationship with an established Western financial institution which would provide prestige to BCCI, but not interfere with its unique approach to banking. This too was provided by Bank of America during BCCI's formative years."¹

Abedi's first choice of partner, American Express, insisted on a major say in management. Bank of America, then "one of the most aggressive of U.S. international banks, with a presence in Iran already and in Pakistan," gave BCCI recognition in the West and access to its correspondent network, and gained "a potentially lucrative entry to Arab oil wealth, at a tiny capitalization cost of just $2.5 million." After what Abedi called "an historic lunch" in San Francisco, the bank agreed to be a passive partner. Abedi told Euromoney in 1978: "Bank of America agreed to become a shareholder, but we made it a condition that we would establish the management style."²

Senior Bank of America officials sat on BCCI's board, recruited bankers for it and approved its major loans. The directors drawn from the bank included Yves Lamarche, who had managed its Middle East operations, J. D. Van Oenen, a European official, and P. C. Twitchen, a former vice president.² Roy Carlson spent twenty years at Bank of America, was stationed in Tehran in the 1960s and Beirut in the early 1970s, became head of its operations in the Middle East and East Africa, and advised Abedi on the formation of BCCI in 1972; he later became president of the National Bank of Georgia while it was secretly owned by BCCI.²³

BCCI's own group profile of the mid-1980s stated that its "initial paid up capital of $2.5 million wa[s] subscribed by Bank of America (25% later increased to 30%) and the balance by investors from the Middle East." Apart from Bank of America's 2.5 million dollars and 500,000 dollars acknowledged by Abu Dhabi, the subcommittee found no evidence of other substantial cash in the bank's early years. A register of BCCI's shares in Bank of America's files as of September 30, 1977, showed ICIC as majority owner with 50.1 percent, Bank of America with 30 percent, Majid Al-Futaim of Dubai with 4 percent and the family of Abu Dhabi with 3.4 percent; the same records showed several shareholders on the Luxembourg register acting as nominees for BCCI.²

Disquiet, 1976 to 1978

By 1976 Bank of America had stopped contributing to BCCI's capital increases, and its share fell from 30 to 24 percent. On May 10, 1976, Executive Vice President Alvin C. Rice wrote to Senior Vice President Scudden Hersman Jr. that "We are just not operating on the basis of mutual trust and cooperation that make the whole effort and exercise worthwhile. Substantial profits usually have a way of curing problems but this case is an exception. If we can't make some major breakthroughs in the near future, we will have to consider alternatives such as divestiture." A memorandum of May 26, 1976, after Rice met Abedi, recorded: "According to Abedi, frank criticism 'American style' is something Pakistanis are not accustomed to. Criticism is taken as a personal affront and for this reason, sometimes BCCI officers have not wanted to disclose fully operating procedures that they knew would not meet BofA's quality standards." Both memoranda became exhibits in the 1978 litigation over the takeover of Financial General Bankshares. Rice later told journalists that BCCI believed even obstacles with regulators could be fixed through "baksheesh."⁴

A BCCI case study written in 1982 by the officer K. K. Elley gave the bank's version: "The Bank of America found on their hands an affiliate which had already become one of their largest and in which they had no management control."⁴

In the fall of 1977 an examiner of the Office of the Comptroller of the Currency in London, responsible for Bank of America's overseas holdings, began asking questions, and by February 1978 he had concluded that Bank of America was substantially at risk from BCCI.⁴ The examiner, Joseph E. Vaez, also found that BCCI had used nominees in purchases of other banks.⁵

Divestiture

While Bank of America held its stake, BCCI could not legally buy a bank outside California; the Senate report put the stake at 24 percent at the time of the late 1977 moves on the National Bank of Georgia and Financial General Bankshares, and elsewhere at 28 percent.³ The report found that divestiture served both banks: "BCCI needed to sever its relationship with Bank of America to provide itself with additional options in connection with its ongoing attempt to buy Financial General Bankshares. Bank of America needed to reduce what might soon become an actual liability on its books." A press release of January 30, 1978, announced the sale of its shares to ICIC, described as "one of the other major BCCI shareholders," and stated that "the close co-operation that has developed between the two banks will be maintained."⁴

The report found that ICIC "owned" 70 percent of BCCI "in 1980 upon Bank of America's withdrawal."² In 1980 and 1981 the Abu Dhabi Investment Authority acquired a 10 percent stake in BCCI from ICIC, after ICIC had agreed to buy back the shares of "its departing U.S. partner, Bank of America."⁶

After 1978

According to the Senate report, over the following decade Bank of America "would in fact maintain correspondent banking relationships with BCCI, continually seek additional business from BCCI, collude in at least one of BCCI's purchases of foreign banks through nominees in South America, and earn a great deal of money from the relationship until BCCI's closure."⁴ In 1988 the manager of BCCI's Paris branch, Nazir Chinoy, described loans of over five million dollars as ordinarily requiring a credit report "based on the Bank of Americas loan reporting procedure adopted years ago."⁷ Bank of America International in New York was the main American bank of a Cayman Islands investment fund run through BCCI's commodities affiliate Capcom.⁸