Bank of Credit and Commerce International

BCCI was a financial institution that became embroiled in a major scandal involving money laundering, drug trafficking, and covert operations. Its collapse had far-reaching implications and was a significant focus of Danny Casolaro's "The Octopus" investigation.¹ The Kerry-Brown Senate Report of 1992 described it as "a $23 billion criminal bank operating in some 73 countries."²

Involvement in Illicit Activities

Adnan Khashoggi, an international arms merchant, borrowed money for arms purchases related to the Iran-Contra Affair from BCCI accounts, with Saudi and U.S. backing.¹ Lester Coleman, a DIA covert intelligence officer, was paid in travelers checks sent from the Luxembourg branch of the now-collapsed BCCI.¹

Danny Casolaro was investigating the BCCI scandal as part of his broader "The Octopus" probe, believing it was interconnected with the PROMIS Software Scandal and the Iran-Contra Affair. He obtained papers referring to Iran-Contra arms deals, including photocopies of checks drawn on BCCI accounts for Adnan Khashoggi and Manucher Ghorbanifar, from his confidante Bob Bickel.¹

Bill Turner, a friend and confidante of Danny Casolaro, claimed to have seen papers from Casolaro that connected Oliver North and BCCI.¹

Founding and Bank of America

According to the Senate report, Abedi's first choice of a Western partner, American Express, "insisted on having a major say in BCCI's management, which Abedi would not tolerate." He turned instead to Bank of America, for which BCCI offered "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 American 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." BCCI began with 3 million dollars in total capital. Bank of America officials sat on its board: Yves Lamarche, formerly head of its Middle East operations; J.D. Van Oenen; P.C. Twitchen; and, from Iran, Roy Carlson, who later became president of the National Bank of Georgia when it was secretly owned by BCCI. The ruling family of Abu Dhabi, whose initial cash investment of 500,000 dollars was acknowledged to the Senate subcommittee for the first time on May 14, 1992, provided deposits; the Middle Eastern royal shareholders were given "hold harmless agreements" against loss, and insiders called the board "RAF," for "rent-a-face."³

A Bank of America record of September 30, 1977, listed BCCI's majority owner as ICIC, its Cayman affiliate, with 50.1 percent; Bank of America held 30 percent, Majid Al-Futaim of Dubai 4 percent, and the Abu Dhabi ruling family 3.4 percent. A Bank of America executive vice president, Alvin C. Rice, wrote in a memorandum of May 10, 1976: "We are just not operating on the basis of mutual trust and cooperation that make the whole effort and exercise worthwhile," and later told journalists that BCCI believed regulatory obstacles could be fixed through "baksheesh." By early 1978 an examiner of the Comptroller of the Currency in London concluded that Bank of America was "substantially at risk from BCCI." Bank of America sold its stake to ICIC, announcing on January 30, 1978, that "the close co-operation that has developed between the two banks will be maintained"; over the following decade it kept correspondent relationships with BCCI and, the report found, colluded "in at least one of BCCI's purchases of foreign banks through nominees in South America."³

Chronology

1972: Agha Hasan Abedi organizes BCCI with the intention of forming the Third World's first multinational bank.⁴

1975: Using Abbas Gokal as a front, BCCI attempts to acquire Chelsea National Bank in New York City. Regulators reject the bid due to concerns about BCCI's involvement.⁴

1976: BCCI opens its Cayman Islands subsidiary ICIC, which becomes BCCI's repository for loans to privileged insiders. ICIC Holdings and ICIC (Overseas) Ltd. were incorporated on April 6, 1976.⁴⁵

1977: Eugene Holley introduces Bert Lance to Abedi.⁴

1978: Ghaith R. Pharaon finalizes his acquisition of National Bank of Georgia from Bert Lance with Abedi's help. Abedi pays off Lance's $3.5-million bank loan. BCCI orchestrates a hostile bid for Financial General Bankshares of Washington, D.C. with Lance's help; on January 30, 1978, the BCCI officer Abdus Sami advised Abedi to spread ownership among "4 persons of substance" to keep each below 5 percent.⁶ Joseph E. Vaez submits a report on BCCI characterizing it as dangerously out of control. The Securities and Exchange Commission files suit against BCCI, Abedi, Lance, and others in connection with the purchase of Financial General Bankshares stock.⁴⁷

1979: The Soviet Union invades Afghanistan, making Pakistan a key strategic priority for the United States.⁴

1981: Regulators approve the sale of Financial General to Middle Eastern investors connected with BCCI, based on Clark Clifford's assurances of no link between BCCI and Financial General Bankshares. The Federal Reserve later found that BCCI owned at least 25 percent of the holding company, Credit and Commerce American Holdings, when it acquired First American in 1982.⁴⁷

1982: Lance introduces Abedi to Jimmy Carter. BCCI illegally acquires Independence Bank of Encino using Ghaith Pharaon as a front man. BCCI helps Adnan Khashoggi finance arms sales to Iran as part of the Reagan Administration's Iran-Contra Affair. BCCI suffers over $440 million in losses from options trading through its subsidiary Capcom, according to Beaty and Gwynne; the Senate report, citing Price Waterhouse, dated the Capcom losses to 1985 and put them at 500 million dollars.⁴⁸

1986: The Central Intelligence Agency issues a report stating that BCCI has owned First American Bank since 1982.⁴

1987: Pharaon becomes a partner in David L. Paul's CenTrust Savings Bank of Miami. First American Bank buys the National Bank of Georgia from Ghaith Pharaon for $227 million, according to Beaty and Gwynne; the Senate report gives 220 million dollars.⁴⁹

1988: Clifford and Robert Altman sell their stock in First American to Mohammed Hammoud. Abedi's heart attack ends his direct control of BCCI, and Swaleh Naqvi becomes chief executive. Amjad Awan tells an undercover agent that BCCI owns First American and National Bank of Georgia. On October 8, American Customs agents of Operation C-Chase arrest BCCI bankers at a staged wedding in Tarpon Springs, with arrests in London and Paris, on money laundering charges.⁴¹⁰

1989: Jack Blum visits Manhattan District Attorney Robert Morgenthau to persuade him to take on the BCCI case.⁴

1990: BCCI pleads guilty to money laundering in Tampa, Florida, in January, forfeiting $14 million. A Tampa jury convicts the BCCI officers on July 29, and they are sentenced on November 30, Awan and Akbar Bilgrami to twelve years each. The first Price Waterhouse audit reveals a $1.7 billion black hole in the bank's accounts. A second Price Waterhouse audit details thousands of irregular transactions and confirms BCCI's control of First American. The Bank of England agrees to let BCCI move its headquarters and records to Abu Dhabi.⁴¹⁰¹¹

1991: Sheikh Zayed acquires 77 percent control of BCCI. The Federal Reserve orders BCCI to sell illegally acquired shares in First American Bank. Regulators worldwide seize BCCI offices on July 5, placing over 75 percent of the bank's assets in government hands. On July 29 a New York State grand jury indicts BCCI, Abedi, and Naqvi for fraud, bribery, grand larceny, and money laundering, and the Federal Reserve Board fines BCCI $200 million for illegally acquiring control of First American Bank, National Bank of Georgia, and CenTrust Savings. Clifford and Altman resign from First American. BCCI's liquidators plead guilty and agree to forfeit $550 million.⁴⁷¹²

1992: Khalid bin Mahfouz is indicted by a Manhattan grand jury. Kamal Adham pleads guilty in New York and agrees to cooperate with Morgenthau and the Justice Department. Clifford and Altman are indicted by Manhattan District Attorney Robert Morgenthau and a federal grand jury.⁴

Closure

Through late 1990 and the spring of 1991, according to the Senate report, BCCI, Abu Dhabi and the Bank of England worked on a plan to reconstitute the bank as three institutions based in London, Abu Dhabi and Hong Kong, while all of them, with Price Waterhouse, "worked together to keep what they knew about BCCI secret," including from Morgenthau. The Federal Reserve "had been fully alerted to the state of affairs at BCCI for the first time not by the Bank of England, but by the Manhattan District Attorney." In March 1991 the Bank of England commissioned Price Waterhouse to investigate under Section 41 of the Banking Act; its draft report of June 22, 1991, the Sandstorm Report, in which BCCI was code-named "Sandstorm," found "fraud on a significant scale." One week later the Bank of England alerted the Serious Fraud Office, and four days after that, on July 5, 1991, BCCI was closed internationally.¹¹ The Senate report concluded that "the pressure from a single, local prosecutor's office that would not relent when it found evidence of global criminality, proved sufficient to shut down a $23 billion criminal bank operating in some 73 countries," since the Bank of England "had reason to know that the New York District Attorney was only a few weeks away from indicting BCCI."²¹¹ The British inquiry into the Bank's supervision, the Bingham Report, found the closure "an appropriate course of action."¹³

Prosecutions and Forfeiture

On July 29, 1991, the day of Morgenthau's indictment, the Federal Reserve announced a 200 million dollar civil penalty against BCCI and related banks and sought to bar Abedi, Naqvi, Hasan Mahmood Kazmi, Adham, Faisal Saud Al-Fulaij, A. R. Khalil, Sayed Jawhary, Pharaon and Khusro Elley from American banking. It found that BCCI had acquired CCAH shares in its customers' names through loans "with side agreements that the customer would not be required to repay," and that BCCI "resorted to these arrangements because BCCI was told it could not receive the necessary approvals from the Federal Reserve Board to acquire a bank in the United States."⁷ By December 1991 BCCI's liquidators had pleaded guilty to the first six counts of the New York indictment "as part of an agreement concerning BCCI's assets in the United States," and a superseding information was filed in the federal court in Washington on December 19, 1991.²⁸ British prosecutions followed: Syed Ziauddin Ali Akbar, head of the treasury division, was sentenced in 1993 and Abbas Gokal of the Gulf Group in 1997.¹⁴

Liquidation

The liquidators, Touche Ross, reported a year into the liquidation that the true picture of BCCI's activities had been distorted by practices such as "loan parking" and "artificial fund transfers."⁸ The Abu Dhabi shareholders, who held 77.4 percent of BCCI at its closure, agreed a 1.8 billion dollar compensation package for creditors in November 1994, which received its last legal clearance, from a court in Luxembourg, in December 1995. An agreement with the liquidators in May 1996 allowed an initial payment of 1.55 billion dollars, a first dividend of 20 percent to more than 250,000 creditors, with 10 to 20 percent more to follow; by October 1997, 80 percent of small depositors in the United Arab Emirates had been repaid in full.¹⁵ In 2005 the liquidators abandoned their suit against the Bank of England, Three Rivers District Council v Bank of England.¹⁶