Banque Arabe et Internationale d'Investissement

Banque Arabe et Internationale d'Investissement (BAII) was a consortium bank in Paris. In 1982 it lent the money that completed the purchase of Financial General Bankshares, later First American, by Credit and Commerce American Holdings (CCAH), the holding company that the Bank of Credit and Commerce International (BCCI) secretly controlled. The tender offer for the Financial General shares stated that BAII was "not affiliated with the Purchaser or the Investors." The Kerry-Brown Senate Report described it as "a bank which shared directors in common with BCCI," and the minority staff of the House Banking Committee as "an Arab-owned French investment bank."¹²³

The 1982 Loan

In the offer to purchase all outstanding Financial General shares at 33.80 dollars each, the bidder, FGB Holding Corp., estimated that it needed about 185 million dollars, of which about 137.2 million would come from CCAH's shareholders "from their personal resources." BAII agreed "to lend the Purchaser up to $50 million to be used in acquiring Shares and paying related expenses," under a commitment expiring March 2, 1983. The principal was repayable over the fourth to tenth years after drawdown, at the three-month or six-month London Interbank Offered Rate plus 1.5 percent, and BAII "has been and shall be paid $750,000 representing commitment fees of $100,000 and management fees of $650,000." Deposits for each payment were to be made with BAII in advance, and "Messrs. Adham and Fulaij will unconditionally and irrevocably guarantee the payment of such funds and such interest thereon." The purchaser pledged all the shares it acquired, and "BAII intends to syndicate the loan to several banks, with BAII acting as agent bank."¹ The Federal Reserve had made its approval conditional on CCAH raising additional capital from an institution not related to BCCI.³

The two guarantors were Kamal Adham and Faisal Saud al-Fulaij. In a letter of April 23, 1991 to the French Commission Bancaire, the Federal Reserve's general counsel, J. Virgil Mattingly, reported that a subpoena for BAII's records of its lending to CCAH and its shareholders had been issued on January 31, 1991, and wrote: "We have reason to believe from our review of certain records of BCCI that this loan was guaranteed by two CCAH shareholders and that BCCI indemnified these individuals against any loss they might sustain by reason of their guarantee."⁴ The House minority staff reported in September 1991, citing the Federal Reserve's notice of charges, that the loan was "secured by a deposit from Adham. Adham concealed from the Federal Reserve the fact that BCCI was indirectly funding his deposit and thereby the BAII loan."³

On about May 13, 1982, BCCI or ICIC Overseas paid 2.5 million dollars to Credit and Commerce American Investment (CCAI), one of First American's holding companies, "to permit it to pay interest on a loan from BAII," followed by 2.3 million dollars on about July 13, 1982. The Federal Reserve found that these payments broke the commitment given by Clark Clifford, Robert Altman and CCAH that no more than 50 million dollars of debt would be incurred for the acquisition.⁵

Independence Bank

In 1985 BCCI used BAII again, in the secret purchase of the Independence Bank of Encino in California through Ghaith R. Pharaon. According to the Senate report, BCCI "loaned $8.5 million to Pharaon and transferred the proceeds to Pharaon's account at Banque Arabe et Internationale d'Investissement, Paris (BAII), a bank which shared directors in common with BCCI, and which had also been used to shield BCCI's funding of the First American purchase four years earlier. BCCI instructed BAII to send a telegram to California banking authorities stating that Pharaon had deposits of that amount with BAII that were being held for the purchase of Independence." The rest of the price came from the First National Bank of Boston, against a letter of credit from BAII, "which in turn received a counter-guarantee from BCCI holding BAII harmless against any claim that might arise."²

Clifford and Altman

In 1985 and 1986 Clifford and Altman sought loans to buy CCAH shares left unsubscribed in a rights offering. In testimony to the Senate subcommittee they stated: "The first institution we approached for financing was Banque Arabe et Internatinale d'Investissement ('BAII') in Paris, the consortium bank that acted as the lead lender in the syndicate that had lent $50 million in connection with the acquisition of FGB in 1982." Federal investigators later reviewed a BAII file entitled "1st American 1985" containing a "Memo re loan to Clifford & Altman 12/29/85," whose notes included "No syndication of the loan" and "No participation by BCCI in loan"; the House minority staff wrote that documents at BAII "appear to indicate that BCCI was acting as an agent for Clifford and Altman in soliciting loans to finance their CCAH stock purchases."³⁵

According to the Senate report, BAII was prepared to make the loan only if BCCI simultaneously guaranteed it, "making BAII effectively acting as a pass through to cover BCCI's involvement, just as it had done in connection in lending money at the outset of the FGB purchase." Clifford and Altman insisted that the loans be non-recourse, and "BAII refused to provide the lending, even with a backup guarantee from BCCI, on a non-recourse basis." The report concluded: "Thus, even with protection from BCCI, and with a BCCI director on its board, BAII viewed the transaction as sufficiently unusual to pull out." BCCI itself then lent the two men 15 million dollars, on a 100 percent non-recourse basis for 18 months at the London interbank rate.⁵ The report does not name the BCCI director on BAII's board.