Independence Bank of Encino

Independence Bank of Encino was a financial institution illegally acquired by the BCCI.¹

Acquisition by BCCI

BCCI illegally acquired Independence Bank of Encino in October 1985 for close to $23 million, using Ghaith R. Pharaon as a front man.¹ The true nature of the transaction was concealed when Swaleh Naqvi secretly funneled money to Pharaon through the Parisian Banque Arabe et Internationale d'Investissement.²³

Pharaon quickly installed BCCI personnel, including Kemal Shoaib.²⁴ Independence Bank of Encino shortly ran out of capital and had to be rescued in 1991 with funds seized from BCCI.²

Legal Issues

Independence Bank of Encino was one of the three prominent U.S. banking institutions that the Federal Reserve Board fined BCCI $200 million for illegally acquiring control.¹ It was also part of the indictment against BCCI and Agha Hasan Abedi in November 1991.⁵

The Nominee Agreement

BCCI officials in the United States were directed in 1983 and 1984 to look for California banks to acquire secretly, and in November 1984 they selected Independence Bank. Abedi and Pharaon agreed that Pharaon would act as BCCI's nominee, and BCCI's affiliate ICIC Overseas entered into an agreement under which, in the words of the Federal Reserve, "Pharaon would hold 85 percent of the shares of Independence as a fiduciary for ICIC Overseas," which held them for BCCI. Regulators were told Pharaon would pay 8.4 million dollars from his own funds and borrow the rest from the First National Bank of Boston; in fact BCCI lent him 8.5 million dollars through his account at the Banque Arabe et Internationale d'Investissement (BAII) in Paris, which telegraphed the California banking authorities that he held that sum on deposit, and the Boston loan was backed by a BAII letter of credit counter-guaranteed by BCCI. Swaleh Naqvi admitted to BCCI's London lawyers in early 1991 that BCCI had provided all the financing.³⁴

Abedi installed a senior BCCI official, Kemal Shoaib, as chief operating officer and later chairman; the Federal Reserve found that BCCI continued to pay him "employee-type benefits." Bank examiners wrote in 1991: "Loans subject to adverse classification total $194 million, representing nearly 44% of total loans, a phenomenal ratio for a commercial bank. . . The bank has an especially unenviable record of selecting or attracting borrowers of questionable character and creditworthiness." In all, according to the Kerry-Brown Senate Report, BCCI spent 90 million dollars on the bank, whose failure in 1992 cost the bank insurance fund some 140 million dollars.³⁴

Enforcement

On July 12, 1991, the Federal Reserve issued a notice of intent to bar Pharaon, Abedi, Naqvi and Shoaib permanently from banking, charging that Pharaon had made false statements to the Federal Deposit Insurance Corporation by concealing that he acted for BCCI and that the purchase was funded by BCCI.⁴ On July 29, 1991, it fined Pharaon 37 million dollars and Shoaib 20 million dollars.⁶