Clark Clifford

Clark McAdams Clifford was born December 25, 1906, in Fort Scott, Kansas. He earned a B.A. from Washington University in St. Louis in 1927 and an LL.B. from Washington University School of Law in 1928, after which he practiced law in St. Louis through World War II. He served in the Navy during the war, rising to captain, and arrived at the White House in 1946 as naval aide to President Harry S. Truman. He died October 10, 1997, in Bethesda, Maryland, at age 90.¹

Truman Administration

Clifford served as Special Counsel to President Harry S. Truman from 1946 to 1950, becoming one of the most influential aides in the Truman White House. In September 1946, he co-authored (with George Elsey) a classified report on Soviet foreign policy, the "Clifford-Elsey Report," assessing that the Soviet Union intended to expand its influence through military force and subversion and recommending a policy of strategic containment. The document anticipated the Truman Doctrine.

Clifford was a principal drafter of the National Security Act of 1947, which established the Central Intelligence Agency, the National Security Council, the Joint Chiefs of Staff, and unified the military services under a new Department of Defense. He remained Truman's closest domestic political advisor through the 1948 election, playing a central role in the campaign strategy that produced Truman's upset victory.¹

In 1950, Clifford left government and founded the Washington law firm Clifford & Miller (later Clifford & Warnke) with his partner Paul Warnke. Over the following three decades the firm became one of the most influential in Washington, with clients including Firestone Tire and Rubber, Time Incorporated, General Electric, and numerous major financial institutions.²

Later Government Service

Clifford served as an informal advisor to President John F. Kennedy following the Bay of Pigs failure in April 1961. President Lyndon B. Johnson appointed him Secretary of Defense in January 1968, replacing Robert McNamara. In what became his most consequential decision in public life, Clifford convened a private reassessment of Vietnam strategy and concluded the war was unwinnable at any politically acceptable cost. His recommendations shaped Johnson's March 1968 decision to seek negotiations and decline to seek re-election. Clifford later served President Jimmy Carter as a diplomatic troubleshooter, negotiating the Panama Canal Treaties and serving as special envoy to Cyprus, Greece, Turkey, and India.¹

BCCI and First American Bank

In 1977, Bert Lance, former director of the Office of Management and Budget under Carter, introduced Clifford to Agha Hasan Abedi, the Pakistani founder of BCCI. Abedi sought American legal representation for a planned acquisition of Financial General Bankshares, a Washington, D.C.-based bank holding company.

In 1978, BCCI orchestrated a hostile bid for Financial General Bankshares using a group of Middle Eastern investors as nominal purchasers. The Securities and Exchange Commission filed suit against the participants, alleging undisclosed concert of action. Clifford and his partner Robert Altman, the son of a friend, then in his early thirties, served as counsel to the investor group. Clifford personally assured banking regulators that BCCI would play no ownership or management role in Financial General; he represented the purchase as a straightforward investment by independent Arab shareholders. Regulators approved the sale in 1981 based on these representations.²

The bank was subsequently renamed First American Bankshares, Inc. Clifford became chairman of the board; Altman became president. Both men received substantial legal fees for their continued representation of BCCI's interests. In 1986, the Central Intelligence Agency issued an internal report stating that BCCI had in fact owned First American since 1982, a report that was not acted on.²

In February 1988, Clifford and Altman sold a large portion of their First American stock to Mohammed Hammoud, a BCCI front man, for substantial profits.³

Indictment and Resolution

In 1989, Senate investigator Jack Blum brought evidence of BCCI's operations to Manhattan District Attorney Robert Morgenthau, initiating the sequence of investigations that led to BCCI's collapse. When BCCI was seized by regulators worldwide in July 1991, the Federal Reserve Board ordered BCCI to divest its illegally acquired shares in First American.

In July 1992, a New York state grand jury convened by Morgenthau indicted Clifford and Altman on charges of bribery, fraud, and receiving benefits from BCCI in exchange for allowing BCCI to secretly own and control First American while representing to regulators that it did not. The Federal Reserve Board simultaneously brought civil charges.

Clifford, then 85 and suffering from serious heart disease, asserted that he had been deceived by Abedi and the other BCCI principals and had no knowledge of BCCI's actual ownership of First American. New York courts severed his case from Altman's on health grounds; Clifford was never tried. Altman was acquitted by a Manhattan jury on August 14, 1993, and the charges against Clifford were dismissed on November 30, 1993.⁴⁵ In 1992, BCCI's liquidators had pleaded guilty and agreed to forfeit $550 million to settle criminal charges; the BCCI settlement fund ultimately recovered approximately $880 million, including the $225 million settlement by Khalid bin Mahfouz in December 1993.⁶⁷

Clifford died October 10, 1997. He maintained his innocence to the end. The Federal Reserve's civil proceeding against him and Altman was settled by a consent order dated February 1998.⁸

The Sami Memo and the Legal Bills

Clifford told the Federal Reserve in 1981, and the Senate on October 24, 1991, that Kamal Adham's interest in Financial General had come "from a friend who was associated with the Saudi Arabian embassy," a man who, he testified, "looked into [FGB] in more detail and concluded that it might be an attractive acquisition. Apparently, that was one of his functions in the Saudi Arabian Embassy, to pass information of that kind back to Saudi Arabia." He and Altman told the Senate that they had not advised BCCI or its investors until the litigation with the Securities and Exchange Commission and the Middendorf group began in mid-February 1978.⁹¹⁰ The Kerry-Brown Senate Report found this account contradicted by the memo of the BCCI officer Abdus Sami to Agha Hasan Abedi of January 30, 1978, found by the Federal Reserve in BCCI's files in Abu Dhabi, which reported that Bert Lance had suggested retaining Clifford as chief counsel "in view of the possibility of this [takeover] contest and also for presentation of the holding company application to Fed[eral Reserve]," and that Sami had "met Clark Clifford and explained to him our strategy and goal. He was happy to know the details and has blessed the acquisition." A bill from Clifford's firm to BCCI dated May 24, 1978, dated its services from January 1978.⁹¹⁰

At the Federal Reserve hearing of April 23, 1981, on the application of Credit and Commerce American Holdings (CCAH), Clifford described BCCI's role as: "None. There is no function of any kind on the part of BCCI . . . I know of no present relationship. I know of no planned future relationship that exists." The Federal Reserve approved the application on August 25, 1981.⁹¹⁰

Fees and Stock

Clifford testified that his firm received "maybe $1 million a year" from First American. The Senate report found that Clifford & Warnke had billed First American and related entities about 11 million dollars over about eight years and BCCI about 6 million dollars over twelve years, 17 million dollars in all; the firm also led the defense of the BCCI officers indicted in Tampa in 1988. As chairman of First American, Clifford said, he was paid 50,000 dollars a year.¹⁰ In a rights offering, the BCCI nominee Masriq waived its rights so that Clifford and Altman could buy CCAH shares at book value, 2,216 dollars a share, one day after Masriq had bought other shares at 4,044.20 dollars. In 1988 the two men sold their CCAH stock to the BCCI nominee Mohammed Hammoud at 6,800 dollars a share, "the highest price ever paid for CCAH stock," for a combined gross profit of 9.5 million dollars; the Senate report found that the price "was set not by Hammoud, and not even by BCCI, but by Clifford and Altman, who told Naqvi the amount of net profit they wanted on the sale, after all taxes had been paid."¹⁰

Indictment and Dismissal

On July 29, 1992, a federal grand jury in Washington and a New York State grand jury indicted Clifford and Altman simultaneously, one year after Morgenthau opened his BCCI investigation. "We said then that BCCI was the largest bank fraud in world history," Morgenthau said. "Now we know it is also one of the biggest criminal enterprises in world history." The state indictment, which also named Abedi, Swaleh Naqvi, Ghaith R. Pharaon and Faisal Saud al-Fulaij, charged Clifford and Altman with receiving millions of dollars in bribes through their affiliation with BCCI, including about 10 million dollars in profits on stock they had not paid for and about 17 million dollars in legal fees; Clifford faced a maximum of eight years. The three-count federal indictment charged them with conspiring to defraud the Federal Reserve and concealing facts from investigators. Clifford's lawyer, Carl Rauh, had met Morgenthau the day before to argue that Clifford "would not be able to survive a prosecution" and that "it would kill him," according to the New York Post as quoted by United Press International. At his arraignment Clifford stood and said, "I plead not guilty, your honor," and Justice John Bradley released both men without bail.¹¹

Clifford was too ill to stand trial with Altman, who was acquitted in Manhattan on August 14, 1993. On November 30, 1993, on a motion made jointly by Morgenthau and Clifford's lawyer, Charles Stillman, Justice Bradley dismissed the indictment against Clifford, finding that "Clifford's age and ill health prevent his being brought to trial on this indictment and will likely always do so." "In a sense, today's dismissal is the ultimate anti-climax," Stillman said.⁴⁵

Federal Reserve Consent Order

The Federal Reserve's civil proceeding, opened on July 29, 1992, continued after the criminal cases ended. Its Second Amended Notice of Intent to Prohibit of January 14, 1997, charged that Clifford and Altman, as directors of CCAH and First American, had caused CCAH to borrow from BCCI beyond the acquisition debt allowed by the 1981 order, and had breached their fiduciary duties by accepting preferential loans and stock profits from BCCI and by failing to disclose BCCI's role in the purchase of the National Bank of Georgia. The settlement recited that "Clifford has submitted medical opinions to the Board of Governors indicating that because of his advanced age and ill health, there is no reasonable prospect that he will ever participate in any manner in the conduct of the affairs of a bank holding company or insured depository institution," and the two men relinquished 1,802 (Clifford) and 895 (Altman) CCAH shares to the court-appointed trustee of First American or the fiduciaries of BCCI; the payments, the order stated, "are not fines or civil money penalties." The order is dated effective February 1998, four months after Clifford's death, and carries a signature block in his name; the document does not state when he signed it.⁸¹¹