Activists seeking documentation that would support claims that the state of Arkansas was involved with money laundering on a massive scale may have found the missing link in their three year search. Documents obtained by the Arkansas Committee show that the Arkansas Development and Finance Authority, a Bill Clinton signature project, was involved in a highly questionable, and possibly illegal, sixty-million dollar deal in which ADFA borrowed 5 million dollars from a Japanese bank in order to buy stock in a Barbados insurance company. The stock was not registered with the Securities and Exchange Commission.The state of Arkansas was the lead investor in a deal which poured sixty million dollars through a Barbados company, Coral Reinsurance, which is currently under investigation by insurance regulators in New York, Pennsylvania, and Delaware as well as by Manhattan District Attorney Robert Morgenthau, lead prosecutor in the BCCI scandal.
Additionally,the Ozark Gazette has recently been told that as a result of the release of the Coral documents the independent counsel, Kenneth Starr, is also investigating the deal. Persons involved in the deal, which began in 1987 and ended in 1991, include Bob Nash, then president of ADFA and now Personnel Director of the White House, Robert Rubin, then president of Goldman Sach's investment bank and now Secretary of the Treasury, and Maurice Greenburg, president of American International Group, and a candidate in 1995 to be Director of Central Intelligence.
The American International Group is a 100-billion dollar, multi-national insurance company which founded Coral Reinsurance Company in 1987. The fact that AIG founded Coral was hidden from insurance regulators for at least 3 years and was only recently proven by the reluctant release by ADFA of the original stock placement memorandum. Maurice Greenburg as president of AIG is a very well connected businessman and a player in international politics. He serves as the chairman of the US-China Business Council and lobbied hard (and successfully) for the Clinton administration to sever the link between China's human rights record and renewal of China's most-favored-nation trade status. Members of the board of directors of AIG include Martin Feldstein, Harvard University economics professor and former chairman of the President's Council of Economic Advisors and Carla Hills, former U.S. trade representative. AIG's international advisory board is headed by Henry A. Kissinger.
The original deal was pitched to ADFA by Goldman-Sachs, a New York based securities firm which played an important role in the transaction. Goldman-Sachs had pledged to sell the stock for Coral and in addition pledged to buy the stock if for any reason the other investors could not hold it and were forced to sell. Goldman's president at the time was Robert Rubin, later appointed by the Clinton administration to succeed Lloyd Bentsen as the Secretary of the Treasury.
THE SEARCH BEGINS Founded in 1990 as a student organization at the University of Arkansas, the Arkansas Committee's major focus was on Arkansas' involvement with the mysterious activities at the Mena airport during the 1980's. The Committee spent two years unsuccessfully trying to convince the state government to investigate links between major drug smuggler Barry Seal (also a government informant), who worked out of the Mena, Arkansas airport, and the U. S. Intelligence community.
Recently, two very respected investigative journalists, Roger Morris and Sally Denton, have published the most authoritative and highly documented account to date of events at the Mena airport between 1982 and 1986. Based on over 2,000 documents including the previously unpublished personal papers of Barry Seal, their article "The Crimes of Mena" in the July issue of Penthouse Magazine reveals the government's protection, and cover up of drug smuggling, gun running and money laundering.
Realizing that personal accounts were not sufficient to convince skeptics, in the summer of 1992 the Committee began what would become its most difficult journey - finding enough hard evidence to convince the media (the court of last resort, the government having rebuffed two years of pleas to do the job itself) to investigate and write about Mena. And so they began trying to locate the long buried paper trail, armed only with the Freedom of Information Act and determination.
But what sort of hard documentation could they reasonably hope to find? The Committee's sources had on more than one occasion indicated that up to ten million dollars a week in illegal cash was going through Arkansas at the height of the Mena operation. Therefore the most logical course seemed to be to the hoary old cliche, follow the money.
For two important reasons, the Committee decided to look into the Arkansas Development Finance Authority (ADFA). First, some admittedly circumstantial evidence linked ADFA to the Mena operations. Secondly, as a state agency, ADFA was subject to Arkansas's Freedom of Information Act, and so documents could be extracted from what was hoped would be an important source of information. Throughout 1992, the Arkansas Committee contacted numerous sources in their search for evidence that ADFA may have been involved in money laundering operations. Several people assured them that ADFA was indeed involved, knowingly or otherwise, with laundering many millions of dollars.
ADFA sells bonds as a state bonding agency, and it was alleged that many of the bonds were bought with drug money. But this meant that even if the bonds were purchased with black money, ADFA would still be in the clear, since ADFA could claim that they had no knowledge of the sources of the money used to purchase their bonds. Additionally, ADFA does not sell it's own bonds directly to the public, but instead uses a middleman - a bond underwriter - the perfect deniable link. Committee member Mark Swaney suspected that it was possible that ADFA had become involved in money laundering directly, so he began searching for other ways in which black money may have been moved with ADFA's involvement. In August of 1992, Swaney received what he felt was his first real break, when a source told him to look for ADFA's involvement with an insurance company.
COMMITTEE HITS PAY DIRT Life not being like the movies, it took two years before the Committee was able to find any such link. In 1994, Swaney and the Arkansas Committee (in thus far their last official act as a group) sued ADFA for their auditor's working papers, after the documents were not forthcoming. The lack of interest on the part of the main stream press had not changed and the only attendees at the press conference announcing the suit were one reporter, and a camera crew from a public access television station. In a recent Arkansas Supreme Court ruling that has extended the power of the state's freedom of information act, Swaney and the Arkansas Committee were handed a unanimous victory when the court overturned the original decision by Judge Kim Smith. The new ruling places the burden of obtaining public documents held by private companies on the relevant state agency. The decision means that state agencies cannot circumvent the freedom of information act by insuring that they are not in possession of sensitive documents. (Oh, we don't have "physical possession" of that document - because we gave it to our lawyer to keep...)
The Committee reasoned that the public audits of ADFA were unlikely to provide any useful information, however the working papers of the auditors should yield a much more complete and detailed picture of ADFA's dealings. Because the Committee members were not financial experts they decided to locate someone well versed in accounting and/or auditing to review the papers when and if they could obtain them. To this end, Swaney teamed up with well-known independent financial analyst and ADFA critic, Roy Drew.
In a conversation about their collaboration, Drew told Swaney that he had found evidence of ADFA's involvement in a very strange deal with a certain Coral Reinsurance Company. Roy Drew had been reading the minutes of ADFA's board of directors meetings and found one paragraph (in thousands of pages) describing a deal where ADFA would borrow 5 million dollars from the Sanwa bank's Chicago branch to buy stock in Coral Reinsurance. Additionally, the minutes revealed that according to the terms of the loan ADFA did not have to repay the loan if it did not make as much money in dividends on the stock as it owed in interest on the loan. To the Committee, this seemed to be the long sought after link between ADFA and an insurance company, especially since there was no known connection to any other insurance business.
After finally obtaining an opportunity to examine the ADFA auditor's working papers, the Committee asked ADFA for copies of all documents relating to the Coral insurance deal. Derek Rose, PR man for ADFA, readily agreed to make the Coral documents available. On December 2, 1994 ADFA's auditors (Deloitte & Touche) allowed Swaney and Drew limited access to the working papers. On the same day Swaney visited ADFA and copied the entire Coral file that Rose had retrieved for him. While Swaney was copying the documents, Rose was apparently seeing the material for the first time. It quickly become obvious to Swaney that several documents contained in the file where very sensitive inter-office ADFA memos. One of the memos, apparently written in a panic by Bob Nash, indicated that he had been questioned about the Coral deal in 1992, and had been shaken by it. In addition, a letter written to ADFA by the Delaware Department of Insurance requested information concerning ADFA's involvement with Coral Reinsurance, and strongly suggested that they were investigating Coral Reinsurance.
CURIOUSER AND CURIOUSER After returning to Fayetteville, Swaney and the Committee began to study the documents in detail. Several facts were especially interesting given the background of the search. First, Coral Reinsurance was incorporated in the tiny Caribbean island of Barbados - a notorious haven for money launderers due to it's very lax banking regulations, and tight corporate secrecy laws. If someone wanted to launder cash, this was a good place to do it. Second, the deal was structured in such a way as to prevent the reporting of the ownership of the stock to the IRS. Third, the stock certificate plainly stated that "these securities have not been registered under the securities and exchange commission act of 1933". The deal had all the earmarks of a clandestine arrangement designed to conceal the true ownership of Coral Reinsurance.
Further information gleaned from the documents showed that ADFA's role in the deal was unique. There were several other investors, none of whom had any visible government connection. Also, ADFA's share of the stock was larger than any other investor, and ADFA had signed a "put agreement" with Goldman Sach's in which they obligated themselves to buy the stock of any other investor in the case that the investor found that they could no longer hold the stock, and Goldman could find no other qualified investor. Finally, in case ADFA couldn't hold the stock, Goldman Sach's would buy it. In no case was the Sanwa Bank ever to own the stock. The total amount of stock in the deal was 1,000 shares at $60,000 per share for a total of 60 million dollars. ADFA's portion was 84 shares for a total of $5.04 million. Another very interesting fact was that the money apparently never left the Sanwa Bank. The whole transaction was conducted on paper. Sanwa loaned the $60 million to the investors, who used it to buy the stock in Coral, which then redeposited the money back in the Sanwa bank in the form of a certificate of deposit. Also mentioned in the documents was the American International Group, a huge insurance company with international business and political connections. The documents indicated that Coral was going to re-insure AIG as part of its business.
Taken together, these facts indicated that this deal was indeed very strange. ADFA took no risk, since the loan with Sanwa guaranteed it a profit, and was secured solely by the stock. ADFA did nothing more than sign papers, in exchange for a profit of $58,000. At first glance, any intelligent person would question a deal that promised something for nothing (indeed, it was later revealed that one of ADFA's legal advisors - John Selig of the Mitchell firm - did ask the crucial questions, "what's in it for AIG? why pay us for nothing?"). Swaney and Drew could not help wondering whether or not ADFA's role was to provide the appearance of legitimacy and liquidity so that the other investors would not be fearful of getting involved.
Roy Drew and Mark Swaney wanted to learn all that they could about the Coral deal before releasing the documents to the media, so that further information could be obtained before media involvement stirred up the situation. Roy Drew contacted the Delaware Department of Insurance to find out what their original interest in Coral had been and to see if they were still interested in obtaining the ADFA documents.
The Delaware Department of Insurance was in fact very interested in the documents and a series of strange phone conversations took place between Drew and his contact at the DDI.
Drew was told that ADFA had never responded to the DDI's request for information, so that they had no documentation on the Coral-ADFA deal. Initially the DDI was very suspicious of Roy Drew, not being sure with whom they were dealing. They requested assurance from him that he was not a member of any official US government agency and that he was not working for ADFA or Coral.
Shortly after these initial exchanges Drew's original contact at the DDI was taken off the case and his superiors informed Drew that his contact had been instructed not to say anything more to anyone about case. Seeing no point in trying to get further information from Delaware about the case, Swaney and Drew decided to release the story to the media. A reporter for the business section of the New York Post, John Crudele, had been following the progress of the Committee's efforts and in early January, 1995, Swaney mailed him the Coral documents.
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