CHAPTER 20

The trial of the Bank of Credit and Commerce and the individual defendants was scheduled to start in the middle of January 1990 in Tampa, Florida. The bank's lawyers had been unable to negotiate a plea agreement, and they had essentially given up trying. Lawyers for the individual bankers also had little hope of getting what they deemed a reasonable agreement from Mark Jackowski, though they continued to discuss pleas. Then everything changed.

The cause was an order issued by Judge Hodges on December 5, 1989. The judge threatened to dismiss the drug conspiracy charges against the bank and the bankers. The government is put on notice, said Hodges, that it cannot convict BCCI or the bankers as drug conspirators solely on evidence that the bank and its employees may have laundered drug proceeds. The judge said that Congress had made money-laundering a separate crime in 1986 and that was the statute under which he felt the bank and its employees should be prosecuted.

Faced with the first major victory for the defense, the government suddenly had to reevaluate its position on a plea bargain with the bank. Certainly the prosecutors had ample evidence to support the money- laundering charges, but the drug count was a different matter, for neither the bank nor the bankers had been linked directly to drugs.

The ramifications of the ruling were important: The prosecutors had used provisions of the law attached to the drug count to freeze $14 million of BCCI's money and seek its forfeiture. If the drug count was dismissed, as Hodges was threatening, the money would be freed. Even if the bank were convicted of the other charges, the likelihood of a $14 million fine was slim. To date, the highest money-laundering fine against a bank was $5 million, and that case involved a bank that had laundered about $300 million. Further, Hodges did not have a reputation as a judge who handed down tough penalties against white-collar criminals.

Gregory Kehoe, second in command at the U.S. attorney's office in Tampa, was adamant that the bank not get a single penny of that money back. The solution was to reach a plea bargain with the bank that would allow the government to retain the $14 million as a forfeiture. Also at play was the consideration that a corporate defendant could not be put in jail; the worst that could happen was a fine.

A few days after Hodges's critical ruling, the prosecutors sat down with the bank's lead lawyers, Larry Wechsler and Larry Barcella, and began to talk about a deal. The judge's order had brought the prosecutors back to the table and also cleared the way for Wechsler and Barcella to reach a bargain. Their instructions from the bank's management had been explicit: Do not plead guilty to a drug charge. The money laundering could be explained away, for many banks were guilty of that, but the publicity of a drug conviction was far more serious.

The ruling did not have the same impact on negotiations with the individual bankers. Even if Hodges dismissed the drug count against each of them, they still faced up to twenty years in jail on the other charges. Plus, the prosecutors did not have the same financial incentive to strike a deal with the individual defendants, since their potential forfeitures were nowhere near the bank's $14 million.

Many believe that another event in December made a plea bargain with the bank more palatable to the government. Shortly after one o'clock in the morning on December 20, 1989, a battalion of U.S. Army Rangers parachuted onto the runways of Omar Torrijos Airport on the outskirts of Panama City, Panama. It was the first wave of the U.S. invasion of Panama. Within days, the tiny nation's armed forces were vanquished. Its leader, General Manuel Noriega, was flown out of the country under armed guard and escorted to a tiny prison cell beneath the U.S. District Courthouse in Miami to await trial on drug and conspiracy charges.

The Noriega cases in Miami and Tampa had lain dormant for months. Prosecutors had little expectation that the Panamanian strongman would be brought to the United States for trial. When those expectations were proven wrong, prosecutors in two cities and at main Justice in Washington had to scramble to prepare for Noriega's trial. Because the Miami case was much broader and far sexier, it was decided that Noriega would be tried there first.

The surprise invasion and capture of Noriega meant that the Bank of Credit and Commerce International now was an important potential source of documents for his trial. Its records could help corroborate the government's charges that Noriega had taken payments from the drug cartels and been involved with traffickers at various levels. Securing access to his account records and interpreting them would be far easier with BCCI's help. In addition, as the lead lawyer on the Tampa case against Noriega, Jackowski's own case against the general rested heavily on the testimony of Steven Kalish. Bank records could support Kalish's claim that he opened an account at BCCI on advice from Noriega's cronies.

The BCCI prosecution team remains unanimous in arguing that the Noriega arrest had no effect on their case. They contend that the sole motivation was the prospect of losing the frozen $14 million when the drug charge was dismissed. Given the incredible pressure within the Justice Department to convict Noriega at all costs, it seems hard to believe that BCCI's potential cooperation did not come into play in the plea talks. Yet Jackowski and Kehoe point out that they showed no willingness to soften their position on a plea by the individual bankers, even though Amjad Awan was a strong potential witness against Noriega.

Two weeks after Noriega was taken into custody in Panama, Operation C-Chase bagged its bank.

Thesday, January 16, 1990, was the eve of jury selection in Tampa for the trial of the bank, the bankers, and Rudy Armbrecht and Gonzalo Mora, Jr. At mid-morning, it was announced in Tampa that BCCI Holdings in Luxembourg and the Bank of Credit and Commerce International in the Cayman Islands had admitted laundering millions of dollars of cocaine profits. They were pleading guilty to every count of the indictment except count one, which charged them with a conspiracy to aid in the distribution of cocaine. As part of the settlement, the bank agreed to forfeit the $14 million in frozen funds plus about $800,000 in interest.

The bank also agreed to cooperate with federal authorities in other investigations, which were not identified. In exchange for its coopera tion, the bank was promised that the U.S. attorney's office in Tampa would not charge BCCI or any affiliates with other federal criminal offenses "under investigation or known to the government at the time of the execution of this agreement."

The eleventh-hour settlement was hailed by the Justice Department as "the largest cash forfeiture ever." It was denounced by Senator John Kerry. He called it a "sad commentary on a country that is supposed to be taking money laundering extremely seriously." Added Kerry, "When banks engage knowingly in the laundering of money, they should be shut down."

Kerry's opposition, which received considerable attention in the press, angered the Tampa prosecutors and C-Chase agents. It also put the Justice Department on the defensive. Top Justice officials defended the plea, arguing that the $14.8 million, while short of the $28 million maximum fine, was three times greater than the largest money laundering fine paid to date. Too, they pointed out, Judge Hodges already had indicated that he intended to throw out the drug conspiracy count, the only charge to which the bank had not pleaded guilty.

In response to Kerry's criticism that the bank should have been shut down, the Justice Department said the money-laundering statute con tained no provision for closing down a bank convicted of money laundering, whether it was American or foreign. Kerry responded by drafting and introducing, in a matter of weeks, legislation to require regulators to revoke the operating charter of any bank convicted of money laundering. It was a Draconian piece of work, immediately dubbed "the death penalty" by the American Bankers Association. Nonetheless, the measure was approved by the Senate Banking Commit tee and probably would have won passage in the full Senate had it not been for a Republican attack led by Senator Orrin Hatch. The Utah Republican went to the floor of the Senate and denounced Kerry's legislation and praised BCCI as a good corporate citizen.

The most sweeping part of the bank's plea bargain was the clause that prohibited the U.S. attorney's office in Tampa from charging BCCI with other crimes. The Justice Department maintained that the prohibition was restricted to Tampa and to crimes known or under investigation at the time of the plea. It also did not cover any individuals. This seems a reasonable interpretation, and one that was later endorsed by a staff report prepared for Representative Charles Schumer, a New York Democrat who was highly critical of other aspects of the government's handling of C-Chase. However, the net effect of the agreement was far more significant than what was written on the paper.

In effect, BCCI switched sides. No longer were the bank and its top officers adversaries of the government. They were cooperating witnesses, seemingly key players in the far larger effort to nail Noriega. Certainly other federal jurisdictions could start their own investigation, but the chances of that seemed slim. If Tampa was not going to proceed, no one else in the Justice Department was likely to do so, at least not without some strong outside pressure. Jackowski and Rubinstein had to be content to prosecute the remaining case and hope that they could develop another case against other BCCI officials once it was over. In the meantime, they took a pasting in the press and in Congress.

Sentencing for the bank was set for February 5, 1990. The only choice for Judge Hodges was to ratify or reject the plea agreement, since there was no sentencing provision for the corporation. Kerry was joined by five other Democrats in a letter urging the judge to reject the agreement and impose the full $28 million fine. By this point, Hodges was a week into the trial of the individual bankers. He also had accepted a guilty plea to all counts by Gonzalo Mora, Jr. Mora's lawyer, Joel Rosenthal, said his client wanted to avoid sitting through the lengthy trial. On February 5, Hodges accepted the settlement with the bank as well.

The Bank of Credit and Commerce International forfeited a record $14.8 million. Far more significantly, the bank was transformed from an enemy to an ally within the Justice Department. For instead of shutting down BCCI, as John Kerry urged initially, the Justice Department had a secret plan to keep BCCI open. The argument was that the government wanted to try to monitor the activity in a number of other suspect accounts, although anyone using BCCI for criminal purposes after the plea bargain would have to be a fool.

Nonetheless, on February 13, 1990, Charles Saphos, the head of the Justice Department's narcotics section, wrote to the state comptroller of Florida, Gerald Lewis, asking him to allow the bank to remain open. The bank's license to operate in Florida expired on March 14, 1990, and Lewis had indicated that he was not willing to renew it because of the guilty plea. But Saphos said that the Justice Department wanted to keep the institution open to monitor certain unidentified accounts. Saphos offered to meet with Lewis to discuss the matter.

The letter offered Lewis a heaven-sent opportunity to posture and distract attention from his own ambiguous record as a regulator. As the head of all bank and savings and loan regulation in Florida, Lewis had presided over a series of supervisory lapses, many involving fund-raisers for his own campaigns. Now, this impolitic letter from the Justice Department let the Florida comptroller pose as the man who shut down BCCI in spite of interference from Washington.

Lewis fired off a cold reply to Saphos. The Florida official indicated little willingness to come to attention because the Justice Department had called, though he did offer to meet with Saphos if he could be in his office on February 19. In a curt reply, Saphos apologized to Lewis for any indication that the Justice Department might be trying to influence his decision on BCCI's future. And he said the matter would be dropped. That was fine with Lewis, who went ahead and shut down BCCI's operations in Florida.

Similar letters had been sent to state regulators in California and New York. Saphos telephoned officials in those states, too, and offered his apologies for appearing to try to interfere with their jobs.

To Amj ad Awan and the others facing trial, the bank's guilty plea was the second major action that had gone their way, coming on the heels of the dismissal of the drug conspiracy charge.

There had been plenty of setbacks. Judge Hodges had refused to suppress the incriminating statements made by Awan after his arrest, despite his claim that he was slightly drunk from too many Scotches pushed on him by Mike Miller. He had refused to bar conversations recorded by Bob Mazur in France without proper consent, agreeing with the government that U.S. constitutional safeguards do not apply on foreign soil.

Most significantly, Hodges had rejected the defense contention that the bank and its employees had been lured into the scheme by the undercover agents. In a ruling on the defense motion in December 1989, Hodges said: "Examining the totality of the circumstances in this case, the government's conduct falls far short of the outrageous conduct necessary to constitute a constitutional violation." The ruling was not unexpected. The issue could still be raised at the trial, but it seemed unlikely that a jury would find it any more credible than the judge had.

The pretrial motions worked out better for Iqbal Ashraf, the head of HCCI's Los Angeles office. The day before the trial was to start, the government dismissed the charges against Ashraf, tacitly acknowledging that the banker had been contacted improperly by Mazur on October 5. It was a key move by the government to protect its larger case.

The indictment against BCCI and the bankers had been returned on October 4. Federal policy prohibits undercover agents from having contact with defendants following an indictment. Yet on October 5, Mazur met with Ashraf in Los Angeles and discussed the transaction to launder $500,000 of Roberto Alcai no's money in the apartment complex. Ashraf's lawyer, Sandy Weinberg, accused the government of miscon duct. Jackowski and Rubinstein were adamant that Mazur, who was still undercover, was unaware that the indictment had been handed down. His mind was focused on gathering as much evidence as possible before the arrests planned for October 8.

But the prosecutors faced a risk in allowing Ashraf to go on trial.

Weinberg would bring up the issue, possibly raising doubts about

Mazur's credibility in the minds of the jury. Rather than take the risk

that their star witness would seem less than 100 percent truthful,

Jackowski and Rubinstein agreed to drop the charges against the Los

Angeles banker.

For the remaining bank defendants, the BCCI plea was a bright spot because it created the appearance of a major injustice to offer the jury. The primary defense strategy was to claim that the employees were pushed into accepting the C-Chase deposits because the bank was overaggressive and its policy was to encourage turning a blind eye to the sources of money. Yet here was the bank wriggling off the hook. The defense could play on the jury's sympathy and also attack the bank for failing to train its employees in the specifics of the new U.S. money laundering law. They were, as John Hume later told the jury, "guinea pigs" under the new statute.

Had the bank's lawyers been sitting at the defense table, they would have claimed that bank policy was against money laundering. The defendants, the bank would argue, were overzealously trying to advance their own careers.

Even without the bank at their table, the defense was doing little more than going through the motions, as Hume had phrased it. None of the lawyers held out much hope for an acquittal. Their expectations would turn out to be quite realistic. The bank's belief that the $14.8 million forfeiture had put its troubles to rest, however, would turn out to be one of the world's most wrongheaded cases of wishful thinking.

It took nearly a year for Robert Morgenthau's team to gather enough information to begin making presentations to a New York grand jury, the first and most secret step in obtaining a criminal indictment.

The standards for taking a case to a New York grand jury and getting subpoenas for testimony and documents were higher than those for a federal grand jury. For John Moscow to put a witness before the county grand jury, he had to be sure that the testimony was firsthand and would pass the same tests of law required for it to be admissible in a trial. With a federal grand jury, secondhand information, known as hearsay, is admissible, although in most cases it could not be entered in court.

This meant that Moscow could not put a single investigator before the grand jury to describe what the investigation had uncovered so far and then seek subpoenas, as could his counterparts in the Justice Depart ment. He had to assemble a series of firsthand witnesses.

The issue of immunity also was a minefield. A witness before a New York grand jury is granted automatic immunity unless he specifically waives it. This is a broad form of immunity that prohibits prosecution of the witness for any crimes connected with the actions covered in the testimony. Some of the first witnesses scheduled for the BCCI grand jury were former employees of BCCI, including Amer Lodhi. They were disgruntled and cooperative. But Moscow had to be careful not to put someone before the panel who would turn out to be a major player in the eventual scheme.

The first grand jury testimony was taken in the spring of 1990 and the first subpoenas to the bank for documents went out in May of that year. At this point, the investigation was focused on whether BCCI was behind the takeover of Financial General. If it could be proven that it was, filings made with New York banking regulators could be fraudu lent. Simultaneously, a fuzzy picture was emerging in which the bank appeared to be in far poorer financial condition than it had reported in its financial statements. That, too, might constitute fraud.

Thus, as the subpoenas went out, Morgenthau and Moscow had met the test of the first phase of an investigation. They had uncovered the allegations and were beginning to understand them. The next step would be finding a way to prove them.

In this initial phase of Morgenthau's inquiry, the Federal Reserve in Washington and New York as well as the Justice Department in Tampa were fairly cooperative, although it had come as a complete shock to the prosecutors in Tampa when Morgenthau's office first called and said it was investigating BCCI. Jack Blum had never told Mark Jackowski or Mike Rubinstein that he was going to Morgenthau.

Nonetheless, the Tampa prosecutors had briefed their New York counterparts on their case against the bankers and provided them with access to all of their documents. However, as Moscow started his grand jury in the summer of 1990, the prosecutors in Tampa really were not paying much attention to what was going on in New York. They were focused on the trial nearing its conclusion in the ceremonial courtroom on the first floor of the old courthouse in downtown Tampa.

Every weekday morning for six months, Amjad Awan, Akbar Bilgrami, Ian Howard, Sibte Hassan, and Aftab Hussain left their condominiums and headed for the Tampa federal courthouse. Some times there would be television cameras waiting on the steps of the building. Most often, they walked in with their lawyers unmolested. Inside the courtroom itself, they were watching their lives blown away by the testimony of Customs agent Robert Mazur. And by their own words, repeated on dozens of tape recordings played over headphones for the jurors.

The defense strategy held few surprises. It was basically two-tiered. The government had unfairly targeted the bankers and lured them into a criminal scheme, and the bank itself had failed to train them properly in the complexities of the new U.S. money-laundering statute. The tapes themselves seemed to belie the contention that these were innocent bankers ensnared unwittingly in a government net. In recorded conver sations with each of the defendants, the jurors heard Mazur compare his clients to Lee lacocca, explaining that they sold cocaine instead of cars. And as anyone who watches television crime shows knows, ignorance of the law is not a defense, but there was little else available to the defense lawyers.

Which is not to say that the trial was without drama. Bob Mazur spent fifty-four days on the witness stand. He recounted the key meetings in the indictment and interpreted the tape recordings. His testimony was so complex that Mazur used a script. It was a 300-page, color-coded computer printout that summarized each recorded conversation intro duced into evidence by the prosecution.

At each step, Mazur was challenged by defense lawyers. They tried to shake his credibility, jar his recollection of events, cast doubt on his interpretation of the taped conversations. Bennie Lazzara, who had written the original motion accusing the government of misconduct, was especially combative in his cross-examination of Mazur. But the agent was as cool on the witness stand as he had been operating undercover for more than two years.

Mazur seemed to lose his temper only a few revealing times. When a defense attorney addressed him as Mr. Musella, the agent, flushed with anger at the thought he had lost his own identity, shot back, "The name is Mazur." A second time he reacted angrily when a line of questioning threatened to endanger his family by revealing details of his back ground.

The day after Mazur stepped down from the witness stand the government rested its case. John Hume sought a meeting with the pros ecutors. He wanted to cut a deal for Amjad Awan.

Hume and Mike Rubinstein sat down in a conference room in the Federal Building, a block from the courthouse. Rubinstein repeated that the first step in a plea bargain would be a proffer from Awan outlining what he could provide to the government on other cases. As he had at the outset of plea talks months before, Hume balked at the idea of laying out what his client knew before a deal was promised. Rubinstein countered that Hume could draft a document, leaving Awan free to denounce it if they failed to reach agreement. Still Hume refused.

Exasperated, Rubinstein asked why and Hume said, "I don't trust you, Mike. I don't know that you would go ahead and deal and not just use the information." Rubinstein exploded in a string of expletives. That was the last plea discussion, and the case went to the jury when the defense completed its case a few weeks later.

When the twelve jurors began deliberations on July 18, 1990, they had access to the exhibits introduced as evidence in the trial. Among them was an address book seized from Rudy Armbrecht's briefcase the night he was arrested. Using Armbrecht's phone book, one of the jurors undertook an unusual initiative. He made several telephone calls to people in Colombia whose names had come up in the trial as associates of the Medellin cartel and whose numbers were listed in the book. The juror mentioned the calls to at least five of his fellow jurors. One of them told her husband about the incident when she went home one night and he contacted the FBI. The FBI alerted the U.S. attorney's office, which related the incident to Judge Hodges.

Because of the publicity, the judge had told the jurors specifically that they were to base their decision only on the evidence produced during the trial. They were told to avoid any outside information. Judges habitually warn juries not to discuss the case with relatives, and to avoid reading newspaper stories or watching television broadcasts about their trial. But the thought that a juror would launch his own investigation was totally bizarre and unprecedented.

There was a flurry of meetings between the lawyers and the judge. Defense attorneys sought a mistrial. Hodges decided to put the juror on the witness stand and assess the damage. The last thing he wanted was to retry a six-month case. On the stand, the juror acknowledged making the calls and said he was acting out of "simple curiosity." Hodges dismissed the juror from the panel and ordered the eleven remaining jurors to continue their deliberations.

On Sunday, July 29, 1990, the remaining jurors filed back into the courtroom. Filling the front-row pews were relatives of the defendants, many of whom had come from Pakistan for the verdicts. Awan's wife, Sheereen, and his two children sat in the front row alongside her father, the elderly Asghar Khan, former air marshal of Pakistan.

As the jury foreman read the verdicts, the courtroom erupted in wails and cries. All six defendants-the five bankers and Armbrecht-were convicted of conspiring to launder $14 million in proceeds from cocaine sales. As threatened, Hodges had dismissed the drug distribution charge during the trial, but the defendants were also convicted of various individual counts of money laundering, ranging from a low of three for Sibte Hassan to a high of twenty for Aftab Hussain and Akbar Bilgrami. Exotic Asian laments filled the courtroom and spilled out onto the steps of the courthouse as U.S. marshals cleared the building. The relatives mobbed anyone who looked official. An elderly woman stood face to face with Customs supervisor Steve Cook, yelling curses at him in Urdu, and was later charged with threatening a federal officer.

The convictions carried prison terms of up to twenty years for each of the defendants with fines that could run into millions of dollars, based on the amount of money laundered. Hodges revoked the unusual bail arrangements and the bankers joined Rudy Armbrecht in regular cells at Hillsborough County Jail. Sentencings were set for the following week, but there would be months of delay before that chapter of Operation C-Chase was written.

From the London headquarters of BCCI came a press release express ing "sympathy to the families" of the bankers. It also said that the crimes were "contrary to express, written policies of BCCI" and had taken place without the knowledge of the bank's management or board. Privately, the bank cut off all financial assistance and legal aid to the bankers when they were convicted. By that time, BCCI had spent at least $10 million on defense attorneys in the Tampa case. The bank was not interested in spending any more. It was having troubles of its own.

In March 1990, Robin Leigh-Pemberton, the governor of the Bank of England, had received a new audit report that had been performed for BCCI by Price Waterhouse. Problems were much more serious and practices far more questionable than had been described in the Novem ber 1989 report. Clearly, the financial condition of the bank was sorry indeed.

The problems, said Price Waterhouse, centered on insider loans to shareholders and others with close affiliations to the bank. Payments had not been made on many of these loans for years. Some of the borrowers denied ever receiving the loans. As much as $2 billion had been loaned to associates of the bank and major customers, often with little or no documentation and security.

For instance, the accountants said that bank records showed Kamal Adham owed BCCI's Luxembourg subsidiary $313 million at the end of 1989. Yet the auditors said they found no valuations for the property in Saudi Arabia that the former Saudi intelligence chief had put up as security for some of the debts. There were no written loan agreements. In addition, the audit said that the property itself was dubious security because Saudi law probably prohibited the bank from seizing it in a foreclosure action.

Adham was only one of the shareholders in CCAH who had apparent ly borrowed extensively from the bank. When combined with his loans, CCAH shareholders now owed BCCI $856 million, according to the audit. The list of CCAH shareholders with loans was a long one and it included Faisal al-Fulaij, A.R. Khalil, and the rulers of the tiny Arab emirates of Fujaira and Ajman.

Far more significant, the audit spelled out for the first time the true arrangements behind those loans. It said that BCCI held at least sixty percent of the shares in CCAH as security for the loans and that it had held the shares since at least 1984. With the loans in default, the bank effectively had majority ownership of the parent company of First American Bankshares. Indeed, the audit said that in past years BCCI officials had told Price Waterhouse that they held all the CCAH shares.

Here was the smoking gun that the Federal Reserve had been trying to find for a decade. But they would not get it so easily. Bank secrecy laws in Britain and Luxembourg prohibited the regulators from sharing the audit with or describing its findings to anyone else, even their counter-parts in other countries. This was a clear and concrete example of the dangers in allowing banks that are located in secrecy havens to operate in open countries, such as the United States.

The ownership of the American bank was not the top priority for the British and Luxembourg regulators anyway. As the leaders of the college of regulators trying to keep a rein on BCC I, they were far more worried by the concentration of loans shown in the audit and its potential impact on the health of the bank. BCCI had loaned huge amounts of money to a handful of customers and virtually none of the loans to these favored few appeared to be documented properly or have a satisfactory repay ment schedule. If the loans were marked down as the losses they appeared to be, the bank's capital would be wiped out and it would be insolvent.

The biggest single borrower was the Gokal shipping family. Compa nies associated directly with the three brothers owed BCCI $405 million. Seventy-one other companies apparently owned by the brothers had borrowed an additional $300 million. All of the transactions had gone through the bank's Cayman Islands subsidiary and many of them were shrouded in secrecy.

For instance, Price Waterhouse listed these seventy-one companies as owned by the Gokals, but the accountants acknowledged in the audit that they were uncertain of the true ownership. The companies were registered in offshore havens, ranging from the Bahamas and Cayman Islands to Liberia and Uruguay, and the real owners were concealed behind secrecy laws in those countries.

According to the accountants, the offshore companies apparently grew up in response to questions in previous audits about heavy lending to the Gokals. When bank limits were reached on loans to one entity, another was created to receive new loans. The audit said that the offshore companies also appeared to have helped their owners evade currency restrictions in Pakistan and India. Other than $65 million worth of ships under mortgage, Price Waterhouse said it found no tangible security for the loans to the offshore companies.

Another example of the bank's favorable treatment for insiders involved the Mahfouz family. Since injecting $150 million in new capital into the bank in 1986 to stave off its collapse from the trading losses, the Saudi Arabian banking family had borrowed $152.5 million from the bank without loan agreements or security, said the audit.

Another sometime BCCI shareholder, Ghaith Pharaon, owed the bank a total of $288 million at the end of 1989. The major collateral was an eleven percent stake in BCCI held by his brother, Wabel Pharaon. As with the other major borrowers, Price Waterhouse found no loan agreements or correspondence to support the Pharaon loans and provide a means to recover them.

The Price Waterhouse report of March 1990 was a stunning indictment of insider dealing and questionable practices at the Bank of Credit and Commerce International. And it was an indictment with a price tag.

Millions of dollars in depositors' money had been loaned to bank shareholders and cronies with little prospect of repayment. The money was simply gone. A month after providing the report to the bank, Price Waterhouse had followed up with a letter to the directors of BCCI that detailed the price of these practices. The accountants said that $1.78 billion in new funding was required to restore the bank's financial health. While the entire amount would not be necessary immediately, a substantial chunk of the new cash was needed fast. In spite of the findings, the auditors issued unqualified statements for the bank, an amazing contradiction that later put the accountants' own reputation in question.

When the regulators in Britain and Luxembourg got a look at the Price Waterhouse report completed that March, they convened an emergency meeting. They hauled in acting BCCI president Swaleh Naqvi, chief financial officer Masihur Rahman, and other bank officials. The bankers agreed that an infusion of cash was needed. They said they were already trying to arrange a bailout from Abu Dhabi. They also agreed to form a task force of senior management, as proposed by Price Waterhouse, to begin restructuring the bank.

For the immediate cash to keep the bank running, Naqvi turned to Sheik Zayed and the Abu Dhabi Investment Authority. Naqvi flew to Abu Dhabi immediately after meeting with the regulators and pleaded for more money. The sheik agreed to pump in $600 million. He also bought out the shares held by the Mahfouz family, increasing the stake held by his government and family to seventy-seven percent from twenty per cent. His representatives demanded greater control over the bank's affairs. Its operational headquarters would be moved to Abu Dhabi, and Swaleh Naqvi and other top managers would come along. The govern ment set up its own investigative committee to begin poring over the internal documents of BCCI and reconstructing for itself what had happened. And layoffs would begin immediately in an attempt to restore profitability.

The layoffs were the most stunning news when the bailout agreement was announced to the public. Hundreds of employees who had signed on with a family, not a bank, suddenly found themselves out of work. Twenty branches in Britain were closed, and offices were shut down in many other countries, too. On advice from his financial advisers, Zayed was cleaning house at BCCI. But it did not stop the momentum carrying BCCI toward ruin. Zayed's $600 million bought more time for the world's largest Ponzi scheme, but the fabric of respectability had been torn and the saga was headed toward its climax.

Price Waterhouse continued its examination of the bank's books. In October 1990, the accountants told British regulators of broader financial mismanagement at BCCI.

The new audit, done with the bank's cooperation, disclosed that the previous BCCI managers may have colluded with major customers and shareholders to misstate or disguise the underlying purpose of millions of dollars worth of the questionable loans and other transactions described in March. This was a step beyond the previous report. The accountants were suggesting that top bank officials may have been involved knowingly in a massive fraud. This time around, said the audit, at least another $400 million would be needed to keep the bank afloat.

The second negative audit had a dramatic effect on the bank's management. The report was delivered to the Bank of England on October 3. The following day, Swaleh Naqvi and Agha Hasan Abedi resigned from the Bank of Credit and Commerce International. Abedi had not been involved in day-to-day operations for more than two years, but now, he and his right-hand man were severed officially from the bank they had founded nearly two decades earlier.

Abedi was still at his home in Karachi, struggling to recuperate from his heart ailment. Naqvi was in Abu Dhabi and the government there decided to keep him as an adviser. However, he was confined to a hotel and many believed that he was a virtual prisoner. If he was a prisoner, the tall, gaunt Naqvi also was a witness. For months, he had been helping the Abu Dhabi investigating committee try to unravel BCCI's internal finances from the thousands of files and hundreds of bogus accounts created over the years in a desperate attempt to hide the bank's losses. The man in charge of the investigation for the royal family was Ghanim Fans al-Mazrui, who a decade earlier had ferreted out the losses sustained by Abdullah Darwaish's ill-advised commodities trading scheme.

This October Price Waterhouse report and the existence of Abu Dhabi's investigative committee were kept secret. There was no news conference on the reasons for the management changes at BCCI. Indeed, the scope of the Price Waterhouse findings from March and October 1990 remained a closely guarded secret within the Bank of England. That was what British law demanded. It also was vital to avoiding any sort of panic and a possible run on the bank.

At the Bank of England, Robin Leigh-Pemberton and his chief deputy, Eddie George, decided that they still had insufficient evidence to take any stronger action against BCCI. The Price Waterhouse reports de scribed mismanagement and probably fraud, but the British regulators judged the questionable transactions to be individual acts, not systemic fraud that warranted dismantling the entire bank. Sheik Zayed and Abu Dhabi had promised to make another contribution of cash to bolster the bank's capital. Abedi and Naqvi were gone, and a general restructuring was in the works.

"If we closed down a bank every time we had a fraud, we would have rather fewer banks than we have," Leigh-Pemberton said later.

Bank regulators the world over are notoriously reluctant to shut down troubled institutions. They fear that dramatic closings threaten the stability of the banking system. In the case of BCCI, its biggest base of deposits and customers was Britain. There were about 120,000 custom ers with $404 million in accounts at BCCI. Many of them were Pakistani immigrants and Asian owners of small businesses who depended on the bank. Closing the bank would make them victims of BCCI because all would lose at least some of their funds. Britain's Deposit Protection Fund provides for compensation equal to only seventy-five percent of even the smallest bank deposits. And the maximum payout is limited to about $25,000, a quarter of the amount protected at insured institutions in the United States, where customers can recoup 100 percent of their money up to $100,000.

On top of the inevitable outcry over the losses, closing the bank would require the Deposit Protection Fund to come up with $100 million or more to pay off depositors. The fund maintains no cash reserves, so Britain's banks would have to be assessed fees to pay for reimbursing BCC I's depositors. The good banks, many of which had avoided dealing with BCCI because of its reputation, would wind up paying for its actions anyway. So the best tactic seemed to be to delay the closing in the hopes that the mess could be sorted out without more government intervention. It was very similar to the logic that was employed by American regulators in permitting the savings and loan industry to try to grow itself out of dire troubles in the 1980s. And the results were destined to be similar, too.

Further complicating the task of the British and Luxembourg regula tors was the fear that shutting the bank in a few countries would send ripples through the international banking community, possibly leading to runs on other BCCI branches worldwide, possibly setting off a financial panic.

So the Bank of England was reluctant to close the bank in October 1990. With Sheik Zayed pumping in new money, there was still a sliver of optimism that the bank could be salvaged.

In the meantime, Leigh-Pemberton instructed Price Waterhouse to conduct yet another examination of BCCI financial records. This was a different, more serious audit. It would be carried out on behalf of the Bank of England under special powers of investigation granted to the regulators under British banking law. Soon, accountants from Price Waterhouse were flying to Abu Dhabi, the Cayman Islands, and other countries in search of the true financial condition of BCCI. It was an investigation marked by great urgency and great secrecy. The bank itself was code-named Sandstorm by the accountants.

A month after the Bank of England sent the accountants after BCCI in earnest, the final chapter was written in the U.S. criminal case that had started the unraveling of the world's greatest Ponzi scheme.

On November 30, 1990, the defendants in the BCCI case had appeared before Judge Hodges in Tampa for sentencing. Dozens of friends and influential people, including Pakistan's former ambassador to the United States, had written letters pleading for mercy for the bankers. Awan's wife Sheereen had sent the judge a mournful letter expressing fears over the impact of losing their father on the couple's two teenage children. Awan himself had written a letter expressing remorse for his actions. All of the bankers, said the letters, were upstanding men with no prior criminal convictions. None of them had profited personally from their crimes.

Awan was the first to be sentenced that Friday morning. Hodges said he had taken into account Awan's lack of a criminal record and the fact that he had not profited personally. That was the reason, he explained, that he was not imposing the full sentence of fifteen to nineteen years called for by federal sentencing guidelines. But there would be no slap on the wrist, and Hodges offered an epitaph for dirty banks.

"The use and abuse of cocaine is a scourge of this country today and has been for at least a decade," said Hodges. "It has produced enormous sums of money, which have served to corrupt many of our institutions in a way that was unknown and unthought of twenty years ago."

Hodges sentenced Awan to twelve years in federal prison and fined him $100,000 for his role in the C-Chase money-laundering operation. It shocked the bankers and their lawyers. Sheereen Awan wept in the courtroom.