CHAPTER 1
Building the Bank
Western banks concentrate on the visible. whereas we
stress the invisible.
-Agha Hasan Abedi, founder, the Bank of Credit and Commerce International
A Reverse Robin Hood
One o'clock in the afternoon on July 5, 1991, officials of the
Bank of England marched into the twenty-five branches of the Bank of
Credit and Commerce International in Britain and ordered employees to
leave. From small offices in the Asian north end of London to the lavish
main office in the financial district, the regulators locked the doors and
began boxing up thousands of bank records. Simultaneously, regulators
swept down on the bank's branches and offices in the United States,
France, the Cayman Islands, Spain, and Switzerland.
In Luxembourg, the bank's official headquarters, the tiny
duchy's entire judiciary was attending an official picnic in the
countryside. Bank regulators had to track them down and find a judge to
sign an order to close the bank. While the order was being signed, armed
guards stood outside the conference room at the bank's headquarters.
Behind the closed doors, representatives of the government of Abu Dhabi,
BCCI's principal shareholder, were meeting in a last-ditch attempt to
salvage the bank with an infusion of cash and new management, unaware of
the drama beginning around the world. So desperate was the Persian Gulf
sheikdom to keep the bank open that its officials were meeting on a
Friday, the Muslim Sabbath. The bank's board
members were still inside the conference room when the regulators arrived
to seize the bank.
It was eight-thirty that morning on the East Coast of the United
States when examiners from the Federal Reserve Board showed up at the
bank's office in New York and locked the doors. In the dark hours of
predawn in Los Angeles, examiners arrived at the BCCI office downtown and
sealed the doors.
These were only the first dominoes to fall. By the end of the
weekend, BCCI's operations had been closed in eighteen countries and put
under tight supervision or restricted in forty-four others. The
coordinated shutdown was a drastic step and a risky one, since the bank's
operations were spread around the world and the repercussions within the
interna tional financial system could be disastrous, but Robin
Leigh-Pemberton, governor of the Bank of England, defended the
unprecedented action. The regulators had moved, he said that day, only
after being convinced the bank was guilty of "fraudulent conduct on a
worldwide scale."
What had been one of the world's largest privately owned banks,
with $20 billion in assets and 400 branches spread across seventy-three
countries at its zenith, was paralyzed. With near-military precision,
banking regulators in seven countries had acted in concert to close down
the offices of the Bank of Credit and Commerce International. A bank
created explicitly to avoid a central regulator, after nearly two decades
of growing like Topsy with scant supervision, was being brought down
through the unique cooperation among the regulators of seven nations.
As other countries fell in line, accounts large and small at
BCCI branches worldwide were frozen. Depositors faced the loss of their
savings. Businesses were paralyzed; ships stranded in ports, unable to
deliver cargo. Customers massed outside offices in London, Hong Kong, and
a dozen other cities to plead for their money. Hundreds of the bank's
14,000 employees demonstrated against what they labeled a reckless, racist
takeover by Western interests.
Some countries resisted the rush to shut down the bank. In
Pakistan, the home of the bank's founder and its senior executives, BCCI's
three branches remained open on orders from the nation's president, who
had once headed a charitable foundation set up by the bank. A sign taped
to the front door of the Karachi branch read, "Under State Bank of
Pakistan instructions we are operating normally." Across the street,
officials at Pakistan's central bank said they were trying to protect the
bank's 71,000 depositors in the country.
In Abu Dhabi, home of the ruling family that had bankrolled the
bank's beginnings and struggled to save it at the end, it was business as
usual. On Sunday, the offices opened for business without a sign of the
turmoil engulfing the bank elsewhere. Accounts of the seizures in London
and Europe were cut out of foreign newspapers as they arrived. The
collapse of the bank was not even reported in Abu Dhabi, where people see
only what the government permits.
The shutdown occurred in the midst of a four-day holiday weekend
in the United States. That Friday, a county prosecutor named John Moscow
was sitting in his cluttered office in lower Manhattan anyway when word
came that regulators had taken action against his target. Throughout the
day, his phone rang constantly. Present and former bank employees were
scurrying forward, offering new information and testimony in hopes of
cutting a deal for immunity. They could see the massive global assault on
BCCI for what it was, the beginning of the end.
In the midst of the calls came one from Robert Morgenthau, the
New York district attorney who was Moscow's boss. As Moscow outlined the
calls pouring into the office, one piece of information stood out. A New
York-based bank had $30 million in accounts at BCCI when the deposits were
frozen. In all probability, the money would be lost. Here was a real
victim for the two-year-old investigation that Morgenthau and Moscow had
been waging, a loss that would provide compelling evidence of fraud and
help complete their indictment.
That same day, on the third floor of the Federal Reserve System
headquarters in Washington, D.C., Bill Taylor, the chief of bank
supervision and regulation, juggled calls from across the country and
around the world. For months, Taylor had been directing the Fed's
investigation of BCCI's trail in the United States. It was the most
far-reaching and complicated investigation in the history of American bank
regulation. Taylor's staff needed more time before confronting the touchy
business of shutting down the rogue bank. They were trying to close a
major international bank without sending the world's financial system into
panic and chaos. Now time had run out.
It had been nearly three years since the public first glimpsed
the corruption beneath the surface respectability of the Bank of Credit
and Commerce International. In October 1988, the bank and eight of its
employees were indicted in Tampa, Florida, on charges of laundering
millions of dollars for the Medellin cartel.
The money-laundering charges had been the first fruits of an
under cover operation run by the U.S. Customs Service. The federal agents
had stumbled onto the bank while pursuing Colombia's Medellin drug cartel.
It was one of the luckiest moments in the history of law enforcement,
transforming a routine investigation into a case that eventually broke
open the world's biggest banking scandal.
That start was small. As a result of the Tampa case, in early
1990, the bank pleaded guilty, paid a record $15 million fine, and
then went on about its business. Five employees were tried and convicted
of money laundering, with two getting stiff twelve-year prison terms. The
bank tried to explain away the incident as the isolated work of
lower-level employees, dispatching its army of retainers to smooth the
ruffled feathers of customers and regulators alike.
But the Tampa convictions were only the first step in the global
unmasking of the secret bank, a bank that thrived in a financial
underworld where billions of illicit dollars flow over borders and out of
reach of authorities with the press of a computer key.
Much of this dirty money comes from narcotics trafficking, the
richest criminal enterprise in history. It generates money by the bag, by
the box, by the truckload. Profits accumulate by the ton. Estimates of
profits from cocaine sales in the United States alone reach as high as
$110 billion a year. The result of this profit is an underground torrent
of dollars that oils the machinery of drug corruption.
This river of illegal money does not all spring from drug
trafficking. Tributaries flow in from Third World countries, where
dictators with names such as Marcos, Duvalier, and Noriega plunder the
meager wealth of their people. There is flight capital as rich citizens of
unstable countries evade currency restrictions and drain nations of the
funds intended to finance their development. There are profits from
illegal arms transactions, millions of dollars in American aid siphoned
off in Asia and Africa. All finds its way into the flow of hot money. And
the customers of the Bank of Credit and Commerce included flotsam from all
of these streams.
BCCI appealed to a wide range of customers, among them the U.S.
Central Intelligence Agency, which maintained secret accounts at BCCI
branches for years. Payments were made to finance covert aid to the Afghan
rebels and to bribe General Manuel Antonio Noriega of Panama, himself a
favored customer of BCCI. With its operations in most of the world's
nastiest corners, BCCI fit the needs of the CIA.
The relationship carried an added benefit. From its vantage as a
bank customer, the CIA kept an eye on others who were using the bank-a
rogue's gallery of terrorists, corrupt public officials, and arms
merchants. Topping the list was the world's most feared and lethal
anti-Western terrorist, Abu Nidal. He and his Fatah Revolutionary Council
main tained a $60 million account at BCCI's fashionable Sloane Street
branch in London to finance terrorism and arms transactions around the
world. In cooperation with the branch manager, the CIA, the U.S. State
Department's counter-terrorism division, and Britain's MIS all used the
bank as a window on the operations of the Palestinian extremist.
The Bank of Credit and Commerce International was so dirty that
the second-ranking official at the CIA described it in 1988 as "the
bank of crooks and criminals international."
The doors were open to customers of any stripe, no questions
asked. When the government of Peru wanted to hide its cash reserves from
creditor banks, BCCI was there. When Iran needed U.S. antitank missiles to
fight Iraq, BCCI was there. When General Noriega was indicted by the
United States on drug charges and tried to move $23 million out of reach
of American authorities, BCCI was there. When Arab tycoons and Pakistani
shipping magnates needed cash to prop up faltering businesses, BCCI was
there with loans that were never repaid.
Founded by Pakistanis and financed by Arabs, BCCI had billed
itself as a Third World bank, as the financial tool that would help
developing countries pull themselves out of poverty and starvation. It had
disguised itself through numerous charitable operations, and had hired
influence peddlers and respected politicians worldwide to embellish that
image. Yet in the end, it was the money of the honest depositors that
would disappear in the ruins of the bank. The bank would turn out to be a
reverse Robin Hood, stealing from the poor and giving to the rich.
The worst fears of the regulators did not materialize. The
shutdown of the bank on July s did not disrupt the world's financial
system, but it did disrupt the lives and livelihoods of those thousands of
people around the world who had trusted the bank.
The failure of a bank is not gauged by the financial markets
alone. It must be measured in human terms, as well. And in this case, the
costs were steep. Bank accounts were frozen. Life savings were imperiled.
Entire national economies were threatened.
In the tiny, impoverished West African nation of Cameroon, the
central bank faced the loss of $200 million in BCCI accounts. A palm-oil
refinery shut down because its account with BCCI was frozen and $2 million
in spare parts sat undelivered. Work on Africa's first pharmaceutical
factory stopped because the project was being financed by BCCI. In all,
BCCI was the primary banker in eighteen African nations and its insolvency
added another layer of misery to the world's most beleaguered continent.
The government of China, always desperate for cash to finance
its halting economic progress, had $400 million on deposit when accounts
were frozen at BCCI Hong Kong and the adjacent Shenzhen trade zone. Most
of the money sat in accounts controlled by the government's financial and
trading agencies. For Chinese leaders, the loss was com pounded by
embarrassment. They had embraced BCCI and its founder, Agha Hasan Abedi,
largely because of Abedi's relationship with former U.S. President Jimmy
Carter. For years, Carter had accompanied Abedi on trips to China and
other developing countries and had provided the banker with invaluable
access and respectability.
In fact, Carter was only one of many world leaders and political
figures who befriended the charismatic Abedi as he rose from obscurity in
Pakistan to the pinnacle of a global financial empire. In Washington, he
also was befriended by Clark Clifford, a former presidential adviser and
elder statesman of the Democratic Party whose reputation and influence
helped Abedi acquire secret control of the biggest banking company in the
U.S. capital. Around the world, Abedi and his bank acquired the services
of influential people who lent a patina of respectability to the bank. All
of them would lose something, too.
And so did people like John Sheehan. On the morning of July s,
1991, he wrote 200 paychecks to workers at his hauling and labor
contracting business in London. The checks were drawn on his BCCI business
account, which had a balance of about $1 million. Sheehan had moved his
account to BCCI a year earlier because it offered a slightly higher
interest rate than his previous bank.
That afternoon, angry employees started showing up at Sheehan's
office in Southall, waving paychecks that they had been unable to cash.
When BCCI was shut down, no bank in Britain would honor checks drawn on
accounts there. Sheehan's accountant finally tracked him down about six
o'clock that evening and delivered the news. "At that moment, I
thought I was finished," said Sheehan, who had built his business up
over the past twenty years and was forced to scramble for new funds to pay
the workers and keep his business going.
As many as 55,000 of Britain's small Asian businesses banked
with BCCI, among them about sixty percent of the clothing importers and
exporters along East London's Whitechapel Road. "The garment trade
was already in difficulties because of the recession, but the Bank of
England may have put the final nail in the coffin," Hanwantbir Chadha,
a clothing trader and president of the local business association on
Whitechapel Road, said sadly after the closing. "This is a very big
tragedy."
Chadha had learned of BCCI's closing when a small manufacturer
returned one of his checks for $50,000 on Friday, July 5. The manufacturer
had been unable to cash it because it was drawn on Chadha's BCCI account.
Not just businesses were affected. Throughout May and June of
1991, Spectrum Radio, a station geared to Asian-born listeners, had
appealed for donations to construct a shelter in Bangladesh for victims of
the recent cyclone. More than 1,000 checks had been mailed in to the
station. On July 4, Shafik Rehman, the anchor of Spectrum's broadcasts in
Bengali, had deposited the last $80,000 of donations in an account at BCCI.
The bank was a natural choice because of its Third World message and
strong presence in Bangladesh. When its doors were closed the next day,
$55,000 of the contributions could be counted as lost since British
deposit insurance would cover only about $25,000.
About sixty local governments in Britain had deposited nearly
$200 million in municipal funds with BCCI branches in response to its
interest rates, which were as much as a percentage point above those of
other British banks. The Western Isles Council in Scotland's Outer
Hebrides had $45 million on deposit with BCCI. The local government had to
seek permission to borrow replacement funds. It also suspended its finance
director for five days before deciding he was not to blame.
Shipments around the world, involving more than 1,000 vessels,
were brought to a halt, with key documents necessary to complete the
transactions locked inside the closed offices of BCCI. The documents were
letters of credit that allow purchasers to pay for goods on delivery.
Without them, the shippers refused to deliver the goods and ships sat
unloaded at docks.
The collapse of the Bank of Credit and Commerce International
was the world's greatest banking scandal. It has raised serious questions
about the effectiveness of bank regulation in an era of international
finance. It has cast doubt on the actions of the U.S. Justice Department
and banking regulators. And it has left a trail of victims on every
continent and touched almost all of the bank's 14,000 employees and 1.3
million depositors. And, as it unfolds, it is an unrivaled story of
intrigue, deception, and manipulation.