CHAPTER 21
The restructuring of BCCI and the resignation of
Agha Hasan Abedi had sent new waves of anxiety through the bank's
14,000 staff members worldwide. The godfather was gone. So was his
heir apparent, Swaleh Naqvi. In their place was a Pakistani named
Zafar Iqbal. His previous post as BCCI country manager in Abu Dhabi
meant he was close to Zayed and the royal family. The bank's senior
employees feared that his loyalties were to the rulers of the tiny
sheikdom, not to BCCI and its family of workers. Such anxieties seemed
justified when the layoffs began.
This was not the only rude awakening. The bank
employees had always been told that they were major shareholders in
the bank through International Credit and Investment Company, or ICIC.
The company was registered as a trust in the Cayman Islands and was
supposed to hold the twenty percent of BCCI shares set aside for
employees, but the restructuring under the Abu Dhabi ruling family had
raised questions about the status of the trust. Rumors were spreading
within the bank that ICIC held no stock for the employees, that
somehow it had been mixed up in a giant fraud.
By late fall of 1990, John Moscow and his
investigators had questioned many current and former BCCI employees.
Among the witnesses had been Amer Lodhi, the lawyer with ties to the
bank who had first talked to Tampa prosecutors at Jack Blum's urging,
and Abdur Sakhia, the BCCI manager in Miami and New York who had
finally left the bank earlier in 1990. Out of the October turmoil at
the bank came a new level of assistance for the investigation from
BCCI employees.
"A lot of them were angry," said Robert
Morgenthau. "They had been told they were shareholders. They were
going to get their share through ICIC. Then they found out they
weren't."
The discontent was a gold mine. And one of the
nuggets represented a major defection.
Masihur Rahman first learned of Abedi's dream in
1972 when the two men were colleagues at United Bank in Pakistan.
Since 1975, he had served as BCCI's $200,000-a-year chief
financial officer. But Rahman said it was not until he had become
chairman of the bank's internal review committee in the spring of 1990
that he got a view of the bank's financial picture that was
unobstructed by deception and manipulation. What he saw disturbed and
angered him. The more Rahman learned, the more he became convinced
that his only recourse was to quit, for he, the man in charge of the
finances, had been deceived.
As soon as the internal report was finished, Rahman
told the bank management that he was resigning. His fellow executives
tried to persuade him to stay. They even asked his American wife to
plead with him to remain, but Rahman was adamant and, on August 1,
1990, he resigned from the bank. In the days following his
resignation, anonymous telephone callers threatened Rahman, his wife,
and their two young children. The police in the London suburb of
Guildford where the family lived set up special patrols in the
neighborhood and hooked up an alarm system tied directly to the police
station. About the same time, Rahman learned from another former BCCI
executive, John Hillbery, that a shot had been fired through a window
at Hillbery's home. Early that fall, the Rahmans pulled their children
out of school and eventually the family fled to the United States.
Late in October, Rahman stepped forward. Through an
intermediary, he contacted Morgenthau's office and arranged to be
questioned informally. He provided a bombshell: two Price Waterhouse
audits described BCCI's hidden ownership of First American Bankshares
through a series of sham loan transactions with shareholders of CCAH.
They had been given to the Bank of England in November 1989 and March
1990. While the prosecutors did not receive copies of the documents
immediately, Rahman provided enough information for Morgenthau to ask
the Bank of England for them.
Based on information from Rahman and other present
and former
BCCI employees, a new round of subpoenas was issued
by the New York
County grand jury in October and November of 1990.
Equally important,
Morgenthau instructed John Moscow to share the
information with the
Federal Reserve regulators in Washington.
For Fed counsel Virgil Mattingly, Jr., and William
Taylor, the director of bank supervision, this was the second time
that fall they had heard about the Price Waterhouse reports. Earlier,
a regulator in Luxembourg had passed on word informally about the
findings, but the detailed description provided by Morgenthau's office
was far more substantive.
The Fed was finally getting confirmation of what
some there had suspected for a good while. Although Rahman was not
identified to the Fed initially, the two regulators sensed that
Morgenthau's informant was speaking with authority when he said that
BCCI had made substantial loans to CCAH shareholders and the loans
were secured by CCAH shares. It also matched what the Luxembourg
official had told them.
The disclosure meant that BCCI could be the owner of
First American Bankshares, the exact arrangement that the Fed had
feared since 1981 and which had been denied repeatedly by the bank and
by its American lawyers, Clark Clifford and Robert Altman. After a
decade of inquiries and examinations by the regulators, after a
two-year investigation by the U.S. Customs Service, this potential
breakthrough was handed to the Fed by the district attorney for New
York County.
Immediately, the Fed staff requested access to the
November 1989 and March 1990 Price Waterhouse report from BCCI
officials in the United States. The request was relayed to Price
Waterhouse in London, where the accountants initially refused to
permit the reports to be delivered to the Federal Reserve or examined
by Fed staff members because of British laws. The Fed found a way
around the laws, however, by demanding that BCCI itself provide them
with access to the report. This time the demand came at the right
time, for the bank's new management was eager to clean house and
restore good relations with the regulators.
On December 10, 1990, a senior staff member of the
Federal Reserve arrived at BCCI's plush headquarters on Leadenhall
Street in London, where he was allowed to examine the auditor's
reports from 1989 and 1990. As Morgenthau's source had said, the Price
Waterhouse audits confirmed the existence of long-standing loans by
BCCI secured by the shares of CCAH. The total was staggering-more than
$1 billion. And the loans were only part of the horrors described in
the audits.
The Fed staff member then met with Zafar Iqbal, the
bank's new chief executive. Ordered by Sheik Zayed's representatives
to cooperate, Iqbal confirmed that the loans to CCAH shareholders had
not been paid off. Indeed, there had never been any payments on any of
them, except in the form of new loans from BCCI. The loans appeared to
be window dressing for the bank's ownership of First American.
Within days, there was more progress. When Abu Dhabi
took over the bank, new defense lawyers were hired in Washington to
replace the team assembled by Clifford and Altman and represent the
institution in its dealings with the Federal Reserve. The lawyers were
from the Washington firm of Patton, Boggs & Blow. As Agha Hasan
Abedi had turned to a politically powerful firm for help in another
era, so did the new owners of BCCI select influential legal advisers.
The lead partner in the firm was Thomas Hale Boggs, Jr., the son of
the late House Majority Leader Hale Boggs of Louisiana, and regarded
widely as one of the most powerful lobbyists in town. But this time
the strategy was dramatically different than the one employed by the
earlier lawyers.
On December 21, Patton, Boggs partner Caffey Norman
and some of his associates met with Virgil Mattingly and his staff
lawyers at the Fed. The BCCI lawyers had requested the meeting. Norman
described how the Abu Dhabi ruling family had invested a large sum of
money in BCCI the previous spring in an attempt to correct its capital
deficiencies. As a result, he said, the rulers now held seventy-seven
percent of the bank's stock. A substantial amount of the stock in CCAH
had been pledged to BCCI as collateral for hundreds of millions of
dollars in loans to certain CCAH stockholders. Chief among them was
Kamal Adham. Payments had never been made on some of the loans, said
Norman, and BCCI had thus gained control over the CCAH shares pledged
as collateral. It was confirmation of the audits, and of the years of
deception.
The Abu Dhabi government and Sheik Zayed, explained
Norman, had hired Patton, Boggs & Blow to help conduct a special
inquiry into the relationship with CCAH shareholders and other
matters. They had been instructed to cooperate with the Federal
Reserve's inquiry into the relationship between BCCI and First
American's parent company.
Based on the Price Waterhouse audits and the
cooperation of BCCI's new owners, the Fed had enough information to
open a formal investigation into whether BCCI controlled First
American and other U.S. banks. On January 4, 1991, the Federal Reserve
Board voted to initiate the inquiry into how BCCI had gained control
of CCAH. It asked whether false or misleading statements had been made
to the board during the 1981 application process and subsequently. The
Fed has no power to bring criminal cases. It can only initiate civil
actions, levy fines, and ban individuals from participating in banks
doing business in the United States. It can, however, pass on
information it obtains to the Department of Justice for possible
criminal prosecution.
The grand scale of the BCCI deception was still
unknown. The pieces of the puzzle were only beginning to fit together.
But, based on what the Fed staff had seen in the past six weeks,
enough had been revealed to move on the criminal front, too. On
January 22, a criminal referral was sent to the Justice Department
proposing possible prosecution of people who had misled the board in
describing the relationship between the bank and CCAH with regard to
control of First American. Eight days later, the Federal Reserve Board
assembled for a final vote on a proposed cease and desist order
against BCCI in connection with its First American holdings. The vote
was approved with one abstention. Chairman Alan Greenspan said that he
was not voting because he had socialized several times with Robert
Altman, First American's longtime president and BCCI's longtime
lawyer. Nonetheless, the board sent the proposed order to BCCI's new
lawyers requiring the bank to sell the shares of CCAH that it
controlled.
With the cooperation of BCCI's new owners, the Fed
began to uncover the most extensive covert penetration of the U.S.
banking system in history. The $856 million in secret loans and other
agreements that gave BCCI control over First American's parent company
meant that the very institution regulators had fought to keep out of
the country had held controlling ownership from the start. And First
American turned out to be only the first of BCCI's secret expansions
in the United States.
Led by a former federal prosecutor named Rick Small,
the banking investigators discovered evidence that they said showed
that BCCI and its banking affiliate in the Cayman Islands,
International Credit and Investment Company, had financed the initial
acquisition of Financial General. The two entities had advanced most,
if not all, of the money used by the original shareholders to buy the
bank, said the investigators.
For instance, Small's team determined that BCCI had
loaned some of the CCAH shareholders the entire amount that they
invested in the company. The Federal Reserve would charge that the
loans were subject to secret side agreements in which the investors
were not liable for paying the money. In exchange, the Fed inspectors
said, the shareholders signed blank agreements under which BCCI
controlled the shares. It appeared to be a classic case of using front
men.
Initially, the bank appeared to have obtained
control over 25.78 percent of CCAH's shares in this way, just over the
level constituting a controlling interest under banking law. The
documents showed that the figure had risen to at least fifty-eight
percent by July 1986, when Clark Clifford and Robert Altman had been
allowed to buy the stock in CCAH that netted them nearly $10 million
in profits when they sold it eighteen months later.
In another example, the original application to buy
Financial General in 1981 said that $50 million of the purchase price
was coming from a loan from Banque Arabe et Internationale
d'Investissement. However, the Fed said the new documents showed that
BAlI had never assembled a syndicate to handle a loan that big, so
BAlI accepted personal guarantees from Kamal Adham and Faisal Saud al
Fulaij for the loan and accepted a $30 million deposit from Adham as a
form of collateral. But, the Fed charged, the $30 million deposit was
in fact a loan from ICIC at the direction of BCCI that Adham was
assured in writing he would not have to repay. In addition, on the
date in 1982 that the Federal Reserve approved the purchase of
Financial General, both Adham and Ftilaij allegedly received written
notices from BCCI that they were not liable for the personal
guarantees on the BAlI loan, according to a later Fed report.
All of this was just becoming clear when the Fed
approved the proposed cease and desist order. The order became the
starting point for negotiations with the new management of the bank.
As the fine points were being discussed in confidential sessions, word
of the talks leaked to the Wall Street Journal. On February 25,
the newspaper reported that a tentative agreement had been reached for
BCCI to divest itself of its First American stake and cooperate in the
continuing investigation. Along with First American, regulators were
delving into allegations that BCCI had similar arrangements that had
given the bank control of the National Bank of Georgia before it was
sold to First American. The story was the same at Independence Bank, a
medium-sized institution in Encino, California.
On March 4, 1991, a Monday, the Federal Reserve
Board announced that the Bank of Credit and Commerce International had
agreed to divest itself of its secret control over Washington's
largest bank. The bank also agreed to begin closing down all
operations in the United States through its agency and representative
offices. It was the first time that the regulators had kicked a
foreign bank out of the country. The order required the bank to submit
a plan to sell the CCAH stock and close its offices within sixty days.
The bank's owners agreed to the order without admitting or denying
wrongdoing.
In a statement, First Amencan's management said that
if BCCI controlled shares of its parent company, the bank supported
the divesti ture order. The statement said that the operations of the
$11 billion institution would not be affected by the Fed's order and
added, "BCCI hasn't ever directly or indirectly controlled the
actual management or operations of First American."
Rather than marking the end, the order was the real
beginning of the most extensive and exhaustive investigation in the
history of the Federal Reserve Board. Investigations of this nature
are complex under the best of circumstances. There are no bodies, and
clues are hidden in reams of paper and on computer disks, but BCCI had
achieved stunning levels of duplicity and concealment, and then
scattered the evidence all over the world. The Fed officials in charge
of the inquiry, Bill Taylor and Rick Small, were certain that BCCI had
deliberately structured transactions to conceal the relationship with
CCAH for more than a decade. What else had the rogue bank done?
The Federal Reserve's declaration that BCCI owned a
controlling interest in First American put Clark Clifford in an
awkward position. A man who had built himself into a legend of
probity, a man presidents from 'Truman to Carter had turned to in a
crisis, suddenly faced the dilemma of a lifetime: Either he had to
admit that he had lied to the regulators for a decade or tell the
world that he had been fooled.
"I have a choice of either seeming stupid or
venal," he told a reporter from The New York Times in his
handsome paneled office with its view of the White House.
He chose the former route, although the wording
selected by Clifford and his partner Robert Altman was that they had
been "duped." It was kinder than saying they were stupid.
Central to their argument, as it unfolded in some early press
interviews and later in testimony before the House Banking Committee,
was the contention that Clifford and Altman had been fooled in the
same manner that the Federal Reserve System and the Bank of England
had been fooled. Those guys at BCCI, they were just too crafty by half
for all of them.
Indeed, Altman would later say that he had launched
a major investigation into the ownership relationship after receiving
a copy of the transcript of the conversation in which Amjad Awan
boasted to Bob Mazur that BCCI owned First American. There were
several conversations in which he confronted BCCI's top management
with the accusations and always their denials were as adamant as they
had been back in 1981, said Altman. Even Price Waterhouse had told one
of First American's lawyers, in a private conversation, that there
were no documents substantiating Awan's claim, according to Altman.
The matter was also taken to First American's
shareholders. In July 1990, Altman flew to London and met with Kamal
Adham and another major shareholder, El Sayed Jawhary. Both men, he
said, told him emphatically that the allegations of BCCI ownership of
First American's parent company were untrue, and Altman said that he
believed the shareholders.
Over the years, Clifford had traveled to London
twenty-six times to discuss First American business with Agha Hasan
Abedi, but Clifford said it never occurred to him that Abedi was any
more than the financial adviser to First American's Arab shareholders.
One of the primary reasons that Clifford provided for never assuming
that Abedi was actually in control of Clifford's bank tells a great
deal about both men.
"In dealing with the shareholders, Mr. Abedi
was deferential almost to the point of being obsequious," said
Clifford. "His whole attitude was that of a man who was in
contact with his superiors."
Clark Clifford, the confidant of presidents, a man
treated as a true celebrity in Washington and deferred to at every
juncture within government, could not imagine that the quiet,
unassuming Abedi was any more than an employee of the wealthy sheiks
and rulers with whom Abedi dealt.
Plenty of people derived satisfaction from the Fed's
order on March 4. Among them was Senator John Kerry, who felt that he
had traveled a long, often lonely road on the trail of the bank.
Stonewalled by the Justice Department and BCCI's former lawyers,
scoffed at by colleagues in the Senate, vacillating at times in his
own commitment to the investigation, finally Kerry believed that he
was no longer the senator who cried wolL
By the spring of 1991, Kerry had been trying to get
approval for public hearings on BCCI for nearly two years. Senator
Claiborne Pell had resisted the effort in the Foreign Relations
Committee, arguing with some logic that it was a banking matter, not a
foreign policy issue. Senator Donald Riegle, chairman of the Senate
banking committee, was still mired in the Keating Five ethics charges
and was not inclined to focus attention on another banking scandal.
In April 1990, Kerry had gone clandestine. He had
enlisted Republican Senator John Heinz of Pennsylvania in an effort to
persuade the banking committee to conduct an investigation into the
whole savings and loan fiasco. They wanted a special select committee
appointed. Although Kerry told no one outside his staff, the special
committee was a Trojan horse. His plan was to use the panel to finish
up the investigation into BCCI. Creating a select committee required
approval of the Senate leadership, so Kerry and Heinz took the idea to
Senate Majority Leader George Mitchell. At a meeting with several
Democratic leaders in the Capitol, it turned out that there was no
more enthusiasm for delving into the savings and loan mess than there
had been for examining BC CI. Too many Democrats had already turned
out to be vulnerable to charges of favoritism and worse in connection
with the $500 billion S&L scandal. Kerry figured he would have to
find a way to go public through his subcommittee on terrorism and
narcotics after all.
Kerry's staff had sensed a turning point in their
long battle in May 1990. On May 15, the bank had turned over 775 pages
of its records on the Manuel Noriega accounts. According to a later
indictment, the accounts traced $23 million of Noriega's funds through
various BCCI branches and into another institution, the Middle East
Bank in London. Some of the money also appeared to have passed through
Syed Akbar's Capcom Financial Services.
In providing the documents that they had denied
existed for months, BCCI attorneys Robert Altman and Ray Banoun
explained to David McKean and Jonathan Winer of Kerry's staff that the
bank had not discovered the material earlier because it had relied on
Amjad Awan's assertion that there were no more documents. Only when
the lawyers had gone to London themselves did they discover the
Noriega docu ments. It was an argument that did not play well with the
two young Senate investigators. After all, almost exactly a year
before, NBC investigative reporter Brian Ross had aired a report in
which he described some of the very documents that were only now being
turned over to the Senate in response to 1988 subpoenas.
McKean, a Duke University law school graduate who
had become Kerry's most trusted investigator on BCCI since Jack Blum's
departure, sensed that turning over the documents was a watershed
moment for the bank and for Robert Altman personally. For months and
months, Altman had been cocky and almost insolent in his dealings with
Kerry's staff. On the afternoon of May 15, McKean had the strong
impression that some of the starch had been knocked out of Clark
Clifford's prot6g6.
Kerry and his staff continued to be frustrated in
attempts to obtain additional overseas BCCI records through the
Justice Department. The Tampa prosecutors had refused to share the
material and bucked the matter up to main Justice in Washington. There
the subcommittee was stonewalled. A schedule had been drawn up for
four days of hearings in the summer of 1990. The extensive public
sessions would examine the bank's covert acquisition of U.S. banks,
its money-laundering practices, its relationship with Noriega, and
whether the January 1990 plea bargain with the bank had served the
interests of justice. Among the witnesses would be Clark Clifford,
Robert Altman, and Ray Banoun. Somehow, Kerry's staff thought, they
would get Pell's permission. On July 24, the Justice Department wrote
to Kerry that it would not participate in the hearings because they
would deal with matters that were under litiga tion. At the time, the
jury in Tampa was deliberating and the verdict was returned five days
later, so there were no Senate hearings that summer.
There had been little appetite for a full-scale
investigation of BCCI from the start. Some people believed it was
partly the result of Clark Clifford's soothing assurances to political
and governmental leaders that there was nothing wrong with the bank.
Then Clifford emerged as a potential principal in the scandal, rather
than simply a lawyer. The result was a new level of resistance in the
Senate and elsewhere in Washington. And somewhere within the Senate a
spy was passing secrets to BCCI's lawyers.
Along with a star-studded team of Washington
lawyers, the bank employed Holland & Knight, one of the leading
law firms in Miami. On lawyers followed. Near the publication date,
former Democratic Con gressman Michael Barnes, then a lawyer with Ray
Banoun's firm, had telephoned Bill Regardie to express concerns about
the upcoming article. But it was all to no avail. The article ran as
scheduled, with an ominous picture of Sheik Zayed on the cover.
The opposition John Kerry ran into was more subtle.
No one had suggested to Kerry that he stop his investigation of BCCI
and its links to First American. However, there were snide comments
about the attacks on Clifford and digs at Kerry for questioning the
word of the august lawyer. Despite his age, Clifford remained a power
in Washington and he would not be brought low easily. Part of the
power stemmed from his access to political contributions. He was a
close friend and adviser to Pamela Harriman, a major fund-raiser for
Democrats. And Clifford and the partners in his law firm contributed
to politicians in both parties. Even Kerry had received a $1,000
contribution from Clifford.
All Kerry would say later about the remarks was that
it was an uncomfortable period for him, yet the Massachusetts senator
ilever called off McKean and Winer. And then in March, the Fed's order
added new vigor to his pursuit of BCCI and once more Kerry began to
press for Senate hearings on the broadening bank scandal.
The Fed's order had a different effect on the
investigation being conducted by Robert Morgenthau's office. Suddenly
the Justice Department stopped its cooperation with the New York
prosecutor.
In January 1991, Moscow had gone to Washington for
meetings with senior officials at the Justice Department. He offered
to share informa tion being gleaned from his grand jury investigation.
He knew that the Justice Department had started work on the criminal
referral from the Federal Reserve and, in exchange, he wanted some of
the information being dug up in Washington. Morgenthau's office often
cooperated with federal agencies, so the request did not seem
extraordinary, but the department refused to cooperate. They wanted no
information from Morgenthau's office. They would provide none to the
New York prosecutors.
"As we went along, the federal government grew
less and less helpful," explained Morgenthau. "Maybe because
they saw we were getting somewhere."
Although they report to the Justice Department,
United States attorneys have a measure of freedom and independence.
Over the previous year, the U.S. attorney's office in Tampa had shared
a substantial amount of information with Moscow and his investigators.
Mark Jackowski and Mike Rubinstein had provided copies of records and
transcripts. The prosecutors and the Customs supervisors had discussed
avenues for New York to pursue within its jurisdiction and relations
were generally cordial.
Snags had cropped up at various points. Jackowski
had refused to share a computerized index of the 2,000 tape recordings
and other evidence that he prepared, claiming it was confidential. And
Rubinstein had been caught in a well-intentioned lie about the
existence of the Amer Lodhi tapes. When Morgenthau's office first
asked for the sixteen hours of tapes that had been made with Jack
Blum's assistance in March of 1989, Rubinstein had said there were no
such recordings. The New York investigators were stunned because they
had been told of the tapes by Lodhi himself. Yet Rubinstein believed
that he was honoring the commitment of confidentiality to Lodhi. Even
when Moscow provided a written release of the tapes from Lodhi,
Rubinstein resisted because the name of another confidential informant
was mentioned several times on the tapes.
The Tampa prosecutors also had refused to allow
Morgenthau's men to interview Amjad Awan or any of the other convicted
bankers. The feds said that they had not interviewed the bankers yet,
and they were not about to have investigators from another
jurisdiction in there first. There were good legal reasons for this,
but there was also an element of turf protection.
Despite the refusal to share the convicted bankers
with Morgenthau, the Tampa prosecutors were still sharing other
information with them, and relations between the two offices remained
cordial. As recently as March 6, 1991, Richard Preiss, an assistant
district attorney in New York, and Andrew Finan, a senior
investigator, had interviewed Bob Mazur for several hours in Tampa
about other leads he had picked up during Operation C-Chase.
A week later, the cooperation ended. In a
one-paragraph letter dated March 15, Mike Rubinstein told the New York
prosecutors that any requests for information on the BCCI case had to
go through the fraud section at the Justice Department in Washington.
"We called the Feds," said Morgenthau.
"They told us to call Tony Leffert. We called for three weeks
with no answer. Finally, we faxed him a letter asking him to answer
his phone. He called back and said he would take the letter under
advisement."
Clearly the order had come down from main Justice,
although no one would acknowledge it. Rubinstein did not provide a
reason for shutting off cooperation, and Morgenthau could get none out
of Justice. The answer may be found, however, by examining the timing
of the letter.
Before March 1991, the BCCI case remained a sleeper
as far as the world's press was concerned. There had been isolated
articles in the U.S. press, such as the May 1990 Regardie's article
and a page-one story in The Wall Street Journal a few days later.
All that had changed after the Federal Reserve
ordered BCCI to sell its hidden stake in First American. Suddenly, the
case was getting serious attention in the world press, including the
paper read by all the top U.S. officials. After the Fed order, The
Washington Post had done a major front-page story reconstructing how
the Justice Department had alleged ly dragged its heels on following
up additional leads about the bank. At the same time, the Fed had
focused new attention on Clark Clifford and stories appeared in every
major newspaper in the country questioning his role with BCCI and
First American. Stung by the criticism and always turf conscious
anyway, the Justice Department had no intention of allowing a New York
County prosecutor to take the lead in what had become the most highly
publicized banking case of the new decade.
Along with questioning Clark Clifford's assertion
that he was unaware of any secret ownership of his bank by BCCI, the
press began asking why the Justice Department had seemingly failed to
follow up on the allegations uncovered about BCCI's links to First
American during C-Chase. Suddenly, the Justice Department got very
interested in talking to Amjad Awan, Akbar Bilgrami, and their
compatriots.
"My client had sat for months and been shifted
from prison to prison and no one wanted to interview him about
cooperation," maintained John Hume, who had taken on Awan's
appeal without pay.
Then the ex-bankers found themselves back in
Florida, undergoing extensive questioning by federal prosecutors. Not
only were they an swering questions from the Tampa prosecutors, they
were talking to federal prosecutors from Washington who were
investigating the Federal Reserve criminal referral regarding the
secret ownership of First Ameri can. And they were interviewed by
prosecutors handling the federal investigation into the collapse of
CenTrust Savings in Miami.
Mark Jackowski had transferred to the United States
attorney's office in Denver. For Mike Rubinstein and his new partner
in Tampa, William Jung, the questioning of the bankers covered ground
first plowed during Operation C-Chase. Clues that the money-laundering
scheme was countenanced higher up in BCCI had surfaced during Mazur's
original undercover operation. Indeed, he had written numerous memos
begging for help to follow the trail in the many different directions
it seemed to head. Only now, with extensive help from Awan and
Bilgrami, were Rubinstein and Jung able to begin assembling the
evidence that would lead to the highest reaches of BCCI.
Awan was describing meetings with Swaleh Naqvi and
other BCCI officials at which transfers of Manuel Noriega's money and
various drug accounts were discussed. It was not as good as having Bob
Mazur and his James Bond briefcase on the scene, but the information
that Awan was providing could be corroborated with the evidence
obtained during the undercover probe.
Gregory Kehoe, the first assistant U.S. attorney in
Tampa, maintained that the intention was always to go after other
bankers and drug dealers with the cooperation of the convicted
bankers. Backed by Jackowski and Rubinstein, Kehoe said they were
simply waiting for the right time. Kehoe said he wanted the ex-bankers
softened up and ready to tell everything in the hopes of getting out
of jail sooner. No longer condo convicts, permitted to lounge in their
own apartments, they were doing hard time. Separated from their
friends and facing up to twelve years in jail, Kehoe reasoned the
defendants would be more willing to tell everything they knew.
Other evidence indicates that the BCCI investigation
was accorded a low priority in the U.S. attorney's office in Tampa and
virtually no priority within main Justice. Only after the wave of
publicity surround ing the Fed's order against BCCI on First American
did the Tampa prosecutors and their counterparts from other
jurisdictions begin seek ing the cooperation of Awan and the others.
And then there was the matter of Bob Mazur's resignation from the
Customs Service.
In March 1991, Bob Mazur decided to quit. He quietly
arranged to go over to the Drug Enforcement Administration and then,
on April 3, sent an explosive letter of resignation to Carol Hallett,
the Customs commis sioner in Washington. In that letter, Mazur
complained that the federal government in Washington, primarily his
own agency, had been too slow to follow up on leads about BCCI
generated during C-Chase. Had more resources and a higher priority
been given to the investigation, he maintained, indictments would have
reached far higher into the bank. He said that his many requests for
additional help, including the suggestion of an international task
force, had been rejected at every level. Further, said Mazur, his
supervisor had taken his repeated complaints personally and responded
by harassing him and threatening to transfer him.
- It was a bitter missive, one that Bonni Tischler
later rejected as totally unfair and untrue. She maintained that she
had provided Mazur and C-Chase with all the resources necessary.
Within days of his resignation, Bob Mazur, the man who had brought
off the biggest undercover case in the history of the Customs
Service, was in a training program to become a Drug Enforcement
Administration agent and hoping to go undercover again.
The resignation climaxed frustrations that had been
experienced by Mazur, the other Customs agents, and Mark Jackowski
since the conviction of the bankers. They had expected to resume
investigating the bank with renewed vigor, and with lots of help. On
January30, 1991, Jackowski had written a "road map" for
other prosecutors on how to continue pursuing the leads that had come
out of C-Chase. Critical to the next phase, said the memo, was a
thorough examination of all the BCCI records seized in the October
1988 raids. Pressed by the trial and a shortage of agents, boxes of
bank records had never even been examined. But Jackowski also
expressed serious reservations about whether the Customs Service would
support a continued investigation. Jackowski then transferred to the
U.S. attorney's office in Denver, citing personal reasons.
Mazur's resignation and Jackowski's transfer seemed
to point to what at least those two veteran law enforcement agents
felt was a federal failure to pursue the BCCI case. It was a failure
that was remedied, but only after the Justice Department was forced to
act in response to criticism in the press and rising concern in
Congress. And in finally moving to claim the BCCI case as its own, the
Justice Department stopped its help to Robert Morgenthau at a critical
moment in the New York County prosecutor's investigation.
In the spring of 1991, Morgenthau, Moscow, and their
investigators were ready to move to the third stage. They had
determined that a broad scheme of fraud could be proved. Now they
needed to find more witnesses and documents to prove it. It would have
helped to talk to Amjad Awan. The effort would have been speeded up
with Amer Lodhi's tapes as a guide to corruption inside the bank, but
they had gone ahead without that assistance.
For nearly two years, Moscow had been presenting
evidence to the grand juries that met regularly for thirty-day
sessions. Now he needed a longer session so that the jurors could
grasp the complexity of the scheme and understand the crimes that
Moscow felt he could now prove. So in April 1991, he was granted
authority by a New York judge to empanel a special grand jury to
investigate BCCI for as long as it took to make a case.
By this juncture, John Moscow was confident, even
cocky in private moments as he contemplated the emerging criminal
case, with or without federal assistance. He had seen the Price
Waterhouse audits describing the bank's hidden ownership of First
American and they had pushed him well into the second phase of the
investigation. Material was flowing into the office from many sources.
Much of it helped; some just boggled the mind. In the latter category
was a fifteen-hour tape recording of a BCCI annual conference.
"Absolute mind rot," Moscow called it
after sampling an hour of Abedi's rhetoric. "This is a cult, not
a bank."
Moscow sensed some intimidation of his sources. He
had learned that a 1981 article from the liberal British journal New
Statesman was circulating among current and former BCCI employees.
The article described the beating and rape of a BCCI banker by a group
of Pakistani soldiers after the man had left the bank and threatened
to disclose adverse information about it to authorities.
When he was more naive about BCCI, Moscow had asked
one of its employees how the bank made money.
"By taking deposits," replied the banker.
"But how can you make money just by taking
deposits?" asked Moscow. He found, in his words, that "the
conversation deteriorated rapidly after that." But by the spring
of 1991 the prosecutor had found out for himself.
Often he and some of the investigators on the case
would slip out for hurried lunches at basement restaurants in nearby
Chinatown. The conversations over Szechuan beef and twice-cooked pork
invariably turned to BCCI.
"What is a bank?" Moscow asked one day.
"You give it your money. It pays you interest and it makes loans
at a higher interest. That's how it makes money. But BCCI doesn't make
long-term loans."
As the outlines of the Ponzi scheme became clearer,
Moscow's ruminations became more pointed. "Why do you target
central bank deposits?" he would ask, referring to the large cash
reserves available from government banks in many countries.
"Because they're the only ones with enough money to keep you
going."
Analyze the structure of the bank, he said. Ask what
it is for. You are offshore to everybody. Sure, you can hide accounts
from law enforce ment and from tax collectors. But you can also hide
bad assets from your own auditors. 'Iwo legally separate holding
companies, each based in an offshore banking haven, each with separate
auditors. The more he learned, the more certain Moscow became that
this was the world's biggest financial scandal.
"Take the largest single savings and loan
fraud," he said one day. "This is ten times bigger."
"Ten times two billion?" asked a companion
incredulously.
Moscow just grinned.
With the new grand jury, Moscow and Richard Preiss
were delving into evidence that bribes were paid to officials of
Peru's central bank in exchange for $250 million in deposits in 1986
and 1987. At that time, Alan Garcia was president of Peru and more
than a quarter of the nation's cash had been deposited in a secret
account at BCCI's Panama branch. The government believed money was
placed in BCCI as part of a scheme to hide the country's hard currency
after foreign banks threatened to seize Peru's assets when Garcia
stopped paying the country's foreign debt.
Such large deposits, Moscow believed, were vital to
BCCI because they helped cover the trading losses and bad loans that
were threatening to topple the Ponzi pyramid. The bank apparently was
so desperate for money that it had been willing to pay substantial
bribes to Peruvian officials to obtain the deposits.
On May 23, 1991, John Kerry finally got a public
hearing on the Bank of Credit and Commerce International. He had
persuaded Senator Riegle to approve a limited session before a banking
subcommittee. The official subject matter was proposed legislation to
grant the Federal Reserve Board new powers to regulate foreign banks
operating in the United States. The real topic was the regulatory
oversight of BCCI and the behavior of the Justice Department.
Sidney Bailey, the Virginia banking regulator, was
the first witness. When asked why he had opposed the takeover of
Financial General in 1981, he responded with blunt country humor:
"You can't send the sheriff after them." He also testified
that he felt too much of what was being said by Clark Clifford and
others was accepted at face value by the decision makers in
Washington.
"A lot was being taken because if he says it's
so it must be so," drawled Bailey in his gravelly voice.
Virgil Mattingly and William Taylor testified about
the lingering suspicions about BCCI and First American and the
difficulty in gaining access to records that showed the true
relationship. They said there had been a concerted effort to keep
information from the agency for years and such concealment was the
subject of an ongoing investigation and criminal referrals to the
Justice Department.
Among the criminal referrals was information
regarding the true ownership of Independence Bank in Encino,
California. Just three weeks before the Kerry hearing, the Fed had
issued an order demanding that BCCI sell off its shares of
Independence Bank. The Fed said it had uncovered evidence that
Independence had been acquired by BCCI through Saudi tycoon Ghaith
Pharaon. A Fed official said that the acquisition had been pulled off
through a series of loans and other transactions similar to those
arranged with the investors in First American. While Pharaon protested
adamantly that he owned 100 percent of the California bank, BCCI
agreed to the order without saying whether it did or did not actually
control the institution.
It was late in the afternoon of the all-day hearing
when the star witness moved to the witness table in front of Kerry and
the two other senators in the room, Democrat Alan Dixon of Illinois
and Republican Alfonse D'Amato of New York. The witness was Robert
Morgenthau. Seated behind him, in the first row of the audience, was
John Moscow. Near the back of the room sat Jack Blum.
Morgenthau's prepared remarks addressed the proposed
new powers for the Federal Reserve. He praised the legislation and
urged its passage as a way of piercing the bank secrecy laws that had
protected BCCI and other banks. This was a mild appetizer for the
entree.
Under gently prodding questions from Kerry,
Morgenthau said that the Justice Department had refused to cooperate
with his investigation into BCCI. He said that his progress had been
slowed by the Justice Department's refusal to grant him access to key
witnesses and its rejection of his offer to share information.
"We run many cooperative investigations with
federal agencies," Morgenthau testified. "This is the
exception, not the rule."
Paul Maloney, a lawyer at the Justice Department who
had no background in the BCCI investigation, followed Morgenthau to
the witness table. He had the unenviable task of persuading Kerry that
the department had not impeded Morgenthau's probe or tried to slow
Kerry's own investigation. He said the department was willing to
cooperate with Morgenthau and other agencies.
"There are, however, some procedural matters
that may prevent a full exchange of information, at least at this
time," he said.
Maloney did not go into any details, but he said
that the Justice Department was pursuing additional investigations of
BCCI through several U.S. attorneys' offices. Seated beside him at the
table was Robert Genzman, who had replaced Bob Merkle as U.S. attorney
in Tampa. Genzman assured Kerry and the other senators still in the
room that his office was investigating more BCCI leads stemming from
Operation C-Chase. But neither man found a sympathetic ear.
Senator Kerry's anger at the Justice Department was
evident. His investigation had been stonewalled by the department, he
complained. He found it hard to imagine that the department was
pursuing BCCI aggressively. Morgenthau himself was convinced that the
Justice Department had been uninterested in ferreting out the entire
BCCI story since the indictments in October 1988. Perhaps it was the
focus on Noriega. Perhaps it was that no one cared much about a
complicated bank fraud case. Certainly at that point, no one could see
the true extent of the corruption and the potential global impact,
although Jack Blum had had a pretty good eye for the scope of the
scandal more than two years earlier.
- By the time of Maloney's testimony in late May of
1991, the Justice Department was beginning to take the BCCI case
more seriously. Investigations were being conducted by federal grand
juries in Washing ton, Miami, Tampa, and Atlanta. After months of
lingering in cells, Awan and Bilgrami were being questioned
extensively by prosecutors and federal agents. But it was late and,
as the scope of BCCI's corruption began to emerge, criticism mounted
that the Justice Department and other federal agencies had ignored
obvious leads about the bank until forced to act.