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The Critical Event


 


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A World of Unreality

Fahd bin Abdul Aziz

Sultan Bin Abdul Aziz

Naef Bin Abdul Aziz

Salman Bin Abdul Aziz

Ahmad Bin Abdul Aziz

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.
 


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