Relationship between Agha Hasan Abedi and Thomas Bertram Lance was one of convenience on both sides. Abedi was looking for a way to expand his empire into America, and Lance needed a staggering amount of money to bail himself out of a financial jam. Whether one of these two men wound up taking advantage of the other remains an unanswered question, but in many ways, before the calamities, they seemed made for each other, despite their backgrounds.

Bert Lance was a country boy, a devout Southern Baptist whose father had been an educator in rural Georgia. After starting as a bank teller in 1951, he had married into the family that controlled First National Bank of Calhoun, a small bank in the northwest corner of the state. He was a big, jowly man who spoke with a heavy Georgia drawl. His height, more than six feet, made his ample paunch all the more dramatic, and his heavy-lidded eyes gave Lance the doleful cast of a drowsy hound dog. But he was no dumb cracker. After all, he married the boss's daughter, and later on he was savvy enough to align himself with another country boy from Georgia, a state senator by the name of Jimmy Carter. When Carter was elected governor of the state in 1970, he made Lance director of the highway department. Under state law, Lance was allowed to continue running the Calhoun bank.

When Carter left the governor's office, he picked Lance to run for his spot. Lance mounted an expensive campaign, flying up and down Georgia in his bank's airplane and advertising extensively on television and radio. A big chunk of Lance's campaign funds came from overdrafts written on his accounts at the Calhoun bank. Overdrafts are checks written without enough money in the account to pay for them. Lance and his family had the money in other accounts to cover the checks, but the overdrafts would prove to be a costly mistake.

Lance lost his bid for the governorship in 1974, but his high-profile campaign had elevated him to stardom in Georgia. The following year, he became president of the National Bank of Georgia, an aggressive, fast-growing bank in Atlanta. He took the job on condition that he be allowed to buy a big block of stock in the institution. He did not have the money for the stock, so he borrowed $2.6 million from Manufacturers Hanover Trust in New York. After Lance took over at National Bank of Georgia, the institution switched its bank-to-bank business, or corre spondent account, in New York from Citibank to Manufacturers Hano ver. That's the way things often work in banking.

With the election of his old patron Jimmy Carter to the presidency of the United States in 1976, Lance moved to Washington as director of the Office of Management and Budget. 0MB is the White House agency that monitors financial affairs in the executive branch of the government. Its role in drafting the federal budget makes it one of Washington's most important power centers. The move offered the one-time bank teller a shot at real glory, but there were a couple of hitches.

First, Lance's stock-purchase loan with Manufacturers Hanover re quired him to remain as chief executive of the bank in Atlanta. But federal regulations required him to resign. Bank stock prices were weak at the time, so he couldn't sell his stock and pay off the loan. Instead, Lance arranged a new loan with The First National Bank of Chicago. The new loan-for about $3.4 million-would pay off Manufacturers Hanover as well as a second loan that Lance had taken out with Chemical Bank of New York. A month before the First National loan was completed, Lance's National Bank of Georgia deposited $200,000 at the Chicago bank. It also took its Chicago correspondent account away from Continental Illinois Bank and gave it to First National.

Second, when the Senate confirmed him for his government job in early 1977, Lance promised not only to resign his bank post but also to sell his stock in the institution. Stock prices were still so low that he would not have netted enough to pay off the First National loan, so he was reluctant to fulfill the pledge. In July, Lance persuaded President Carter to ask the Senate to give him an extension on the stock sale so that he could avoid a ruinous loss on the deal.

Meanwhile, Lance's financial activities had attracted the attention of Congress. Investigators from the Senate Governmental Affairs Commit tee began asking questions about whether there was a quid pro quo between Lance and First National Bank of Chicago regarding the $3.4 million loan. Perhaps it was not coincidence that had resulted in the opening of the $200,000 account and switching of the correspondent account. Even if there was a connection, this was not a terrible offense and there was no criminal violation involved. But Bert Lance was budget director of the Carter administration and the Senate investigation did not die after just a few headlines.

The U.S. Comptroller's Office, which regulates national banks, issued a report in the middle of August that found no criminal wrongdoing in the relationship between Lance's Georgia bank and First National of Chicago. But the thoroughly neutral document did note an array of what it described as "unsafe and unsound" banking practices. Similar criti cism had been expressed in an earlier report by the regulators that criticized Lance and the Calhoun bank for allowing those overdrafts to finance Lance's race for governor, and that document became public, too. Real estate loans made during his tenure at National Bank of Georgia had gone bad, providing more fodder for a gleeful press. Then it was discovered that Lance had pledged his stock in the Atlanta bank as collateral for two loans at once, one from Manufacturers Hanover and the other from Chemical Bank.

On Labor Day, 1977, President Jimmy Carter telephoned Clark M. Clifford, a lawyer who, since the days of Harry Truman, had made a career out of being the man presidents turn to in times of crisis.

"My budget director Bert Lance is in trouble," said the president. "Can you help him?"

Lance was scheduled to testify before the Senate three days later. Clifford accepted the job and assigned the first work to his young protege, Robert Altman. The young lawyer met with Lance at seven o'clock the next morning and together they crafted an opening statement that would accuse the senators of treating rumor and innuendo as the truth.

The day Lance went to the Senate to testify, Clifford and Altman were at his side. The hearing room was filled to capacity and there was a loud buzzing of conversation and much paper shuffling as Lance prepared to read the opening statement that the two lawyers had drafted for him. Clifford simply raised his hand to the room and it quieted. Such was the respect that Clark Clifford commanded in Washington, even before a potentially hostile panel of U.S. senators. In his statement, Lance defended his actions, claiming that the Calhoun bank had a liberal overdraft policy that was available to all depositors. He claimed that the issue of pledging the stock twice was a technical dispute.

The press made a hero out of Lance, at least for a brief time, portraying him as the victim of a vendetta by the Washington establishment. But the fire would not be doused. A week later, Lance resigned as director of the Office of Management and Budget.

Less than a year after taking over one of the most important jobs in Washington, Bert Lance was nearly broke and out of work. His prospects for a big job in banking seemed bleak at best. About all he had left was his friendship with the President of the United States. That turned out to be enough for Agha Hasan Abedi.

At a Washington hotel in October 1977, the former budget director and the international banker were brought together by Eugene Holley, a former state senator from Augusta, Georgia. Holley had met Abedi the year before while trying to obtain oil rights in the tiny Gulf sheikdom of Qatar. Indeed, he was still trying to get permission when he introduced Abedi to Lance.

Abedi described his growing banking empire to Lance. He told the Georgian that he was interested in making investments in some Ameri can banks, perhaps even acquiring one or more banks. Lance, of course, was looking for a buyer for his stock in the National Bank of Georgia and he viewed BCCI as a prospective purchaser. Naturally, Lance down played his recent troubles and bragged about his financial acumen. Yes, he said, of course he was still friends with President Carter. Yes, he thought an introduction could be arranged later.

Unfortunately for Lance, BCCI was prohibited by law from buying a major interest in the Georgia bank because of its partnership with the Bank of America. As long as the California bank owned its chunk of BCCI stock the deal would violate a federal ban on interstate banking. That did not mean, however, that Abedi and Lance could not do some business. Abedi suggested that someone from his list of wealthy clients might be interested in acquiring Lance's stock. Also, perhaps Lance had ideas about other institutions that might be available to some of BCCI's shareholders.

So, by the end of the conversation, Abedi had promised to seek a buyer for Lance's stock and Lance had been retained as a financial adviser to help Abedi scout for other investment prospects for BCCI's rich share holders. In fact, Lance confided to Abedi, he might have a candidate very soon, for the Georgian saw the international banker as a way out of his financial plight.

Abedi had high hopes for this relationship, too. His sights were set on coming to America, and Bert Lance was just one stage in his plans for making that part of the grand dream come true.

As 1977 was drawing to a close, he was touting the Bank of Credit and Commerce International as the world's fastest-growing bank. Its total assets had jumped from $200 million in 1973 to $2.2 billion in 1977. At the same time, its network of banks and branches had soared from 19 branches in five countries to 146 branches in thirty-two countries. BCCI had expanded from Britain and Abu Dhabi to branches throughout the Persian Gulf region, in Egypt, and in other African nations. There were branches in France, West Germany, and Hong Kong. In Switzerland, the bank had bought seventy percent of the Banque de Commerce et de Placements, which had branches in Geneva and Zurich. However, this stake was being challenged by the Swiss government because it violated regulations governing foreign investment in the country.

The pattern of this growth was rooted in the bank's origins and Abedi's style. Sheik Zayed had provided the initial backing in Abu Dhabi and he and members of his family had been rewarded with stock in BCCI and loans on convenient terms. Similarly, each time the bank had opened in another Persian Gulf nation, the rulers received shares in the bank. By 1977 small stakes in BCCI were held by the rulers of Bahrain, Saudi Arabia, and two tiny emirates, Dubai and Sharja. In each location, BCCI had opened branches at a time when the activities of foreign banks were restricted. In another Gulf nation, Oman, BCCI had entered a joint venture with the ruling sultan in 1973 that by 1977 had grown to forty-two branches within the country.

Despite his bad experience with Bhutto's nationalization, Abedi assiduously cultivated the Pakistani government. He helped Bhutto's finance minister float a badly needed foreign bond issue to raise money for the government and was rewarded with the right to open two branches in Pakistan, one in Karachi and one in Lahore. After being forced out by nationalization in 1974, Abedi's reentry into Pakistan added to his legitimacy, and it also furthered his most broadly based service, handling the remittances of his expatriate countrymen. Abedi had concentrated many of his branches in the cities and countries where Pakistan's itinerant workers were located. He was on his way to becoming a figure of influence in his home country.

To attract deposits in its pell-mell push to grow, BCCI opened fancy offices even in impoverished locations. "Walk down the main street of Djibouti and you'll see a building with a marble facade," said a Western banker. "That's BCCI. On the two buildings on either side, the plaster will be breaking and falling."

Pakistani workers and other immigrants around the world found friendly service in the offices of BCC I, so they entrusted their life savings to the bankers who spoke their language. In Britain, with a quarter million Pakistani workers, BCCI had grown to forty-five branches. It was the largest foreign bank in the country in terms of branches. While it still catered to immigrants and continued to promote itself as a Third World bank when it was convenient, the bank also was bent on solidifying its image as a world banking power.

No expense was spared in decorating its new headquarters in London's financial district. Visitors to the headquarters on Leadenhall Street were greeted by staggering opulence. A jade-encrusted Chinese screen, rumored to be worth $100,000, marked off one section. Through out the offices were deep-pile carpets and polished marble walls. Abedi himself lived in splendor in one of London's richest districts, Harrow- on-the-Hill. It was a world apart from the Pakistani workers and other immigrants who had been his first customers in Britain and who remained his most loyal ones.

In addition to veteran Pakistani bankers, BCCI had hired as top executives people with the sort of influence that could bring in more business. There were the former governors of two central banks and a one-time director of the World Bank. Many of these senior executives were evidence of Abedi's knack for the politically expedient hire. For instance, the founding head of the Nigerian branch of BCCI was Ibrahim Dasuki, an Oxford-educated Nigerian Muslim who had been a leading government official and an associate of the country's political and religious leaders. All of these men were promised generous salaries and bonuses and stock deals that would make them rich, as long as they stayed with the bank.

Muzaffar Ah Bukhari, who spent those early years at Abedi's side, recalled Abedi's orders for the recruitment of top bankers from other organizations and governments.

"He used to say, 'Whenever you come across a good banker-he may be a governor of a central bank of a country or he may be a general manager of another bank-if he's available, you take him.' But we said, 'Sir, there is no work for him.' And he'd say, 'He will generate his own work.' When we go to a developing country in, say, Africa, when we send him, [the new employee] will say, 'With our experience of twenty or thirty years as governor of the central bank of Pakistan or someplace, I will organize your bank.' This is how we expanded."

Loyalty was bought, too, by telling employees at every level that they had an ownership role in the bank through a foundation established in the Cayman Islands. It was called International Credit and Investment Company Holdings, or ICIC, and it was set up to hold stock in the bank on behalf of its employees.

Back in 1974, Abedi had made employee ownership a key part of his appeal to Masihur Rahman that he join BCCI as its general manager for finance, or top accountant. Pakistan's banks had been nationalized and Rahman was chafing under the government's management at United Bank.

"You have lost everything in this abrupt nationalization and so did I," Abe di told Rahman. "I don't want to face this and you shouldn't face this ever again. We are a family and this is like starting a family business. And we all will have a share in this bank."

Abedi was not offering to pay much and the bank was still small, but Rahman was attracted by the chance of owning a piece of the bank. "It gave us," he said later, "something to work for for ourselves."

All members of this family, from the lowliest teller to the most senior executive, were exhorted with evangelical zeal to bring in new deposits and increase business. Annual meetings, which are terminally boring at most institutions, were marathon affairs designed to instill a sense of family and mission. They seemed to have more in common with the Bible-thumping revival meetings of the American South than the banking business. Sometimes they lasted fifteen hours, with Abedi talking for hours about growth and change. Abedi's rhetoric seemed to reflect an obsession with becoming bigger and bigger.

"The extraordinary success we have achieved is primarily due to the power we generate by being both an agent of change and a beneficiary of change at the same time," he explained to the expanding ranks of BCCI executives one year at the annual meeting in Vienna, Austria. "We live with the inevitability of change and we feel it in anticipation. There are times in our lives when change takes on not only a special but an enormous significance. Such is the time for us now."

Going on before the audience of nearly a hundred BCCI executives, board members, and select guests at Vienna's Intercontinental Hotel, he described a business strategy that he called the External Marketing Program, or EMP. Under EMP, the bank's various offices and regional divisions were supposed to generate business for themselves and also for the other operations within the bank at the same time. Doing so, he said, would create new energy to propel BCCI forward.

"We should draw from each other and above all from the infinite and ultimate source, totality, God," he charged. "We shall endeavor our best to experience totality and experience God."

In later years, EMP would take on a new meaning within BCCI. It would come to symbolize the shifting of vast sums of capital between the bank's branches worldwide, moving currency and cash out of one country and into another at the bidding of anyone willing to pay the bank's fees, no questions asked. Here, too, Abedi's strategy reflected his heritage, for the system that he set up, the manner in which BCCI did business, was a modern version of an ancient Pakistani system of transferring money known as hundi.

In hundi, an agent in one city accepts cash from a person and contacts an associate in another city who gives the same amount of cash to a person designated by the initial depositor. These transactions usually occur among friends or relatives and business is done in a very discreet fashion. Even in modern times, hundi serves as a simple, effective, and secret means of transferring money out of countries with tight currency restrictions, such as Pakistan and India.

Alvin Rice was one of the first MBAs hired at the Bank of America. In the 1950s, right after his graduation from Stanford University, Rice had joined a training program at the big bank. Since then, with time out for a brief career in the real estate construction business, he had risen steadily and smoothly at the Bank of America. By 1977, he was in charge of the World Banking Division, which was generating half of the bank's substantial profits. He was viewed as the heir apparent to A. W. "Tom" Clausen, the bank's imposing chairman.

Rice's position also made him the bank's ultimate supervisor over its investment in the Bank of Credit and Commerce International. He even occupied one of the bank's two seats on the BCCI board of directors. The other director designated by the Bank of America was Yves Lamarche, an urbane American who was based in Paris. Lamarche had succeeded Roy Carlson as the Bank of America's officer in charge of the Middle East when Carlson left in 1975.

Rice often traveled to the Persian Gulf with Abedi, making joint calls on government officials and members of various royal families, all of whom seemed thrilled to see their old friend Abedi. In a real way, BCCI served as a calling card for the Bank of America in the region. Rice found Abedi to be a likable business partner.

"Mr. Abedi was a very unusual person and had a very fine leadership style," Rice recalled years later. "He seemed to me to develop loyalty among his people to an extent that was very unusual. He was very thoughtful and quiet. He had a lot of banking experience and he did a good job of corralling very good people."

The five-year-old relationship between the two banks had been profitable for both institutions. Bank of America had built up its book of Middle Eastern business and collected hefty dividends from its BCCI stock. The bank was so satisfied that it had upped its holdings to thirty percent of BCCI's stock and then to more than forty percent. However, the same growth that had fueled the profits and brought in new business was now causing concern. The Bank of America, an orthodox bank despite its freewheeling past, could not monitor the activities of its partner.

The swiftness with which BCCI opened offices in new countries was causing problems with regulators in the States. The Federal Reserve Board, which regulates bank holding companies, had a rule requiring American banks to get permission in advance of opening an office in a foreign country. Because it owned such a hefty chunk of BCCI, the Bank of America was required to obtain the okay from the Fed before BCCI started up in a new country. But BCCI was moving too fast for that, and the result was that the regulators kept pestering the Bank of America. It was more embarrassing than serious, but bankers are notoriously averse to embarrassment, especially when it is generated by regulators.

Of more concern was the sloppy way BCCI was growing. The auditors at Bank of America had long worried over the lack of proper procedures in granting loans at BCCI. There was precious little paper trail-the boring but essential forms, appraisals, and assessments that so warm the heart of a bank auditor or loan officer. Since 1975, Al Rice had been pushing Abedi to improve this part of his operation, and Abedi kept promising to do so.

However, there was so little time for formalities, and business was done a different way in that part of the world. Before he left for a job in Iran with a big conglomerate, Carlson had argued Abedi's case with Rice and other top officials. He explained that all Abedi really needed in the Middle Eastern countries was the ruler's signature, even the ruler's assurance, that a loan would be repaid.

"It is meaningless to go around in those countries asking for forms to be filled out," he said over and over. "These aren't the same standards that are applied by the senior loan committee in San Francisco."

One of BCCI's senior executives, Abdur Razzak Sakhia, later con trasted the bank's methods with those of its Western counterparts this way: "If a client wanted a loan and went to Citibank, they would go by whatever their data processor spit out. We would know him personally. We would understand his business, and we would give him that loan based on our knowledge, not just the computer."

Nonetheless, this was a sometimes unreliable method in the view of the Bank of America officers. Concerns focused sharply on some mega-loans that seemed unsupported by any documents. One example was a series of loans totaling $80 million to the Gokal shipping family, whose fleet of ships was expanding at a dramatic pace as a result of BCCI's generous financing. These loans equaled more than two-thirds of the total capital of BCCI, which meant almost certain catastrophe for the bank should the shippers default. When Rice raised the issue of support for the loans and the unsafe exposure, the answer was unsatisfactory.

"I know these people personally," Abedi told him. "Do not worry."

As in so many of his business decisions, Abedi again reflected common Pakistani and Muslim practices. Loans among friends are common and Abedi was always fast to make them to long-time acquain tances. But a philosophy designed for small-scale, personal transactions does not mesh with the standards of international banking.

Rice had no reason to doubt the integrity of any of BCCI's customers, but he also had no ability to analyze the creditworthiness of many of them. Also, he and others at the bank had been hearing the rumors about the level of "personal service" provided by BCCI to its special customers. International banking is really a small world, and news, especially bad news that could embarrass one's competitors, travels fast on the world wires. Concerns within Bank of America were fueled by a memo written by Tony Thcher, a bank official, on April 27, 1976. In it, Thcher raised the issue of what he called "special patronage" between BCCI and certain Persian Gulf rulers, particularly in Abu Dhabi and neighboring Dubai. He provided a laundry list of questionable activities: bank officers accompanying favored customers on vacations, arranging travel and providing translators and financial advisers around the world, as well as Abedi and others hosting rulers in their homes at lavish parties paid for by the bank. He also expressed concern over what many had told him was a general lack of control over BCCI's actions by Hank of America. He suggested that BCCI officers were withholding information from their American investors and trafficking on the prestige of Bank of America.

The memo summarized the fears and rumors that had been mounting for two years, but Rice and others were reluctant to take action that might sever the profitable relationship. In an internal bank memo a few days later, Rice defended Abedi and his methods.

"On the subject of 'special patronage,' there is no doubt the BCCI organization feels that to maximize the business potential in many of the areas served in the Middle East, it is necessary to remain very close to leading political figures," Rice wrote. "This is particularly true in the Arab Emirates where special attention is given to the ruling sheiks."

He went on to say that the bank had no knowledge of inappropriate patronage and said that his auditors had not uncovered evidence of unusual expenses. He said, however, that BCCI's business development efforts should be monitored closely and added, "Avoiding rumors on the subject is a good idea."

In the area of controls over loans and general growth, Rice was more concerned. He felt that BCCI needed tighter administrative controls. At the time, in an attempt to straighten out the situation, Bank of America was trying to find one of its own executives who could move over to BCCI as chief administrative officer. The problem of lack of controls, Rice thought, would not be solved until someone from the B of A, or someone from the outside whom the bank knew well and trusted, was in place at BCCI. One difficulty with getting someone onboard was that the Bank of America was having a tough time persuading anyone to handle the administration at BCCI. For the proud and slightly disdainful employees of the world's largest bank, the prospect of moving even temporarily to an upstart institution was unappealing, particularly given the rumors that all the key people in Bank of America's international division had heard about the way BCCI did business. Another difficulty was that the California bank had granted extensive control to Abedi in the initial agreement between the two parties.

Rice wrapped up the memo by observing: "The overall relationships between BCCI and the Bank of America continue to improve but are far from what they should be. We are just not operating on the basis of mutual trust and cooperation that make the whole effort and exercise worthwhile. Substantial profits usually have a way of curing problems, but this case is an exception. If we can't make some major break throughs in the near future, we will have to consider alternatives, such as divestiture."

To some at Bank of America, it appeared that the Bank of Credit and Commerce wanted to end the relationship. They felt that BCCI had traded on its association with the more prestigious bank to get started and now no longer wanted to be tied to its American partner.

In a conversation with Abedi near the middle of 1976, Rice brought up this sensitive issue. Abedi's response was adamant and angry. He denied that BCCI was trying to end the association.

"All of my officers are very loyal to the Bank of America and they understand that your organization has given them the opportunity for career and personal growth outside of Pakistan," said Abedi. "You can count on our long-term loyalty and on the long-term loyalty of all of my associates."

When Rice raised the possibility that information was being withheld from Bank of America officials, Abedi had a ready answer: "That is not true. But your people might feel that way because our bankers are afraid that they might be criticized by their American colleagnes."

Abedi, a charming and persuasive speaker who rarely lost his temper with outsiders, was reassuring. Cultural differences, he explained to Rice, were the root of the problem. His Pakistani employees were trying in their own way to develop the standards of their American partner.

"Your American style of frank criticism is something that Pakistanis are not used to," he told Rice. "Criticism in my culture is taken as a personal affront and for this reason sometimes BCCI officers have not wanted to disclose operating procedures that they know would not meet the Bank of America's high-quality standards. Everyone in my organiza tion admires the quality that you demand everywhere and wants to do everything they can to bring this same type of quality to all aspects of our operations."

Abedi's promises of reform proved hollow, his defenses were lies. In an unguarded moment well after that conversation, a BCCI executive told an American that the Pakistanis felt the Bank of America was holding back BCCI's growth. The American bankers, he said, were too rigid.

"We felt that they were, ah, restricting our growth somewhat because Bank of America is a very established type of bank," the BCCI executive said. "And we wanted to get out and open all over the world."

The one part of the world where BCCI most wanted its own presence, even then, was the United States. However, U.S. banking regulations prohibited BCCI from opening offices in the United States as long as the Bank of America held such a significant portion of its stock.

So Abedi's dream of expanding into the world's richest nation-a dream he had kept secret from the Bank of America-was blocked by the continuing association with the San Francisco banking giant, but that obstacle was about to be removed.

By 1977, the Bank of America's dissatisfaction had increased as financial controls failed to materialize at BCCI. In fact, the auditors found surprisingly serious financial problems that year when they examined BCCI's portfolio of loans. A two-page summary of the loan examination report broke the problems into three areas:

· BCCI's loan-loss reserves, the amount of cash available to cover potential losses on loans, were grossly inadequate. The total reserve was $3 million and it should be increased by almost six times to at least $17 million.

· BCCI had engaged in widespread loans to its own shareholders, a practice known as insider lending. Some of its major Middle Eastern shareholders had received substantial loans.

· BCCI's portfolio of real estate loans was deemed unsatisfactory. Huge loans were concentrated in the Persian Gulf region, opening the bank to major losses in the event of economic or political problems in that area.

These last two items were interconnected in ways that would remain muddy for years. BCCI had paid a price for the patronage of Arab leaders, and the price was millions of dollars worth of loans that were unlikely to be repaid. Perhaps they were never intended to be repaid. As for collateral, many of the loans were backed by suspect parcels of land in sheikdoms where the bank would be prohibited from foreclosing even if it wished to do so.

For instance, Kamal Adham, the Saudi intelligence chief and major BCCI shareholder, had borrowed millions and his total loans from BCCI and its affiliates would eventually top $300 million. Yet auditors one day would discover that many of the loans were backed by unidentified properties in Saudi Arabia. There were no valuations for the properties and, worse, no legal basis for considering them security because mortgages are not routinely enforced in the kingdom. The Federal Reserve would later charge that Adham had even borrowed from BCCI the funds he used to invest in the bank in the first place. Similar discoveries would be made about a series of major bank customers. But that was a long way off.

The Bank of America auditors had caught merely a glimpse of this pattern of reckless and rampant insider dealing. BCCI's regular auditors were seeing even less. At the time, the bank's Luxembourg holding company was being audited by the big accounting firm of Ernst & Whinney; the Cayman Islands unit was audited by Price Waterhouse, another large accounting firm. A Price Waterhouse accountant told a friend a story showing his firm's difficulty in dealing with BCCI. The auditors of the bank's London headquarters discovered that its loan files were written in Urdu. Price Waterhouse employed many Pakistani accountants and one day it assigned one of them to the BCCI account. When the Urdu speaker showed up for work at the bank, however, officials there would not let him in the building. Price Waterhouse agreed to take the accountant off that job.

Outside accountants can earn millions of dollars a year in fees for auditing big businesses, particularly those that are spread across the globe. These audits are supposed to show the public and regulators the true financial picture of the organization. But, as proven in numerous cases in the American savings and loan debacle, even accountants sometimes miss the real story. They don't see key information. They are forced to take the word of management on critical questions. This tendency to accept management's view of the situation is compounded when management itself is intent on hiding the true picture of what is going on inside the organization.

Bank of America had seen enough to get some sense of what was going on inside BCCI. Even more important to the BCCI relationship, by 1977 Alvin Rice had moved up to vice chairman of the bank. He had been replaced as head of world banking by Samuel Armacost, who had no stake in ties to the troublesome partner. Armacost dispatched one of his most trusted aides, Cal Jones, to London to take a look at what was going on with BCCI. Jones soon found that he was not going to get a clear picture of what was happening inside the rapidly expanding bank. Not only was he prohibited from attending key meetings, he also was denied the minutes of those sessions as well as access to the internal working records of the bank. He was, as an associate would later say, put on "a mushroom diet-kept in the dark and fed shit."

Based on the little that its auditors had seen, the sense that they were not getting the whole picture, and the long-standing, unresolved differences over controls, the Bank of America decided to sell its stock in the Bank of Credit and Commerce in late 1977. An agreement would be reached for the orderly sale of the stock over a period of more than two years, so that the price of the shares would not plummet. Abedi arranged for a wealthy Saudi Arabian associate to acquire some of the shares; others were moved into ICIC Holdings, the employee benefit fund.

More critical, the Bank of America had gotten a closer look at BCCI's financial tangle than any regulators, yet the California bankers did not blow the whistle. At least not loudly. One former Bank of America official who was involved with the bank said later that Cal Jones met with Bank of England regulators privately and told them about the poor documentation of loans and the pell-mell growth that were leading his bank to sell its stake in BCCI. No additional evidence has surfaced and there is no record of any report to U.S. banking authorities. Indeed, there was no legal requirement that the B of A describe what its auditors had seen inside BCCI to regulators anywhere. However, had the Bank of America raised an official alarm, authorities in Britain and elsewhere might have been prompted to demand their own examination back in 1978.

But, of course, blowing the whistle could have dropped BCCI's value like a stone just when Bank of America was unloading its shares at a hefty profit. The two institutions were to remain friendly for years to come, with the Bank of America providing a range of correspondent services for BCCI.