Opening a bank in the United States requires a charter, which can be issued by either a state government or the U.S. Comptroller of the Currency. Chartering by a state government is regarded as easier because requirements are less stringent, but national charters offer many advantages and a measure of prestige-sort of like belonging to the country club instead of the public golf course. In either case, the federal banking regulators are supposed to have a say in who is granted a license and who is not.

Bank regulations in the United States are regarded as among the world's most stringent, although their failures in the last two decades have become increasingly spectacular. However, it does make it tougher in the United States than, say, Luxembourg or even England.

Satisfying the regulators falls into two main categories-money and people. It does not take a great deal of the former to start a bank. The minimum requirement usually translates as enough money to cover anticipated normal business losses associated with bad loans or interest rate fluctuations. An investor with $1 million can acquire a bank with assets of $10 million-or $20 million if the regulators are lax. The capital is a cushion in the event the bank fails and the government has to take over. As would be discovered in the savings and loan crisis of the 1980s, too often there is little or no cushion.

As for people, regulators like to see an experienced management team and a board of directors with character and some financial means. For a national charter, the directors must each invest money in the institution, though not a large amount, to show the regulators that the directors will monitor the bank faithfully because they have some of their own wealth at stake.

These regulations apply equally to foreigners who want to start a new bank or buy an existing one on American soil. Starting in 1978, most of these rules were applied for the first time to foreign banks with U.S. branches and agencies, too. So when a foreign bank wants to start full-scale operations in the United States, they must open their books to the American regulators so that capital adequacy and other matters can be demonstrated.

Equally important, U.S. regulators insist that a foreign bank operating here be subject to comprehensive supervision by a home-country regulator. When an institution operates internationally, a review of all its parts is the only way to determine its true financial strength and whether it is operating legally. This is called a consolidated review, and it is the only accurate means of analyzing an international business. If no one is looking at the whole operation, regulators say, it is too easy for a bank to move assets and liabilities from one segment of the institution to another to mask illegal activities or financial problems.

All of these requirements added up to more than a dilemma for Agha Abedi and his Bank of Credit and Commerce International. They were a virtual roadblock, at least to legal and open operation in the United States.

There is some lingering uncertainty about why Abedi split his operation into its Luxembourg and Cayman Islands halves, but he seemed perfectly happy with the result-that no central regulator knew what was happening inside the bank. He certainly chose host countries where the regulators were notoriously lax, and BCCI's financial picture was muddy to begin with. The regulatory arrangement and the secrecy surrounding the Middle Eastern shareholders made it impossible to get a consolidated assessment of the bank's finances. For example, BCCI's annual financial statement in 1976 disclosed that its Hong Kong office maintained $56 million in "confidential" deposits. Such accounts were described as involving money deposited by people known only to top BCCI management.

There also was reason to speculate that the bank's picture was not as rosy as its annual reports indicated by the latter part of the 1970s. The swift worldwide expansion was expensive. As an outsider and newcom er in many locations, BCCI was shut out of the most lucrative consumer and business banking arenas. Instead, it was scrambling for deposits among Third World immigrants and small businesses. These deposits were used to fuel the growth.

And, to a degree unseen by those outside the bank's hierarchy, the deposits of thousands of immigrant workers and small businessmen worldwide were being funneled into sweetheart loans to influential associates and shareholders. The Bank of America auditors had spotted the tip of that iceberg, but it would be a long time before the extent of those ventures was uncovered.

The enigma of the bank's financial standing, however, had not stopped its expansion in Britain. When BCCI's branch network reached forty-five in Britain in 1978, nervous regulators had asked the bank not to open any more offices. However, when it came to examining the underlying finances, the Bank of England contented itself with receiving bits of information from the bank. Not for years would regulators there or anywhere else see a consolidated financial statement.

It would require a different approach to complete the American phase of the grand scheme, as Abedi discovered in 1975 when he tried to slip past American regulators.

Chelsea National Bank, a small, troubled bank in New York that numbered former Mayor Robert Wagner and members of the politically powerful Finley, Kumble law firm as shareholders, was for sale. Abbas Gokal, one of the three brothers in the shipping company, applied to state regulators to buy the bank. He provided a financial statement that showed total assets of $4.5 million, with $3 million of it in the form of a loan he made to his sister on the same date he filled out the statement. His reported annual income for the previous year was $34,000. Financ ing to buy the bank, he said, would come from his sister, who had returned the favor of his $3 million loan by lending him $4 million. The arrangement puzzled the New York State regulators. "We find it difficult to judge the financial capacity of the applicant," one regulator wrote. In addition, Gokal had no experience as a banker; he was in the shipping business. He indicated that he would rely for advice and counsel on his primary personal and business banker, the Bank of Credit and Com merce International.

Gokal's go-between in filing the application, and the nominee he had selected to run Chelsea, was a senior BCCI executive named Abdus Sami. Born in 1927 in India and educated in the Punjab, Sami had accompanied Abedi at every stage of his career, from Habib Bank to United Bank to the founding of BCCI. The influence of Abedi's rhetoric even showed up on the r6su me Sami filed with the New York regulators. His achievements, he wrote, included welding "a large team of execu tives and officers into a composite personality." Among those identified as prospective board members for the bank was Roy P. M. Carlson.

The financial questions and role of BCCI in the deal did not disqualify Gokal from buying the bank, but since he was relying on BCCI to meet the qualification of experience, New York State regulators needed to learn what they could about that organization. They found a lot of rumors about special relationships with Arab moneymen, about currymg favor in certain countries to win bank licenses, but rumors are not facts. However, the fact that dismayed the regulators was that there was no primary regulator with responsibility for overseeing the bank's worldwide activities.

Several times, Abedi went personally to meet with New York State banking regulators, including the superintendent of banking, John Heimann. On each occasion, he expressed BCCI's desire to enter the United States market. And each time, he tried to convince Heimann and senior regulators that BCCI was financially secure and operating legally. It was, Abedi insisted, one of the world's best banks and it deserved to be in the American market. Each time, Heimann replied that he was worried because BCCI did not have a primary regulator. He was, Heimann told Abedi, reluctant to permit BCCI into banking in New York.

"What we had determined was that BCCI was an international banking organization so structured as to have more than one regulator," says Heimann, who went on to become U.S. comptroller of the currency. "Part of the function of regulators is to try to curtail activities of those who try to take advantage of our open system of banking. There is no way to know of criminal intent before an acquisition. But you try to weed them out in advance through regulatory scrutiny."

This advance scrutiny had convinced Heimann that Abedi and his bank should not be involved in operating Chelsea National, or any other American bank for that matter.

"It was critical that BCCI not be involved in Chelsea because they were not fit and proper to operate a bank in the United States," explains Heimann. "BCCI had always been shrouded in mystery. There was no primary regulator. There was a lot of gossip and rumor."

Abbas Gokal was informed by New York authorities that his applica tion was deficient, and a short time later Chelsea National Bank was sold to another buyer.

Obviously, Abedi had discovered that BCCI would get nowhere in the United States using its own name. He had made a mistake in being so open. More importantly, he had learned a lesson. Next time, he would do things differently. That was where Bert Lance and the former budget director's powerful friends fitted in.

Without question, Abedi was a man who knew the value of friends in high places. He had gone to great lengths to cultivate influential officials in the Persian Gulf and elsewhere around the world. Bailing Bert Lance out of his financial jam was the first step in this new attempt to begin operating in the United States.

In November 1977, a month after his first meeting with Lance, Abedi introduced the Georgian to Ghaith Pharaon, a wealthy Saudi Arabian businessman who already had passed the tests of American regulators by acquiring substantial interests in banks in Detroit and Houston. Abedi explained to Lance that Pharaon was interested in buying Lance's bank stock and Abedi was serving as the Saudi's financial adviser. Lance thought it was a fine idea.

As world attention began to focus on rich Arabs and their internation al buying sprees, Pharaon was one of the figures destined to reach mythical proportions. A man of ample girth and substantial charm, he owned homes and mansions throughout the world and would one day buy automaker Henry Ford II's 1,800-acre plantation outside Savannah, Georgia. He traveled the world in private jets and, to his dismay, was often compared with the controversial Adnan Khashoggi, another Saudi who had grown wealthy trading on his ties to the royal family.

Pharaon was the son of Rashad Pharaon, a Syrian-born physician who had gone to Saudi Arabia in 1936 as the chief doctor for King Abdul Aziz, the kingdom's founder. At one point in the late 1930s, Pharaon had the only refrigerator in Saudi Arabia. He needed it to store chemicals to run his X-ray machine. Following the death of Abdul Aziz in 1953, Pharaon emerged as a leading political adviser to the sons who suc ceeded him, King Faisal and King Khalid.

Because of the physician's privileged status, his son Ghaith was educated in the United States. He attended the Colorado School of Mines and Stanford University and received an MBA from Harvard in 1965. His thesis at Harvard formed the outline for the creation of an engineering and construction firm in his native Saudi Arabia. However, it was his connections to the royal family that would propel young Ghaith to great fortune.

Returning to Saudi Arabia with a degree in petroleum engineering and an MBA, Pharaon was recruited to join the oil ministry by Sheik Ahmad Zaki Yamani, the minister of oil. He quickly discovered that the life of a bureaucrat was far too constricting for him. Pharaon was an entrepre neur at heart, and it was a perfect time to be one in Saudi Arabia.

"There were so many opportunities in those days for a young man going back to Saudi Arabia that I said, taking a risk for myself and working for myself would perhaps be more interesting," Pharaon once told a reporter.

So he dusted off his Harvard thesis and established the Saudi Research and Development Corporation, which became known as Redec. The kingdom's oil wealth was just beginning to grow and Saudi Arabia was trying desperately to modernize its cities. Redec received massive contracts, often in joint ventures with foreign firms, to build new sewer systems in Jedda and Dammam, a drainage system in Mecca, and a natural gas system in the country's eastern provinces. The government's Ministry of the Interior, headed by Pharaon's old friend Prince Fahad, provided Redec with ninety percent of its contracts in those days.

As the oil boom of the 1970s added more fuel to the rampaging Saudi economy, Pharaon began importing cement for the massive construction projects popping up throughout the country. (If this sounds like selling ice to the Eskimos, it is not quite so. Through an oddity of nature, the vast desert nation had to import cement because its own sand is too fine to be used to mix it.)

Diversifying into food storage, insurance, and hotels, Pharaon came into contact with a wide range of businessmen. He built the Hyatt Hotel in Riyadh (which would serve as headquarters for the U.S. military command and Western journalists during the Persian Gulf War in 1991) in partnership with Kamal Adham, the BCCI shareholder who was creator of the intelligence service in Saudi Arabia. It was the first of a string of Hyatt Hotels that Pharaon would build around the world. Just as important to his future, it was Adham who introduced Pharaon to the equally entrepreneurial Agha Abedi.

Since he first learned about American finance at Harvard, Pharaon had been interested in the idea of owning a bank or even several banks in the United States. As had the Rockefellers and the Carnegies before him, Pharaon recognized that banks can bring prestige and influence and be solid investments, as well.

"In America," he once explained, "a $400 million bank can be acquired for $20 million. Where else can you do that?"

Pharaon's earlier ventures in American banking had not been success ful. In 1975, he had bought the Bank of the Commonwealth in Detroit using the law firm of former Texas governor John Connally as negotiator. Henry Ford II had helped smooth the way for the purchase by telephon ing Jewish leaders to reassure them about the takeover of the state's sixth-largest bank by an Arab. Commonwealth was a troubled institu tion. It had gotten into trouble in the late 1960s when it was controlled by a local man named Donald Parsons, whose modus operandi bore a striking similarity to Abedi's own. Parsons had built a bank network cutting across several regulatory jurisdictions, held it together with amorphous committees of overlapping managers, and pushed it into hyper-growth through risky investments. The bank had been "rescued" by the Federal Deposit Insurance Corporation in 1972 in the agency's first big-bank bailout, but it never recovered. Pharaon sold his invest ment in 1976 for the same amount he paid for it.

Early in 1977, he had acquired twenty percent of Main Bank in Houston, where he had other investments in construction and engineermg companies. This time, John Connally joined the deal himself as one of Main Bank's other major shareholders. That investment, too, was not profitable. Pharaon was in the process of selling his stock in Main in late 1977 when Abedi contacted him about the possibility of buying Lance's share of the National Bank of Georgia.

Agha Hasan Abedi already had served as Pharaon's financial adviser in another rather strange transaction that involved a series of delicate negotiations with government leaders in Pakistan, Abu Dhabi, and Saudi Arabia.

Until the middle 1970s, the exploration, refining, and marketing of oil in Pakistan had been done largely by Attock Oil Corporation. Attock was the operating arm of a small, privately owned, London-based firm called Attock Petroleum, which had been founded in 1913. Its near monopoly in Pakistan was threatened in early 1976 when a large field of oil was discovered in Pakistan's Dhodak province by a team under the supervi sion of a young government scientist, Shazad Sadiq.

Prime Minister Bhutto was gleeful. He saw the new oil as a means of improving the country's disastrous financial position and consolidating his own power as elections approached the following year. Backed by the promise of $110 million in financing from Canada, Britain, and the World Bank, Bhutto planned to create a public oil sector in the country by developing the rich new field and nationalizing Attock Oil, which had resisted his previous takeover efforts.

Attock's chief, T.A.T. Lodhi, wasted little time in taking preemptive action. He wanted to find someone of power and influence to acquire Attock and keep it out of the hands of the government. The man he chose to help him was Agha Abedi. From November of 1976, Lodhi had visited Abedi in London regularly. Near the end of the year, Abedi contacted Shazad Sadiq and asked whether BCCI funds might be required to assist in the oil industry development. Bhutto shrewdly grasped what was afoot and his response was to the point: "That arselicker Abedi is trying to buy Attock."

The game here was power and politics, two arenas in which Abedi had become an accomplished player. Later that year, a series of private meetings was held between Attock officials and the right-wing Pakistan National Alliance, Bhutto's opposition in the upcoming elections. A series of orchestrated newspaper attacks on the Bhutto-Sadiq oil plan began to appear. In February 1977, Pakistani newspapers reported that "unidentified Arab investors" were considering buying control of Attock.

The scheme was to create doubt about Bhutto's plan and soften him up for selling Attock to the group being formed by Abedi and Lodhi. Indeed, the two men had mobilized their considerable allies to stop the takeover. Among them was Sheik Zayed of Abu Dhabi, who was one of Bhutto's principal supporters in the Arab world. Abedi persuaded Bhutto to give up his plan to nationalize Attock in favor of a new role for some investors close to the sheik. Bhutto relented, and in March 1977, sixteen percent of Attock Petroleum, the parent of Attock Oil, was sold to the Kuwait International Finance Company, or KIFCO. The owners of KIFCO were Ghaith Pharaon, Kamal Adham, Faisal al-Fulaij, and Abdullah Darwaish, a financial adviser to Abu Dhabi's royal family. Abedi represented them in the deal.

A few months later, Bhutto did not matter anymore anyway. In July 1977, General Zia ul-Haq and his military allies seized power and arrested Bhutto. Zia rejected Bhutto's evolving socialism and opened the way for the Arab investors to acquire an even larger stake in Attock. That same month, Attock Petroleum sold fifty-one percent of Attock Oil, its operating arm, to KIFCO. Pharaon, Adham, and F~laij were installed as the new directors of Attock Oil's London-based parent company and Lodhi remained as the chief executive officer. The notion of a publicly owned oil company that could develop the oil fields for the benefit of the country vanished. Interestingly, so did the promise of the Dhodak oil fields. In later years, operators of the wells there would say that they could not find enough oil for profitable operation. For the other oil- producing nations of the region, such as Abu Dhabi, Saudi Arabia, and Kuwait, this meant that there was one less competitor.

Losing the revenue from the oil fields was the least of Bhutto's worries.

The new military regime began an investigation of his years in power.

Almost immediately, the government's investigators claimed to have

found evidence of massive corruption and vote rigging in the March

1977 election that had kept Bhutto in power.

A former secretary to Bhutto signed an affidavit in which he said that Agha Hasan Abedi had made several trips to Pakistan in the weeks before the March election. Each time, Abedi brought with him cash that he delivered to Bhutto. The former secretary said that the cash, which totaled $2 million to $3 million, was from a foreign head of state and was to be used to ensure Bhutto's reelection. The government White Paper containing the affidavit deleted the name of the foreign leader, but published reports at the time claimed it was Sheik Zayed of Abu Dhabi.

The White Paper may have been wrong in its speculation that the payments were intended to keep Bhutto in power. They coincided with the efforts of Abedi and his investors to stop the nationalization of Pakistan's oil fields and gain control over Attock Oil. In any event, Bhutto was hanged two years later on charges of corruption, and no one was ever accused of any wrongdoing in connection with the alleged payments to him or the Attock Oil venture.

The intriguing Attock Oil deal was only part of the relationship between Abedi and Pharaon. At Abedi's urging, it was Pharaon who had agreed to buy a portion of the BCCI stock that was being sold by the Bank of America. The stock price was never disclosed, but a BCCI executive, Nazir Chinoy, later said it was $34 million-not a bad return for Bank of America on its investment of $2.5 million. BCCI also was good to Pharaon. It had already made the first of a series of loans to him that would one day total almost $300 million.

So, despite having been unsuccessful twice before with investments in American banks, Pharaon was happy to buy control of the National Bank of Georgia at the suggestion of his good friend Agha Abedi. And the premium price he was willing to pay made Bert Lance a happy man, too.

Five days before Christmas, Lance announced publicly that he was selling his stock in National Bank of Georgia to Ghaith Pharaon. The total price was $2.4 million, or $20 a share. A few weeks before, the stock had been trading as low as $10 a share. Lance, however, has steadfastly denied that it was a bailout.

The proposal would give Pharaon control of sixty percent of the bank's stock, but the regulators approved it quickly. After all, Pharaon was a wealthy Saudi tycoon with a solid business background and some banking experience. Plus, there was no hint of BCCI in this transaction. Only later would regulators discover documents showing that BCCI had loaned Pharaon a portion of the money he used to buy NBG.

The deal was completed on January 5, 1978, the day after Bert Lance was relieved of yet another major financial problem. On January 4, the First National Bank of Chicago received an electronic money transfer from the BCCI in Luxembourg. The amount was $3.4 million and it cleared Lance's debt with the bank. Lance himself later described the favorable terms of the BCCI loan-no collateral, no schedule for repayment, and no set interest rate. (A BCCI spokesman later said that Lance repaid the loan in 1984.)

The timing suggests that a portion of the funds came from the sale of the National Bank of Georgia stock, yet the wire transfer came in the day before Pharaon turned over the money, and the amount was a full $1 million in excess of what Lance would receive from Pharaon. Later, it was disclosed that BCCI had recorded the $3.4 million as a loan on its books. But Lance and Pharaon both denied at the time and later that there was a connection between BCCI paying off Lance's loan and the acquisition of the National Bank of Georgia.

Clearly, Abedi played a role in the transaction by bringing together Lance and Pharaon. The deal and the BCCI loan bailed out Lance from serious money problems and put him in debt personally and financially to Abedi and BCCI. No one raised questions at the time about whether Pharaon had put up his own funds to buy the bank stock. Everyone knew he was one of those fabulously rich Arabs.

In the months after buying Lance's interest, Pharaon acquired the remainder of the outstanding stock of the National Bank of Georgia and installed his own management team. When it came to choosing a new bank president, Pharaon again relied on Abedi, who recommended Roy P. M. Carlson, Abedi's old champion with the Bank of America and Gokal's candidate for bank director at Chelsea National in New York.

After Carlson had left Bank of America in 1975, he had spent four years as managing director of a large group of companies in Iran. With the revolution, however, he fled the country. For a while he traveled around Europe with the expectation of returning to Iran once things settled down.

By the summer of 1979, Carlson had returned to the United States, where he was contacted by one of Abedi's subordinates at BCCI. The man said that Pharaon was looking for someone to run his bank and he invited Carlson to come to London. There, Abedi introduced him to Pharaon, and by November Carlson was installed at the Atlanta head quarters of the National Bank of Georgia.

But Abedi stayed in the background in his dealings with the Georgia bank. Not long before, the Pakistani banker had discovered what happened when American regulators found that BCCI was involved with one of their banks.

On the surface, it had appeared to be the banking industry's first hostile takeover, something that industry experts had long said was impossible because regulators would not allow an unfriendly acquisi tion of a bank. The story below the surface would remain hidden for years.

Even before the sale of his Georgia bank stock to Pharaon was completed, Lance had arranged for Abedi to meet with a group of investors in Financial General Bankshares, a medium-sized banking company with headquarters in Washington, D.C. It was late 1977 and the investors were looking for someone to buy the bank.

Financial General was an attractive prize. With assets of $2.2 billion, it was far from being the nation's largest bank, but it was one of a handful of bank holding companies that could own banks in more than one state through an exemption to a 1956 law known as a grandfather clause. So, from its headquarters building a block from the White House, the company controlled thirteen banks in the District of Columbia, New York, Virginia, Maryland, Georgia, and Tennessee.

Lance had known for some time that Financial General was on the block. It was Financial General that had sold Lance his controlling interest in the National Bank of Georgia in 1975. A year later, the company's chairman, George Olmsted, approached Lance about buying control of Financial General, but Jimmy Carter had just been elected president and Lance had other plans for getting to Washington.

It did not stop there, however, according to the U.S. Securities and Exchange Commission. The SEC said later that Lance and Olmsted had at least one conversation about acquiring the bank while Lance was Carter's budget director. The two men talked about a possible deal over lunch one day at the Metropolitan Club a few blocks from the White House. Also at the lunch was a former investment banker named William Middendorf II, who had been Secretary of the Navy under Presidents Richard Nixon and Gerald Ford.

Lance again declined, but Middendorf was interested. In April of 1977, he led an investor group that acquired control of Financial General. It proved to be no solution to the troubles at the institution. By June, the group had split, some said because Middendorf had rudely rebuffed salesmen for a data processing firm owned by a fellow investor. The investor was Jackson Stephens, and his faction started looking for a buyer to wrest control from Middendorf.

Stephens was a formidable opponent for Middendorf. He and his brother had made a fortune through their large financial firm, Stephens Inc. Based in Little Rock, Arkansas, it was considered the largest privately owned investment bank outside of Wall Street. Business Week magazine called the brothers "country slickers," and for years very little happened in Arkansas politics that they did not at least influence. Jack Stephens had met Lance in 1976 through their mutual friend Jimmy Carter, who had been a roommate of Stephens at the U.S. Naval Academy. Lance and Stephens had become close friends, sharing interests in Democratic politics, banking, and religion. Like Lance, Stephens was a Southern Baptist.

Another disgruntled shareholder was a Washington lawyer named Eugene Metzger. Through the summer and fall of 1977, he and Stephens had been shopping for a buyer. In October, Metzger suggested that he and Stephens might find a foreign bank interested in making an offer for Financial General shares. They were not opposed to a foreign buyer; Metzger had written a letter to a North Carolina bank that owned stock in Financial General suggesting that a foreign purchaser might pay a premium to insiders who controlled a quarter of Financial General's stock.

The discontent at Financial General coincided with Bert Lance's mission to find an American acquisition for Abedi and with the sale of his own bank.

In early November 1977, Abedi himself flew to Little Rock with his assistant, Abdus Sami, who had tried to help him swing the Chelsea National purchase. They came to talk with Lance and Jackson Stephens, who was serving as Lance's broker in the sale of his National Bank of Georgia stock to Ghaith Pharaon. Stephens, however, used the occasion to pitch the sale of Financial General. Abedi was interested.

The weekend after Thanksgiving, Abedi flew to Atlanta again and met with Lance and Stephens. Accompanying Abedi was Swaleh Naqvi, the number two man at BCCI, as well as Sami. At the meeting, the sale of National Bank of Georgia was wrapped up, and Lance announced it a week later. The session also provided an opportunity to push along the Financial General proposal. Abedi was so impressed with the prospects that he sent Naqvi back to London to set up a war chest of $1.35 million for the takeover.

Abedi had a busy itinerary in the United States, but he found time to call on Kamal Adham, the former Saudi intelligence chief and major BCCI shareholder, and line him up as an investor in the planned takeover of Financial General. On November 30, Abedi met Sami in Washington and they joined Eugene Metzger for an evening meeting at the Washington Hilton. With $1.35 million available, the BCCI bankers told Metzger to start bidding for the large blocks of stock that Stephens had said were for sale. They told Metzger he was acting for Adham's account. Two weeks later, Abdus Sami gave Stephens the go-ahead to also begin purchasing Financial General stock on the open market.

The game was afoot. The Abedi-backed group began to accumulate substantial shares of Financial General stock. U.S. securities law re quires that investors file a statement with the Securities and Exchange Commission when they acquire more than 4.9 percent of the stock in a public company. Each time one of the BCCI purchases approached that figure, the stock purchases were switched to another account in an attempt to skirt the disclosure provisions.

On January 30, 1978, Sami sent a telex to brief Abedi on the purchases. He referred to BCCI's "intention to acquire control" of Financial General. He also told Abedi that he had hired Clark Clifford as chief counsel to handle any takeover litigation and filings with bank regula tors. And Sami reminded Abedi of the need to keep each shareholder's stake below five percent and added a warning: "We must be careful that our name [BCCI] does not appear as financier to most of [the investors] for this acquisition."

Through this scheme, BCCI acquired more than twenty percent of the stock in Financial General. Lance had then tried to convince William Middendorf that a friendly takeover of the remaining stock should be executed quietly and without a fight, but Middendorf rejected the overture and vowed to retain control of the bank.

Aligned with Middendorf was B. Francis Saul, a prominent Washing ton real estate developer, who owned six percent of the Financial General stock. When rumors surfaced that Lance and others, fortified with Arab money, were intent on acquiring the company, Saul bought several more blocks of stock. In mid-January, he replaced Middendorf as chairman of Financial General.

Armand Hammer, then chairman of Occidental Petroleum Corpora tion and a Financial General board member, decided to play peacemak er. Hammer had a foot in both camps. In 1974, he had told a U.S. Senate subcommittee that a "prominent Arab," quickly identified as Ghaith Pharaon, had bought a million shares of Occidental Petroleum. On the other hand, Hammer had invested in Financial General as part of Middendorf's acquisition the previous April. Thus, he had good reason to want to calm the storm at the institution. Through one of his top executives in Washington, William McSweeny, Hammer had been receiving reports of friction between the Middendorf-Saul faction at the bank and the outside group led by Lance.

In late January, Hammer was in Washington to receive the Legion of Honor cross in a ceremony at the French embassy. Since the tycoon was flying back to California that night, McSweeny arranged for Hammer to meet Middendorf and Saul in a room at the embassy right after the ceremony. At the urging of the other two men, Hammer agreed to set up a meeting with Lance to try to iron out the problems.

The peace talks were scheduled for February 7, 1978, in Washington with Lance, Middendorf, Saul, and Hammer. On that day the city was in the midst of a severe snowstorm and the seventy-seven-year-old indus trialist's private jet could not land. The meeting, however, went on without him.

Gathered in Occidental Petroleum's Washington office were Lance, his son David, Middendorf, Saul, and the Occidental executive, McSweeny. The group had lunch, exchanging social chitchat. Then Lance asked

Saul to speak with him privately in another room. Away from the group, Lance announced the name of his client, the Bank of Credit and Commerce.

"We can do three things," Lance said in his affable drawl. "One, we can get together. Two, we can buy out. Or, three, we can take you over." When any of these happened, Lance made clear, he hoped to take a senior position with the bank.

Saul did not like what he heard, and he annoyed Lance in turn when he said that the bank would be hurt if it were involved publicly with the former budget director.

"But I'm well thought of around the country," Lance retorted.

The atmosphere did not improve when the two men returned to the dining room. Lance announced that his group had acquired about twenty percent of Financial General's stock and he left no doubt about the group's intentions, according to sworn statements given later by some of the other participants.

"If you bring together all members of our group, we've already acquired twenty percent of the bank's common stock and intend to take control," Lance said. "BCCI always wants control. They like to take complete control."

Middendorf asked if Lance's group intended to make a hostile offer, in which the group would proceed to try to buy enough shares for control without an okay from the bank's management.

"I cannot rule that out," Lance replied.

Later Saul said that when Lance had taken him aside at the lunch, the former budget director had said that he wanted either Saul's job as chairman of Financial General or Middendorf's as president. Lance later denied this statement, and many of the other statements attributed to him at the meeting by Saul, Middendorf, and McSweeny. Whatever was said, Lance had tipped his hand. Saul and Middendorf decided to counterattack.

Two days after the luncheon, Financial General issued a press release saying that purchases of its stock had been made by a "foreign bank which may be seeking to obtain control of the company." Lance was not named, but his remarks were clearly the basis for the release.

Lance, finally realizing that he may have made a tactical error in speaking so strongly, telephoned Saul and told him that the purchases of stock were not being made by BCCI. He said they were being made by a group of individual investors. However, as they say in Georgia, it doesn't do any good to shut the barn door once the horse is out.

The second step had already been taken. Right after the lunch, Saul and Middendorf had one of the bank's lawyers telephone the Securities and Exchange Commission to report Lance's remarks. They wanted to get the SEC and its attorneys on their side by reporting what appeared to be a violation of federal securities laws in the accumulation of stock by the Lance group. The lawyer found a willing audience. Since Lance had resigned from the White House, several attorneys in the agency's enforcement division had been scrutinizing every detail of the Georgia banker's finances.

On February 17, Financial General filed a civil lawsuit against Lance, BCCI, Abedi, Metzger, Stephens, and unnamed defendants, who would turn out to be Arab investors and BCCI clients. Later documents identified them as Kamal Adham; Faisal-al Fulaij, the prominent Kuwaiti businessman and associate of the Kuwaiti royal family; Sheik Sultan bin Zayed Sultan al-Nahayan, the crown prince of Abu Dhabi and Sheik Zayed's brother; and Abdullah Darwaish, the royal family's financial adviser, who was representing one of Sheik Zayed's sons, Mohammed al-Nahayan. The lawsuit claimed that the defendants were part of a group attempting to take over Financial General in violation of securities laws.

Lance and BCCI officials replied that there was no organized group. A BCCI official in London told a New York Times reporter that he had been in touch with Abedi about the matter. "None of us have any knowledge of this deal at all," said the official.

Despite the denials, the SEC attorneys were hot on the case, and it did not take them long to act. On March 18, the SEC filed a lawsuit in federal court in Washington against Lance, Abedi, Metzger, Stephens, and the Arab investors. All were charged with violating U.S. securities laws by failing to disclose that they had secretly bought about twenty percent of the shares in Financial General. As often happens in SEC civil matters, the defendants had negotiated a settlement of the lawsuit even before it was filed. Without admitting or denying their guilt, the defendants promised not to violate securities laws again.

Under the terms of the settlement, the members of what was termed "the Lance group" also pledged to make restitution to shareholders who had lost money as a result of the attempted takeover. Three of the Arab defendants-Adham, Fulaij, and Darwaish-agreed either to sell their holdings in Financial General or to purchase all outstanding shares of the company at an above-market price within a year. The entire group also promised that any change in control or ownership of Financial General would be approved by federal banking authorities.

Bert Lance's dream of a glorious return to Washington was dashed. Largely through his bragging, the secret takeover of Financial General had been discovered and exposed. On top of that defeat, Lance faced other, more serious problems. His banking practices before joining the White House had come under investigation by a federal grand jury in Atlanta.

So, too, was Agha Hasan Abedi's scheme for quietly gaining control of a major American banking company vanquished, but he believed that he could still buy Financial General. He would just have to find another route. Abedi remained determined to find a way into America. And, though he had blown the first run at Financial General, Lance had unwittingly provided the means for the second attempt.