Bob Morgenthau was destined to speed up everything from the day Jack Blum walked into his office. The initial going, however, was slow and sometimes frustrating. Unraveling a fraud as byzantine, sophisti cated, and long-standing as that executed by officials at the Bank of Credit and Commerce presented an enormous challenge to his office. From the outset, Morgenthau's vision of the bank was shaped by Jack Blum's description of it as a gigantic Ponzi scheme.

Over the years, a Ponzi scheme has come to describe any swindle in which the original investors are paid off with money that comes from new groups of investors. The phrase originated, however, in a specific scheme in Boston that began in 1919. That was the year that Charles Ponzi, an Italian immigrant and convicted forger, formed Securities Exchange Company and promised customers a fifty percent return on their investment in forty-five days, double their money in six months.

Ponzi said he bought International Postal Reply coupons, a type of international postage, in countries with low exchange rates. He then claimed to sell the coupons in countries with high exchange rates, collecting the difference as his profit. He started with 15 customers and $870 and, within six months, had lured nearly 20,000 investors and $10 million into the scheme. The new funds were used to pay lavish returns to earlier investors and thus persuade more people to give Ponzi money. Ponzi was a hero in Boston, cheered wherever he went.

In 1920, however, a Boston newspaper disclosed that Ponzi had never bought the coupons. Instead, he had used the money to finance his own high living and pay off investors. By the time the hoax was uncovered, the money was gone. Ponzi served three years in a federal prison and eventually died a pauper in Brazil.

In the case of BCC I, the original investors were the Arab backers who bought the first shares in the bank. They were paid off with loans that they never had to pay back. The funds for the loans came from the deposits of customers in Third World nations and rich countries alike. Later, the deposits were used to provide loans to nominee shareholders as the bank acquired hidden interests in American banks and to cover the huge expenses of the bank's global expansion. When the bank sustained massive trading losses in 1985 and its portfolio of loans soured, more deposits were needed to paper over larger and larger holes in the balance sheet and maintain the appearance of a profitable institution.

The peril of a Ponzi scheme for its operators is that a single tear in the fabric of respectability can bring down the entire operation. It was desperation to retain the appearance of profitability that drove the bank to push its employees to gather more and more deposits.

Sketching the broad outlines of this scheme was far easier than uncovering the details essential to making a criminal case out of it. The bank, after all, had been constructed to avoid exactly the type of scrutiny that would reveal the underlying artifice. And Agha Hasan Abedi and his crew of executives were far craftier than Charles Ponzi.

Approaching his seventieth birthday in the spring of 1989, Robert M. Morgenthau was the dean of American district attorneys. He was the direct successor to such legends as the racket-busting Thomas Dewey and the upright Frank Hogan. Morgenthau's office walls reflected three generations of distinguished public service. A plaque from the American-Armenian Society expressed gratitude for the role of his grandfather, Henry Morgenthau, Sr., in exposing the Armenian massa cres of 1915, a task that cost him his position as U.S. ambassador to the Ottoman Empire. There was an autographed 1928 photograph of Frank lin Delano Roosevelt, then governor of New York, who had hired Henry Morgenthau, Jr., as his secretary of the U.S. Treasury Department when he became president. Next to it hung an autographed draft of an Irving Berlin ditty advertising war bonds. On an adjoining panel hung a series of photos commemorating Morgenthau's own service aboard the de stroyer USS Harry Bauer in World War II.

As district attorney for New York County, Morgenthau was committed to the war on drugs. His office prosecuted thousands of drug cases every year. The courts were flooded with pushers and traffickers and users. Morgenthau had long known that the solution to the drug problem included attacking the flow of money out of the country. His office had drawn up the original draft of the federal Bank Secrecy Act of 1970, which required the currency transaction reports that formed the basis for the first money-laundering cases. Pursuing numerous white-collar crimes, Morgenthau had gone after Swiss bank accounts and tried to pierce secrecy laws in offshore havens worldwide. Crime in the suites is as important as crime in the streets, he was found of saying.

So Morgenthau had indeed been predisposed to accept the challenge of the complicated case when Jack Blum walked through his door. And the pattern of the BCCI investigation quickly assumed the shape of countless other white-collar cases in his office.

"Every investigation goes through three phases," Morgenthau ex plained one day in his office. "In the first phase, you have allegations and suspicion. You look at the case and try to understand its merits. Then, you say, 'Hey, I know there is a case here. Can I prove it?' In the third phase, you're trying to prove it."

Morgenthau knew a bit about BCCI before Blum arrived. He had read the thick green report prepared by Kerry's subcommittee a few months earlier and remembered being struck by Amj ad Awan's deposition about the bank, but there was little more with which to work. After that first meeting with Jack Blum, John Moscow summed up the case this way:

"We have one sentence to go on. Here's a dirty bank and the Feds won't touch it."

John Moscow, a Harvard Law School graduate and lifelong prosecutor in his mid-forties, sat in an office a floor below that of his boss. If Morgenthau's digs were far from palatial, Moscow's were positively spartan. He shared half of a duplex with another attorney. The reception desk was unoccupied due to unending budget woes. There was a coffee machine and several cracked communal mugs. His bookshelf was dominated by volumes of the New York Penal Code. On any given day his desk was littered with documents related to dozens of cases at various stages of investigation. Occasionally peeking from under a stack would be a copy of The New York Times, where Moscow's father, Warren, had been a well-known political reporter.

Looming outside his window was the Family Court Building, where every day he could watch the procession of broken families that was yet another legacy of the cocaine problem enveloping the city's poor neighborhoods. In the last five years, the number of child abuse cases in Family Court had almost quintupled to 29,000 annually. Officials attributed almost all of this terrible increase to drug use among parents.

Over the years, Moscow had developed a reputation as a no-nonsense, independent-minded prosecutor. He had the appearance and some say the demeanor of a veteran prize fighter, with a square jaw, Roman nose, and powerful chest.

Moscow first made his name in the middle 1970s with his tenacious prosecution of a case against what was known as the Washington Square Park Eleven. The case, a favorite of the tabloid press, involved a group of teenagers who went on a gay-bashing rampage.

Over the years, Moscow's black hair had turned salt and pepper as he moved to the prestigious financial fraud division and rose through the ranks, honing his skills against the corruption on Wall Street. He was a crusader, and his style occasionally led to clashes, even with those arguably on the same side. A former federal prosecutor who had worked alongside Moscow on a couple of big cases referred to his style as "combat prosecution." Anything that got in the way of Moscow's charge was knocked aside or buried.

Right from the start, the BCCI investigation had some pluses. Morgen thau had learned that British authorities were sponsoring a conference on money laundering in early July 1989 at Cambridge. BCCI was on the printed agenda. So he sent Moscow and two other lawyers from the office to see if they could get a jump on the investigation. When they arrived, however, Moscow was told that BCCI had been removed from the conference schedule after protests from the bank itself. In fact, BCCI had sent lawyers of its own to the meetings to make sure it would not get back on the agenda. The incident aroused Moscow's curiosity even more. The BCCI lawyers could not stop the people at the conference from talking informally about the mysterious bank and the fallout from its indictment the previous year in Tampa.

The problem of jurisdiction had been solved early in the investigation, as far as Morgenthau and Moscow were concerned. The taped conversa tion in which Amj ad Awan described BCCI's ownership of First Ameri can Bankshares to Bob Mazur was mentioned in court documents filed along with the indictment in Tampa. First American Bank of New York had forty-three branches in the state. Said Morgenthau, "You can stand on the steps of the Capitol Building in Albany and see two branches of First American down the street." This meant that First American filed annual financial statements with the New York State Banking Depart ment, which also regulated its operations in the state. Court documents in the Tampa case also indicated that some of the money laundered through C-Chase had passed through First American in New York.

The district attorney's investigators also were gathering public infor mation about the structure of the bank. They quickly discovered that it was a weird one. First American Bankshares was the holding company for banks in six states and the District of Columbia. In turn, First American was owned by Credit and Commerce American Holdings. Between them were two additional holding companies. To Morgenthau, these layers of legal entities gave him the feeling that someone was trying to hide something. He also was struck by the use of the words credit and commerce.

As Morgenthau was learning about BCCI, he went to a friend who was a professor at the Yale University School of Business and Public Administration and an expert on banking and insurance. When the prosecutor described the structure of BCCI and First American, the professor asked, "Why don't you talk to the Federal Reserve?"

Following up the suggestion, Morgenthau's investigators got copies of the April 1981 hearing on the application of CCAH to acquire Financial General Bankshares, the predecessor to First American. They also learned about the 1975 efforts of Agha Abedi and BCCI to acquire Chelsea National Bank in New York and the 1982 state hearings on the CCAH acquisition of Financial General. The records of these hearings provided more details for the investigation, but it was still slow going.

Similar attempts to obtain bank documents from the Bank of England, such as audits of BCCI by Price Waterhouse, were unsuccessful. The British regulators said that they were bound by their own bank secrecy laws, which prohibited disclosure of such material. Likewise, the Price Waterhouse affiliate in Britain, Price Waterhouse U.K., said it was not permitted under British law to disclose audit results without authoriza tion from the Bank of England.

Price Waterhouse Luxembourg had certified the audit of BCCI's financial statement filed with the State of New York for its agency office in New York City. Morgenthau suspected the statements were not accurate. When his office asked the auditors for the records supporting the profit and loss calculations, it was told that they were maintained by Price Waterhouse U.K. and the records were thus unavailable.

It was just as Sidney Bailey had feared. Back in 1981, the Virginia banking commissioner had opposed the sale of Financial General to the Arab investors because it would be beyond the reach of regulators. The bank's financial statements were certified by auditors who were also beyond the reach of American law enforcement. There was no way for authorities in the United States to determine the accuracy of the audit reports. And no way for Bob Morgenthau and John Moscow to examine them for evidence of the widespread fraud that they suspected was there.

In another day, Clark Clifford and Bob Morgenthau might have been friends. They might have been seated on the same dias at some big Democratic fund-raiser, two esteemed white-haired lawyers whispering and nodding. But this time they were on opposite sides.

The indictment of the Bank of Credit and Commerce International and its officers in Tampa had taken Clifford by surprise. All of his efforts had been concentrated on heading off the Senate investigation, which could embarrass the bank and damage its reputation, if not worse. Whether or not BCCI had done anything wrong in its handling of the Noriega business, Clifford was well aware of the tendency for congres sional hearings to turn into public floggings for the benefit of television cameras.

The criminal charges brought a new urgency to his work on behalf of the bank, and he and Altman quickly organized the best team of defense lawyers that the bank's millions could buy. They hired lawyers not only for the bank itself, but also for the individual bank employees charged in the scheme.

Altman had the best contacts among the city's white-collar defense bar. Many of the top lawyers were his age, in their early forties. While he had spent his career earning millions at Clifford's side, they had risen through the ranks in the U.S. attorney's office in Washington or New York and then embarked on careers in private practice.

None of them had attained Altman's exalted status. He and his actress-wife Lynda Carter were stars in a town that thirsts for glitter. Not long after their marriage in 1984, Washington Post columnist Chuck Conconi referred to them as "that couple seen everywhere around town." At their $3.5 million, 20,000-square-foot mansion in the exclu sive suburb of Potomac, Maryland, white-gloved servants attended to guests at dinner parties where the entertainment crowd mixed with power brokers from Washington's political and legal circles.

On less formal occasions, Altman and his lawyer pals gathered around the television at the house to watch the Washington Redskins when they were playing a game out of town. The regulars included Larry Wechsler, a former federal prosecutor who had joined a big Washington law firm, and Larry Barcella, who had left the federal prosecutor's office after his highly publicized prosecution of Edwin Wilson, the renegade spy.

Wechsler and Barcella became the nucleus of the defense, represent ing the bank along with another Altman friend and top lawyer, Ray Banoun. John Hume, who spent fifteen years as a federal prosecutor in Washington, was hired to represent Amjad Awan. Peter Romatowski, who had worked on the prosecution of insider-trader Dennis Levine in New York and put Wall Street Journal reporter R. Foster Winans in jail for his role in a widely publicized insider-trading scheme, was hired as Nazir Chinoy's lawyer.

For Clifford and Altman, protecting the bank was a professional responsibility and a personal one. More was at stake than simply defending another client. BCCI had funneled millions of dollars in legal fees to the firm of Clifford & Warnke over the years, as much as $4 million one year. From their positions as chairman and president of First American, Clifford and Altman sat atop a significant power center in Washington. The advantages had been most evident to them just a few months earlier, when the two lawyers had reaped enormous profits from an unusual deal involving BCCI and stock in First American's holding company.

It was a deal with the usual BCCI trademarks. The bank had loaned $18 million to the two lawyers in July 1986 so they could buy 8,168 shares of stock in Credit and Commerce American Holdings, the parent company of First American Bankshares. None of the lawyers' money was at risk and the sole collateral for the loan was the stock itself. They paid $2,204 a share, an insider's price and less than half the cost to another investor a few days earlier. Clifford and Altman received warrants that carried the low price and had been provided for them by another shareholder, the Mashriq Corporation. The Federal Reserve later identi fied Mashriq as a front for the BCCI management.

Four days after Clifford and Altman bought their block, a group of companies controlled by the Mahfouz banking family of Saudi Arabia paid $6,000 a share. The Mahfouz family was injecting $150 million into the bank to cover for the trading losses discovered earlier by Price Waterhouse. As part of its agreement, the family acquired stock in both BCCI and CCAH with the understanding that BCCI would buy back the stock at the same price at any time.

Eighteen months later, Clifford and Altman had sold sixty percent of their CCAH stock at the highest price it ever commanded, $6,800 a share. The buyer was another corporate entity identified by the Federal Reserve as a BCCI front. They paid off their entire BCCI loan from the proceeds and pocketed a total profit between them of $9.8 million. They also retained debt-free ownership of the remaining forty percent of the original stock block. Along with their executive roles at First American, both men also were on the four-member board of CCAH, which approved the stock purchases and the pricing. For its role, BCCI received $4.2 million in fees and interest.

The deal was unusual in many ways. First, banks rarely make loans equal to 100 percent of the collateral; they like to keep a safety margin, similar to requiring a homeowner to make a down payment. Second, there was no risk to Clifford and Altman; all they stood to lose was the stock itself, not any of their own money. That meant the bank took all the risk. Third, the Federal Reserve Board had been promised at the 1981 hearing and in documents related to the acquisition of First American by CCAH that there was and would be no financial relationship between CCAH and BCCI. While the loan for the stock purchases was not a direct relationship between BCCI and CCAH, using the stock as collateral put BCCI in a position to acquire an interest if Clifford and Altman defaulted.

The entire transaction was a private one. Because the shares of BCCI and CCAH were held privately, the stocks did not trade on any public exchange. When word of the loans surfaced eventually in 1991, Clifford and Altman would defend them as legal and proper. A spokesman for the two men would say that the transactions were conducted at arm's length, the Federal Reserve was notified, and the CCAH board approved the deal.

In the weeks following the Tampa indictment, the defense lawyers got their first look at the government's case against BCCI and the individual defendants. There were two general reactions.

Jay Hogan, one of Miami's toughest and most colorful defense lawyers, was hired to represent Aftab Hussain. When Hogan came up to Tampa for a meeting with his colleagues on the defense team, he expressed his surprise: "You know, I got the call and I thought, 'Great, this is going to be a big huge case with high visibility.' It has high visibility all right. But when I read the indictment and saw $32 million, I couldn't believe it. This is the smallest money-laundering case I've been involved in in years."

There was general agreement among the lawyers that this case was not about money laundering per se. It was not even about going after major drug dealers, since even Rudy Armbrecht was not a major figure in the trafficking world and Gonzalo Mora, Jr., was a small fry. This case was about going after a major international bank. And that provided the basis for the second general reaction.

John Hume is low-key and analytical, not given to outbursts in court or outside of court. After examining the evidence and listening to some of the taped conversations between Bob Mazur and his client, Amjad Awan, Hume had a blunt reaction.

"Unless we're at Our Lady of Lourdes, we are only going through the motions with a trial," Hume told Awan candidly. "It will take a miracle to win this one."

The defendants' own words on the conversations picked up by the James Bond briefcase would be compelling evidence against them. Each of the defendants had a clear understanding that the man they knew as Bob Musella derived his money from clients who were drug dealers. Many times the jury would hear the agent's masterful Lee lacocca analogy.

There was another problem, too. It is an unpleasant subject, but one that the defense lawyers had to address at the outset. BCCI was a shadowy bank run by Pakistanis and financed by Arabs. Its clients in this case were Colombian drug dealers and their money launderers. The bankers on trial were Pakistani and Muslim. Plus, there was a very real chance that evidence would be introduced linking the bank to Manuel Noriega, a big-time bogeyman to the American public.

Winning a case against strong government evidence, particularly taped conversations, demands that a jury be given some reason to want to acquit the defendants, some justification, however flimsy or emotion al, for overlooking the hard facts. The odds as well as the evidence seemed stacked against these defendants.

"Here you had an Arab-owned, Paki-run bank with no overt constitu ency to take their side," explained Barcella in analyzing the strategic problem posed by the racial and religious overtones. "When we were discussing going to trial, I explained to the bank officials the difficulty of taking their case to a jury in Tampa. You were going to have a bunch of little dark men with funny accents facing a bunch of old people."

So, naturally, the talk turned early to the possibility of a plea bargain. Cutting a deal with the government for the bank meant paying a fine, since a corporation cannot be put in prison. Many reputable banks had paid fines and continued to operate. A plea bargain for BCCI would be a business proposition, a negotiation like so many others: How much money will it cost?

Cutting a deal for the bankers was a dicier proposition. Obviously, they could go to prison. Indeed, it seemed certain that many if not all of them would do some time. The key question would be how much. Maybe three years. Maybe five. John Hume, Jay Hogan, and the other lawyers for the individual defendants felt initially that they could get away with fairly light terms. The money involved was small by most standards. None of the bankers had taken a bribe for handling the transactions. None had a previous record. The money-laundering statute was a fairly new law that many bankers did not understand fully. They had not even handled any cash. They were part of a corporate culture that encouraged aggressive banking.

"The BCCI bankers had a more European attitude," explained Peter Romatowski, whose client Nazir Chinoy was fighting extradition from London to Tampa. "There is a lot of winking and nodding and looking the other way on flight capital, whether it is evading currency restric tions or even criminal problems. The prevailing attitude is, 'Where the money comes from is none of my business.' The European view, shared by the bankers at BCCI, was that we are authoritarian, puritanical, and too eager to stick our nose in other people's business."

But this strategy for leniency ran smack into the prosecutorial locomotive of Mark Jackowski. The tough-minded lead prosecutor and his partner, Mike Rubinstein, had a much different view of what had transpired in Operation C-Chase. Jackowski signaled early that he was not interested in a slap on the wrist for the bank or the bankers. Partly this stemmed from the strength of the government's case. Mostly, however, it grew out of his personal conviction that money laundering is an integral element of drug trafficking and deserves equivalent punish ment. That was one of the reasons that the first count of the indictment accused all of the defendants of conspiring to distribute cocaine, which carried a twenty-year sentence.

"My view is that these guys are bankers who traffic in narcotics proceeds," Jackowski told Hume and the others late in 1988. "My personal view is that they are no different than dopers themselves. There is absolutely no way that these guys are going to plead to five years."

At the outset, Jackowski insisted on guilty pleas to the overall drug conspiracy charge in the indictment. It was a count that carried a maximum prison term of twenty years. The judge could impose less, but that would probably require statements from the government that the defendants had cooperated and provided significant information about crimes by other people. The defense attorneys viewed Jackowski as unreasonable, unwilling to negotiate a fair deal, but it was a clear-cut case of might makes right. They had to deal with him if they wanted a plea bargain.

Jackowski's intention was to go up the ladder within BCCI. He also was looking for help on the two Noriega cases still pending in Tampa and Miami. He believed that Awan in particular could provide invaluable assistance in those prosecutions, but even the most extensive coopera tion was not going to translate into five years for him.

There was another hitch. The policy of the U.S. attorney's office in Tampa on plea bargains was firm: No deals would be cut without a written statement from the defendant outlining the information that he or she would provide in cooperation with the government. These statements, called proffers, were crucial to any deal. But the defense attorneys refused to provide them, maintaining that their clients were innocent and therefore knew of no wrongdoing that they could describe to the government.

Nonetheless, plea negotiations occurred at regular intervals. Some times they were downright acrimonious. Often, Bob Mazur sat in on the sessions, but he said little. Usually the meetings were confusing to the defense lawyers.

"What do you want from us?" Hume would ask. "What do you think my guy knows?"

"He knows," Jackowski or Rubinstein would reply and then demand a proffer.

Although the talks would continue right up to the trial and even after it started, it became apparent early that the chances of a plea bargain for the individual clients were slim, so the defense was crafting a joint strategy against the charges.

A central element of this strategy was to challenge the government's

Winning a case against strong government evidence, particularly taped conversations, demands that a jury be given some reason to want to acquit the defendants, some justification, however flimsy or emotion al, for overlooking the hard facts. The odds as well as the evidence seemed stacked against these defendants.

"Here you had an Arab-owned, Paki-run bank with no overt constitu ency to take their side," explained Barcella in analyzing the strategic problem posed by the racial and religious overtones. "When we were discussing going to trial, I explained to the bank officials the difficulty of taking their case to a jury in Tampa. You were going to have a bunch of little dark men with funny accents facing a bunch of old people."

So, naturally, the talk turned early to the possibility of a plea bargain. Cutting a deal with the government for the bank meant paying a fine, since a corporation cannot be put in prison. Many reputable banks had paid fines and continued to operate. A plea bargain for BCCI would be a business proposition, a negotiation like so many others: How much money will it cost?

Cutting a deal for the bankers was a dicier proposition. Obviously, they could go to prison. Indeed, it seemed certain that many if not all of them would do some time. The key question would be how much. Maybe three years. Maybe five. John Hume, Jay Hogan, and the other lawyers for the individual defendants felt initially that they could get away with fairly light terms. The money involved was small by most standards. None of the bankers had taken a bribe for handling the transactions. None had a previous record. The money-laundering statute was a fairly new law that many bankers did not understand fully. They had not even handled any cash. They were part of a corporate culture that encouraged aggressive banking.

"The BCCI bankers had a more European attitude," explained Peter Romatowski, whose client Nazir Chinoy was fighting extradition from London to Tampa. "There is a lot of winking and nodding and looking the other way on flight capital, whether it is evading currency restric tions or even criminal problems. The prevailing attitude is, 'Where the money comes from is none of my business.' The European view, shared by the bankers at BCCI, was that we are authoritarian, puritanical, and too eager to stick our nose in other people's business."

But this strategy for leniency ran smack into the prosecutorial locomotive of Mark Jackowski. The tough-minded lead prosecutor and his partner, Mike Rubinstein, had a much different view of what had transpired in Operation C-Chase. Jackowski signaled early that he was not interested in a slap on the wrist for the bank or the bankers. Partly this stemmed from the strength of the government's case. Mostly, however, it grew out of his personal conviction that money laundering is case, accuse Mazur and the government of misconduct in targeting BCC I, of selective prosecution. It was a risky move, one that was debated extensively among the defense lawyers in late 1988. If the judge agreed that there had been misconduct, he could take the highly unusual step of throwing out the case. It was a long shot. And merely leveling the accusation was sure to anger the prosecutors, for it impugned their ethics and integrity. That would make any future plea negotiations tougher.

In January 1989, the defense filed a motion seeking dismissal of the indictment on grounds of outrageous government misconduct. The motion, prepared by Akbar Bilgrami's attorney, Bennie Lazzara of Tampa, accused the government of manufacturing a criminal enterprise to ensnare the bank and its employees. These were people, said the motion, who otherwise would not have committed any crimes. They were targeted unfairly by the government.

"The question arises why the defendants were singled out and whether it was because BCCI is largely owned and operated by foreigners-Arabs and Pakistanis-who are not particularly popular or influential in this country," said the motion. "This question raises the distinct issue of selective prosecution."

Similar allegations had been made in other sting operations, most notably by former United States Senator Harrison Williams (D.-NJ) after he was caught up in the Abscam investigation and convicted of taking bribes from FBI agents posing as Arab sheiks. But the trial judge and appeals courts had rejected Williams's charge and, in fact, the rules regulating government conduct in undercover operations remained vague.

The accusations by Lazzara and the other defense attorneys angered the prosecutors and the agents, as expected. The government's immedi ate response was to suggest that the judge wait until all of the evidence was in at the end of the government's case and then evaluate the allegation. But what the prosecutors really did was decide to play a little rougher.

On May 4, 1989, the federal grand jury in Tampa returned a new indictment of BCCI and the same individuals. Such a document is called a superseding indictment, and it generally followed the same lines as the original charges. New, however, were far broader charges about the bank's activities in laundering drug money and general allegations that what had occurred during C-Chase was an example of overall corporate policy. The previous laundering activity in Panama for convicted drug smuggler Steven Kalish was a central allegation; it rebutted the defense claim that the bank was not predisposed to money laundering.

Far from being lured into illegality by government agents, accused the superseding indictment, BCCI and its officers followed "a corporate strategy for increasing BCCI's deposits by encouraging placement of funds from whatever sources, specifically including 'flight capital,' 'black market capital,' and the proceeds of drug sales, in conscious disregard of the currency regulations, tax laws, and anti-drug laws of the United States and other nations.

"It was also part of the conspiracy, and in the furtherance of BCCI's corporate strategy to pursue deposits from any and all sources in disregard of United States and foreign law, that BCC I. . . did knowingly offer a full range of services to co-conspirator drug importers, suppliers, and money launderers."

This broader language set the stage for introducing evidence at trial of similar crimes committed by the bank and its employees beyond those uncovered directly during Operation C-Chase. The accusation was that the bank itself was corrupt. The trial could turn into a full-blown expose, provided the judge would allow the evidence to be presented to the jury.

Because the indictment accused the defendants of a drug conspiracy, they stood a real chance of spending the long pretrial months in prison. Drug crimes allow federal prosecutors to bypass normal bail procedures. The concept of bail is that a suspect puts up enough cash to ensure that he or she will appear for trial. With drug lords, however, money is so plentiful that courts have allowed suspects to be held without bail under preventive detention. This is most often used with foreigners who are deemed likely to flee to a country from which they cannot be extradited. Defense lawyers argue that such measures are extreme and unconstitu tional, the result of overzealousness in the guise of fighting the war on drugs.

In the case of the individuals indicted, the government sought preven tive detention on the grounds that the bankers and Colombians were likely to flee. However, U.S. District Judge William Terrell Hodges, the Tampa judge in charge of the case, agreed to an unusual provision for the bankers. Rather than jail, each would get his own apartment in a condominium complex outside Tampa. Each would wear an unremova ble electronic bracelet that would allow federal agents to monitor their location constantly. Off-duty Tampa policemen would be hired to guard the bankers twenty-four hours a day. The bank, of course, would pay for this special treatment.

There were some, such as Jack Blum, who viewed the arrangement as coddling, an effort by the bank to shield the individual defendants from the reality of prison life and make them less likely to accept a government plea bargain that would require them to implicate higher- ups in BCCI. A more reasonable interpretation seems to be that these were not hardened criminals and there was little reason to subject them to prison life for the months and months it would take to get ready for trial.

The fate of the bank officers from Miami made a deep impression on Abdur Sakhia, who for a while had been their supervisor. From time to time, he had warned about the way things were heading, even threaten mg to resign after Akbar A. Bilgrami's coup in expanding into Colom bia. He flew to London in early 1989 to try to escape the impending disaster.

"If a government takes over in Panama that's friendly to the U.S.," he told senior executives, "the entire BCCI office will go to jail." But headquarters wasn't impressed. "The United States isn't the rest of the world," the officers replied. They did, however, give Sakhia an escape from his North American duties. "Would you like a transfer to London?" they asked. "Thank God!" he replied, and leaped at the relocation, even though it meant leaving his ailing wife alone with their fourteen-year- old son.

Why didn't he just leave the bank? he later mused. His lawyers advised him to hang on, he answered himself. Not only would he lose his medical benefits and legal coverage if he left, he would become an immediate target of prosecutors, as the most senior officer to bail out of BCCI. Besides, warnings were coming from Swaleh Naqvi's office that the bank could easily implicate him in wrongdoing, if it wanted to. Sakhia stayed on and found ways later to appease the prosecutors.

Another former bank employee also made his peace with the prosecu tors. Daniel Gonzalez, the Panama branch's emissary to the Medellin cartel and handler of some of its dirtiest accounts, had dropped from sight after he had been forced to resign in 1985. Unknown to the bank, he had been located by the C-Chase investigators and brought to Tampa. As the government prepared for trial, Gonzalez put his lurid story on paper. He wrote a book in Spanish called The Kings of Money Laundering that later appeared in Panama with no identification of the publisher. Many in Panama thought the U.S. government was behind it, in part because of Gonzalez's flattering description of Customs agent Kathy Ertz in a bikini. Even without a publishing house to plug it, the book became a runaway best-seller.

Response to the indictment of BCCI and its officers had been fast, if not particularly effective, at the Federal Reserve Board in Washington.

BCCI had a handful of agency offices in the United States that took no domestic deposits but did business for international clients. These offices were in New York City, Los Angeles, Tampa, Miami, and Boca Raton, Florida. They were supervised and regulated by state authorities. With help from state banking authorities, the Fed examined the limited books and operations of those offices. At the New York and Boca Raton offices, examiners discovered cash deposits in excess of $10,000 that had not been reported to the IRS as required under federal law. The cash came from foreign nationals, the only people who could make deposits at an agency office, and appeared to represent new money-laundenng activi ties by the bank. In October and November of 1988, the details were passed on by banking authorities to the Justice Department and the IRS for possible criminal action. The Fed never heard back.

The examinations also revealed that internal controls and lending practices at the agency offices were poor. The Federal Reserve, as the main regulator of U.S. branches and agencies of foreign banks, began preparing a civil order requiring BCCI to clean up its operations and enforce compliance with the cash-reporting requirements of U.S. law.

The first the Federal Reserve Board heard of Amjad Awan's claims that BCCI controlled First American and other U.S. banks was on December 27, 1988, when IRS agent David Burns, who was part of the C-Chase team, telephoned William Ryback, a supervisor at the Federal Reserve in Washington. Burns had talked with Ryback several times since August about various BCCI matters. This time, the IRS agent was looking for a copy of the transcript from the April 1981 hearing on the acquisition of First American.

During the conversation, Burns explained that a BCCI employee had claimed in taped conversations that BCCI controlled First American and a bank in Georgia. Burns offered to provide the Fed with five or six witnesses who could testify about BCCI's secret ownership of First American Bank. While Burns couched the offer as what he called a "hypothetical instance," he felt certain that he conveyed to Ryback that he could produce the witnesses.

The bank regulator's response was disappointing. He told Burns that he would need documents to corroborate any testimony before the Fed could take action. Burns did not understand why the evidence he had offered, which might have been sufficient for charges in a criminal case, was of so little interest to the Federal Reserve.

Slightly more than a month later, Burns and his IRS supervisor, Maurice Dettmer, flew to Washington to pay a visit to Ryback. It was February 1, 1989. The chief mission of the IRS agents was to gather additional background material on BCCI for the criminal case in Tampa. Again Burns mentioned briefly to Ryback the possibility of witnesses who would link BCCI and First American. Again, the regulator was uninterested.

After the Tampa indictments the previous October, the Federal Reserve had opened a special inquiry into the possible relationship between BCCI and First American. At the time, First American had an to prison life for the months and months it would take to get ready for trial.

The fate of the bank officers from Miami made a deep impression on Abdur Sakhia, who for a while had been their supervisor. From time to time, he had warned about the way things were heading, even threaten mg to resign after Akbar A. Bilgrami's coup in expanding into Colom bia. He flew to London in early 1989 to try to escape the impending disaster.

"If a government takes over in Panama that's friendly to the U.S.," he told senior executives, "the entire BCCI office will go to jail." But headquarters wasn't impressed. "The United States isn't the rest of the world," the officers replied. They did, however, give Sakhia an escape from his North American duties. "Would you like a transfer to London?" they asked. "Thank God!" he replied, and leaped at the relocation, even though it meant leaving his ailing wife alone with their fourteen-year- old son.

Why didn't he just leave the bank? he later mused. His lawyers advised him to hang on, he answered himsel£ Not only would he lose his medical benefits and legal coverage if he left, he would become an immediate target of prosecutors, as the most senior officer to bail out of BCCI. Besides, warnings were coming from Swaleh Naqvi's office that the bank could easily implicate him in wrongdoing, if it wanted to. Sakhia stayed on and found ways later to appease the prosecutors.

application pending to acquire a small bank in Pensacola, Florida, which had been foreclosed by its Georgia subsidiary. The inquiry was con ducted under the auspices of that application by the Federal Reserve Bank of Richmond, Virginia, which had jurisdiction over First American Bankshares, but it was only cursory. Each of First American's subsidiary banks was asked to report on any transactions with BC CI, and the CCAH management was asked whether any relationship existed with BCCI.

In its report to the Fed board in Washington on February 8, 1989, the Richmond bank said it had found no evidence of irregular or significant contacts between First American and BCCI. The auditors found that the common ownership between CCAH and BCCI had increased. This was principally a recognition that the Mahfouz family now owned thirty percent of CCAH and about twenty percent of BCCI. However, repeating the promise they had made in 1981, Clark Clifford and Robert Altman assured the Fed that BCCI exercised no control or influence over CCAH.

So a week later, ignoring the leads provided by David Burns, the Federal Reserve approved First American's acquisition of the Bank of Escambia in Pensacola. In a letter to Altman announcing the approval, the Fed said that "a recent inspection and investigation by the Federal Reserve System indicate that applicants have adhered to their original commitments to the board" that BCCI was not involved in First American's operations. There was no indication in the record that Ryback had ever talked to Burns and Dettmer.

Concerns remained at the Fed. Officials were frustrated with their inability to pierce the regulatory secrecy that concealed BCCI's true operations. By-the-book bank examiners insisted on documentary evidence of the links to First American, not rumors and allegations. And no documents were available.

It was not until late in 1989 that the facade of secrecy erected in front of the Bank of Credit and Commerce International began to crack. Even then, the truth was still a long way off.

At the time, BCCI was regulated in a most unusual fashion. The long-standing concerns of the Bank of England and other jurisdictions over the lack of a single regulator for the bank had led to a novel step in 1988. Officials of Britain, Switzerland, Luxembourg, and Spain had formed an informal college of regulators to try to monitor the affairs of BCCI. Later, the group was expanded to include the Cayman Islands.

The concerns of the regulators were heightened by the bank's indict ment in Tampa in late 1988. By the middle of 1989, the anxiety had deepened as the bank continued to provide only partial financial information to the regulators. So that fall, the college of regulators had insisted that Price Waterhouse conduct an immediate audit of BCCI's Luxembourg and Cayman Islands operations and that the bank provide the results to the regulators. Reluctantly, the bank had capitulated.

This agreement might not have been made if Agha Hasan Abedi had still been in control. He had never wavered in his devotion to secrecy, but with Abedi sidelined by serious illness, Swaleh Naqvi still in tenuous command, and the Tampa case about to go to trial, the bank had agreed to provide the regulators with a first-ever look at the worldwide financial operations of the Bank of Credit and Commerce International.

Price Waterhouse had first examined the bank as a whole in 1987, after Ernst & Whinney quit in anger over the near collapse of the bank from the trading losses. Since then, Price Waterhouse had given the bank an unqualified report each year. But all that changed with the audit demanded by the regulators.

Dated November 17, 1989, the audit said that the bank had performed reasonably well over the past nine months in light of the repercussions from the American criminal charges. Some business had been lost, but the bank also had attracted new business. Senior management had told the auditors that they anticipated a year-end profit of $220 million to $240 million. Price Waterhouse thought the estimate was high, but agreed that the bank appeared headed for another profitable year.

The major problem at the bank seemed to be its concentration of huge loans to a handful of customers. The risk in such a concentration was that the collapse of one customer could ripple through an institution and topple the entire structure.

The largest concentration that Price Waterhouse found was $856 million in loans to the shareholders of Credit and Commerce American Holdings, the parent company of First American Bankshares. From the audit, it was apparent that Price Waterhouse had raised a similar alarm about the concentration the previous year. Since then, however, the audit found that loans to CCAH had increased by $113 million.

It was this concentrated lending that was the basis for questions about the loans. There was no evidence in the report that BCCI actually controlled the CCAH shares. The side agreements were not shared with the auditors. Indeed, the auditors raised similar questions about the high concentration of loans to other clients, such as the Gokal brothers and their shipping companies and Ghaith Pharaon.

Still, when the college of regulators went over the audit, one of the regulators knew that the CCAH loans would be of interest to the Federal Reserve Board in Washington. The regulator knew that the board had been investigating ties between First American and BCCI for nearly a decade.

Bank secrecy laws in Britain and Luxembourg prohibited the regula tor from passing on a copy of the audit or even describing its contents to outsiders, but in December 1989, the regulator contacted William Taylor, the chief of bank supervision at the Federal Reserve. Taylor was told that an audit had uncovered extensive loans from BCCI to Kamal Adham and other CCAH shareholders. The audit did not indicate whether there were any links between the loans and control of CCAH stock, but Taylor was told that more information might show up in later audits.

The Federal Reserve immediately wrote a letter to Robert Altman asking for information on any loans that BCCI or its affiliates had made to the shareholders of CCAH. The response came from Swaleh Naqvi, who assured the Federal Reserve that BCCI had not financed the First American acquisition and that the loans to CCAH shareholders were unrelated to that transaction. Kamal Adham sent a personal assurance that his CCAH shares had not been financed by BCCI. Indeed, Adham maintained steadfastly that he, and he alone, was the owner of about thirteen percent of the shares in First American's parent company. Later, through his Washington lawyer and in communications with the Federal Reserve, he denied that he was a nominee of any sort for BCCI.

The Kerry subcommittee was not faring much better than the Fed in trying to get the full story on BCCI. Attempts to schedule public hearings on the bank were stalled. By the Justice Department. By the Senate. By the failure of BCCI's lawyers to provide key documents.

After Blum's departure, the BCCI investigation had fallen primarily on the shoulders of two young lawyers on Kerry's personal staff, David McKean and Jonathan Winer. In weeks of negotiations with BCCI's lawyers, chiefly Ray Banoun by this point, the staffers had been unable to obtain internal bank records related to the Noriega account and other overseas activities by the bank. In their defense, the bank's lawyers were concerned first with complying with similar demands from the prosecu tors in Tampa. At one point, Banoun referred the request for records to the Tampa prosecutors and Kerry's subcommittee was told that its access would have to wait until after the trial. Banoun and Robert Altman also continued to maintain that they were relying on Amj ad Awan's assertion that there were no Noriega records in the bank's files.

John Kerry was finding little support within the Senate. Congress as an institution does not move easily into arenas of great controversy. Usually it is forced to confront a scandal by the press, with daily page-one stories and network broadcasts goading publicity seekers and prodding well meaning legislators to hold hearings.

"There was no appreciation in this institution for the tentacles of BCCI and not a lot of appetite for upsetting the apple carts," Kerry lamented later. "There is a role of accountability and oversight that Congress must play in these situations. But sometimes it is easier to avoid it."