TIME: Almanac 1993/TIME Almanac 1993.iso/time/040191/0401206.000

Text File | 1992-08-28 | 16.5 KB | 350 lines

                                                                                BUSINESS, Page 54

Masters of Deceit


How the men behind an audacious bank expanded it via global
duplicity, touching Jimmy Carter, Arab sheiks and Manuel Noriega
along the way

By JONATHAN BEATY AND S.C. GWYNNE/WASHINGTON -- With reporting
by Adam Zagorin/Brussels, and other bureaus


    Investigators say it is one of the most powerful and corrupt
banks they have ever encountered. The shadowy $30 billion
offshore enterprise called Bank of Credit & Commerce
International made headlines briefly when it was convicted of
laundering drug money in the U.S. last year, but its story came
home with shocking force to most Americans more recently.
B.C.C.I., investigators have found, has for years secretly
owned the largest bank in Washington, First American Bankshares,
despite a decade of denials by one of the city's most
respected figures, lawyer and First American chairman Clark
Clifford. Bad enough that an unregulated foreign banking empire
convicted of crimes in three countries evaded regulators to
control a major U.S. bank with 297 offices from New York to
Florida. All that, it turns out, is just the beginning.

    B.C.C.I. internal-audit documents reviewed by TIME and
interviews with present and former B.C.C.I. banking officers
in several countries reveal a pattern of unprecedented global
financial duplicity. The bank may secretly control other U.S.
banks. It has used front men to conceal ownership of businesses
in many countries. Adeptly deploying political influence around
the world, say investigators, it has enlisted sovereign
governments in shady financial deals built on its ability to
control massive global flows of illegal funds, such as drug
money and flight capital. It has involved itself with the
central banks of more than 30 Third World countries and in
return for extending credit has become sole banker for hundreds
of nationalized corporations.

    Clifford and law partner Robert Altman, who is First
American's president, are now under scrutiny by a New York
grand jury seeking to determine whether the pair were knowing
front men for one of the most ingenious bank tycoons of the
modern age: B.C.C.I.'s founder, Agha Hasan Abedi of Pakistan.
Clifford and Altman insist they were not, despite long and
close connections. They were attorneys for B.C.C.I. from 1978
through 1990, as well as attorneys for First American, billing
the two banks for more than $1 million during that period.
Clifford, who has long defended Abedi, says he is no longer so
sure about the bank's ownership or Abedi's role. "I got the
rawest deal of all by not being told what was going on," he
told TIME. "If the Federal Reserve was deceived, so was I."

    Clifford and Altman are not the only U.S. connections to
B.C.C.I. that the New York grand jury is looking into.
Investigators suspect that wealthy Saudi businessman Ghaith
Pharaon, who purchased the troubled National Bank of Georgia
from President Carter's friend and onetime budget chief Bert
Lance and later sold it to First American, has been a front man
for Abedi. Banking regulators are probing another Pharaon
holding -- Independence Bank in Encino, Calif. -- to see if
Abedi or B.C.C.I. is the secret owner of that bank. And a
federal grand jury in Miami is tracking Pharaon's and
B.C.C.I.'s links to fraud-riddled CenTrust Savings, which
thrift regulators took over last year.

    Abedi's bank was designed from the first to appear to be
financed by enormously rich Arabs from the gulf states. But
sources close to the bank say that from the beginning, Abedi
offered well-connected Arabs free stock in the bank by lending
them the money to buy the shares without requiring repayment.
Says an associate who has known Abedi since he created
B.C.C.I.: "Abedi's genius was that he took the Middle Eastern
custom of using front men to disguise his real interests and
control and applied it globally."

    By every account, Abedi was a brilliant banker, and his
financial empire was built to make the movement of money as
invisible as possible. His tangle of offshore corporations,
banks, trusts and foundations is one of the most complex and
secretive banking networks ever developed. As a result, his
market includes tax avoiders, intelligence agencies, political
bribers, arms dealers, narcotics traffickers and national
leaders bent on looting their countries (Manuel Noriega was a
customer). Former B.C.C.I. bankers estimate that 15% to 20% of
B.C.C.I.'s multibillion-dollar cash flow involved flight
capital -- "unofficial money," as they prefer to call it.

    B.C.C.I.'s modus operandi for gaining political influence
was as simple as its banking methods were convoluted. The
formula: money. Abedi found his opening wedge in the U.S. in
late 1976, when he looked to Georgia, home of then
President-elect Carter, and the rotund personage of Carter
confidant Bert Lance. In deep financial trouble with his
National Bank of Georgia and beset by regulators for past
banking indiscretions, Lance was all too glad to be put on
B.C.C.I.'s payroll as a $100,000-a-year consultant. Abedi
declared Lance was his "unofficial ambassador . . . brought in
to give us a vision of the U.S." and insisted "we would never
talk about exploiting his relationship with the President."

    Abedi began playing his Lance card immediately, introducing
Lance to his close business associate Ghaith Pharaon in
Washington in late 1977. Pharaon, then 36, was a
Harvard-educated Saudi who had parlayed royal-family
connections into a Jidda construction fortune. He and a group
of Arab investors from the gulf had earlier that year acted as
fronts for Abedi's purchase of Pakistan's largest oil company.
Now Abedi told Lance that Pharaon was, fortuitously it seemed,
looking for an American bank to buy. Lance had resigned in
September as Carter's budget director under charges of
impropriety and was still stuck with the National Bank of
Georgia. Pharaon created a sensation by buying Lance's shares
and acquiring control of the bank. Abedi also shored up Lance's
still shaky finances with a $3.4 million unsecured loan.

    The Lance connection was paying off elsewhere as well. When
Lance resigned, he hired Washington attorney Robert Altman to
represent him. Through this connection, Abedi met Clifford, his
key U.S. contact and a man who wielded precisely the sort of
influence the Pakistani banker was looking for.

    Abedi's strategy was taking shape. Using prominent Arab
businessmen and members of ruling families from the United Arab
Emirates as proxies, Abedi and B.C.C.I. organized an attempted
hostile takeover of Financial General Bankshares, a Washington
bank holding company. When the Securities and Exchange
Commission charged that B.C.C.I. had secretly orchestrated it,
Abedi hired Clifford and Altman to represent him and his group.
This felicitous combination of wealthy shareholders from
oil-rich Arab countries and Washington's most famous attorney
calmed regulators, who allowed B.C.C.I.'s fronts to purchase
Financial General, which they renamed First American.

    The Lance connection eventually led to Jimmy Carter. When
he left office, Abedi lent him B.C.C.I.'s corporate jet to
replace Air Force One, donated $500,000 to help establish the
Carter Center at Emory University in Atlanta, and began pumping
donations into Carter's Global 2000 Foundation, which provided
health care in the Third World. Sources close to B.C.C.I. say
Abedi gave "millions" to the charitable project. Carter
spokesmen would not confirm the amount but conceded that
B.C.C.I. gave $1.5 million last year (the former President was
not available for an interview on the subject of Abedi). That
gift was accepted after B.C.C.I. was indicted and convicted for
laundering drug money, but Carter has indicated that Abedi
remains a friend.

    Few think that is a poor reflection of Carter: Abedi, a
charismatic personality, has given millions each year to
charities and has wooed numerous world leaders attracted to his
Third World Foundation. Britain's Lord Callaghan, a former
Prime Minister, was a paid economic adviser to B.C.C.I., and
Pakistani President Zia was a staunch supporter. While Indira
Gandhi was India's Prime Minister, she presented a prize
established by B.C.C.I. "When I met him 20 years ago," says a
close associate of Abedi's, "I looked into his eyes and saw God
and the devil residing in perfect harmony, and I think nothing
has changed."

    A Price Waterhouse audit of B.C.C.I. completed in March 1990
and a supplemental audit completed the following month -- both
now sought by U.S. investigating authorities -- detail
irregular transactions that have caused hundreds of millions
of dollars to disappear. The documents also confirm that
B.C.C.I., not the Middle Eastern investors of record, holds the
controlling shares of First American.

    The stunning audit showed serious banking irregularities and
criminal acts involving senior B.C.C.I. executives, trustees
and bank directors that have been hushed up. The audit traced
insider loans, with funds parked in Bahrain and Panama, and
"drawdowns not supported by requests from the customers," which
is accounting jargon for money moved out of accounts without
documentation of any kind. Bank officials familiar with the
audit and other internal B.C.C.I. documents reviewed by TIME
confirm the Price Waterhouse findings.

    A secretive bank within the bank diverted depositors' funds
to finance purported loans to insiders for the purchase of
stock in institutions that Abedi wanted to control from behind
the scenes. In general such loans would never be repaid.
According to the records, $476 million from a B.C.C.I. bank in
the Cayman Islands and $308 million from International Credit
& Investment Co. Ltd., a B.C.C.I. holding company  in the
Caymans, were funneled to fake shareholders for purchases of
stock in transactions similar to the First American shuffle.

    By far the largest recipient of such loans was apparent
front man Pharaon, who got at least $280 million. According to
Price Waterhouse, the loans were "$100 million in excess of
limits" and exceeded 10% of the bank's capital base. Most banks
would hesitate to lend anywhere near that amount of capital to
a single customer. Auditors also found millions of dollars
passing through Pharaon's and his brother's accounts, including
stock sales and transfers, yet could find no loan agreements,
promissory notes or correspondence to explain the activity.

    B.C.C.I.'s careful control and influence over institutions
and regulators are receiving the greatest attention in the
U.S., yet pale in comparison with the bank's activities in the
Third World, where by the early 1980s B.C.C.I. had become a
potent geopolitical force. B.C.C.I. was especially adept at
using offshore branches to help Third World countries frustrate
attempts by international monetary authorities to force changes
in their economies. The technique was perfected in Jamaica,
where B.C.C.I. came to then Prime Minister Edward Seaga's aid
when the International Monetary Fund refused to release $60
million of aid because of unpaid debts. B.C.C.I. stepped in
with $48 million to straighten out Seaga's accounts after
brokering the deal with the IMF, and passed the remainder of
the IMF funds to the Jamaican government. In return, B.C.C.I.
bankers insisted that Jamaica's central bank put its future
business in B.C.C.I.'s hands.

    Peru provides another intriguing example of how B.C.C.I.
came to wield unusual power over sovereign finances. When Alan
Garcia Perez was elected President of Peru in 1985, he
inherited a nation in economic chaos, owing $14 billion to
foreign banks and governments. The 36-year-old President
stunned the international financial world by announcing that
he would no longer deal with the IMF. Peru would henceforth
repay its debt on its own schedule.

    Facing possible seizure of Peruvian assets overseas by
Western creditor banks, Garcia turned to B.C.C.I. for help in
protecting his national funds. So successfully was B.C.C.I.
able to hide the money in offshore accounts that Garcia
rewarded it with hefty central bank deposits.

    A global bank with so much influence and secret power is
more than a little worrisome to regulators. Yet B.C.C.I. has
been remarkably successful in using proxies and surrogates to
frustrate and even paralyze legal and regulatory authorities.
A perplexing example is the Justice Department's apparent
reluctance to expand its investigation of B.C.C.I. after the
bank was convicted of money laundering last year. "I thought
we were going to continue," says a former U.S. prosecutor
involved in the case. "We were aware of the B.C.C.I. connection
to First American, but nothing ever happened."

    When the Florida state comptroller announced he was going
to yank B.C.C.I.'s license to operate in the state after the
conviction, he received a peculiar letter from the Justice
Department in Washington. "We are . . . requesting that
B.C.C.I. be permitted to operate in your jurisdiction with the
understanding that certain accounts may be maintained by the
bank at the request of the Department of Justice which
otherwise would be closed to avoid legal and regulatory
violations," wrote Charles Saphos, then chief of the Criminal
Division Narcotics section. "I was confused by what they
wanted," says Florida Comptroller Gerald Lewis. "But when I
asked them if they wanted the bank to stay open because of
national security reasons or an investigation, they wouldn't
give a clear answer." Lewis closed the bank.

    The political value of Abedi's connections to wealthy Middle
Easterners was never more apparent than in the case of CenTrust
Savings Bank of Miami. CenTrust, acquired by real estate
developer David Paul in 1983 and now infamous as the S&L that
spent its money on bathroom sinks made of pure gold, raised
eyebrows in the regulatory community in the mid-1980s when it
invested massively in junk bonds.

    When regulators began circling closer in 1987, Paul acquired
new partners in the form of Ghaith Pharaon and his invisible
sponsor, B.C.C.I. With Pharaon came the presence of apparently
deep Saudi pockets, which was precisely the assurance Paul and
Pharaon gave when they met in 1987 and 1988 with the Federal
Home Loan Bank Board's then chairman, M. Danny Wall, to argue
that the bank would be able to meet its commitments.

    The result was that, instead of closing the bank, regulators
in 1988 agreed to let CenTrust float $200 million in bonds to
shore it up. B.C.C.I. contributed $25 million of that amount.
Bank regulators thus postponed CenTrust's death by more than
a year and raised the cost of the eventual bailout by hundreds
of millions. In the grand jury investigation in Miami, Abedi's
bank stands accused of parking the $25 million temporarily to
dress up CenTrust's books for the regulators.

    B.C.C.I. has been in financial trouble since its
money-laundering conviction and has turned for help to one of
its original sources of funds: the ruling family of Abu Dhabi
and its head, Sheik Zayed bin Sultan al-Nahayan, reportedly one
of the world's richest men. Last year Zayed and his son Prince
Khalifa acquired 77% of the bank and pumped in at least $600
million against the huge shortfall revealed by the Price
Waterhouse audit. It is far from clear that even this infusion
will save the bank. Among other irregularities, the audit
showed $400 million simply unaccounted for. Add to that a
billion dollars of insider loans to front-men shareholders --
loans that were never meant to be repaid -- plus unspecified
numbers of bad loans, and much remains to be sorted out.

    And what of Abedi, the genius behind it all? His heart
attack and a later heart transplant stopped his direct control
of B.C.C.I. in 1988, which proved disastrous for the bank.
Already in trouble from too rapid expansion, and dependent on
constantly increasing deposits to keep the cooked books from
revealing the growing problems, B.C.C.I. could not hold
together without Abedi -- as the audit released last year
revealed. He resigned officially from the bank last year, and
is living in semiretirement in Karachi. Authorities in several
countries would surely like to get their hands on him. His
connections with Pakistan's political and military leaders make
it unlikely, however, that he will ever be tried or extradited.