TIME: Almanac 1993/TIME Almanac 1993.iso/time/071591/0715204.000

Text File | 1992-08-28 | 5.9 KB | 126 lines

                                                                                BUSINESS, Page 50

SCANDAL

Tying an Octopus in Knots


A tenacious, corrupt empire meets its match when a global phalanx
of regulators seizes the offices of B.C.C.I.

By JOHN GREENWALD -- Reported by Jonathan Beaty/Abu Dhabi and S.C.
Gwynne/Washington


    The crackdown was as swift and implacable as a military
operation. Shortly after noon last Friday, British authorities
strode into the steel-and-glass London headquarters of the Bank
of Credit & Commerce International, a notorious cash conduit for
drug smugglers, arms dealers and rapacious tyrants. Seizing
control of the office, the regulators told bank employees to
stop working and go home. The move coincided with similar sweeps
of B.C.C.I. operations in Luxembourg, the Cayman Islands,
France, Spain, Canada, Switzerland, the Netherlands and the
U.S., where regulators shut the bank's loan offices in New York
City and Los Angeles. The combined actions placed more than 75%
of B.C.C.I.'s $20 billion of assets in 69 countries in
government hands and wrested control of the empire from the
bank's Middle Eastern ownership.

    The wave of shutdowns marked the most drastic attack yet
on a shadowy institution that investigators have called the
most corrupt corporate enterprise in modern history. Those
ensnared in its toils include former Defense Secretary Clark
Clifford, the chairman of Washington's First American
Bankshares, which B.C.C.I. secretly gained control of during the
1980s. Bank regulators have been probing B.C.C.I. with
increasing intensity since last year, when an audit found that
more than $1 billion had vanished from its vaults and the bank
pleaded guilty to laundering drug money in a case linked to
former Panamanian leader Manuel Noriega. Astonished
investigators have since put the amount of missing funds at $10
billion.

    Authorities in the U.S. and Europe launched their blitz
last week, after a Bank of England report uncovered "widespread
fraud at the B.C.C.I. Group in a number of jurisdictions and
stretching back over a period of years." That clearly confirmed
what the governments had long suspected. "It's so bad the
auditors couldn't even put together a balance sheet," said
William Taylor, staff director of the U.S. Federal Reserve
Board's banking supervision and regulation division. Taylor said
the Bank of England had been seeking for months to restructure
B.C.C.I. "All of a sudden they realized this isn't problem
lending," he explained. "This is criminal fraud."

    The worldwide closures were a resounding vote of no
confidence in B.C.C.I.'s owner, Sheik Zayed bin Sultan
al-Nahayan, ruler of the United Arab Emirates. Zayed bailed out
the bank last year by acquiring control for $1 billion from Arab
partners of Agha Hasan Abedi, a visionary Pakistani financier
who founded B.C.C.I. in 1972 and built it into a secretive
global giant. But while Zayed put up some $200 million in recent
months to help First American cope with real estate loan
problems in Washington, regulators have grown increasingly
dismayed by the sheik's inability to place B.C.C.I. on a sound
footing. Says a European banking expert: "Perhaps now we will
see months of intolerable dithering come to an end as the Abu
Dhabi government at last puts B.C.C.I.'s house in order."

    That has been impossible so far, because Abu Dhabi
factions close to B.C.C.I. have kept Zayed from learning the
full extent of the bank's problems, insiders say. Some of the
sheikdom's most knowledgeable bankers fear reprisals from what
they believe to be a clandestine group based in Karachi that
specializes in "black operations," among them kidnapping,
extortion and blackmail. "Anybody who tries to tell His Highness
what has really gone on with the bank will be killed," an
apprehensive Abu Dhabi official told TIME.

    One of B.C.C.I.'s nefarious dealings was a deep
involvement in clandestine arms sales, including transactions
among enemies that wanted to keep their dealings secret. "If
Israel wanted to funnel arms to Middle Eastern states, such as
Iran or Iraq, B.C.C.I. was there to handle it," says a former
State Department official.

    Zayed may have to work fast to salvage any portion of
B.C.C.I. before the world's courts dispose of its assets. "The
bank will be wound up under the laws of each country," said a
Bank of England spokesman. "Depositors and shareholders will be
treated according to the law."

    The Federal Reserve rushed to assure customers of U.S.
banks linked to B.C.C.I. that their funds remained safe. The Fed
said the closings would have no effect on units of First
American Bankshares or on Independence Bank of Encino, Calif.,
which B.C.C.I. also secretly owned. "These banks are separately
capitalized, U.S. chartered and federally insured institutions,"
the Fed said. B.C.C.I. is already under orders to divest itself
of both institutions by the end of the year.

    Prosecutors will keep their sights trained on the bank
long after that. Grand juries in Miami, Washington and New York
City are probing B.C.C.I.'s U.S. activities. A second Miami
grand jury is looking into the bank's ties to Florida's
CenTrust Savings and Loan, which collapsed last year. Subjects
of the New York investigation include Clifford, who has said he
was unaware that B.C.C.I. owned First American.

    While B.C.C.I.'s U.S. and European holdings are now in
government hands, ending the bank's influence in the Third World
could prove to be more difficult. In such places as Jamaica and
Nigeria, B.C.C.I. has woven itself firmly into the fabric of the
country by holding substantial government deposits. Sheik Zayed
may have to restructure the remains of those branches himself
if the host countries don't have the gumption to do so. But
regulators have at last corralled a runaway global maverick that
was left unbridled far too long.