TIME: Almanac 1993/TIME Almanac 1993.iso/time/080591/0805200.000

Text File | 1992-08-28 | 11.6 KB | 272 lines

                                                                                BUSINESS, Page 44

CORRUPTION

Feeling the Heat


As new B.C.C.I. disclosures feed the flames, governments scurry
to control the world's first truly global scandal

By JOHN GREENWALD -- Reported by Jonathan Beaty/New York and Helen
Gibson/London, with other bureaus


    It was as if someone had put a match to a leaking gas pipe.
With the disclosure of B.C.C.I.'s "black network" around the world
came an explosion of new charges and political recriminations that
seem likely to go on for months. The question of the hour: Why had
so many countries done so little for so long to rein in the Bank
of Credit & Commerce International when, as is now evident, so
many were aware of the bank's nefarious operations?

    In Washington, the U.S. Justice Department adamantly disputed
evidence that it had failed to follow through on reports from
undercover agents that B.C.C.I. had engaged in corrupt banking
practices. In London, British Prime Minister John Major, pale and
rigid with rage, told Parliament he knew nothing of rampant fraud
at B.C.C.I. until shortly before July 5, when regulators closed
the $20 billion rogue bank in most of the 69 countries where it
operated. In Peru the scandal breathed new life into charges that
former President Alan Garcia Perez had used B.C.C.I. accounts to
loot as much as $50 million from the country's treasury.

    From Buenos Aires to United Nations headquarters in New York
City, the political heat soared amid a new wave of revelations
and signs of impending prosecutions of B.C.C.I. Yet, from London
to Bangladesh, the bank's depositors, who may have been bilked of
$10 billion in deposits, protested B.C.C.I.'s closure as a
Western plot to subjugate the Muslim world.

    The cloth of chicanery continues to unravel. Among the
developments last week: -- Stung by accusations of inertia, the
Justice Department said a task force of 10 federal prosecutors
was studying B.C.C.I. activities in Washington, Atlanta, Miami
and Tampa. Subjects of the investigation will include U.S.
politicians and other leaders suspected of receiving millions
of dollars from B.C.C.I. in payoffs and bribes. Attor ney
General Dick Thornburgh, while denying charges of foot dragging,
assured a House subcommittee that his department has "committed
all necessary resources to unraveling any violations of the
United States federal and criminal laws and pursuing any
evidence that exists of those violations." At the same time, the
House Banking Committee said it would hold hearings on B.C.C.I.
when Congress reconvenes in September.

    -- CIA Director William Webster ordered a full-scale
review of any agency ties to the bank following reports in TIME
and other media that the agency had kept secret accounts at
B.C.C.I. to finance covert aid to U.S.-backed insurgents in
Nicaragua and Afghanistan. The scandal may further jeopardize
President Bush's nomination of Robert Gates to head the CIA.
Last week former Customs commissioner William von Raab named
Gates, then deputy director of the CIA, as the source of a five-
or six-page 1988 agency report on B.C.C.I., which Gates labeled
"the bank of crooks and criminals." That raised potentially
embarrassing questions about just how much Gates may have known
about the rogue bank.

    -- As the charges and countercharges flew, U.S.
law-enforcement sources quietly acknowledged what the Gates
report to Von Raab clearly indicated: that at least some
government officials have known since the late 1980s of the
secret black network within the bank whose existence TIME
disclosed in articles in July. The network used bribery,
extortion, kidnapping and possibly murder to further the bank's
aims. Last week sources told TIME that the black network
surfaced briefly in the U.S. during a sting operation that
forced B.C.C.I. to plead guilty in Tampa last year to laundering
drug money. Members of the group came forward to offer their
chilling services to undercover U.S. Customs agents who posed
as money launderers. But when the agents sought to broaden their
investigation to include a probe of the network, their superiors
denied the request.

    -- A grand jury hearing evidence presented by Manhattan
district attorney Robert Morgenthau was readying the first of
a series of indictments against B.C.C.I. officials and others
in a case stemming from the bank's secret ownership of First
American Bankshares, the parent of Washington's largest bank.
Among those testifying before the New York jury was former
Defense Secretary Clark Clifford, the chairman of First
American, who has denied knowing that B.C.C.I. owned his banking
firm.

    In the supercharged atmosphere surrounding B.C.C.I.,
sensational -- if largely unconfirmed -- allegations swirled
like leaves in a storm. Many originated in Britain, where
newspapers and television stations competed fiercely for scoops.
According to one such report in the London Guardian, the CIA
used B.C.C.I. accounts to pay nearly 500 prominent Britons,
apparently for information about British arms sales and overseas
contracts. The Guardian also said B.C.C.I. funded a clandestine
joint effort by Argentina, Libya and Pakistan to acquire nuclear
arms.

    The scandal transfixed Britain throughout the week. In a
bruising dustup in Parliament, Neil Kinnock, leader of the
opposition Labour Party, called Major "utterly negligent" for
failing to take action against B.C.C.I. while serving as
Chancellor of the Exchequer in January 1990. Replied an
ashen-faced Major, who said he had learned of the full extent
of the bank fraud only on June 28: "If you are saying I am a
liar, you had better say so bluntly." Robin Leigh-Pemberton,
governor of the Bank of England, later affirmed that Major first
received details of the scandal in late June.

    With Britain absorbed by the scandal, a London court
suspended the liquidation of B.C.C.I. accounts in the country
to seek a bailout for 120,000 local depositors, who held a total
of $400 million in the bank. The outraged victims of the
shutdown, who included Indian and Pakistani families and some
30 municipalities, stood to receive just 75% of their money, up
to a maximum of about $25,000. But Sheik Zayed bin Sultan
al-Nahayan, the ruler of Abu Dhabi who acquired control of
B.C.C.I. for $1 billion last year, was still fuming because the
clampdown shuttered the bank without warning just as he was
planning to restructure it. "He will do nothing unless there is
incredible political pressure that he simply cannot resist,"
says a highly placed Arab banker.

    British authorities said they were virtually forced to
shut the bank. Leigh-Pemberton defended the seizure on grounds
that "the culture of the bank is criminal." While he called the
well-regarded Zayed's purchase of the bank "a welcome
development," he said the corruption that originated with
B.C.C.I. founder Agha Hasan Abedi and his fellow Pakistani
managers had penetrated the entire institution. "The fraud
involved not only past management but continuing management,
board members and representatives of the shareholders,"
Leigh-Pemberton said. Yet he insisted that the full scale of the
wrongdoing had only recently come to light.

    In shuttering B.C.C.I., the regulators relied on a June
audit by the accounting firm Price Waterhouse that called the
fraud "one of the most complex deceptions in banking history."
Price Waterhouse found that the bank had routinely siphoned
funds from deposits and created fictitious loans to generate
phony profits. But such practices only created an insatiable
demand for more bogus transactions.

    Though Clifford and First American president Robert Altman
insist that their foreign partners kept hands off First
American, the auditors said B.C.C.I. used the U.S. firm's stock
as an essential part of many fraudulent deals. B.C.C.I., said
Price Waterhouse, covertly acquired the stock of First American,
code-named WXYZ in the report, through "prominent Middle Eastern
individuals" who thus were merely nominal -- or "nominee" --
owners. B.C.C.I. then used First American shares as collateral
for sham loans that produced phony income. Clifford, meanwhile,
regularly briefed Abedi and Kamal Adham, a major B.C.C.I.
shareholder from Saudi Arabia, on First American's operations.
Clifford said the meetings were needed to keep B.C.C.I., as
adviser to the Arab owners of First American, informed about the
U.S. firm.

    Yet he and Altman were also deeply enmeshed in B.C.C.I.'s
affairs. The two men served as attorneys for B.C.C.I. and
masterminded the bank's defense in the money-laundering case in
Florida. Former B.C.C.I. bankers have told TIME that Altman even
traveled to London to assure B.C.C.I. shareholders that the
money-laundering case was a mere aberration that would be
swiftly settled. Altman later returned to London, the insiders
said, to soothe shareholders' concerns about B.C.C.I.'s losses
by blaming the red ink on depressed conditions in many Third
World areas where the sprawling bank operated.

    Repercussions from the bank's collapse rippled far beyond
Washington and London. In Peru the scandal reinvigorated charges
that Garcia, President of the country from 1985 to 1990, had
plundered the treasury by whisking funds through a B.C.C.I.
branch in Panama. Garcia has called the allegations a political
smear to keep him from running again in 1995. But Fernando
Olivera, a member of the Peruvian Congress who has been Garcia's
nemesis, demanded last week that prosecutors try the allegations
in court. Among other things, investigators want to know how
Garcia managed to acquire two fashionable Lima homes and take
frequent foreign vacations on a presidential salary of just
$18,000 a year.

    Farther south, the government of Argentina last week gave
B.C.C.I. 48 hours to pack up and leave the country. Authorities
were particularly worried by the appearance of links between
President Carlos Saul Menem and Saudi billionaire Ghaith
Pharaon, a B.C.C.I. front man who is building a Hyatt Hotel in
Buenos Aires and is a friend of Javier Gonzalez Fraga, the
former president of Argentina's central bank. "We already know
that the next scandal is going to tie President Menem with
Ghaith Pharaon," an official said.

    The B.C.C.I. debacle even rubbed off on the U.N. and its
Secretary-General, Javier Perez de Cuellar. The U.N. sullenly
confirmed reports that Perez de Cuellar twice took trips in 1986
and 1987 on planes owned by Pharaon. The diplomat has said he
was unaware at the time of problems at B.C.C.I.

    In stark contrast to the havoc that B.C.C.I. spread from
London to Lima was the studied calm at the White House last
week. Senior officials described the scandal as more an
annoyance than a real concern. Said Press Secretary Marlin
Fitzwater: "The Justice Department has been looking into it for
some time, and we're satisfied with the way they're handling
it." He added, however, "It's clear that the Democrats are going
to try to make some political hay out of it. Unfortunately, it
looks like everything is going to be political between now and
next November."

    So far, other than complicating the Gates nomination, the
scandal has in no way implicated the West Wing. But with the
Gates hearings, congressional investigations and upcoming grand
jury indictments all vying for headlines, B.C.C.I. could become
an uncomfortably hot issue as the parties head into the 1992
campaign.