TIME: Almanac 1993/TIME Almanac 1993.iso/time/100791/1007202.000

Text File | 1992-08-28 | 6.1 KB | 137 lines

                                                                                BUSINESS, Page 44

SCANDALS

Gilt by Association


Bank of America's relationship with the corrupt B.C.C.I. was
long, cozy and highly lucrative

By JONATHAN BEATY and S.C. GWYNNE


    Banks need banks, just as companies and ordinary people
do. But what institution would do serious business with the
Bank of Credit & Commerce International, the rogue financier of
crooks, drug lords and con men? As investigators probe the
debris of the vast scandal, the name that most persistently
comes up is Bank of America, one of the top five in the U.S. The
bank, which co-founded B.C.C.I. in 1972, takes pains to
emphasize that it sold off its stake in the Middle Eastern
institution in 1980. But ties between the two were far more
extensive and long lasting than Bank of America has publicly
described. Now the San Francisco-based bank concedes that during
the 1980s, it handled some $1.3 billion a day of B.C.C.I. money.
It held B.C.C.I. deposits at Bank of America branches around the
world and maintained two accounts at B.C.C.I.'s Miami office
even after B.C.C.I. pleaded guilty to money laundering in 1990.

    The two institutions had a symbiotic relationship,
according to sources inside B.C.C.I. The corrupt organization
used Bank of America as an important resource in a global Ponzi
scheme to collect deposits, funneling most of its cash in the
U.S. into Bank of America accounts. At the same time, the flow
of deposits helped prop up the struggling California bank
during its hard times in the mid-1980s. "The B.C.C.I.
headquarters money always flowed through Bank of America," says
a former B.C.C.I. executive.

    The two organizations had a strong human link as well,
grounded in the friendship between B.C.C.I. founder Agha Hasan
Abedi and Bank of America's A.W. (Tom) Clausen, who was chairman
during 1970-81 and 1986-90. When regulators seized B.C.C.I.
offices around the world last July, three of the seven directors
on its board were former high-ranking Bank of America
executives. On that same day, the California bank disclosed that
it still had $177.4 million of B.C.C.I.'s money in its accounts.

    Bank of America says it made plans to sever relations with
B.C.C.I. in 1988. "We decided to withdraw from this business
with B.C.C.I. over a three-year period," says Bank of America
spokesman Jim Mitchell. "Between 1989 and 1991, the dollar
volume of our B.C.C.I. item-clearing business was reduced by
almost two-thirds." Bank of America, insists Mitchell, had no
knowledge of any illegal activity by B.C.C.I.

    Yet committees in the House and Senate want to know why
Bank of America kept doing business with B.C.C.I. in the face
of considerable evidence of wrongdoing. "They continued a
relationship with B.C.C.I. even after they became aware that
B.C.C.I. was indicted in 1988 for money laundering," said
California Republican Frank Riggs at a House Banking Committee
hearing.

    In the hope of gaining entree to Middle Eastern business,
Bank of America backed the founding of B.C.C.I. by providing
Abedi with $612,000 in seed money and the prestige of the then
largest bank in the world. In exchange, the San Francisco bank
got 25% of B.C.C.I.'s stock, seats on the bank's board of
directors, and access to Abedi's extraordinary connections in
the gulf states. By early 1974, Bank of America had boosted its
ownership stake to 45%.

    Previously undisclosed audits show that Bank of America
provided a $2.5 million loan in 1976 to start up a B.C.C.I.
subsidiary in the Cayman Islands known as International Credit
& Investment Co. Overseas. According to Federal Reserve
documents, I.C.I.C. Overseas was the vehicle that held most of
B.C.C.I.'s loans to privileged insiders, as well as its secret
and illegal holdings in First American Bank in Washington.

    As their holdings increased, however, Bank of America
officers became nervous about the relationship. In a 1976 memo,
a Bank of America officer said "many in the Bank of America feel
B.C.C.I. officers withhold information from B. of A. personnel."
Among other bothersome items: B.C.C.I.'s habit of doling out
what a Bank of America officer described as "special patronage"
to "leading political figures in the Middle East." But when
Bank of America sold off its stock in B.C.C.I. to I.C.I.C. in
1980, the California bank loaned money to the Cayman Islands
outfit to finance the deal. Those loans ultimately enabled Bank
of America to earn $32 million on its total B.C.C.I. investment
of $5 million.

    Among other questions, investigators want to explore
whether Bank of America wittingly helped B.C.C.I. with any of
its money laundering. No evidence yet suggests that Bank of
America did so, but the California bank was fined a then record
$4.7 million in 1986 for 17,000 separate acts of money
laundering that were unrelated to B.C.C.I.

    Bank of America's problems include a civil racketeering
lawsuit claiming that the bank "actively and knowingly assisted"
B.C.C.I.'s takeover of First American and National Bank of
Georgia. In Washington, Congressman Riggs has demanded release
of internal documents from Bank of America, and his committee
will hear bank officials testify on ties to B.C.C.I. The
question: Given what you knew about the bank, what made you keep
on doing business with it?


________________________________________________________________
THE TIES THAT BOUND

    Stock Ownership

    Bank of America helped launch B.C.C.I. in 1972 and in the
late 1970s controlled 45% of its stock, almost twice as much as
previously revealed. Bank of America sold the shares in 1980.

    Correspondent Relationships

    During the 1980s the two banks carried out more than $1
billion a day in transactions with each other. Among ohter
services, Bank of America handled foreign exchange transactions
and helped overnight deposits for the Middle Eastern bnak.

    Shared Management

    Three members of B.C.C.I.'s board of directors were former
Bank of America executives, and another took a top post at
National BAnk of Georgia, which was secretly owned by B.C.C.I.