Tentacles of 'Bank of Crooks and Criminals' reached around globe INTERNATIONAL BANK SCANDAL

August 04, 1991|By James Bates | James Bates,Los Angeles Times Thomas Easton of The Sun's New York Bureau contributed to this article.

What is BCCI?

BCCI stands for Bank of Credit and Commerce International, although since it became embroiled in scandal, wags have renamed it "Bank of Crooks and Criminals International." On July 5, banking regulators from around the world teamed up to shut down most BCCI operations, alleging widespread fraud.

BCCI had enjoyed acclaim in developing nations for extending credit in areas Western banks avoided -- it was reputed to be more sympathetic to Third World economic problems. It developed close relationships to central banks in developing countries, whose officials often deposited funds in BCCI accounts.

It has been linked to criminal enterprises such as drug-related money-laundering activities, including some involving Gen. Manuel Antonio Noriega, Panama's former dictator.

In 1990, two of BCCI's units pleaded guilty in federal court in Tampa, Fla., to money-laundering. Later that year, six current and former BCCI employees were convicted of conspiring to launder $32 million in cocaine money.

What is unique about BCCI is not its size but its reach. Its operations and influence stretch throughout the world to about 70 countries and 1 million depositors. Its principal operations are based in Luxembourg and the Cayman Islands, which have lax banking regulations.

With $20 billion in assets, the bank is not especially big by world standards.

Why does this rank so highly?

L * The BCCI scandal touches nearly every region of the world.

* Billions of dollars were lost, which makes it possibly the world's biggest banking scandal.

* The BCCI affair has shown that the world's bank-regulatory system is badly in need of overhaul. BCCI was regulated by more agencies worldwide than almost any other bank, yet for years it eluded serious scrutiny.

* The BCCI scandal has a strong political component. It is alleged to have dealt with many of the world's most corrupt individuals, and many of the world's most important.

What is BCCI accused of?

BCCI's seizure was prompted by the alleged disappearance of billions of dollars. Some investigators put associated losses as high as $15 billion, which would make it by far history's biggest banking scandal.

Where all the money went is still a mystery. The seizure followed an audit by the accounting firm Price Waterhouse, which showed that the bank failed to record deposits, apparently in an effort to camouflage huge losses.

London newspapers reported yesterday that the audit showed that members of the Abu Dhabi government, which owns the majority share in BCCI, knew the bank was operating fraudulently. Price Waterhouse told the Bank of England that its investigation of BCCI "revealed widespread fraud and manipulation of accounting records . . . conducted in collusion with representatives of the bank's major shareholders," the Financial Times and two other newspapers reported.

British authorities also allege that BCCI assisted people in dodging taxes by falsifying transaction records.

BCCI is said to have been the favorite bank of Iraq's Saddam Hussein and Palestinian terrorist Abu Nidal. Also, allegations are surfacing that the CIA regularly used the bank as part of such covert activities as assistance to rebels in Afghanistan and the contras in Nicaragua.

Two legal actions are pending against BCCI in the United States:

* The Federal Reserve Board says BCCI skirted federal regulators by not disclosing its interest when it purchased U.S. banks.

* New York's local district attorney contends that BCCI paid bribes to central bankers in Peru, falsified records on foreign currency transactions to abet laundering of drug money and committed grand larceny in connection with American Express Bank Ltd. The grand larceny charge stems from a $30 million deposit by American Express Bank into BCCI that was on BCCI's books July 5, when it was closed by the Bank of England and regulators from other nations. The deposit was obtained, according to the New York indictment, because BCCI falsely represented its condition.

Which U.S. banks are involved?

Authorities have alleged that two U.S. banks are secretly owned by BCCI: First American Bankshares Inc. in Washington, D.C., and Los Angeles' Independence Bank.

BCCI is said to have used a front man, Saudi financier Ghaith R. Pharaon, to buy National Bank of Georgia. BCCI also allegedly hid behind front men when purchasing control of First American, which has an affiliate in Maryland, and shares in Centrust Savings Bank in Miami.

These alleged ruses were used because officials would never have approved an investment by scandal-ridden BCCI. Federal Reserve officials have ordered BCCI to sell its secret interests -- a process delayed by its seizure.

The Fed is seeking $200 million from BCCI, alleging that it broke U.S. banking laws by secretly buying the shares in First American, National Bank of Georgia (later acquired by First American) and Centrust.

Who are the key figures?

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