Investigators unearth hidden links between BCCI, savings and loans

August 18, 1991|By James Risen | James Risen,Los Angeles Times

WASHINGTON -- Two of the great financial scandals of recent years -- the collapse of the savings and loan industry and the strange case of the Bank of Credit and Commerce International -- are starting to converge as federal investigators unravel hidden ties between the two.

Uncovered only in the last few days, the link between the S&L debacle and the BCCI scandal already is threatening to lead to a new round of charges of political influence-peddling in Washington. It also is prompting a growing sense among investigators that, just as the S&L crisis mushroomed over time, the scope of the BCCI affair may prove to be much larger and more difficult to unearth fully than anyone has anticipated.

So far, two failed S&Ls -- Centrust Savings Bank in Miami and Viking Savings in Santa Monica, Calif. -- have been found to have had either direct or indirect connections to BCCI. The Pakistani-owned international bank, which regulators shut down July 5, had murky ties throughout the Arab world and allegedly assisted terrorists, drug dealers, money launderers and spies.

Ironically, both S&Ls with connections to the Arab-influenced bank were run by American Jews who were strong supporters of Israel and who actively used their financial clout in American political circles.

In fact, investigators sifting through the wreckage of both the BCCI and the S&L scandals have been puzzled by such seemingly contradictory political ties and have yet to figure out the reasoning behind BCCI's investments in thrifts in the United States.

"We really don't know why they [BCCI] were doing it," said Virgil Mattingly, general counsel for the Federal Reserve Board, which regulates the banking industry. "But we just discovered this link, so we don't know a lot yet."

In the biggest S&L-related case, federal investigators are looking at BCCI's secret 1989 acquisition of a 28 percent ownership in Centrust Savings Bank of Miami. Centrust was a high-flying thrift run by the flamboyant David Paul, a major fund-raiser for the Democratic Party and a strong booster of Israel, where he has helped develop housing projects for Soviet immigrants.

Centrust, which once had more than $8 billion in assets, was seized by federal regulators in February 1990. Mr. Paul has become the target of a series of civil and criminal federal investigations alleging that he looted Centrust to finance an extravagant lifestyle replete with mansions, yachts and luxurious offices in Centrust's $100 million tower in downtown Miami. The collapse of the federally insured S&L eventually cost American taxpayers $1.7 billion, making it one of the biggest thrift failures.

Although regulators have been combing through Centrust's records for more than a year in an effort to build a case against Mr. Paul, only in recent days have they discovered BCCI's link to the S&L. The Federal Reserve charges that Ghaith Pharaon, a Saudi Arabian financier who openly acquired the 28 percent stake in the thrift, was acting as a front man for BCCI.

Federal Reserve officials say that the only evidence of BCCI's ownership of Centrust was hidden in London in a secret cache of BCCI documents, which detailed the bank's far-flung network of investments and secret operations.

Based on that disclosure, investigators from several agencies and congressional committees have begun to probe the ties between BCCI and Centrust. A federal grand jury in Miami has launched an investigation of the link, and the House Banking Committee is expected to discuss the issue in hearings on BCCI next month.

The ties between BCCI and Centrust have raised red flags in Washington, largely because of Mr. Paul's close ties to leading Democrats, including Sen. John Kerry, D-Mass., who has been aggressively investigating BCCI through the Senate Foreign Relations Committee. While Mr. Kerry was chairman of a key campaign committee for Senate Democrats in the late 1980s, Mr. Paul was the chairman of the committee's fund-raising arm.

Republicans, burned by charges that the Bush administration long ignored the BCCI scandal and attempted to squelch early investigations of the bank by federal regulators, are now trumpeting the ties between Mr. Paul, Mr. Kerry and other Democrats.

In the case of the much smaller Viking Savings of Santa Monica, the connection with BCCI is less direct than at Centrust, but equally provocative.

In a criminal case in U.S. District Court in Los Angeles in March, Michael Goland, an independent contributor to pro-Israeli

candidates around the nation, was convicted of

secretly acquiring Viking in 1986 to use it to help finance his political activities. Viking failed in 1989 and was eventually acquired by another S&L.

Goland was charged with conspiring to take over the small institution by getting friends and associates to pose as independent investors in the thrift and funding the purchase in part with $900,000 borrowed from Democratic state Sen. Alan Robbins.

Federal prosecutors who handled the Goland case now say that Mr. Robbins, a longtime Goland business partner, obtained the money for Goland's secret acquisition from Independence Bank of Los Angeles, which at the time was covertly owned by BCCI.

BCCI and its Pakistani founder, Agha Hasan Abedi, had acquired Independence by once again using Mr. Pharaon as the front man.

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