Scandals: Cashing In on Blue Chips

By John Greenwald

In a drab Senate hearing room fittingly dominated by a vast map of the world, witnesses gave the first public testimony last week in the biggest and most brazen financial scandal of all time. Speaking in blunt terms that brought gasps from the packed chamber, they charged what TIME and other media reported in July: the criminal enterprise known as the Bank of Credit & Commerce International thrived as a $20 billion worldwide cash conduit for thugs ranging from terrorists to narcotraficantes, while Washington and other capitals turned a blind eye. "This is a story of big-time, big-money con artists," said Massachusetts Democrat John Kerry, chairman of the Senate Foreign Relations subcommittee that held the two-day hearings. "It's a story of international lawlessness and extraordinary greed, which is becoming the centerpiece of recent history."

The sessions were part of a global offensive of probes and law-enforcement actions against the rogue bank, which regulators seized last month in most of the 69 countries where it operated. The latest moves shed harsh new light on the shadowy institution and brought it fully and irrevocably into the public arena, where it promises to become a hot political issue in the U.S. and elsewhere for months to come. Among last week's developments:

-- A New York State grand jury indicted B.C.C.I. and its two principal officers for fraud, bribery, grand larceny and money laundering after a two- year investigation led by Manhattan District Attorney Robert Morgenthau. B.C.C.I., said Morgenthau, had looted depositors of more than $5 billion in "the largest bank fraud in world history." Named as defendants were Agha Hasan Abedi, the Pakistani founder of B.C.C.I., and countryman Swaleh Naqvi, who had been the bank's chief operating officer. But bringing the pair to trial could prove impossible. Pakistan said last week it will refuse to extradite the ailing Abedi, 68, who is a hero in his homeland for organizing the Third World's largest bank.

-- The Federal Reserve Board fined B.C.C.I. $200 million for illegally acquiring control of three prominent U.S. banking institutions. Chief among them was First American Bankshares, Washington's largest bank holding company, which is headed by former Defense Secretary Clark Clifford and his law partner Robert Altman. Clifford and Altman, who served as attorneys for B.C.C.I. throughout the 1980s, have denied knowing it owned First American. The other two secretly owned banks were the National Bank of Georgia, which Ghaith Pharaon, a Saudi tycoon and B.C.C.I. front man, acquired from Carter Administration official Bert Lance, and Miami's CenTrust Savings. Pharaon used B.C.C.I. funds to become a partner of financier David Paul, who built CenTrust into a giant house of cards before it collapsed last year at a cost to taxpayers of more than $1.7 billion.

-- Kerry released part of a 1986 CIA memo warning the Treasury and State departments that B.C.C.I. had secretly owned First American since 1982. Yet the Reagan Administration apparently did nothing in response to the document. On Friday, CIA Deputy Director Richard J. Kerr confirmed that the agency had used B.C.C.I. to move money around the world; other sources confirmed that the Defense Intelligence Agency, which monitors other nations' armed forces, had transferred funds through the bank. But the CIA's Kerr said his agency had "aggressively" targeted the bank for intelligence gathering because, "from the early 1980s, it was obvious it was involved in illegal activities such as money laundering, narcotics and terrorism." According to the Washington Post, sources said that the CIA began closing its accounts when it realized the bank was "dirty" and that all agency accounts were closed by 1989.

-- Peru launched a government-wide probe of charges that B.C.C.I. gave two central-bank officers $3 million in bribes in return for their depositing $200 million of Peruvian funds in secret B.C.C.I. accounts in Panama. Officials denied the allegations, which were part of the Manhattan indictment against B.C.C.I. But they said they had deposited money with B.C.C.I. because threats by former President Alan Garcia Perez to reduce Peru's foreign-debt payments had scared off other banks. At the same time, a Peruvian representative to the World Bank who once worked for B.C.C.I. quit his post.

-- A London court halted the liquidation of B.C.C.I.'s British branches until December to give Sheik Zayed bin Sultan al-Nahayan, the ruler of Abu Dhabi who acquired control of B.C.C.I. last year, a chance to rescue depositors and develop a plan to reopen a cleansed and scaled-down version of the global bank. Zayed immediately put up $84 million to help rescue the 120,000 British customers who had entrusted $400 million to B.C.C.I.

Even as countries strove to pierce the veil of deceit and corruption that shrouds B.C.C.I., fresh disclosures of the bank's influence peddling came to light. TIME has learned that Pharaon helped keep CenTrust open for a year longer than its bankrupt condition warranted after acquiring a total of 1.5 million CenTrust shares, or more than 5% of the S&L's stock, in 1988 and 1989. CenTrust was so shaky by late 1988 that regulators for the Federal Home Loan Bank Board in Atlanta had decided to shut it down.

Pharaon and Paul, who is a target of a Miami grand jury investigation of CenTrust, struggled to keep the institution's doors -- and coffers -- open. Pharaon assured regulators that he was backed by oil-rich Arabs who would keep CenTrust solvent. When that tack failed to deter officials, Pharaon and Paul flew CenTrust's corporate jet to Washington to give similar promises to M. Danny Wall, who chaired the Home Loan Bank Board at the time. (Wall recalled the meeting in an interview but said he could not remember the outcome.) After the session, regulators said CenTrust could remain open by selling bonds to shore up its capital. But when few investors bought the offering, Pharaon ponied up $30 million to keep CenTrust afloat.

But once regulators let CenTrust stay in business, B.C.C.I. whisked the $30 million back into its own accounts. By the time CenTrust formally went bust in 1990, the yearlong delay in closing the thrift may have cost American taxpayers as much as $1 billion in extra bailout expenses.

Just as Pharaon came to CenTrust's aid, so members of Washington's power elite have frequently gone to bat for B.C.C.I. Jack Blum, the former chief investigator for Kerry's subcommittee, stunned the hearing last week by declaring that Altman and Clifford advised Amjad Awan, a B.C.C.I. official who had run the bank's Panama office, to flee the U.S. for Paris in 1988 to avoid a congressional subpoena. Altman, a fast-rising star in Washington legal and social circles, then reportedly arranged for B.C.C.I. to transfer Awan to Paris. But Carl Rauh, an attorney for Clifford and Altman, denied the account as "completely false." Pronounced Rauh: "It never happened."

In any case, Awan stayed put in 1988 and was arrested by law-enforcement officers investigating the bank's U.S. money-laundering operations. The hapless Awan, who had been personal banker to Noriega and others, was convicted of money-laundering charges with four other B.C.C.I. officers in Tampa last year and sentenced to 12 years in prison.

Despite the Tampa convictions, which required B.C.C.I. to forfeit $15 million of its money-laundering profits, Blum and former customs commissioner William von Raab elaborated on their earlier descriptions of the Justice Department's Florida case as a law-enforcement debacle. "I was personally | infuriated," Blum said. He argued that the plea bargain gave B.C.C.I. immunity from future prosecutions based on evidence in the case -- a charge that Justice disputes. Von Raab, sporting a yellow handkerchief that drooped flower-like from his breast pocket, called the settlement "a shameless agreement" and "a disaster in terms of the punishment that should have been meted out." He said B.C.C.I. had raked in some $200 million from the money- laundering scheme, which undercover customs agents exposed in a sting operation.

Von Raab charged that the Bush Administration had taken a "lackadaisical" approach to prosecuting B.C.C.I. in part because the bank used Beltway insiders such as Clifford and Altman to lobby federal regulators. "If you were to look at the Rolodexes at B.C.C.I.," he said, they would show "the blue chips of Washington influence peddlers." As a result, he said, "senior U.S. policy-level officials were constantly under the impression that B.C.C.I. was probably not that bad because these good guys who they play golf with all the time were representing them."

Law-enforcement officials bristle at charges that their work has been impeded by anyone in or out of government. Says Robert Mueller, who heads the Justice Department's criminal division: "At no time have we been approached by any intelligence agency or the White House and told to shut down or slow down an investigation we're doing related to B.C.C.I. At no time have they suggested we shift the course of our investigation."

Whatever the reason, regulators around the world certainly allowed B.C.C.I. to flourish far too long. The alliance with Altman and Clifford's First American Bankshares was clearly -- and apparently successfully -- designed to win respectability in the American power establishment. The link with Paul's CenTrust S&L was a pipeline to the fast-buck financial arrivistes of the '80s -- a joining of hands by what history may well describe as the two great scandals of the century.

With reporting by Jonathan Beaty/Los Angeles, Helen Gibson/London and Bruce van Voorst/Washington