Bank of Credit and Commerce International

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The Bank of Credit and Commerce International (BCCI) was a major international bank founded in London, United Kingdom by Agha Hasan Abedi, a leading Pakistani national, in 1972. The company was registered in Luxembourg. At its peak, it operated in 78 countries, had over 400 branches, and claimed assets of US$ 25 billion.

BCCI became the focus in 1991 of the world's worst financial scandal and what was called a "$20-billion-plus heist".^[1] It was found by regulators in the United States and the United Kingdom to be involved in money laundering, bribery, support of terrorism,^[2] arms trafficking, the sale of nuclear technologies, the commission and facilitation of tax evasion, smuggling, illegal immigration, and the illicit purchases of banks and real estate. The bank was found to have at least $13 billion unaccounted for.

Investigators in the U.S. and the UK revealed that BCCI had been "set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs are extraordinarily complex. Its officers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection";^[2] BCCI organized its own intelligence network, diplomatic corps, and shipping & trading companies.

The liquidators, Deloitte & Touche, filed a lawsuit against Price Waterhouse and Ernst & Young, the bank's auditors, which was settled for $175 million in 1998. A further lawsuit against the emir of Abu Dhabi, a major shareholder, was launched in 1999 for around $400 million. BCCI creditors also instituted a $1 billion suit against the Bank of England as a regulatory body. After a nine-year struggle due to the Bank's statutory immunity, the case went to trial in January 2004. However in November 2005 liquidators Deloitte dropped any action against the Bank of England as it was no longer considered in the best interests of the creditors after a High Court ruling.

[edit] History

BCCI's founder, Agha Hasan Abedi, started the bank in Pakistan in 1972. Abedi had previously set up the United Bank of Pakistan in 1959. Following the nationalization of United Bank in 1971 he sought to create a new supranational banking entity. BCCI was created with capital from Sheikh Zayed bin Sultan Al Nahayan, emir of Abu Dhabi in the United Arab Emirates, Bank of America (25%) and, allegedly, the CIA^[3]. It is claimed that the CIA were seeking a funding route for the Afghan Mujahideen, similar to the Investors Overseas Service and the Nugan Hand Bank in the 1970s^{[citation needed]}. However, the vast majority of BCCI's assets were initially from Abu Dhabi.

BCCI expanded rapidly in the 1970s, pursuing asset growth over profits, seeking high net-worth individuals and regular large deposits. The company itself divided into BCCI Holdings with the bank under that split into BCCI S.A (Luxembourg) and BCCI Overseas (Grand Cayman). BCCI also acquired parallel banks through acquisitions: buying the Banque de Commerce et Placements (BCP) of Geneva in 1976, and creating KIFCO (Kuwait International Finance Company), Credit & Finance Corporation Ltd, and a series of Cayman-based companies held together as ICIC (International Credit and Investment Company Overseas, International Credit and Commerce [Overseas], etc.). Overall, BCCI expanded from 19 branches in five countries in 1973 to 27 branches in 1974, to 108 branches in 1976, with assets growing from $200 million to $1.6 billion. This growth caused extensive underlying capital problems. By 1977, BCCI was in sufficiently dire financial straits that the Guardian later wrote that at this time "BCCI, founded in 1975, was almost certainly insolvent by 1977"^[4] - it was using cash from deposits to fund operating expenses, rather than making investments, taking on the attributes of a Ponzi scheme. Nevertheless BCCI continued to expand, moving into the African markets in 1979, and Asia in the early 1980s. They were among the first foreign banks awarded a license to operate in the Chinese Special Economic Zone Shenzhen. Some of China's largest state banks were depositors in BCCI's Shenzhen branch.

By 1980, BCCI was reported to have assets of over $4 billion with over 150 branches in 46 countries. Bank of America was "bewildered"^[5] with BCCI and reduced its holding in 1980, and the company came to be held by a number of groups, with ICIC owning 70%. By 1989, ICIC's shareholding was reduced to 11% with Abu Dhabi groups holding almost 40%, however large numbers of shares were held by BCCI nominees. The internal structure of the bank was unusual. There was rigid compartmentalization and there were 248 managers and general managers and only two people above them, Abedi and the CEO Swaleh Naqvi, F Lee Bailey, and Florida state prosecutor Richard Gerstein were the directors of CenTrust Federal Savings Bank, a failed satellite of the BCCI.

BCCI had an uncommon annual auditing system: Price Waterhouse were the accountants for BCCI Overseas, while Ernst & Young audited BCCI and BCCI Holdings (London and Luxembourg). Other companies such as KIFCO and ICIC were audited by neither. In October 1985, the Bank of England and the Central Bank of Luxembourg ordered BCCI to change to a single accountant, alarmed at reported BCCI losses on the commodities and financial markets. Price Waterhouse became the sole accountants in 1987.

In 1988, BCCI was implicated in a drug-money-laundering scheme based in Tampa, Florida: the C-Chase case. The BCCI was called the CIA’s money-laundering facility. BCCI pleaded guilty in 1990, but only on the grounds of respondeat superior.

In 1990, a Price Waterhouse audit of BCCI revealed an unaccountable loss of hundreds of millions of dollars. The bank approached Sheikh Zayed, who made good the loss in exchange for an increased shareholding of 78%. Much of BCCI's documentation was then also transferred to Abu Dhabi.

[edit] Philanthropic contributions

The bank established the Third World Foundation in London, which published the widely circulated Third World Quarterly and paid special attention to the promotion of the Urdu language and literature through the Urdu Markaz located in London.

[edit] Sandstorm report

In March 1991, the Bank of England asked Price Waterhouse to carry out an inquiry. On June 24, 1991, using the codename "Sandstorm" for BCCI, Price Waterhouse submitted the Sandstorm report showing that BCCI had engaged in "widespread fraud and manipulation".

[edit] Support of terrorism

The Sandstorm report, parts of which were leaked to The Sunday Times, included details of how the Abu Nidal terrorist group had held accounts at BCCI's Sloane Street branch, near Harrods in London. Britain's internal security service, MI5, had signed up two sources inside the branch to hand over copies of all documents relating to Abu Nidal's accounts. One source was the Syrian-born branch manager, Ghassan Qassem, the second a young British employee.

The Abu Nidal link man for the BCCI accounts was an Arab based in Iraq named Samir Najmeddin or Najmedeen. Throughout the 80s, BCCI had set up millions of dollars worth of letters of credit for Najmeddin, largely for arms deals with Iraq. Qassem later swore in an affidavit that Najmeddin was often accompanied by an American, whom Qassem subsequently identified as the financier Marc Rich. Rich was later indicted in the U.S. for tax evasion and racketeering in an apparently unrelated case, fled the country, and received a controversial pardon from Bill Clinton on January 20, 2001.

Qassem also told reporters that he had once escorted Abu Nidal, who was allegedly using the name Shakir Farhan, around town to buy a tie, without realizing who he was. This revelation led in 1991 to one of the London Evening Standard's best-known front-page headlines: "I Took Abu Nidal Shopping."

[edit] Closure of the bank?

On July 5, 1991, the Bank of England closed down BCCI. Around a million investors were affected. Amongst the customers of the bank at this time was Garrards and Mappin & Webb, the jewellers responsible for maintaining the crown jewels and makers of the trophy for the America's Cup.

In 1992, United States Senators John Kerry and Hank Brown co-authored a report on BCCI, which was delivered to the Committee on Foreign Relations. The BCCI scandal was one of a number of crimes and disasters that influenced thinking leading to the Public Interest Disclosure Act of 1998. The report found that former Defense Secretary Clark Clifford and his business partner Robert A. Altman had been closely involved with the bank from 1978, when they were introduced to BCCI by Bert Lance, to 1991. Clifford and Altman testified to the committee that they had never observed any suspicious activity. The federal government brought indictments against Clifford and Altman and proposed barring them from banking for life, but did not pursue Clifford due to his age and deteriorating health. Altman, however, was indicted and ultimately tried in New York by the office of District Attorney Robert Morgenthau. Despite a failure to convict in the New York trial, Altman nevertheless agreed to be banned from banking under threat of prosecution by the Securities and Exchange Commission.

The British government also set up an independent inquiry, chaired by Lord Justice Bingham, in 1992. Its House of Commons Paper, Inquiry into the Supervision of the Bank of Credit and Commerce International, was published in October of that year. Following the report, the bank's liquidators launched the Three Rivers vs. Bank of England case, on behalf of thousands of BCCI creditors who are suing the Bank of England for its failure to properly oversee the bank. The BCCI creditors sought £850m in damages, claiming that the Bank of England was guilty of misfeasance in public office. The case collapsed in November 2005, with the Bank of England seeking to re-claim legal bills. The cost of the case to the creditors could be as high as £100m.^[6]

However, in 2002, Denis Robert and Ernest Backes, former number three of Clearstream, described as a "bank of banks" which practices "financial clearing", discovered that the BCCI had continued to maintain its activities after its official closure, with "microfiches" of Clearstream's illegal unpublished accounts.^[7]

Further information: Clearstream

[edit] Former directors

• Alfred Hartman
• James R. Bath

[edit] See also

• Bert Lance
• List of notable business failures

[edit] Further reading

• J. Beaty, S.C. Gwynne: The Outlaw Bank : A Wild Ride into the Secret Heart of BCCI. Random House, 1993, ISBN 0-679-41384-7
• Nick Kochan, Bob Whittington: Bankrupt: The BCCI Fraud. London 1991
• James Ring Adams, Douglas Frantz: A Full Service Bank. London 1991
• Denis Robert, Ernest Backes: Révélations Arènes Editions, 2001, ISBN-10 2912485282
• Jean-Charles Brisard, Guillaume Dasquié, Ben Laden: La Vérité interdite. Gallimard, 2002, ISBN 2070423778, S.166-168.
• "The BCCI Affair", Report to the Committee on Foreign Relations, United States Senate, Senator John Kerry and Senator Hank Brown, 1992, 102nd Congress 2nd Session Senate Print 102-140 (Kerry Report).
• Time Magazine, 29.July 1991, The world's sleaziest bank, online unter Cover Story: The Dirtiest Bank of All
• Rachel Ehrenfeld, Evil Money. Encounters along the Money Trail, 1992, Harper Business, ISBN 0-88730-560-1).
• Peter Truell, Larry Gurwin, False Profits. The Inside Story of BCCI, the world’s most corrupt financial Empire, 1992, Houghton, Mifflin Company, Boston, New York, ISBN 0-395-62339-1
• James Ring Adams and Douglas Frantz, A Full Service Bank. How BCCI stole billions around the world, Simon & Schuster Inc., New York ISBN 0-671-72911-X
• Jonathan Beaty & S. C. Gwynne, The Outlaw Bank. A wild ride into the secret heart of BCCI, 1993, Random House, New York, ISBN 0-679-41384-7
• Nick Kochan & Bob Whittington, Bankrupt. The BCCI Fraud, 1991, Victor Gollancz Ltd., Londres, ISBN 0-575-05279-1
• John K. Cooley, Unholy Wars. Afghanistan, America and International Terrorism, 1999, Pluto Press, Londres, Sterling (Virginie), ISBN 0-7453-1328-0
• Lucy Komisar, "BCCI's Double Game: Banking on America, Banking on Jihad," in A Game As Old As Empire, 2007, Berrett-Koehler, San Francisco, ISBN 978-1-57675-395-8

[edit] References

[edit] External links

• BCCI (in liquidation) homepage
• The BCCI Affair, Report to the Committee on Foreign Relations States Senate; held at FAS -(A Report to the Committee on Foreign Relations United States Senate by Senator John Kerry and Senator Hank Brown; December 1992; 102d Congress 2d Session Senate Print 102-140)
• Report in the Washington Monthly
• Erisk, Juni 2001, "Case study: Bank of Credit and Commerce International"
• (French) "Bank of Colombian Cocaine Industry":l'affaire BCCI, online confidentiel.net
• From BCCI to ISI: The Saga of Entrapment Continuesde:Bank of Credit and Commerce International

fr:Bank of Credit and Commerce International