The Bank of Credit and Commerce International (BCCI) was a major

international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier.[1] The
Bank was registered in Luxembourg with head offices in Karachi and London.
It operated in 78 countries, had over 400 branches, and had assets in excess of US$20
billion, making it the 7th largest private bank in the world by assets.
OnDecember18,1991,inanagreementwiththeJusticeDepartmentand
NewYorkDistrictAttorney,BCCI'sliquidatorspledguiltytohaving
engagedinacriminalconspiracythroughfinancialfraud,andthereby
constitutingaRacketeeringInfluencedandCorruptOrganization
(RICO),whoseentireassets,legitimateandillegitimate,were
subjecttoconfiscationbythegovernment.Specificcrimesadmitted
tobyBCCI'sliquidatorsintheagreementincluded:**Seeking
depositsofdrugproceedsandlaunderingdrugmoney**Seeking
depositsfrompersonsattempttoevadeU.S.incometaxes**Using
"straws"andnomineestoacquirecontrolofU.S.financial
institutions**Lyingtoregulatorsandfalsifyingregulatory
documents**Creatingfalsebankrecordsandengaginginsham
transactionstodeceiveregulators.(7)
Two decades ago, the Bank of Credit and Commerce International (BCCI) was a
highly respected financial titan. In 1987, when its subsidiary helped finance a deal
involving Texas oilman George W. Bush, the bank appeared to be a reputable
institution, with attractive branch offices, a traveler's check business, and a solid
reputation for financing international trade. It had high-powered allies in
Washington and boasted relationships with respected figures around the world.
All that changed in early 1988, when John Kerry, then a young senator from
Massachusetts, decided to probe the finances of Latin American drug cartels. Over
the next three years, Kerry fought against intense opposition from vested
interests at home and abroad, from senior members of his own party; and from
the Reagan and Bush administrations, none of whom were eager to see him
succeed.
By the end, Kerry had helped dismantle a massive criminal enterprise and
exposed the infrastructure of BCCI and its affiliated institutions, a web that law
enforcement officials today acknowledge would become a model for international
terrorist financing. As Kerry's investigation revealed in the late 1980s and early
1990s, BCCI was interested in more than just enriching its clients--it had a
fundamentally anti-Western mission. Among the stated goals of its Pakistani
founder were to "fight the evil influence of the West," and finance Muslim terrorist
organizations. In retrospect, Kerry's investigation had uncovered an institution at
the fulcrum of America's first great post-Cold War security challenge.
More than a decade later, Kerry is his party's nominee for president, and terrorist
financing is anything but a back-burner issue. The Bush campaign has settled on
a new strategy for attacking Kerry: Portray him as a do-nothing senator who's
weak on fighting terrorism. "After 19 years in the Senate, he's had thousands of
votes, but few signature achievements," President Bush charged recently at a
campaign rally in Pittsburgh; spin that's been echoed by Bush's surrogates,
conservative pundits, and mainstream reporters alike, and by a steady barrage of
campaign ads suggesting that the one thing Kerry did do in Congress was prove
he knew nothing about terrorism. Ridiculing the senator for not mentioning al
Qaeda in his 1997 book on terrorism, one ad asks: "How can John Kerry win a
war ifhedoesn'tknowtheenemy?"

James Reynolds Bath was a former director of Bank of Credit and Commerce
International (BCCI), and part owner of Arbusto Energy with George W. Bush,
with whom Bath served as a member of the Texas Air National Guard during the
Vietnam War. Like Bush, Bath was suspended from flying status in 1972 for failing
to accomplish his annual medical examination.
Bath got his start in real estate in 1973 by forming a partnership with Lloyd
Bentsen's son, Lan, in Bath Bentsen Interests.
It has been reported that, in 1976, George H. W. Bush recruited Bath into the
CIA,aclaimthatBathdeniedin1991inanarticlepublishedinTimemagazine.
In1976BathpurchasedtheHoustonGulfAirportonbehalfofSalembinLaden,aSaudisheik(and
OsamabinLaden'solderhalfbrother.)Thatyear,BathbecamethebinLadenfamily'srepresentativein
NorthAmerica<1>.In1990,aSaudibankernamedKhalidbinMahfouzprocuredaloanof$1.4
millionforBath,allowinghimtobuyastakeintheairport.WhenSalembinLadendiedin1988,his
interestintheairfieldpassedtoMahfouz.

Article excerpt
I. INTRODUCTION
In July 1991, assets of the Bank of Credit and Commerce
International (BCCI) were seized by regulators in seven countries.(1)
Regulators in Great Britain had uncovered evidence of widespread
massive fraud affecting the bank's 800,000 depositors around the
world.(2) Regulators seized more than $20 billion in assets, making
the failure one of the largest for an international bank to date.(3)
Although actual losses to depositors and investors are unknown,
losses are estimated to be as high as $15 billion, or seventy-five
percent of the bank's assets.(4)
The BCCI failure is of great concern because of its worldwide impact.
Multinational banks such as BCCI transcend national boundaries to
link together the economies of various countries. As a result, a
multinational bank, and particularly its solvency, affects many
countries. International banking has grown significantly over the
past few years.(5) Assets in the United States branches of foreign
banks quadrupled in the ten years after 1980, reaching $626 billion
in 1990.(6) Although BCCI was large, it was not among the largest of

multinational banks.(7)The lessons learned from BCCI may prevent

future bank failures that may have an even greater financial impact
worldwide. The purposes of this Note are to discuss the weaknesses
in the supervision of multinational banks that allowed BCCI to
operate for nineteen years and to offer suggestions on how to
prevent another scandal from occurring.
A. Background
BCCI was founded by Pakistani financier Aga Hassan Abedi in 1972
with funds from investors in Abu Dhabi.(8) Bank of America was also
an investor, with a twenty-five percent share of the bank.(9) BCCI
was incorporated through a holding company, BCCI Holdings
(Luxembourg) S.A., in Luxembourg.(10) The bank also had offices in
London and Abu Dhabi. " From a modest start with only three offices
in 1972, BCCI grew within five years to 150 offices in thirty-two
countries.(12) Bank of America, which had increased its holdings in
BCCI to forty-five percent in 1977, was suspicious of BCCI's
exceedingly positive results and audited BCCI's European operations
for October and November 1977.(13) The report indicated that
BCCI's operations were not in conformity with general banking
practices: reserves for bad loans were inadequate, and substantial
loans were being made to "insiders."(14) Soon after the report was
completed, Bank of America began selling its BCCI shares.(15) This
may have been an early indication that BCCI was not as profitable
as it appeared to be.
By 1977, BCCI was well established in many countries, but not in the
United States.(16) BCCI management considered ownership of an
American bank to be the key to international success.(17) In 1978,
BCCI attempted a hostile takeover of Financial General Bankshares
in Washington, D.C., but the bid was unsuccessful because the
Securities and Exchange Commission (SEC) refused to approve the
purchase.(18) The SEC requires foreign banks to disclose details
about their operations if they plan to own more than five percent of
the outstanding shares in an American holding company.(19) BCCI
tried to avoid these disclosures by working with several parties to
buy the stock.(20) In 1982, BCCI succeeded in gaining control of
Financial General, which had been renamed First American

Bankshares.(21) BCCI accomplished its goal by loaning the funds to

a group of Middle Eastern investors, who then purchased the holding
company's stock.(22) Although the Federal Reserve suspected that
the investors were really a front for BCCI,(23) First American
Chairman and former Secretary of Defense Clark Clifford, assured
the agency that BCCI was not involved with the bank.(24) Six years
later, in 1988, while federal agents were conducting an investigation
of money laundering in Florida, a BCCI official told the agents that
BCCI actually owned First American.(25) Through First American,
BCCI was able to acquire the National Bank of Georgia and
Independence Bank of Encino, California.

LONDON, Aug. 11 During his decade as an internal

auditor for the Bank of Credit and Commerce International
here, Vivian Ambrose knew all too well the bank's unwritten
rules.
Some loan documents, for example, were off limits to the bank
inspectors, including him. Instead, they were handled
personally and confidentially by the inner circle of two dozen
executives who kept the bank's secrets.
"It was common knowledge within the bank that there were
fraudulent loans," the 51-year-old Sri Lankan immigrant said.
Extent of the Fraud
Now, thanks to a sheaf of documents that have come tumbling
into view in the last several days, along with data from a recent
New York indictment against the bank and testimony by a
former top B.C.C.I. executive last week in Congress, the
supposed extent of that fraud can be laid bare.
Taken together, the recent disclosures portray a bank that took
money from more than a million depositors around the world
and became a personal piggy bank for its Arab and Pakistani
owners and its favored customers. For its best customers,
millions of dollars were advanced, often without
documentation and sometimes in violation of the bank's own

lending limits. The depositors, virtually all of whom are

outside the United States, now stand to lose heavily.
Front men often stood in to mask the identity of the real
borrowers or purchasers. The Federal Reserve Board believes
that the use of front men ultimately enabled B.C.C.I. to buy
control of First American Bankshares Inc., Washington's
leading banking institution, run by Clark M. Clifford, the
prominent lobbyist and lawyer who represented B.C.C.I. when
it first began buying banks in the United States. Scheme to
Cover Losses
As losses mounted, the bank apparently hatched a scheme to
cover them up by making interest payments on loans with
deposits from other customers. The idea was to deceive
auditors from detecting the red ink in its loan portfolio. The
scheme also involved offshore funds parked in lightly
regulated countries that could be drawn down to patch up
losses elsewhere.
And when capital was needed to absorb further losses, the
bank artificially pumped up its share price by lending money
to existing shareholders to buy more stock. The proceeds from
the stock would help balance the bank's books, but actually the
bank was merely taking depositor money and investing it in
the bank.
Bankers, regulators and even some law-enforcement officials
had only vague notions for years that the BCC Group S.A., the
holding company for B.C.C.I. and its affiliates, was a strange
and shadowy institution. Since the early 1980's, the company's
reputation made banking officials uneasy -- a "stateless" bank
that operated in the United States and about 70 other
countries, chartered in Luxembourg, run by Pakistanis, owned
by Arabs, headquartered in Britain and serviced by outposts in
the Cayman Islands, a well-known haven for private banking.
Police and intelligence experts nicknamed B.C.C.I. the "Bank
of Crooks and Criminals" for its penchant for catering to
customers who dealt in arms, drugs and hot money.

"We knew that the bank had financial troubles but not that
there was massive fraud," said John Atkinson, the bank
inspector for the Cayman Islands and a member of the
international team that shut down B.C.C.I. "I was very
surprised by the extent and size of the fraud." An Unraveling
Fraud Raises New Questions
The documents, charges and testimony -- along with
interviews with investigators, regulators and former bank
officials in the United States, Europe and the Cayman Islands
-- shed light on how B.C.C.I. orchestrated its elaborate fraud.
But they also raise new questions about how the bank got away
with it for so long. And unraveling the fraud is necessary to
address a crucial issue: whether B.C.C.I. was a unique criminal
organization or just unusually adept at exploiting the
weaknesses in international financial regulation.
Not until June -- days before international banking regulators
seized the bank -- did anyone finally possess solid evidence of
the multibillion-dollar fraud that had been the private
handiwork of the handful of bankers who had engineered it.
Now, fresh evidence seems to arrive almost daily. Last week,
several uncensored copies of the bank's independent audits
were released on Capitol Hill along with copies of letters
between the bank and its accounting firm, Price Waterhouse.
There was also a report prepared by the bank's own senior
officers last year who completed an internal investigation of
the bank.
Two weeks ago, a state grand jury in Manhattan indicted
B.C.C.I. for money laundering, bribery and fraud, and the
Federal Reserve Board proposed a record $200 million fine on
B.C.C.I. for secretly controlling three American banks -- First
American, the Centrust Savings Bank of Miami and
Independence Bank of Encino, Calif.
All of this activity was touched off by a confidential report last
June to the Bank of England, Britain's top banking regulator,
stating that B.C.C.I. "generated significant losses over the last

decade and may never have been profitable in its entire

history." It was that report that prompted the worldwide
seizure of B.C.C.I. on July 5. Price Waterhouse Audit
When an international team of bank supervisors gathered in
late June at the Bank of England on Threadneedle Street in
London, they were shocked by a confidential report prepared
by the bank's auditor.