Bank of Credit and Commerce International
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- For the national cricket authority of India, see Board of Control for Cricket in India
The Bank of Credit and Commerce International (BCCI) was a major international bank founded in Pakistan in 1972. At its peak, it operated in 78 countries, had over 400 branches, and claimed assets of $25 billion.
BCCI became the focus in 1991 of the world's worst financial scandal and what was called a "$20-billion-plus heist" (Beaty & Gwynne 1993). It was found by regulators in the United States and the United Kingdom to be involved in money laundering, bribery, support of terrorism[1], 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 be worthless, with 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.
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[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, the Bank of America (25%) and, allegedly, the CIA. 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. 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"[3] - 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. The Bank of America was "bewildered"[4] 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 commodity 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 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 Morganthau. 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 misfeance 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. (BBC News Article)
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 (Google transl. available)
- Further information: Clearstream
[edit] Former directors
- Alfred Hartman
- James R. Bath
[edit] See also
[edit] References
- ^ "Regardless of what might be shown in the missing material, the remainder is more than adequate to document BCCI's criminality, including fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia, and the America; BCCI's bribery of officials in most of those locations; its support of terrorism, arms trafficking, and the sale of nuclear technologies; its management of prostitution; its commission and facilitation of income tax evasion, smuggling, and illegal immigration; its illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers." Chapter 4 of Kerry 1992
- ^ "BCCI was not an ordinary bank. It was set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs are extraordinarily complex. Its offers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection." Chapter 4 of Kerry 1992
- ^ "Accountants in BCCI net" by Dan Atkinson; the Guardian, Friday January 8, 1999
- ^ "Unfortunately, the relationship with Bank of America had become an obstacle to such a move for BCCI. Rather than see BCCI expand into its home base, Bank of America was increasingly uncomfortable with its partner. Despite its initial agreement to let BCCI be BCCI, Abedi's original U.S. partner, Bank of America, had found itself bewildered by many BCCI practices from the beginning." Chapter 3 of Kerry 1992
- 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
- Beaty, J. & Gwynne, S.C. The Outlaw Bank : A Wild Ride into the Secret Heart of BCCI. Random House, 1993, ISBN 0-679-41384-7