| 7 Financial Crimes That Rocked the U.S. | |
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| In the 1980s, the Bank of Credit & Commerce International was a global lending behemoth, operating in more than 70 countries. It wasn't terribly picky about its customers: narcotics traffickers, terrorists and crooked politicians were among those who stashed their money in the bank. In the U.S., BCCI secretly (and thus illegally) owned First American Bankshares, a Washington, D.C.-based institution that was rapidly expanding to other areas. But ultimately, BCCI was what the Manhattan district attorney called "the largest bank fraud in world financial history," totaling billions of dollars. On July 5, 1991, regulators in seven countries took part in a coordinated strike to seize the bank. Congressional investigators and former bank officials have speculated that the entire organization was a front for the CIA. In 1991, the agency's acting director said the CIA used BCCI as a "transfer point" for the routine movement of funds and collected information on its illegal activities. Robert Gates, who was CIA director from late 1991 to early 1993, once referred to BCCI as the "Bank of Crooks and Criminals International." This email looks a little bit different from the others in this series because there are so many threads to follow. Let's get started. | |
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| This is the fifth email in the series "7 Financial Crimes That Rocked the U.S." Was this newsletter forwarded to you? Sign up here. | |
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| Agha Hasan Abedi: The Pakistani banker founded BCCI in Luxembourg in 1972. A heart transplant in 1988 left Abedi semi-invalid. He lost control of BCCI in 1990. Abedi died in 1995. Swaleh Naqvi: Abedi's late protégé resigned as CEO of BCCI in 1990. Sheikh Zayed bin Sultan al-Nahyan: The former leader of Abu Dhabi became BCCI's largest shareholder in 1990 after injecting $1 billion into the bank. Clark Clifford: Once referred to by the Journal as "Mr. Connections" and "the Democrats' don," First American's former chairman served as defense secretary under President Lyndon Johnson and advised Presidents Truman, Kennedy and Carter. He died in 1998. Robert A. Altman: First American's former president, who died in 2021, was married to Lynda Carter, TV's "Wonder Woman." Post-BCCI, Altman founded an entertainment-software firm and sold it to Microsoft for $7.5 billion. John Kerry: Then a U.S. senator from Massachusetts, Kerry headed up the Foreign Relations subcommittee on terrorism and narcotics, which found possible drug-trafficking and money-laundering connections to BCCI and First American in 1988. Robert Morgenthau: The office of this Manhattan district attorney, who died in 2019, was the model for TV's "Law & Order." He began investigating BCCI in 1989. | |
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| | How the Journal Covered It | | |
| "BCCI was effectively a stateless bank," the Journal wrote in 1991. "Its headquarters was in Luxembourg, its major operating banks were incorporated in Luxembourg and the Cayman Islands, its main operations were in London" and its principal shareholder was in Abu Dhabi. The bank makes our list of the biggest U.S. financial crimes because so much of the legal proceedings against it happened in the U.S. Here's an abbreviated rundown of the U.S. events: | |
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The money laundering case | |
| The U.S. Customs Service in 1986 began an undercover investigation of BCCI in Florida based on suspicions the bank was engaged in money laundering for narcotics traffickers. Testimony to Kerry's Senate subcommittee in September 1988 contended that the Panamanian dictator Manuel Noriega, an alleged drug trafficker, banked at BCCI. In October 1988, an undercover Customs agent convinced a dozen BCCI officials to fly to Tampa, Fla., for his wedding. It was actually a sting operation. The bank, two of its units and several officials were charged with laundering $32 million in profits from alleged cocaine sales, with related charges for 70 other individuals. It was the biggest money-laundering case ever brought in the U.S. BCCI spent as much as $35 million to defend against the charges, including hiring a star-studded team of lawyers. "It was like an airport waiting for a plane to crash…They [the lawyers] covered everything with foam," said the Senate staffer who led Kerry's investigation. The investment paid off. While a BCCI unit pleaded guilty to money laundering and five bank officers received prison sentences, BCCI's only punishment was a $15 million fine. It was largely allowed to continue operating in the U.S. | |
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The First American revelations | |
| A group of Arab investors received approval to buy First American's predecessor in 1981. Although BCCI was a financial adviser to the group and the investors personally banked at BCCI, Clifford and Altman—who became the bank's chairman and president, respectively—assured regulators at the time that BCCI wasn't involved in purchasing First American. "If we had known about [BCCI's role] we wouldn't have allowed it to go through," said one banking regulator who had signed off on the deal. But a Price Waterhouse audit in 1989 found that First American's shareholders had received loans from BCCI to finance their investment and then failed to pay interest on those loans, effectively giving BCCI control of the Washington bank. Clifford and Altman—who were also BCCI's U.S. legal representatives—later confirmed that they, too, had borrowed from BCCI to buy shares in First American's parent company, which they sold for a healthy profit. However, they always maintained that First American operated independently and that they had no idea of the extent of BCCI's involvement. Morgenthau, the Manhattan district attorney, discovered the connection between BCCI and First American while investigating alleged money laundering. He alerted the Federal Reserve in late 1990. In March 1991, the Fed ordered BCCI to sell its stake in First American. Morgenthau's office indicted Clifford and Altman in July 1992, accusing them of accepting over $40 million in bribes from BCCI. Federal prosecutors filed similar charges. Faced with the prospect of overlapping federal and state trials, the Justice Department dismissed charges against Clifford and Altman in April 1993 and never refiled. That August, Altman was acquitted in New York. The state dropped charges against Clifford in December. In 1998, the Fed reached a settlement with Altman and Clifford in which they agreed to hand over $5 million in stock of First American's parent company, without admitting any wrongdoing. | |
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| A secret Price Waterhouse report that the Journal viewed in 1991 showed BCCI extended loans to wealthy Persian Gulf investors, often without collateral, then used a secret bank-within-a-bank to move money around internally to cover up any shortfalls. As a 1991 Journal article put it, BCCI "camouflaged losses with techniques that would make Ponzi look like a piker." Three weeks after the global crackdown on July 5, 1991, BCCI was indicted on fraud charges in New York. Abedi and Naqvi—BCCI's founder and former CEO, respectively—were also indicted. Federal charges followed in November. BCCI's liquidators quickly moved to settle charges for the bank. In December, an agreement was reached for BCCI to plead guilty to all pending charges and forfeit all its U.S. assets, valued at $550 million. Pakistan refused a February 1993 request to extradite Abedi. He died in Karachi in 1995. In exchange for the U.S. dropping a $1.5 billion civil suit against Sheikh al-Nahyan, Abu Dhabi agreed to hand over Naqvi in January 1994. Naqvi pleaded guilty in July and was sentenced to eight years in prison. He was released in 1999, according to the Federal Bureau of Prisons. | |
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| "A lot of follow-up in contacting witnesses and reviewing records was lost that might otherwise have benefitted the case." | | —The undercover Customs agent who led the sting operation against BCCI in Florida, accusing the Justice Department of inaction during Senate testimony in November 1991. In response, officials defended their handling of the money-laundering case. | | | |
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| ⚖️ In December 1991, President George H.W. Bush signed into law a banking bill that, among other changes, gave the Federal Reserve new authority to police foreign bank operations in the U.S. The Basel Committee on Banking Supervision, an international group of central bankers and other regulators, in July 1992 issued minimum standards for supervising banks that operate in several countries. 🏦 First Union Corp. agreed to buy First American for $453 million in 1993. 💰 In January 2012, the Journal profiled a U.S.-based BCCI depositor who spent 20 years battling international bankers, attorneys and liquidators to help others get back their money. Ultimately, $7 billion was returned to BCCI's creditors, a recovery rate of over 90%, according to Hogan Lovells, a law firm that served as the principal adviser to the bank's officeholders world-wide. The last payment was made in August 2012. | |
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| Ordinary depositors were hurt hardest by BCCI's downfall. While the bank's U.S. ventures, such as First American, were insured by the Federal Deposit Insurance Corp., its international operations didn't enjoy the same protections. The March 2023 collapse of Silicon Valley Bank followed a similar pattern: U.S. customers were protected when SVB was seized, but depositors at its Cayman Islands branch weren't. It's hard to prepare for a bank failure. However, you can start by understanding what protections your deposits have, especially at institutions outside the U.S. | |
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| NEXT WEEK: An energy giant runs out of gas | |
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