investigation and closure in 1991.
BCCI’s US acquisitions
The regulatory probe that exposedBCCI’s losses was brought about bythe bank’s illegal control of severalAmerican financial institutions. Thelargest, First American, was basedin Washington, DC, and was osten-sibly run for 12 years by two high-profile Washington insiders, former US Secretary of Defense Clark Clifford and his law partner RobertAltman.These two men became involvedwith BCCI in 1978, when they werehired as the bank’s US lawyers. Oneyear earlier, BCCI had set its sightson Financial General Bankshares,the company that would later become First American.A takeover group that includedBert Lance (a banker from Georgia,better known as the Carter admin-istration’s budget director) and var-ious Middle Eastern shareholderswas formed in 1977. By 1978, it hadpurchased 25 per cent of the avail-able shares in Financial General. Atthat point, the SEC charged thegroup with failing to disclose owner-ship information, but did not stopthe takeover.When the takeover group madea $70 million bid for FinancialGeneral, the Federal Reserve Boardinitially rejected it. This hurdle didnot stop BCCI and the investorsconnected to it, however, and in1980, Financial General accepteda takeover bid of $180 million.Approval for the deal was delayeduntil 1982, while regulatorsattempted to verify that BCCIwould not be controlling the USbank.Clifford and Altman assured theauthorities that they would be incharge of the purchased institution,and the deal was allowed. The twolawyers became the top execu-tives of the Washington bank,which was renamed First AmericanBankshares. Eventually, whenBCCI’s involvement with the bank was publicised, First American lost alarge amount of business and, in1993, part of it was sold to First UnionCorp.Clifford and Altman maintainedthat they had acted in good faith,and that BCCI had not gainedeffective control over the US bank.In 1993, Altman was acquitted ofcharges of bank fraud in a NewYork state court, while chargesagainst Clifford were set aside dueto his ill health. In 1998, not longbefore Clifford died, both menreached a $5 million settlementwith the Federal Reserve Boardwithout admitting any of the alle-gations.BCCI’s involvement in US bankingwas not limited to Washington. In1987, First American made an all-cash offer for the National Bank ofGeorgia that, the Federal Reservelater alleged, was simply a way for BCCI to secure covert investmentsit had made a decade or so earlier.Like First American, National Bank of Georgia was sold, to South TrustCorp, after its BCCI connection wasrevealed. Other institutions fatallyembroiled in BCCI’s complex dealsand shadowy investments includedthe Independence Bank, Encino,California and CenTrust, an alreadytroubled Miami-based thrift.
When BCCI’s problems wereuncovered in the 1991 probe, regu-lators in seven countries movedquickly to take over the bank’sbranches. On July 5, offices in theUK, US, France, Spain, Switzerland,Luxembourg and the CaymanIslands were seized, and the bank’sbusiness activities were frozen.BCCI’s assets were ultimately liqui-dated, and a pool was establishedto reimburse depositors who hadlost their funds when the bank shutdown.Despite various investigationsand reports since 1991, it’s difficultto sum up the cause of the BCCIscandal in any simple way. Lax cor-porate governance, manipulationby backers and bank officers withtheir own personal agendas, gen-eral fraud and failure of fundamen-tal risk management structures atthe highest level of the bank canbe considered the primary enginesdriving the losses to the bank’sstakeholders.More specifically, the bank’suntenable loan and acquisitionsstrategies, poor treasury and
Lax corporate governance, manipulation by backers and bank officers with their own personal agendas, general fraudand failure of fundamental risk management structures at the bank can be considered the primary engines driving thelosses to the bank’s stakeholders’