Presentation on theme: “Bank of Credit and Commerce International (BCCI) A Tale Of Fraud, Intrigue and

Conspiracy Randy Kim Marina Malyshkina Dominic Ong Yale SCHOOL of MANAGEMENT.”— Presentation
transcript:

1 Bank of Credit and Commerce International (BCCI) A Tale Of Fraud, Intrigue and Conspiracy Randy Kim
Marina Malyshkina Dominic Ong Yale SCHOOL of MANAGEMENT

2 1 Today Deloitte & Touche – the Provisional Liquidators were appointed on 5 July 1991. Many actions
are still being progressed through the relevant Court and will take a number of years to bring to a
conclusion. There are in excess of 70,000 creditors with admitted or in progress claims with a value of $9
billion. 1990s 1980s BCCI’s conception, growth, collapse, and criminality are inextricably linked with the
personality of its founder, Pakistani banker Agha Hasan Abedi, who nominally founded the bank in 1972.
Following nationalization of United Bank (1970), Abedi created a bank that would operate in a manner to
defy the ability of the Pakistani government, or any other, to impede any objective it might seek. It
would be the first global, international, and indeed, trans-national bank, and something more: a charity,
a foundation, a shipping empire, an insurer, a brokerage firm, a commodities exchange, a publishing
house, a world-class hospital for the rich, a real estate empire, an employee cooperative, an Islamic
investment bank, and a Third World powerhouse. Five essential elements in creation of BCCI: 1) secrecy
and confidentiality haven (Luxemburg, Grand Cayman); 2) source of capital ($2,5 M – BoA; $0,5M –
Sheikh Zayed of Abu-Dhabi; 3) source of initial assets ($100M – half from Sheikh Zayed; 4) a group of
like-minded Pakistani to operate the bank; 5) credibility in the international community through
relationship with an established Western financial institution – Bank of America. During a hearing in
February 1988 by the Committee on Foreign Relations on General Noriega’s drug trafficking and money
laundering, BCCI was identified as facilitating Noriega’s criminal activity. In March 1988, the Foreign
Relations Committee authorized the issuance of subpoenas to BCCI and those at the bank involved in
handling Noriega’s assets. The investigation was obstructed by the Department of Justice. Big
breakthrough with involvement of NY District Attorney Robert Morgenthau and Subcommittee Chairman
Senator John Kerry. 1972 What Was BCCI: A Timeline From 1972 To Today BCCI’s exponential growth
throughout Middle East, Africa, Asia and Americas fueled in part by infusions of petrodollar deposits
from Gulf State rulers during the hey-day of the OPEC years – branches in 73 countries and assets
totaling about $22 billion. Building a spider-web structure of “parallel banks” with a centre in
Luxembourg, acquisition of majority stakes in foreign banks by using front-men or nominees. BCCI
becomes the largest foreign bank operating in Africa as a result of its willingness to do things that most
Western banks were not.

3 2 What Was BCCI, Actually? “…The structure was conceived by Abedi and managed by Naqvi for the
specific purpose of evading regulation or control by governments. It functioned to frustrate the full
understanding of BCCI’s operations by anyone.” “…Fraud by BCCI and BCCI customers involving billions of
dollars; money laundering in Europe, Africa, Asia, and the Americas; BCCI’s bribery of officials in most of
those locations; support of terrorism, arms trafficking, and the sale of nuclear technologies;
management of prostitution; the commission and facilitation of income tax evasion, smuggling, and
illegal immigration; illicit purchases of banks and real estate; and a panoply of financial crimes limited
only by the imagination of its officers and customers.” Source: A Report to the Committee on Foreign
Relations United States Senate, Senator John Kerry and Senator Hank Brown, December 1992. Bank of
Crooks and Cocaine, Inc
4 3 How Did BCCI Hide All This? (I) Record Keeping. BCCI’s decision to divide its operations between two
auditors, neither of whom had the right to audit all BCCI operations. BCCI also provided loans and
financial benefits to some of its auditors. Complex Corporate Structure. Layering of entities, related to
one another through an impenetrable series of holding companies, affiliates, subsidiaries, banks-within-
banks, insider dealings and nominee relationships. Illusion of Growth. Focused attention on individuals
and entities who controlled large sums of cash – central bank officials, heads of state, “high net worth
individuals,” and black marketeers – to disguise operating losses and underlying lack of working capital.
Bribes. Prominent political figures, auditors and others were bribed. Circumvented Regulatory Barriers.
Secret ownership of banks, with activities shielded by lawyers, accountants, public relations firms and
political/intelligence agents. Lack of Co-ordination. The Justice Department, the CIA, U.S. Treasury
Department, Federal Reserve, the FDIC, and the OCC all failed to share information that could have
exposed BCCI. Lies and Deception. Shell corporations and bank confidentiality and secrecy havens, use of
front-men and nominees, guarantees and buy-back arrangements; back-to-back financial documentation
among BCCI controlled entities, intimidation of witnesses, retention of well-placed insiders to discourage
governmental action. Source: A Report to the Committee on Foreign Relations United States Senate,
Senator John Kerry and Senator Hank Brown, December 1992. To achieve its goals, BCCI relied on a range
of machinations…

5 4 Lawyers, Auditors, Accountants PR firms Bankers Prominent Political Figures Regulators Govt. of Abu
Dhabi CIA BCCI Source: A Report to the Committee on Foreign Relations United States Senate, Senator
John Kerry and Senator Hank Brown, December 1992. …as well as a complex web of relationships. How
Did BCCI Hide All This? (II)

6 5 What Do The Conspiracy Theorists Say? (I) Two rather critical facts, however, were invariably left out
of the story—even during the lengthy soap opera trial of former BCCI attorney Robert Altman. The first
fact was the extraordinarily close alliance between BCCI and some of Britain’s most powerful financial
houses and aristocratic families. The second fact was that BCCI was created, and then built up as a
“world class” bank, primarily to manage the covert funds that poured into the secret war in Afghanistan.
Hardly any mention was made of the fact that BCCI was in the middle of the Afghan effort—serving as
the de facto central bank for a multibillion-dollar Golden Crescent illegal arms-for-drugs trade that
mushroomed during 1979-90. When the last of the Red Army troops pulled out of Kabul in February
1989, the massive British-devised and American-led covert action program in support of the Afghan
mujahideen began to wind down. BCCI lost its raison d’être, and went the way of the 1960s-era Investors
Overseas Service (IOS), and the Vietnam War-era Nugen Hand Bank of Australia: The money was
siphoned out, a diversionary scandal was manufactured, and its doors were shut. During the decade of
the Afghan War, BCCI’s assets had grown from an initial capitalization in 1972 of $2.5 million, to $4 billion
in 1980, to an astounding $23 billion at the point that the Bank of England moved to shut it down. The
bulk of the $23 billion disappeared and to this day is still unaccounted for. Source: “The Real Story of
BCCI”, Bill Engdahl and Jeffrey Steinberg, Executive Intelligence Review, October 13, 1995

7 6 Former Senate investigator Jack Blum summed up the BCCI case in 1991 testimony before a
congressional committee: “This bank was a product of the Afghan War and people very close to the
mujahideen have said that many Pakistani military officials who were deeply involved in assisting and
supporting the Afghan rebel movement were stealing our foreign assistance money and using BCCI to
hide the money they stole; to market American weapons that were to be delivered that they stole; and
to market and manage funds that came from the selling of heroin that was apparently engineered by
one of the mujahideen groups.” Source: “The Real Story of BCCI”, Bill Engdahl and Jeffrey Steinberg,
Executive Intelligence Review, October 13, 1995 What Do The Conspiracy Theorists Say? (II)

8 7 How Did BCCI Unravel? Circa 1983: American law enforcement officials uncover evidence of money
laundering at BCCI’s Cayman Islands Bank. Nothing was done. October, 1988: US Customs Service
completes an undercover operation that leads to the arrest of several BCCI officials for laundering drug
money (who are convicted in 1990). March, 1989: Manhattan District Attorney Robert Morgenthau
begins a wide-ranging probe of BCCI, suspecting money laundering, but focusing on the real ownership
of First American Bank. Price Waterhouse intensified review of BCCI’s activities. April, 1990Bank of
England reached an agreement with BCCI, Abu Dhabi, and Price Waterhouse to keep BCCI from
collapsing. Under the agreement, Abu Dhabi agreed to guarantee BCCI’s losses and Price Waterhouse
agreed to certify BCCI’s books. May, 1990: Regardie’s, a business magazine, publishes a story titled “Who
Really Owns First American Bank?” January, 1991: Federal Reserve begins an official probe into
ownership of First American. March, 1991: BCCI admits that it has an illegal 25% stake in First American.
June, 1991: Price Waterhouse UK informs Bank of England that it has found evidence of widespread
fraud at BCCI. July 1991: BCCI crumbles. BCCI offices in the UK, US, France, Spain, Switzerland,
Luxembourg and the Cayman Islands were seized and activities frozen.

9 8 Could The BCCI Affair Have Been Prevented? 1.Problems With Auditors BCCI used a two auditor
system for 15 years (Price Waterhouse UK and Ernst & Whinney). Neither had the right to audit all of
BCCI Auditors not independent—BCCI provided Price Waterhouse with loans, financial benefits, and
sexual favors 2.Actions Recommended by the “The BCCI Affair: A Report to the Committee on Foreign
Relations United States Senate by Senator John Kerry and Senator Hank Brown December 1992” “US
develop a more aggressive and coordinated approach to international financial crime.” “CIA and State
Department upgrade the tracking of foreign financial institutions” “Foreign auditors whose certifications
are used by institutions doing business in the US agree to submit themselves to US laws.” In retrospect…

10 9 The Aftermath The Provisional Liquidators, Deloitte & Touche, were appointed on 5 July 1991. The
winding up order was made in the High Court in England on 14 January 1992. In addition to BCCI SA,
other group companies are also in liquidation. The main companies are BCCI Holdings based in
Luxembourg and BCCI Overseas based in the Cayman Islands. The intermingling of the affairs of the
companies led to the arrangement to pool the assets for the benefit of all the creditors. As a result a
Board of Liquidators regularly meet to decide on a common course of action for the benefit of all the
creditors in the group. The Liquidators have two fundamental objectives – to maximise recoveries and to
pay dividends to admitted creditors as quickly as possible. Global realisations to 15 January 2002 were
US$7.5 billion. The most significant realisations have been achieved through negotiation. Examples
include the Majority Shareholder Agreement that has realised some US$2 billion and agreements with
the US authorities that have realised some US$1 billion. The Liquidators have instigated legal claims
against those who failed to repay loans, committed fraud against the Bank or failed to discharge their
professional duties correctly. Significant judgements and realisations have been achieved. Many actions
are still being progressed through the relevant Court and will take a number of years to bring to a
conclusion. There are in excess of 70,000 creditors with admitted or in progress claims with a value of $9
billion. A total of 60% of the value of admitted claims has been paid to the creditors. Lawsuits and
Liquidation

11 10 The End Q&A Randy Kim Marina Malyshkina Dominic Ong

12 11…. A Personal Experience With Fraud Over-billing by contractors: Special department needed to be
formed within Bank to supervise a restoration project financed by the bank. Revenues and assets
obtained by fraud Widespread phenomenon Expenditures & Liabilities for an improper purpose Lack of
checks and balances. Misappropriation of assets Costs & Expenses avoided by fraud Back in Russia…
Widespread phenomenon