Bank of Credit and Commerce International (BCCI)
A Tale Of Fraud, Intrigue and Conspiracy
Yale SCHOOL of MANAGEMENT
Randy Kim
Marina Malyshkina
Dominic Ong
What Was BCCI: A Timeline From 1972 To Today
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.
1972 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.
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.
1980s BCCI becomes the largest foreign bank operating in Africa as a result of its willingness to do things that most
Western banks were not.
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
1990s breakthrough with involvement of NY District Attorney Robert Morgenthau and Subcommittee Chairman
Senator John Kerry.
Deloitte & Touche - the Provisional Liquidators were appointed on 5 July 1991.
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Many actions are still being progressed through the relevant Court and will take a number of years to bring to a
Today conclusion. There are in excess of 70,000 creditors with admitted or in progress claims with a value of $9
billion.
What Was BCCI, Actually?
Bank of Crooks and Cocaine, Inc
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.
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How Did BCCI Hide All This? (I)
To achieve its goals, BCCI relied on a range of machinations
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. 4
How Did BCCI Hide All This? (II)
as well as a complex web of relationships.
Lawyers,
Auditors,
Accountants
CIA
PR firms
BCCI
Prominent
Political Bankers
Figures
Govt. of
Regulators
Abu Dhabi
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Source: A Report to the Committee on Foreign Relations United States Senate, Senator John Kerry and
Senator Hank Brown, December 1992.
What Do The Conspiracy Theorists Say? (I)
Two rather critical facts, however, were invariably left out of the storyeven 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 effortserving 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'tre, 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
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What Do The Conspiracy Theorists Say? (II)
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
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How Did BCCI Unravel?
Circa 1983: American law enforcement officials uncover evidence of money laundering at BCCIs
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, 1990 Bank 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: Regardies, 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: 8
BCCI crumbles. BCCI offices in the UK, US, France, Spain, Switzerland, Luxembourg
and the Cayman Islands were seized and activities frozen.
Could The BCCI Affair Have Been Prevented?
In retrospect
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.
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The Aftermath
Lawsuits and Liquidation
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.
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A total of 60% of the value of admitted claims has been paid to the creditors.
The End
Q&A
Randy Kim
Marina Malyshkina
Dominic Ong
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A Personal Experience With Fraud
Back in Russia
Revenues and assets Expenditures & Liabilities Misappropriation of assets Costs & Expenses
obtained by fraud for an improper purpose avoided by fraud
.
Over-billing by contractors: Widespread phenomenon Lack of checks and Widespread phenomenon
Special department balances.
needed to be formed within
Bank to supervise a
restoration project financed
by the bank.
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