Headline from El País, January 17th, 1990: ‘The Bank of Credit and Commerce International admits drug-money-laundering. Seven executives plead guilty in front of a federal court of Florida’.
The Bank of Credit and Commerce International (BCCI) was founded in Karachi (Pakistan) in 1972 by Agha Hasan Abedi, althogh the company was registered in Luxemburg. At its peak, it operated in 78 countries, had over 400 branches and had assets in excess of 20 billion dollars, making it the 7th largest private bank in the world by assets.
BCCI came under radar of regulatory bodies and intelligence agencies in the 1980s due to its hability to avoid the regulatory banking authority. Investigators from USA and UK revealed that BCCI’s unusual organization was deliberately set up to avoid a centralized regulatory control and operated in extensively in bank secrecy jurisdictions. It had organized its own intelligence network, diplomatic corps and shipping and trading companies. Its two holding companies were based in Luxemburg and the Cayman Islands, two jurisdictions where banking regulation was notoriously weak. On several occasions, the Office of the Comptroller of the Currency told the Federal Reserve that BCCI must not be allowed no buy any American bank because it was poorly regulated.
In 1982, fifteen Middle Eastern investors bought Financial General Bankshares holding, based in Washington DC. They were all BCCI clients, but it was assured to the Federal Reserve that the bank would have no relation at all with the company management, renamed as First American Bankshares. In truth, relationship between both companies was so close that rumours of BCCI being the real owner of First America spread soon.
In 1990, a Price Waterhouse audit revealed an unaccountable loss of hundred of millions of dollars. The bank aproached Sheikh Zayed, sultan from United Arab Emirates, who made the loss good in exchange of 78% shareholding. Mucho of the bank documents were transfered to the Emirates, too. The audit also revealed multiple irregularitys: BCCI had made $1.48 billion worth of loans to its own shareholders, who used BCCI stock as collateral. And confirmed what many people already suspected: BCCI was the secret owner of First American. Despite all of this problems, Price Waterhause signed BCCI 1989 annual report.
Bank rapid growth had alarmed the financial community as well as regulators. BCCI argued that its growth came from oil-producer countries deposits and developing nations. It was not uncomfortable dealing with ‘questionable’ elements, like other international banks or swiss private banks; it was also the banker of US-backed dictators like Saddam Hussein or General Noriega, and was somehow linked to arms traffic in Iraq. It was even called ‘CIA’s laundry facility’, although it was never demonstrated.
Witch-hunt continued and, in 1988, BCCI appeared implied in a drug-money-laundery scheme in Tampa (Florida). Under authorities pressure, it pleaded guilty, although only as respondant superior. Its activities were pulled out of the state.
In 1991, the Bank of England asked Price Waterhouse to carry out an inquiry (in which the MI5 also participated). The report concluded that BCCI had engaged in fraud and manipulation at so high level that it would be very difficult, if not impossible, to reconstruct its financial history. This investigation, together with the cessation of activity order in the States, due to the illegal control of First American, persuaded a court in Luxemburg to dictate its liquidation. On July 5th, 1991, at 1:00 pm London time (8:00 am in New York), regulators in five countries marched into BCCI offices to shut them down.
A few weeks later, Manhattan District Attorney indicted BCCI on twelve charges of fraud, money laundering and larceny. He described BCCI as “the biggest bank fraud in world’s financial history”. It pleaded guilty of all charges: it paid $10 million in fines and forfeited all $550 million of its American assets, at the time the largest single criminal forfeiture ever obtained by federal prosecutors. However, most of the players in the scandal were brought to trail in American or UK courts. Abedi, for instance, was never extradited by Pakistan authorities. He died in 1995.
The film ‘The International’ (Tom Tykwer, 2009) is loosely based on BCCI activities.