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Masters Of Deceit
How the men behind an audacious bank expanded it via global duplicity, touching Jimmy Carter, Arab sheiks and Manuel Noriega along the way
By JONATHAN BEATY AND S.C. GWYNNE WASHINGTON. WITH
Apr. 1, 1991
Investigators say it is one of the most powerful and corrupt banks they have ever encountered. The shadowy $30 billion offshore enterprise called Bank of Credit & Commerce International made headlines briefly when it was convicted of laundering drug money in the U.S. last year, but its story came home with shocking force to most Americans more recently. B.C.C.I., investigators have found, has for years secretly owned the largest bank in Washington, First American Bankshares, despite a decade of denials by one of the city's most respected figures, lawyer and First American chairman Clark Clifford. Bad enough that an unregulated foreign banking empire convicted of crimes in three countries evaded regulators to control a major U.S. bank with 297 offices from New York to Florida. All that, it turns out, is just the beginning.
B.C.C.I. internal-audit documents reviewed by TIME and interviews with present and former B.C.C.I. banking officers in several countries reveal a pattern of unprecedented global financial duplicity. The bank may secretly control other U.S. banks. It has used front men to conceal ownership of businesses in many countries. Adeptly deploying political influence around the world, say investigators, it has enlisted sovereign governments in shady financial deals built on its ability to control massive global flows of illegal funds, such as drug money and flight capital. It has involved itself with the central banks of more than 30 Third World countries and in return for extending credit has become sole banker for hundreds of nationalized corporations.

Clifford and law partner Robert Altman, who is First American's president, are now under scrutiny by a New York grand jury seeking to determine whether the pair were knowing front men for one of the most ingenious bank tycoons of the modern age: B.C.C.I.'s founder, Agha Hasan Abedi of Pakistan. Clifford and Altman insist they were not, despite long and close connections. They were attorneys for B.C.C.I. from 1978 through 1990, as well as attorneys for First American, billing the two banks for more than $1 million during that period. Clifford, who has long defended Abedi, says he is no longer so sure about the bank's ownership or Abedi's role. "I got the rawest deal of all by not being told what was going on," he told TIME. "If the Federal Reserve was deceived, so was I."

Clifford and Altman are not the only U.S. connections to B.C.C.I. that the New York grand jury is looking into. Investigators suspect that wealthy Saudi businessman Ghaith Pharaon, who purchased the troubled National Bank of Georgia from President Carter's friend and onetime budget chief Bert Lance and later sold it to First American, has been a front man for Abedi. Banking regulators are probing another Pharaon holding -- Independence Bank in Encino, Calif. -- to see if Abedi or B.C.C.I. is the secret owner of that bank. And a federal grand jury in Miami is tracking Pharaon's and B.C.C.I.'s links to fraud-riddled CenTrust Savings, which thrift regulators took over last year.

Abedi's bank was designed from the first to appear to be financed by enormously rich Arabs from the gulf states. But sources close to the bank say that from the beginning, Abedi offered well-connected Arabs free stock in the bank by lending them the money to buy the shares without requiring repayment. Says an associate who has known Abedi since he created B.C.C.I.: "Abedi's genius was that he took the Middle Eastern custom of using front men to disguise his real interests and control and applied it globally."

By every account, Abedi was a brilliant banker, and his financial empire was built to make the movement of money as invisible as possible. His tangle of offshore corporations, banks, trusts and foundations is one of the most complex and secretive banking networks ever developed. As a result, his market includes tax avoiders, intelligence agencies, political bribers, arms dealers, narcotics traffickers and national leaders bent on looting their countries (Manuel Noriega was a customer). Former B.C.C.I. bankers estimate that 15% to 20% of B.C.C.I.'s multibillion-dollar cash flow involved flight capital -- "unofficial money," as they prefer to call it.

B.C.C.I.'s modus operandi for gaining political influence was as simple as its banking methods were convoluted. The formula: money. Abedi found his opening wedge in the U.S. in late 1976, when he looked to Georgia, home of then President-elect Carter, and the rotund personage of Carter confidant Bert Lance. In deep financial trouble with his National Bank of Georgia and beset by regulators for past banking indiscretions, Lance was all too glad to be put on B.C.C.I.'s payroll as a $100,000-a-year consultant. Abedi declared Lance was his "unofficial ambassador . . . brought in to give us a vision of the U.S." and insisted "we would never talk about exploiting his relationship with the President."

Abedi began playing his Lance card immediately, introducing Lance to his close business associate Ghaith Pharaon in Washington in late 1977. Pharaon, then 36, was a Harvard-educated Saudi who had parlayed royal-family connections into a Jidda construction fortune. He and a group of Arab investors from the gulf had earlier that year acted as fronts for Abedi's purchase of Pakistan's largest oil company. Now Abedi told Lance that Pharaon was, fortuitously it seemed, looking for an American bank to buy. Lance had resigned in September as Carter's budget director under charges of impropriety and was still stuck with the National Bank of Georgia. Pharaon created a sensation by buying Lance's shares and acquiring control of the bank. Abedi also shored up Lance's still shaky finances with a $3.4 million unsecured loan.

The Lance connection was paying off elsewhere as well. When Lance resigned, he hired Washington attorney Robert Altman to represent him. Through this connection, Abedi met Clifford, his key U.S. contact and a man who wielded precisely the sort of influence the Pakistani banker was looking for.

Abedi's strategy was taking shape. Using prominent Arab businessmen and members of ruling families from the United Arab Emirates as proxies, Abedi and B.C.C.I. organized an attempted hostile takeover of Financial General Bankshares, a Washington bank holding company. When the Securities and Exchange Commission charged that B.C.C.I. had secretly orchestrated it, Abedi hired Clifford and Altman to represent him and his group. This felicitous combination of wealthy shareholders from oil-rich Arab countries and Washington's most famous attorney calmed regulators, who allowed B.C.C.I.'s fronts to purchase Financial General, which they renamed First American.

The Lance connection eventually led to Jimmy Carter. When he left office, Abedi lent him B.C.C.I.'s corporate jet to replace Air Force One, donated $500,000 to help establish the Carter Center at Emory University in Atlanta, and began pumping donations into Carter's Global 2000 Foundation, which provided health care in the Third World. Sources close to B.C.C.I. say Abedi gave "millions" to the charitable project. Carter spokesmen would not confirm the amount but conceded that B.C.C.I. gave $1.5 million last year (the former President was not available for an interview on the subject of Abedi). That gift was accepted after B.C.C.I. was indicted and convicted for laundering drug money, but Carter has indicated that Abedi remains a friend.

Few think that is a poor reflection of Carter: Abedi, a charismatic personality, has given millions each year to charities and has wooed numerous world leaders attracted to his Third World Foundation. Britain's Lord Callaghan, a former Prime Minister, was a paid economic adviser to B.C.C.I., and Pakistani President Zia was a staunch supporter. While Indira Gandhi was India's Prime Minister, she presented a prize established by B.C.C.I. "When I met him 20 years ago," says a close associate of Abedi's, "I looked into his eyes and saw God and the devil residing in perfect harmony, and I think nothing has changed."

A Price Waterhouse audit of B.C.C.I. completed in March 1990 and a supplemental audit completed the following month -- both now sought by U.S. investigating authorities -- detail irregular transactions that have caused hundreds of millions of dollars to disappear. The documents also confirm that B.C.C.I., not the Middle Eastern investors of record, holds the controlling shares of First American.

The stunning audit showed serious banking irregularities and criminal acts involving senior B.C.C.I. executives, trustees and bank directors that have been hushed up. The audit traced insider loans, with funds parked in Bahrain and Panama, and "drawdowns not supported by requests from the customers," which is accounting jargon for money moved out of accounts without documentation of any kind. Bank officials familiar with the audit and other internal B.C.C.I. documents reviewed by TIME confirm the Price Waterhouse findings.

A secretive bank within the bank diverted depositors' funds to finance purported loans to insiders for the purchase of stock in institutions that Abedi wanted to control from behind the scenes. In general such loans would never be repaid. According to the records, $476 million from a B.C.C.I. bank in the Cayman Islands and $308 million from International Credit & Investment Co. Ltd., a B.C.C.I. holding company in the Caymans, were funneled to fake shareholders for purchases of stock in transactions similar to the First American shuffle.

By far the largest recipient of such loans was apparent front man Pharaon, who got at least $280 million. According to Price Waterhouse, the loans were "$100 million in excess of limits" and exceeded 10% of the bank's capital base. Most banks would hesitate to lend anywhere near that amount of capital to a single customer. Auditors also found millions of dollars passing through Pharaon's and his brother's accounts, including stock sales and transfers, yet could find no loan agreements, promissory notes or correspondence to explain the activity.

B.C.C.I.'s careful control and influence over institutions and regulators are receiving the greatest attention in the U.S., yet pale in comparison with the bank's activities in the Third World, where by the early 1980s B.C.C.I. had become a potent geopolitical force. B.C.C.I. was especially adept at using offshore branches to help Third World countries frustrate attempts by international monetary authorities to force changes in their economies. The technique was perfected in Jamaica, where B.C.C.I. came to then Prime Minister Edward Seaga's aid when the International Monetary Fund refused to release $60 million of aid because of unpaid debts. B.C.C.I. stepped in with $48 million to straighten out Seaga's accounts after brokering the deal with the IMF, and passed the remainder of the IMF funds to the Jamaican government. In return, B.C.C.I. bankers insisted that Jamaica's central bank put its future business in B.C.C.I.'s hands.

Peru provides another intriguing example of how B.C.C.I. came to wield unusual power over sovereign finances. When Alan Garcia Perez was elected President of Peru in 1985, he inherited a nation in economic chaos, owing $14 billion to foreign banks and governments. The 36-year-old President stunned the international financial world by announcing that he would no longer deal with the IMF. Peru would henceforth repay its debt on its own schedule.

Facing possible seizure of Peruvian assets overseas by Western creditor banks, Garcia turned to B.C.C.I. for help in protecting his national funds. So successfully was B.C.C.I. able to hide the money in offshore accounts that Garcia rewarded it with hefty central bank deposits.

A global bank with so much influence and secret power is more than a little worrisome to regulators. Yet B.C.C.I. has been remarkably successful in using proxies and surrogates to frustrate and even paralyze legal and regulatory authorities. A perplexing example is the Justice Department's apparent reluctance to expand its investigation of B.C.C.I. after the bank was ; convicted of money laundering last year. "I thought we were going to continue," says a former U.S. prosecutor involved in the case. "We were aware of the B.C.C.I. connection to First American, but nothing ever happened."

When the Florida state comptroller announced he was going to yank B.C.C.I.'s license to operate in the state after the conviction, he received a peculiar letter from the Justice Department in Washington. "We are . . . requesting that B.C.C.I. be permitted to operate in your jurisdiction with the understanding that certain accounts may be maintained by the bank at the request of the Department of Justice which otherwise would be closed to avoid legal and regulatory violations," wrote Charles Saphos, then chief of the Criminal Division Narcotics section. "I was confused by what they wanted," says Florida Comptroller Gerald Lewis. "But when I asked them if they wanted the bank to stay open because of national security reasons or an investigation, they wouldn't give a clear answer." Lewis closed the bank.

The political value of Abedi's connections to wealthy Middle Easterners was never more apparent than in the case of CenTrust Savings Bank of Miami. CenTrust, acquired by real estate developer David Paul in 1983 and now infamous as the S&L that spent its money on bathroom sinks made of pure gold, raised eyebrows in the regulatory community in the mid-1980s when it invested massively in junk bonds.

When regulators began circling closer in 1987, Paul acquired new partners in the form of Ghaith Pharaon and his invisible sponsor, B.C.C.I. With Pharaon came the presence of apparently deep Saudi pockets, which was precisely the assurance Paul and Pharaon gave when they met in 1987 and 1988 with the Federal Home Loan Bank Board's then chairman, M. Danny Wall, to argue that the bank would be able to meet its commitments.

The result was that, instead of closing the bank, regulators in 1988 agreed to let CenTrust float $200 million in bonds to shore it up. B.C.C.I. contributed $25 million of that amount. Bank regulators thus postponed CenTrust's death by more than a year and raised the cost of the eventual bailout by hundreds of millions. In the grand jury investigation in Miami, Abedi's bank stands accused of parking the $25 million temporarily to dress up CenTrust's books for the regulators.

B.C.C.I. has been in financial trouble since its money-laundering conviction and has turned for help to one of its original sources of funds: the ruling ! family of Abu Dhabi and its head, Sheik Zayed bin Sultan al-Nahayan, reportedly one of the world's richest men. Last year Zayed and his son Prince Khalifa acquired 77% of the bank and pumped in at least $600 million against the huge shortfall revealed by the Price Waterhouse audit. It is far from clear that even this infusion will save the bank. Among other irregularities, the audit showed $400 million simply unaccounted for. Add to that a billion dollars of insider loans to front-men shareholders -- loans that were never meant to be repaid -- plus unspecified numbers of bad loans, and much remains to be sorted out.

And what of Abedi, the genius behind it all? His heart attack and a later heart transplant stopped his direct control of B.C.C.I. in 1988, which proved disastrous for the bank. Already in trouble from too rapid expansion, and dependent on constantly increasing deposits to keep the cooked books from revealing the growing problems, B.C.C.I. could not hold together without Abedi -- as the audit released last year revealed. He resigned officially from the bank last year, and is living in semiretirement in Karachi. Authorities in several countries would surely like to get their hands on him. His connections with Pakistan's political and military leaders make it unlikely, however, that he will ever be tried or extradited.

— reporting by Adam Zagorin/Brussels, and other bureaus

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