BCCI, 2 Top Officers Indicted in New York
State and federal authorities stepped up their actions on Monday against the Bank of Credit and Commerce International.
In New York, a grand jury returned an indictment charging that the bank and two of its founders defrauded depositors of billions of dollars, falsified records to hide money laundering, and bribed Peruvian officials.
In Washington, the Federal Reserve announced it is seeking $200 million in civil penalties from the Luxembourg-based bank and also wants to bar from the banking industry nine individuals who are connected with the institution, including Saudi businessman Ghaith Pharaon.
The Fed's enforcement action revealed that BCCI secretly acquired 5% of CenTrust Savings, a high-flying Miami thrift run by David Paul that failed last year, and more than 25% of the National Bank of Georgia. These stakes were accumulated illegally through Mr. Pharaon and others, the Fed charges.
The Washington Nexus
Earlier this year it was disclosed that BCCI, which has $20 billion in assets, had secretly gained control of First American Bankshares Inc., a holding company based in Washington with $11 billion in assets. The Fed specified on Monday that BCCI has a 60% stake in First American's parent company.
In a press conference announcing the New York indictments, Manhattan District Attorney Robert Morgenthau said he is continuing his probe of whether Clark Clifford and Robert Altman, First American's two ranking officers, misled investigators about BCCI's ownership. The executives have denied any wrongdoing.
The prosecutor said his office is also continuing a money-laundering investigation of First American.
The indictments represent only one-fourth of the expected prosecution, Mr. Morgenthau said at the press conference.
Mr. Morgenthau declined to name any other figures who might be charged.
Individuals in Jeopardy
Besides the bank itself, the indictment named Agha Hasan Abedi, who founded the bank in 1972, and Swaleh Naqvi, the bank's chief operating officer until October 1990.
Also charged are four entities related to the bank, Bank of Credit and Commerce International (Overseas) Ltd., BCCI Holdings (Luxembourg) SA, International Credit and Investment Company (Overseas) Ltd., and International Credit and Investment Company Holdings.
The indictments are the first legal action to be brought against BCCI officials since the bank's assetswere seized by regulators in several countries July 5.
The indictment charges that BCCI officials paid a $3 million bribe to two senior officers of the Peruvian central bank in exchange for receiving deposits from the central bank.
Grand Larceny Alleged
A grand larceny count relates to the loss of more than $30 million deposited by American Express Bank Ltd. The bank is charged with attracting the deposits by falsely representing its business condition.
A spokesman for American Express Bank said that the $30 million held by BCCI includes a mixture of cash deposits and credit, including foreign-exchange trading lines, that were extended as part of a routine correspondent banking relationship.
He added that the bank is "fully covered" against any possible loss by "offsetting" BCCI deposits at American Express and can exercise the right to use these to offset any funds lost by BCCI.
BCCI is also charged with eight counts of falsifying its business records to conceal currency transactions of $10,000 or more, in violation of U.S. disclosure laws.
"This indictment spells out the largest bank fraud in world financial history," Mr. Morgenthau said. "BCCI was operated as a corrupt criminal organization through its entire 19-year history."
Mr. Morgenthau said that the bank had fraudulently obtained more than $20 billion in deposits from citizens and foreign nationals in New York City, banks headquartered in Manhattan, central banks of other nations, and thousands of depositors around the world. He estimated that "upwards of $5 billion has been lost through this fraud."
Mr. Morgenthau declined to specify any New York banks that had deposits with BCCI. A spokesman for the New York Fed said: "We know of no significant exposures to BCCI associated with U.S. banks."
Most major New York banks have denied having deposits with BCCI. However, a spokesman for Bank of New York Co. said it had a "small" exposure to BCCI. He declined to elaborate.
Investigation over 30 Months
The indictments cap a two-and-a-half-year investigation by the district attorney's office, which is now seeking to extradite Mr. Abedi and Mr. Naqvi to face trial in New York.
Mr. Abedi, 68, lives in Pakistan. Mr. Naqvi, 57, is living in Abu Dhabi, one of the states of the United Arab Emirates.
The Fed's 110-page enforcement proceeding cites evidence of secret arrangements designed to allow BCCI to acquire large stakes in institutions through its customers.
The Fed also charged that BCCI intentionally concealed its holdings in violation of the Bank Holding Company Act.
Bypassing Banking Laws
BCCI was allegedly able to skirt banking laws by making secret loans to nominees. The arrangements with BCCI typically included loans to the customers for the purchase of shares in these companies, with side agreements that the customer would not be required to repay the loans, the Fed charged.
BCCI was given authority to sell the shares and retain any profits, the order stated. In return, the customers received indemnities and fees for their participation in the transactions.
The Fed has made criminal referrals regarding its findings to the Department of Justice.
BCCI attorneys in Washington could not be reached for comment.
BCCI and the nine individuals who may be barred from the banking industry will have a chance to defend themselves against the charges at a hearing before an administrative law judge in New York on Sept. 10.