by Jonathan Beaty and S.C. Gwynne/New York
with Cathy Booth/Miami - Jay Branegan/Hong Kong
and Helen Gibson/London Monday
July 29, 1991
"I could tell you what you want to know,
but I must worry about my wife and family - they could be killed."
-- a former top B.C.C.I.
"We better not talk about this over the phone. We've found some bugs
in offices that haven't been put there by law enforcement."
-- a Manhattan investigator
Bank-fraud cases are usually dry, tedious
affairs. Not this one.
Nothing in the history of modern financial
scandals rivals the unfolding saga of the Bank of Credit & Commerce
International (B.C.C.I.), the $20 billion rogue empire that regulators in 62 countries
shut down early this month (July 1991) in a stunning global sweep. Never has a single
scandal involved so much money, so many nations or so many prominent people.
Superlatives are quickly exhausted:
it is the largest corporate criminal
enterprise ever, the biggest
Ponzi scheme, the most pervasive
money-laundering operation and financial supermarket ever created for the
likes of Manuel Noriega, Ferdinand Marcos, Saddam Hussein and the Colombian
B.C.C.I. even accomplished a Stealth-like
invasion of the U.S. banking industry by secretly buying
First American Bankshares, a Washington-based holding company with offices stretching from
Florida to New York, whose chairman is former U.S. Defense Secretary Clark
But B.C.C.I. is more than just a criminal bank.
From interviews with sources close to B.C.C.I.,
TIME has pieced together a portrait of a clandestine division of the bank
called the "black network," which functions as a global intelligence
operation and a Mafia-like enforcement squad. Operating primarily out of the
bank's offices in Karachi, Pakistan, the 1,500-employee black network has
used sophisticated spy equipment and techniques, along with bribery,
extortion, kidnapping and even, by some accounts, murder.
The black network - so named by its own members
- stops at almost nothing to further the bank's aims the world over.
The more conventional departments of B.C.C.I. handled such services as
laundering money for the drug trade and helping dictators loot their
The black network, which is still functioning,
operates a lucrative arms-trade business and transports drugs and gold.
According to investigators and participants in those operations, it often
works with Western and Middle Eastern intelligence agencies. The strange and
still murky ties between B.C.C.I. and the intelligence agencies of several
countries are so pervasive that even the White House has become entangled.
As TIME reported earlier this month, the
National Security Council used B.C.C.I. to funnel money for the Iran-contra
deals, and the CIA maintained accounts in B.C.C.I. for covert operations.
Moreover, investigators have told TIME that the Defense Intelligence Agency
has maintained a slush-fund account with B.C.C.I., apparently to pay for
But the CIA may have used B.C.C.I. as more than an undercover banker:
U.S. agents collaborated with the black
network in several operations, according to a B.C.C.I. black-network
"officer" who is now a secret U.S. government witness. Sources have told
investigators that B.C.C.I. worked closely with Israel's spy agencies
and other Western intelligence groups as well, especially in arms deals.
The bank also maintained cozy relationships
with international terrorists, say investigators who discovered
suspected terrorist accounts for Libya, Syria and the Palestine
Liberation Organization in B.C.C.I.'s London offices.
The bank's intelligence connections and alleged
bribery of public officials around the world point to an explanation for the
most persistent mystery in the B.C.C.I. scandal:
why banking and law-enforcement authorities
allowed the bank to spin out of control for so long.
In the U.S. investigators now say openly that
the Justice Department has not only reined in its own probe of the bank but
is also part of a concerted campaign to derail any full investigation.
Says Robert Morgenthau, the Manhattan
district attorney, who first launched his investigations into B.C.C.I. two
"We have had no cooperation from the Justice
Department since we first asked for records in March 1990. In fact they
are impeding our investigation, and Justice Department representatives
are asking witnesses not to cooperate with us."
B.C.C.I. was started in 1972 with the putative
mission of becoming the Muslim world's first banking powerhouse.
Though it was incorporated in Luxembourg and
headquartered in London, had more than 400 branches and subsidiaries around
the world and was nominally owned by Arab shareholders from the gulf
countries, B.C.C.I. was always a Pakistani bank, with its heart in Karachi.
Agha Hasan Abedi, the bank's founder and
leader until his ouster last year, is a Pakistani, as are most of the bank's
former middle managers. And it was in Pakistan that the bank's most
prodigiously corrupt division was spawned.
The Soviet invasion of Afghanistan in 1979 and the resulting strategic
importance of neighboring Pakistan accelerated the growth of B.C.C.I.'s
geopolitical power and its unbridled use of the black network. Because the
U.S. wanted to supply the mujahedin rebels in Afghanistan with Stinger
missiles and other military hardware, it needed the full cooperation of
Pakistan, across whose border the weapons would be shipped.
By the mid-1980s, the CIA's Islamabad operation
was one of the largest U.S. intelligence stations in the world.
"If B.C.C.I. is such an embarrassment to the
U.S. that forthright investigations are not being pursued, it has a lot
to do with the blind eye the U.S. turned to the heroin trafficking in
Pakistan," says a U.S. intelligence officer.
The black network was a natural outgrowth of
B.C.C.I.'s dubious and criminal associations.
The bank was in a unique position to operate an
intelligence-gathering unit because it dealt with such figures as,
Peruvian President Alan Garcia
contra leader Adolfo Calero
arms dealers like Adnan Khashoggi
Its original purpose was to pay bribes,
intimidate authorities and quash investigations.
But according to a former operative, sometime in
the early 1980s the black network began running its own drugs, weapons and
"I was recruited by the black network in the
early 1980s," says an Arab- born employee who has ties to a ruling
family in the Middle East and has told U.S. authorities of his role in
running one of the black units.
"They came to me while I was in school in
the U.S.; they spoke my language, knew all of my friends and gave me
money. They told me they wanted me to join the organization, and
described its wealth and political power, but at first they never said
exactly what the organization did."
This operative - call him Mustafa - underwent a
year of training that began with education in psychology and the principles
of leadership and proceeded into spycraft, with lessons in electronic
surveillance, breaking and entering, and interrogation techniques.
"Then the nature of our advisers changed,"
says Mustafa. "The pleasantness was gone, and we moved to Pakistan,
where we trained with firearms."
Mustafa's first operational assignment took him
"They gave us passports and identification,
and we moved a shipment of (unidentified) goods. In England they had
more I.D. waiting for us, because customs and immigration are strict,
but when we moved many places, into India or China or Latin America,
matters were taken care of, and we just slipped through borders. We
would be met. It was always all arranged."
A typical operation took place in April 1989,
when a container ship from Colombia docked during the night at Karachi,
Black-unit operatives met the ship after paying
$100,000 in bribes to Pakistani customs officials. The band unloaded large
wooden crates from several containers.
"They were so heavy we had to use a crane
rather than a forklift," says a participant.
The crates were trucked to a "secure airport"
and loaded aboard an unmarked 707 jet, where an American, believed by the
black-unit members to be a CIA agent, supervised the frantic activity.
The plane then departed for Czechoslovakia, taking the place of a scheduled
Pakistan International Airlines commercial flight that was aborted at the
last minute by prearrangement.
The 707's radar transponder was altered to
beep out the code of a commercial airliner, which enabled the plane to overfly several countries without arousing suspicion.
"From Czechoslovakia the 707 flew to the
U.S.," said the informant, insisting that none of the black-unit workers
had any knowledge of what was in the heavy wooden crates.
"It could have been gold. It could have been
drugs. It could have been guns. We dealt in those commodities," Mustafa
told U.S. authorities.
Other informants with details about the black
network have come forward as the banking disaster has unfolded.
"B.C.C.I. was a full-service bank," says an
international arms dealer who frequently worked with the clandestine
"They not only financed arms deals that one
government or another wanted to keep secret, they shipped the goods in
their own ships, insured them with their own agency and provided
manpower and security. They worked with intelligence agencies from all
the Western countries and did a lot of business with East bloc
In Lima, where a probe of B.C.C.I.'s stewardship
of Peru's central-bank funds is under way, local investigators are trying to
trace what happened to money in an aborted B.C.C.I.-brokered deal to sell
French-made Mirage jet fighters to the impoverished nation.
Sources in the clandestine arms trade say
B.C.C.I. eventually sold the planes to Pakistan and India.
U.S. intelligence agencies were well aware of such activities.
"B.C.C.I. played an indispensable role in
facilitating deals between Israel and some Middle Eastern countries,"
says a former State Department official.
"And when you look at the Saudi support of
the contras, ask yourself who the middleman was: there was no
government-to-government connection between the Saudis and Nicaragua."
As an equal-opportunity smuggler, the bank dealt
in arms from many countries.
"It was B.C.C.I. that financed and brokered
(Chinese) Silkworm missiles that went to Saudi Arabia," the former
official says, "and those were equipped with sophisticated Israeli
guidance systems. When you couldn't use direct government transfers or
national banks, B.C.C.I. was there to hot- wire the connections between
Saudi Arabia, China and Israel."
The bank also helped transfer North Korean
Scud-B missiles to Syria, a B.C.C.I. source told TIME.
Yet the bank's arms business was benign compared with the black network's
other missions. Sources say B.C.C.I. officials, known as protocol officers,
were responsible for providing a smorgasbord of services for customers and
national officials: paying bribes to politicians, supplying "young beauties
from Lahore," moving drugs and expediting insider business deals.
When it came to recruiting and persuading, the black network usually got its
"We would put money in the accounts of
people we wanted to seduce to work for us," says Mustafa, "or we would
use terror tactics," including kidnapping and blackmail. "The Pakistanis
were easy to terrorize; perhaps we might send someone his brother's hand
with the rings still on it."
"We were after business cooperation or
military or industrial secrets that we would use or broker, and we
targeted generals, businessmen and politicians. In America it was easy:
money almost always worked, and we sought out politicians known to be
The black network was the bank's deepest secret,
but rumors of its activities filtered through the bank's managerial level
with chilling effectiveness. Senior bankers voice fears that they will be
financially ruined or physically maimed - even killed - if they are found
talking about B.C.C.I.'s activities.
High-level bank officers know what happened to a
Karachi-based protocol officer whom the black network suspected of
unreliability last year.
"They found he had been trying to liquidate
his assets and quietly sell his house," says Mustafa. "So, first they
killed his brother, and then they sent brigands to rape his wife. He
fled to the U.S., where he is hiding."
U.S. investigators confirm the account but have
little hope he will volunteer any secrets if he is located.
Businessmen who pursued shady deals with B.C.C.I. are just as frightened.
"Look," says an arms dealer, "these people
work hand in hand with the drug cartels; they can have anybody killed. I
personally know one fellow who got crossed up with B.C.C.I., and he is a
cripple now. A bunch of thugs beat him nearly to death, and he knows who
ordered it and why. He's not about to talk."
Currently the black units have focused their
scrutiny and intimidation on investigators.
"Our own people have been staked out or
followed, and we suspect tapped telephones," says a New York
The black unit's mission eventually became the
pursuit of power and influence for its own sake, but its primary purpose was
to foster a global looting operation that bilked depositors of billions of
Price Waterhouse, the accounting firm whose
audit triggered the worldwide seizure of B.C.C.I. assets earlier this month,
says the disarray is so extreme that the firm cannot even put together a
coherent financial statement. But investigators believe $10 billion or more
is missing, fully half of B.C.C.I.'s worldwide assets.
How did it happen? B.C.C.I.'s corporate structure allowed the bank to
operate virtually without regulation all over the world.
The bank's organizational web consisted of
dozens of shell companies, offshore banks, branches and subsidiaries in 70
countries. It was incomprehensible even to its own financial officers and
auditors. The bank's extensive use of unregulated Cayman Islands accounts
enabled it to hide almost anything.
The bank's complex organization and unique
method of accounting - longhand in paper ledgers, written in Pakistan's Urdu
language - make it unlikely that most of the missing money will be traced.
Nor is it likely that anyone will ever know just how much Abedi, who has
incorporated a new bank, called the Progressive Bank, in Karachi, stole from
the rest of the world.
B.C.C.I.'s downfall was inevitable because it was essentially a planetary Ponzi scheme, a rip-off technique pioneered by American flimflam man
Charles Ponzi in 1920. B.C.C.I. gathered deposits, looted most of them,
but kept enough new deposits flowing in so that there was always sufficient
cash on hand to pay anyone who asked for his money.
During the years of its most explosive growth in
the late 1970s and mid-1980s, B.C.C.I. became a magnet for drug money,
capital-flight money, tax-evading money and money from corrupt government
officials. B.C.C.I. quickly gained a reputation as a bank that could move
money anywhere and hide it without a trace.
It was the bank that knew how to get around
foreign-exchange rules and falsify letters of credit in support of
Among its alleged services:
In Panama, according to a little-known
racketeering suit that the country brought against B.C.C.I., the
bank systematically helped Noriega loot the national treasury.
B.C.C.I. allowed the leader to open
secret offshore accounts under the names of the Panamanian National
Guard, the Panamanian Defense Forces and the Panamanian Treasury, to
transfer national funds into those accounts and then to tap the
In Iraq, B.C.C.I. became one of the
principal conduits for money that Saddam Hussein skimmed from
national oil revenues during the 1980s. According to investigator
Jules Kroll, who is tracking Saddam's fortune, B.C.C.I. helped the
dictator move and hide money all over the world.
In Guatemala the collapse of B.C.C.I.
has triggered a government probe into a $30 million loan that the
bank extended to the country in 1988-89.
Government officials told TIME they
suspect that some of the money may have gone to pay bribes to stifle
a four-year-old investigation of a major B.C.C.I. client, coffee
smuggler and arms merchant Munther Bilbeisi.
"If the $30 million was given to
corrupt public officials and that can be proved, then the loan
should be wiped out or reduced," says Fernando Arevalo Reina of
the Guatemalan Attorney General's office. (Bilbeisi has denied
As B.C.C.I.'s influence grew, a corrupt core of
middle management evolved, described by bank employees as "100
entrepreneurs," usually branch officers in foreign countries who were free
to pursue their own agendas.
One such was Amjad Awan, the B.C.C.I.
officer who was convicted in Florida for the money-laundering services he
provided for Noriega. As long as these remote managers kept on gathering
deposits, they were given wide latitude to do as they pleased, which
increasingly meant serving a core clientele of what investigators estimate
to be some 3,500 corrupt business people around the world.
The more B.C.C.I. became a conduit for such money, the more deposit
gathering became the bank's chief goal.
At annual meetings, founder Abedi would harangue
his employees for days on the importance of luring deposits. That was
probably because billions of dollars were vanishing. At the highest levels,
B.C.C.I. officials whisked deposits into secret accounts in the Cayman
Islands. These accounts constituted a hidden bank within B.C.C.I., known
only to founder Abedi and a few others.
From those accounts, B.C.C.I. would lend massive
amounts to curry favor with governments - as in its $1 billion loan to
Nigeria - or to buy secret control of companies.
U.S. regulators discovered recently that such loans had enabled B.C.C.I. to
buy clandestine control in three American banks:
First American Bankshares in Washington
National Bank of Georgia (later
purchased by First American)
Independence Bank of Encino, Calif.
The latter two were bought officially by Abedi's
front man, Ghaith Pharaon, the putative Saudi tycoon who received an
) estimated $500 million in B.C.C.I. loans in the 1970s and '80s.
loans were secured only by shares of stock in the companies Pharaon
purchased, which meant that they were never to be repaid.
What Abedi got in return for such loans was de facto ownership of three
American banks, since he held their shares as collateral for the unrepayable
loans. More important, this "nominee" shareholder arrangement meant that
B.C.C.I. itself remained invisible to U.S. banking regulators.
Following its discovery earlier this year that
B.C.C.I. owned both First American and Independence Bank, the Federal
Reserve ordered it to sell them off.
B.C.C.I.'s deposits also disappeared through the black network, which used
the money to pay bribes and conduct its weapons and currency deals.
According to a former officer, B.C.C.I. bought virtual control of customs
officials in ports and air terminals around the world. In the U.S. millions
of dollars flowed through B.C.C.I.'s Washington office, allegedly destined
to pay off U.S. officials.
The bribes and intelligence connections may offer an explanation for the
startling regulatory inaction.
The Justice Department has hindered an
investigation by Massachusetts Senator John Kerry, whose Subcommittee on
Terrorism, Narcotics and International Operations was the first to probe B.C.C.I.'s illegal operations.
According to Kerry, the Justice Department has
refused to provide documents and has blocked a deposition by a key witness,
citing interference with its own investigation of B.C.C.I.
To date, however, the Justice Department
investigation in Washington has issued only one subpoena.
"We have had a lot of difficulty getting any
answers at all out of Justice," says Kerry.
"We've been shuffled back and forth so many
times between bureaus, trying to find somebody who was accountable.
These things are very serious. What's shocking is that more energy
hasn't been expended. Somebody consciously or negligently took their
eyes off the ball in this investigation."
According to Jack Blum, Kerry's chief
investigator in 1988-89, the lack of cooperation was so pervasive and so
successful in frustrating his efforts to investigate B.C.C.I. that he now
says he believes it was part of a deliberate strategy.
"There's no question in my mind that it's a
calculated effort inside the Federal Government to limit the
investigation. The only issue is whether it's a result of high-level
corruption or if it's designed to hide illegal government activities."
The Justice Department denies any reluctance to
Said spokesman Dan Eramian:
"We believe there has been good cooperation
between law-enforcement (agencies) in this investigation. We're often
accused of dragging our feet, and part of that we believe is partisan in
Yet the evidence of a cover-up is mounting:
In one of the most mysterious events in
the case, B.C.C.I. bank records from Panama City relating to Noriega
"disappeared" in transit to Washington while under guard by the Drug
After an internal investigation, the DEA
said it had no idea what had happened to the documents.
Lloyd's of London, which is enmeshed in
a racketeering lawsuit against B.C.C.I., has fruitlessly made offers
to provide evidence of bribery and kickbacks and has made "repeated
pleas" to U.S. Attorneys in Miami and New Orleans to seize B.C.C.I.
Lloyd's accuses B.C.C.I. of taking part
in smuggling operations and falsifying shipping documents. The
insurance underwriters offered the results of their voluminous
research into the bank's illegal activities. The Justice Department
attorneys ignored the offers, Lloyd's says.
The U.S. Attorney General has assigned
only a handful of FBI agents to its Washington grand jury
investigation of B.C.C.I.'s relationship to First American
Bankshares. The department's main probe of B.C.C.I. itself is being
handled by a sole Assistant U.S. Attorney in Tampa, who has recently
been assigned another major case.
Similar understaffing is evident in a
Miami grand jury probe of the relationship between B.C.C.I. and the
CenTrust savings and loan, whose failure is estimated to cost
taxpayers $2 billion.
This may help account for the fact that a
16-month investigation has yielded no indictments.
Just as perplexing is why the Bank of England
and other authorities took so long to intervene.
Britain's main financial regulator waited more
than a year after seeing a Price Waterhouse audit that raised serious
questions about B.C.C.I.'s viability before seizing its 25 branches in
the Bank of England was conducting extended
negotiations with Abu Dhabi authorities, apparently hoping that B.C.C.I.'s
current owner, Sheik Zayed bin Sultan al-Nahayan, would shore up the bank.
But more suspicious experts raise questions
about B.C.C.I.'s links to Western intelligence agencies.
Parliament have expressed outrage at the regulatory failure, which among
other things has endangered deposits from as many as 45 municipalities and
As authorities sift through B.C.C.I. subsidiaries around the world, they are
trying to cope with potentially massive losses of depositors' money. The
Pakistani press spoke of "panic withdrawals," and one paper added that
"smugglers and drug barons" were desperately trying to rescue their offshore
In such countries as Nigeria and Botswana,
officials were worried that central-bank deposits at B.C.C.I. might be lost.
Still to be probed, with potentially explosive results, is B.C.C.I.'s
Washington office. Sources have told TIME that one of B.C.C.I.'s Washington
representatives distributed millions of dollars in payoffs to U.S. officials
during the past decade. If that is true, the banker's black book may be the
single hottest source since Deep Throat in the Watergate investigation.
U.S. authorities are searching for the
Washington representative and other B.C.C.I. protocol officers, but most
have fled to Pakistan. In this investigation, many roads lead to Karachi,
where the infamous black network is enduring its most desperate hour.
As it falters, the testimony by once fearful
witnesses is likely to yield a succession of startling details about one of
history's most ornate and ruthless frauds.