Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry

Case Study of Bank of Credit and Commerce International (BCCI): An Irony or a Coup By Dr. Owais Shafique Chaudhry PhD Business Administration (Economics & Finance)

Bank of Credit and Commerce International

Former type Private Industry Banking Fate Liquidation / Forced closure Founded 1972 Founder Agha Hasan Abedi Defunct 1991 Headquarters London (incorporated in Luxembourg) Number of employees approx. 30,000

The Bank of Credit and Commerce International (BCCI) was a major international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier.[1] The Bank was registered in Luxembourg with head offices in Karachi and London. Within a decade BCCI touched its peak. It operated in 78 countries,

had over 400 branches, and had assets in excess of US$20 billion, making it the 7th largest private bank in the world by assets.[2][3] 1

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry BCCI came under the scrutiny of numerous financial regulators and intelligence agencies in the 1980s due to concerns that it was poorly regulated. Subsequent investigations revealed that it was involved in massive money laundering and other financial crimes, and illegally gained controlling interest in a major American bank. BCCI became the focus of a massive regulatory battle in 1991 and on 5 July of that year customs and bank regulators in seven countries raided and locked down records of its branch offices.[4]

Investigators in the US and the UK revealed that BCCI had been "set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs were extraordinarily complex. Its officers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection."[citation needed]

The liquidators, Deloitte & Touche, filed a lawsuit against Price Waterhouse and Ernst & Young – the bank's auditors – which was settled for $175 million in 1998. A further lawsuit against UAE President Zayed II, a major shareholder, was launched in 1999 for approximately $400 million. BCCI creditors also instituted a $1 billion suit against the Bank of England as a regulatory body. After a nine-year struggle, due to the Bank's statutory immunity, the case went to trial in January 2004. However, in November 2005, Deloitte persuaded creditor Abu Dhabi to drop its claims against the Bank of England, except for a claim for return of its deposits, in that Abu Dhabi owned 77% of the bank shares at closing, and was therefore also facing a major lawsuit.[5] To date liquidators have recovered about 75% of the creditors' lost money.[6] A decade after its liquidation, its activities were still not completely understood.

History

BCCI's founder, Agha Hasan Abedi, started the bank in 1972. Abedi, a prolific banker, had previously set up the United Bank of Pakistan in 1959. Preceding the nationalization of United Bank in 1974 he sought to create a new supranational banking entity. Abedi was succeeded by Swaleh Naqvi as the bank's chief who, in the aftermath following controversy over BCCI, was replaced by Zafar Iqbal Chaudhry in the late 1990s. BCCI was created with capital from Sheikh Zayed bin Sultan Al Nahyan, the ruler of Abu Dhabi in the United Arab Emirates and Bank of America (25%).

BCCI expanded rapidly in the 1970s, pursuing long-term asset growth over profits, seeking high-net- worth individuals and regular large deposits. The company itself divided into BCCI Holdings with the bank under that splitting into BCCI SA (Luxembourg) and BCCI Overseas (Grand Cayman). BCCI also acquired parallel banks through acquisitions: buying the Banque de Commerce et Placements (BCP) of Geneva in 1976, and creating KIFCO (Kuwait International Finance Company), Credit & Finance

Corporation Ltd, and a series of Cayman-based companies held together as ICIC (International Credit 2

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry and Investment Company Overseas, International Credit and Commerce [Overseas], etc.). Overall, BCCI expanded from 19 branches in five countries in 1973 to 27 branches in 1974, to 108 branches in 1976, with assets growing from $200 million to $1.6 billion. This growth caused extensive underlying capital problems. The Guardian alleged that BCCI was using cash from deposits to fund operating expenses, rather than making investments. Investigative journalist and author Joseph J. Trento has argued that the bank's transformation was guided by the head of Saudi intelligence with a view to enabling it to finance covert intelligence operations at a time, in the aftermath of Watergate, when the American intelligence agencies were defending themselves from investigations by domestic authorities.[7]

BCCI entered the African markets in 1979, and Asia in the early 1980s. BCCI was among the first foreign banks awarded a license to operate in the Chinese Special Economic Zone of Shenzhen which bore testament to Agha Hasan Abedi's public relations skills, a feat that had yet to be achieved by the likes of Citicorp and JP Morgan. Some of China's largest state banks were depositors in BCCI's Shenzhen branch.

There was rigid compartmentalization; the 248 managers and general managers reported directly to Abedi and the CEO Swaleh Naqvi. It was structured in such a way that no single country had overall regulatory supervision over it so as not to hinder potential growth and expansion opportunities. Its two holding companies were based in Luxembourg and the Cayman Islands—two jurisdictions where banking regulation was notoriously weak. It was also not regulated by a country that had a central bank. On several occasions, the Office of the Comptroller of the Currency told the Federal Reserve in no uncertain terms that BCCI must not be allowed to buy any American bank because it was poorly regulated.

By 1980, BCCI was reported to have assets of over $4 billion with over 150 branches in 46 countries. Bank of America was "bewildered"[8] by BCCI and reduced its holding in 1980, and the company came to be held by a number of groups, with ICIC owning 70%. By 1989, ICIC's shareholding was reduced to 11% with Abu Dhabi groups holding almost 40%. However, large numbers of shares were held by BCCI nominees. It was very common for Middle Eastern elites to use nominees to hold their stock, as they did not want the public to know the details of their holdings.[citation needed]

In 1982, 15 Middle Eastern investors bought Financial General Bankshares, a large bank holding company headquartered in Washington, D.C. All the investors were BCCI clients, but the Fed received assurances that BCCI would be in no way involved in the management of the company, which was

renamed First American Bankshares. To alleviate regulators' concerns, Clark Clifford, an adviser to

3 five presidents, was named First American's chairman. Clifford headed a board composed of himself

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry and several other distinguished American citizens, including former United States Senator Stuart Symington. In truth, BCCI had been involved in the purchase of FGB/First American from the beginning. Abedi had been approached about buying it as early as 1977, but by this time BCCI's reputation in the United States was so poor that it could not hope to buy an American bank on its own (as mentioned above, the OCC was adamantly opposed to BCCI being allowed to buy its way into the American banking industry). Rather, it used the First American investors as nominees. Moreover, Clifford's law firm was retained as general counsel, and also handled most of BCCI's American legal work. BCCI was also heavily involved in First American personnel matters. The relationship between the two was so close that rumors spread BCCI was the real owner of First American.

F. Lee Bailey and Florida state prosecutor Richard Gerstein were the directors of CenTrust Federal Savings Bank, a failed satellite of BCCI; this would eventually lead to Bailey's disbarment.

BCCI had an unusual annual auditing system: Price Waterhouse were the accountants for BCCI Overseas, while Ernst & Young audited BCCI and BCCI Holdings (London and Luxembourg). Other companies such as KIFCO and ICIC were audited by neither. In October 1985, the Bank of England and the Institut Monétaire Luxembourgeois (Luxembourg's bank regulator) ordered BCCI to change to a single accountant, alarmed at reported BCCI losses on the commodities and financial markets. Price Waterhouse became the sole accountants in 1987.

In 1990, a Price Waterhouse audit of BCCI revealed an unaccountable loss of hundreds of millions of dollars. The bank approached Sheikh Zayed bin Sultan Al Nahyan, who made good the loss in exchange for an increased shareholding of 78%. Much of BCCI's documentation was also then transferred to Abu Dhabi. The audit also revealed numerous irregularities. Most seriously, BCCI had made a staggering $1.48 billion worth of loans to its own shareholders, who used BCCI stock as collateral.

The audit also confirmed what many Americans who watched BCCI long suspected—that BCCI secretly (and illegally) owned First American. When the Fed cleared the group of Arab investors to buy First American, it did so on condition that they supplement their personal funds with money borrowed from banks with no connection to BCCI. Contrary to that agreement, several stockholders had borrowed heavily from BCCI. Even more seriously, they pledged their First American stock as collateral. When they didn't make interest payments, BCCI took control of the shares. It was later estimated that in this manner, BCCI had ended up with 60 percent or more of First American's stock.

Despite these problems, Price Waterhouse signed BCCI's 1989 annual report, largely due to Zayed's firm commitment to propping up the bank.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Lending Practices / Allegations

BCCI contended that its growth was fueled by the increasingly large number of deposits by oil-rich states who owned stock in the bank as well as by sovereign developing nations. However, this claim failed to mollify the regulators. For example, the Bank of England ordered BCCI to cap its branch network in the United Kingdom at 45 branches.[9]

There was particular concern over BCCI's loan portfolio because of its roots in areas where modern banking was still an alien concept. For instance, a large number of its customers were devout Muslims who believed charging interest on loans—a major pillar of modern banking—was riba, or usury. In many Third World countries, a person's financial standing didn't matter as much as his relationship with his banker. One particularly notable example is the Gokal family, a prominent family of shipping magnates. They had a relationship with Abedi dating back to his days at United Bank. Abedi personally handled their loans, with little regard for details such as loan documents or creditworthiness. At one point, BCCI's loans to the Gokal companies were equivalent to US$1.5 billion, three times the bank's capital. Longstanding banking practice dictates that a bank not lend more than 10 percent of its capital to a single customer.[9]

Funding to criminals and dictators

BCCI handled money for Saddam Hussein, Manuel Noriega, Hussain Mohammad Ershad and Samuel Doe.[9] Other account holders included Medellin Cartel and Abu Nidal.[10]

CIA funding to the Afghan Mujahideen and the Contras

The U.S. Central Intelligence Agency held numerous accounts at BCCI, according to William von Raab, former U.S. Commissioner of Customs. Oliver North also used and held multiple accounts at BCCI. These bank accounts were used for a variety of illegal covert operations, including transfers of money and weapons related to the Iran-Contra scandal, according to Time Magazine.[11] The CIA also worked with BCCI in arming and financing the Afghan mujahideen during the Afghan War against the Soviet Union, using BCCI to launder proceeds from trafficking heroin grown in the Pakistan- Afghanistan borderlands, boosting the flow of narcotics to European and U.S. markets.[12]

After the decline of Soviet Union

BCCI’s demise began in 1986, when a US Customs undercover operation led by Special Agent Robert Mazur infiltrated the bank’s private client division and uncovered their active role soliciting deposits

from drug traffickers and money launderers. The so-called C-Chase investigation began when it was 5

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry apparent the Soviet Union was weakening and Washington lost interest in funding the mujahideen. This two-year undercover operation concluded in 1988 with a fake wedding that was attended by BCCI officers and drug dealers from around the world who had established a personal friendship and working relationship with undercover agent Mazur. At the same time he was dealing undercover with BCCI executives, Mazur used his undercover operation to establish a relationship with the hierarchy of the Medellin Cartel as one of their sources for laundering drug proceeds.

In 1988, the bank was implicated for being the center of a major money-laundering scheme. After a six- month trial, BCCI, under immense pressure from US authorities, pleaded guilty in 1990, but only on the grounds of respondeat superior. While federal regulators took no action, Florida regulators forced BCCI to pull out of the state.[9]

Philanthropic Contributions:

The bank established the Third World Foundation in London, which published the widely circulated Third World Quarterly and paid special attention to the promotion of the Urdu language and literature through the Urdu Markaz located in London. BCCI also established the Infaq Foundation in Pakistan, which was instrumental in funding the establishment of some of the top universities of the region, such as BCCI FAST (National University of Computer and Emerging Sciences) and GIKI (Ghulam Ishaq Khan Institute of Science, Engineering & Technology), in addition to regular support for many other educational institutions.

BCCI also established the Cromwell Hospital (now owned by Bupa) in London.

In addition to the above, BCCI helped revive hundreds of historical buildings and monuments throughout the developing world and contributed significantly to the arts, culture, sports, health, and education in many poor, Third World countries. A significant percentage of employee's salaries were regularly contributed through their consent to global charitable causes.

The Sandstorm Report:

In March 1991, the Bank of England asked Price Waterhouse to carry out an inquiry. On 24 June 1991, using the code name "Sandstorm" for BCCI, Price Waterhouse submitted the Sandstorm report showing that BCCI had engaged in "widespread fraud and manipulation" that made it difficult, if not impossible, to reconstruct BCCI's financial history.

The Sandstorm report, parts of which were leaked to The Sunday Times, included details of how

the Abu Nidal terrorist group had manipulated details and through using fake identities had opened 6

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry accounts at BCCI's Sloane Street branch, near Harrods in London. Britain's internal security service, MI5, had signed up two sources inside the branch to hand over copies of all documents relating to Abu Nidal's accounts. One source was the Syrian-born branch manager, Ghassan Qassem, the second a young British employee.

The Abu Nidal link man for the BCCI accounts was a man based in Iraq named Samir Najmeddin or Najmedeen. Throughout the 80s, BCCI had set up millions of dollars worth of letters of credit for Najmeddin, largely for arms deals with Iraq. Qassem later swore in an affidavit that Najmeddin was often accompanied by an American, whom Qassem subsequently identified as the financier Marc Rich. Rich was later indicted in the U.S. for tax evasion and racketeering in an apparently unrelated case and fled the country.

Qassem also told reporters that he had once escorted Abu Nidal, who was allegedly using the name Shakir Farhan, around town to buy a tie, without realizing who he was. This revelation led in 1991 to one of the London Evening Standard's best-known front-page headlines: "I Took Abu Nidal Shopping."

Forced Closure of BCCI:

BCCI was awaiting final approval for a restructuring plan in which it would have re-emerged as the "Oasis Bank". However, after the Sandstorm report, regulators concluded BCCI was so fraught with problems that it had to be seized. It had already been ordered to shut down its American operations in March for its illegal control of First American.

On 5 July 1991, regulators persuaded a court in Luxembourg to order BCCI liquidated on the grounds that it was hopelessly insolvent. According to the court order, BCCI had lost more than its entire capital and reserves the year before. At 1 pm London time that day (8 am in New York City), regulators in five countries marched into BCCI's offices and shut them down. Around a million depositors were immediately affected by this action.

On 7 July 1991, Hong Kong Office of the Commissioner of Banking (forerunner of the Hong Kong Monetary Authority) ordered BCCI to shut down its business in Hong Kong on the grounds that BCCI had problem loans and the Sheikh of Abu Dhabi, the major shareholder of BCCI, refused to provide funds to the Hong Kong BCCI. Hong Kong BCCI was liquidated on 17 July 1991.

In 2002, Denis Robert and Ernest Backes, former number three of financial clearing house Clearstream, discovered that BCCI had continued to maintain its activities after its official closure, [13] with microfiches of Clearstream's illegal unpublished accounts.

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A few weeks after the seizure, on 29 July, Manhattan District Attorney Robert Morgenthau announced Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry that a Manhattan grand jury had indicted BCCI, Abedi and Naqvi on twelve counts of fraud, money laundering and larceny. Morgenthau, who had been investigating BCCI for over two years, claimed jurisdiction because millions of dollars laundered by the bank flowed through Manhattan. Also, Morgenthau cited BCCI's secret ownership of First American, which operated a subsidiary in New York City. Morgenthau said that all of BCCI's deposits had been fraudulently collected because the bank misled depositors about its ownership structure and financial condition. He described BCCI as "the largestbank fraud in world financial history."

On 15 November, BCCI, Abedi and Naqvi were indicted on federal charges that it had illegally bought control of another American bank, Independence Bank of Los Angeles, using Saudi businessman Ghaith Pharaon as the puppet owner.

Just a month later, BCCI's liquidators (Deloitte, PWC) pleaded guilty to all criminal charges pending against the bank in the United States (both those lodged by the federal government and by Morgenthau), clearing the way for BCCI's formal liquidation that fall. BCCI 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. The money was used to repay losses to First American and Independence and to make restitution to BCCI's depositors. None of this was enough to rescue both banks, however; Independence was seized later in 1992, while First American was forced into a merger with First Union in 1993.

However, many of the major players in the scandal have never been brought to trial in American or UK courts. Abedi, for example, died in 1995. He was under indictment in the United States and UK for crimes related to BCCI, but Pakistani officials refused to give him up for extradition because they felt the charges were politically motivated. Even without this to consider, he'd been in poor health since suffering a stroke in the 1980s. Pharaon is still a fugitive as of 2011; at last report he was believed to be in Syria.

Regulatory Consequences:

In 1992, United States Senators John Kerry and Hank Brown became the co-authors of a report on BCCI, which was delivered to the Committee on Foreign Relations. The BCCI scandal was one of a number of disasters that influenced thinking leading to the Public Interest Disclosure Act (PIDA) of 1998. The report found that Clifford and his legal/business partner Robert A. Altman had been closely involved with the bank from 1978, when they were introduced to BCCI by Bert Lance, the former director of the Office of Management and Budget, to 1991. Earlier, Pharaon was revealed to have been

the puppet owner of National Bank of Georgia, a bank formerly owned by Lance before being sold back 8

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry to First American (it had previously been an FGB subsidiary before Lance bought it). Clifford and Altman testified that they had never observed any suspicious activity, and had themselves been deceived about BCCI's control of First American. However, the federal government and Morgenthau contended that the two men knew, or should have known, that BCCI controlled First American.

Morgenthau and the federal government brought indictments against Clifford and Altman, but did not pursue Clifford due to his age and deteriorating health (he died in 1998). Altman was indicted and tried in New York, though he was ultimately acquitted following a jury finding of not guilty. Altman later accepted a de facto lifetime ban from any role in the banking industry to settle a civil suit by the Fed.

The British government also set up an independent inquiry, chaired by Lord Justice Bingham, in 1992. Its House of Commons Paper, Inquiry into the Supervision of the Bank of Credit and Commerce International, was published in October of that year. Following the report, the bank's liquidators launched the Three Rivers DC v Bank of England case,[14]on behalf of thousands of BCCI creditors who are suing the Bank of England for its failure to properly oversee the bank. The BCCI creditors sought £850m in damages, claiming that the Bank of England was guilty of misfeasance in public office. The case collapsed in November 2005, with the Bank of England seeking to re-claim legal bills. The cost of the case to the creditors could be as high as £100m.[15]

International business attorney Maître Laurent Ries challenged the validity of the judgement (July 2013 from the Luxembourg commercial court) setting a final point to the liquidation procedure running since 1992 through a class action upon the request from a series of former creditors.[16][17][18]

Former Directors:

 Khalid bin Mahfouz – non-executive director and personally owned a 20% stake in BCCI between 1986 and 1990.[19]  Alfred Hartman  Shaikh Mohammed Ishaq  James R. Bath

Legal Cases Involving BCCI:

 Bank of Credit and Commerce International SA v Aboody [1992] 4 All ER 955, pre-collapse case, later overturned, on the criteria for undue influence if someone is pressured into signing a mortgage agreement

 Mahmud and Malik v Bank of Credit and Commerce International SA [1998] AC 20, where 9

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry employees sued the bank for breach of mutual trust and confidence by carrying on unlawful activities and thereby tarnishing the employees' reputations.

 Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2000] EWCA Civ 502

 Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, a contract case establishing that exclusion of liability for fraud is contrary to public policy

 Three Rivers District Council v Bank of England [2004] UKHL 48, Bank of England not found liable for failing to detect and prevent BCCI's fraud

See Also:

 Kamal Adham  Bert Lance  Ghaith Pharaon  Nugan Hand Bank  Arbusto Energy  The International (2009 film)  Ig Nobel Prize winners (2002) – Joint recipient of the 2002 Ig Nobel Prize in Economics, along with many other companies involved in accounting scandals, "for adapting the mathematical concept of imaginary numbers for use in the business world."

Notes:

1. Joseph J. Trento, Prelude to Terror: Edwin P. Wilson and the Legacy of America's Private Intelligence Network (Carroll and Graf, 2005), 104. 2. Kanas, Angelos, PURE CONTAGION EFFECTS IN INTERNATIONAL BANKING: THE CASE OF BCCI'S FAILURE, Journal of Applied Economics, Sunday, 1 May 2005 3. Salaam Knowledge; Biographical data on Agha Hasan Abedi at URL:http://www.salaam.co.uk/knowledge/biography/viewentry.php?id=172 4. Trento, Prelude to Terror, 370. 5. [1][dead link] 6. [2][dead link] 7. Trento, Prelude to Terror, 99=105 & 370. 8. Kerry, John; Hank Brown (December 1992). "The Origin and Early Years of BCCI". The

BCCI Affair: A Report to the Committee on Foreign Relations, United States Senate.

10 102d Congress 2d Session Senate Print 102-140. pp. Chapter 3. Archived from the

Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry original on 30 September 2007. Retrieved 2007-09-28. 9. Peter Truell, Larry Gurwin, False Profits. The Inside Story of BCCI, the world’s most corrupt financial Empire, 1992, Houghton, Mifflin Company, Boston, New York, ISBN 0-395-62339-1 10. "Washington Monthly", 4 September 2004, "Follow The Money", at URL:http://www.washingtonmonthly.com/features/2004/0409.sirota.html] 11. TIME, 24 June 2001, Iran-Contra: The Cover-Up Begins to Crack 12. Chossudovsky, Michel (5 April 2004). "The Spoils of War: Afghanistan's Multibillion Dollar Heroin Trade". Centre for Research on Globalization. Retrieved 5 August 2013. 13. "L'affaire BCCI". 14. [2004] UKHL 48 15. Cellan-Jones, Rory (2 November 2005). "The end of an epic". BBC News Online(BBC). Retrieved 2007-09-28. 16. Pujol, Veronique (8 November 2013). "Comment ressusciter la BCCI?". Paperjam Luxembourg (Paperjam.lu). Retrieved 2013-11-11. 17. "BCCI Luxembourg hearing on 8th November 2013". 18. "BCCI Luxembourg creditors unhappy about the termination of the liquidation procedure". 19. Omar, Kaleem. "POETIC LICENCE: Bush family’s awkward secret — II". Daily Times.

References:

 James Ring Adams, Douglas Frantz: A Full Service Bank. London 1991  Denis Robert, Ernest Backes: Révélations Arènes Editions, 2001, ISBN 2-912485-28-2  Jean-Charles Brisard, Guillaume Dasquié, Ben Laden: La Vérité interdite. Gallimard, 2002, ISBN 2-07-042377-8, S.166-168.  "The BCCI Affair", Report to the Committee on Foreign Relations, United States Senate, Senator John Kerry and Senator Hank Brown, 1992, 102nd Congress 2nd Session Senate Print 102-140 (Kerry Report).  Rachel Ehrenfeld, Evil Money. Encounters along the Money Trail, 1992, Harper Business, ISBN 0-88730-560-1).

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Appendix A

Agha Hasan Abedi

Agha Hasan Abedi also known as Agha Sahab (14 May 1922 – 5 August 1995) was a Pakistani banker and philanthropist who founded the Bank of Credit and Commerce International (BCCI) in 1972. BCCI was at one point the seventh largest private bank in the world, but it collapsed in 1991 after regulators in the United States and the United Kingdom found it was involved in a money laundering scandal. Mr. Abedi underwent a heart transplant operation in 1988, and died of a heart attack on 5 August 1995 in Karachi.

Life:

Early banking career:

Agha Hasan Abedi was born in a well off Shia Muslim family in Lucknow, British India and migrated to Pakistan after formation of Pakistan in 1947. Beginning his career withHabib Bank before independence, he brought about significant changes in Pakistan's banking culture when he founded the United Bank Ltd (UBL) in 1959 in Chittagong. Starting as its first general manager, he quickly rose to the position of president and chairman of the board of directors. Under his stewardship, UBL became the second largest bank in Pakistan. Mr Abedi introduced a host of professional innovations, including the concept of personalised service and banking support to trade and industry, paying particular attention to the bank's overseas operations. One of the first to comprehend the opportunities offered by the oil boom in the Persian Gulf, Mr Abedi pioneered close economic collaboration in the private sector between Pakistan and the United Arab Emirates (UAE). The UAE President, Sheikh Zayed bin Sultan

Al Nahyan, extended his patronage to UBL operations both in Pakistan and abroad.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry BCCI years:

When banking was nationalised in Pakistan in 1972, Mr Abedi founded the Bank of Credit and Commerce International with the Bank of America NT & SA as a major shareholder. Registered in Luxembourg, the BCCI began its operations from a two-room head office in London. Over the years, it developed into a worldwide banking operation with branches in 72 countries and 16,000 employees on its payroll. Mr Abedi was personally responsible for inducting a large number of Pakistanis into the field of international banking and almost 80 per cent of the BCCI's top executive positions at the head office and in branches in various countries were held by Pakistanis. Mr Abedi severed his connection with BCCI in 1990 after suffering a heart attack and led a retired life in Karachi until his death of heart failure at Karachi's Aga Khan hospital in 1995.

Unlike regular banks, the BCCI was from its inception made up of multiplying layers of interwoven entities – which related to one another through a near impenetrable series ofholding companies, affiliates, subsidiaries, banks-within-banks, insider dealings and nominee relationships. BCCI's fractured corporate structure, record keeping, regulatory review, and audits, allowed the complex BCCI family of entities created by Abedi to evade ordinary legal restrictions on the movement of capital and goods. In creating BCCI as a vehicle essentially free of government control, Abedi's BCCI became the ideal mechanism for facilitating illegal activity by others, including such activity by officials of many of the governments whose laws BCCI was breaking.

At the time of his death, Abedi was under indictment in several countries for crimes related to BCCI. However, Pakistani officials refused to give him up for extradition, claiming the charges were politically motivated. Even without this to consider, it is likely he would have been too sick to stand trial; he had been in poor health since suffering a stroke in the mid-1980s.

Philanthropist:

Infaq Foundation:

Mr Abedi founded charitable organisations in UK, India, Bangladesh, Zimbabwe and Pakistan.

The Infaq Foundation has only one office in Karachi, Pakistan. It has Capital and Reserves of over Rs. 2.50 billion, which in 2009 are equivalent to just over US$30 million. Major beneficiaries among the known institutions are, Sindh Institute of Urology and Transplantation, National Institute of Cardiovascular Diseases, Lady Dufferin Hospital and Sir Syed University of Engineering and

Technology in Karachi, and GIK Institute of Engineering Sciences & Technology in Topi, Khyber

13 Pakhtunkhwa. President Ghulam Ishaq Khan was the first Chairman of the Foundation from 1983

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry through 1995. Another personality, a supreme court judge and a former Governor of Sindh – Justice Fakhruddin G. Ebrahim took over and is now the chairman.

The Foundation has been managed by various Chief Executives. From 1981 to 1999 retired federal secretaries were Secretaries General of the Foundation. From 1999 to 2008 the position was held by Mr. Sohail Kizilbash, a Chartered Accountant qualified in UK and a person with long banking experience. From 2009 another Chartered Accountant and former banker Mr. Anwar Gillani is the Honorary Secretary General. Figure 1 Agha Hasan Abedi Auditorium Ghulam Ishaq Khan Institute of Engineering Sciences and Technology on the event of 8th Science fair 2007

Higher education:

Mr. Abedi also founded BCCI FAST in 1980 with a donation of Rs. 100 million, to promote education in computer science. It is now the first multi-campus university of Pakistan, known as National University of Computer and Emerging Sciences. It has five campuses situated in Islamabad, Peshawar, Karachi, Lahore and Faisalabad.

Ghulam Ishaq Khan Institute of Engineering Sciences and Technology was also the brainchild of Mr. Abedi. He felt that Pakistan should have another university for higher education, at PhD level, for engineering and sciences and it should be comparable to universities in any developed country.

Abedi and Orangi Pilot Project:

"In 1980, Akhtar Hameed Khan moved to Karachi where Agha Hassan Abedi, President of the BCCI Foundation and a renowned banker, asked him to use his expertise and knowledge to improve sanitation and employment in Karachi, Pakistan (LT 2000, 4). Dr. Khan immediately agreed, but under the condition that he would be able to do things his own way without any interference from Abedi or anyone else. Abedi agreed to this, and work was begun on what would become one of the most renowned projects in the world: The Orangi Pilot Project (OPP). Thus, in 1980, the Orangi Pilot Project was started and Dr. Khan remained associated with it until his death in 1999.[1]

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Trivia:

 Agha Hasan Abedi Auditorium at GIK Institute, Pakistan, was named after him.

 The Gold Medal at the National University of Computer and Emerging Sciences (FAST), awarded to the highest CGPA Holder of the batch, is known as the Agha Hasan Abedi Gold Medal.

 His London home was in the London outskirts, in the affluent Harrow on the Hill, and was previously owned by Anthony Trollope

 In the words of former BCCI chief financial officer Masih ur Rahman, who worked alongside Abedi for nearly three decades, his sister had once commented that "I remember looking into his eyes and seeing God and the Devil balanced equally in them."[2]

References:

1. Yousaf, Nasim (2003). Allama Mashriqi and Dr. Akhtar Hameed Khan: Two Legends of Pakistan,p.353

2. Staff interview, Rahman, 7 August 1991.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Appendix B

Bank of Credit and Commerce International (BCCI)

The phenomenon of BCCI will never again be repeated. The changing and evolving circumstances in the banking world have effectively sealed the possibility of a “global bank” ever again emanating from “the world at large”. A bank for all nations? A dream lost forever?

The BCC Group was conceived by a management team of professional bankers with the objective of establishing an international banking organisation to provide commercial banking services to all nations. The first bank to be established within the Group was Bank of Credit and Commerce International SA, incorporated in Luxembourg in 1972. In 1975, under a restructuring programme, BCCI Holdings (Luxembourg) SA was established as a Bank Holding Company in Luxembourg and the primary banking subsidiaries of the Group were Bank of Credit and Commerce International SA and Bank of Credit and Commerce International (Overseas) Limited (known together as BCCI).

In a short span of 18 years the BCC Group reached the four corners of the globe, from China to Canada, from Spain to Swaziland, from Argentina to Zambia, and right across the world, encompassing 73 countries, over a million customers, more than 14,000 employees covering 90 nationalities and handling global trade that exceeded $1,800,000,000 annually.

By 1990 it was ranked within the top 10 banks of the world in terms of global coverage, something that had taken the others in that elite group generations to achieve. Effectively the BCC Group was becoming a truly “global bank”.

16

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry What happened then? What happened on that infamous Friday 5th July 1991? What brought about this unbelievable disaster, when in a stroke this entire global network was brought to a sudden and grinding halt, and overnight turned into ashes? What is the truth? What is the cover up? Are there lessons to be learned?

The abrupt closure of the BCC Group left its million customers and former 14,000 employees shell- shocked and stigmatized. More shocking has been the huge fees, likely to exceed US$2 billion, earned by the accountants and lawyers “feeding off the carcass of BCCI”, and the possibility that the BCC Group may not have been insolvent while it was conducting banking operations when comparing it with banks operating today who must rely on borrowings, almost on a daily basis, to fund their banking operations.

The time to place the bare facts before the public may have come. The saga of BCC has till today, been effectively buried and frequently covered up by distortions. It is time now for the truths and distortions, to be unwound ... if nothing else, for the children of tomorrow’s world.

The closure of the BCC Group is often still referred to as “the biggest fraud in banking history”. It cannot be denied that there were omissions and irregularities such as that might be found even today in many operating western financial institutions, but whether it warranted the closure of the BCC Group is questionable. If you really are a citizen of the world you will want to know the facts in its bare truth, and to judge for yourself. You can now view this bit of history by navigating through this website.

The website does not attempt to encompass all the information on BCC. It would be an onerous, if not impossible task, particularly when many critical documents are unlikely to be found in the public domain. The website does not also attempt to repeat all of the negative publicity that has appeared in the press and in the books published post-closure, other than looking at examples where the truth would appear to have been distorted simply to justify actions taken against BCCI.

BY CAMPAIGN COMMITTEE REPRESENTING FORMER EMPLOYEES OF BCC

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Appendix C

World-Class Fraud: How B.C.C.I. Pulled It Off -- A special report.; At the End of a Twisted Trail, Piggy Bank for a Favored Few

By STEVE LOHR,

Published: August 12, 1991

LONDON, Aug. 11— During his decade as an internal auditor for the Bank of Credit and Commerce International here, Vivian Ambrose knew all too well the bank's unwritten rules.

Some loan documents, for example, were off limits to the bank inspectors, including him. Instead, they were handled personally and confidentially by the inner circle of two dozen executives who kept the bank's secrets.

"It was common knowledge within the bank that there were fraudulent loans," the 51-year-old Sri Lankan immigrant said. Extent of the Fraud

Now, thanks to a sheaf of documents that have come tumbling into view in the last several days, along with data from a recent New York indictment against the bank and testimony by a former top B.C.C.I. executive last week in Congress, the supposed extent of that fraud can be laid bare.

Taken together, the recent disclosures portray a bank that took money from more than a million depositors around the world and became a personal piggy bank for its Arab and Pakistani owners and its favored customers. For its best customers, millions of dollars were advanced, often without documentation and sometimes in violation of the bank's own lending limits. The depositors, virtually all of whom are outside the United States, now stand to lose heavily.

Front men often stood in to mask the identity of the real borrowers or purchasers. The Federal Reserve Board believes that the use of front men ultimately enabled B.C.C.I. to buy control of First American Bankshares Inc., Washington's leading banking institution, run by Clark M. Clifford, the prominent lobbyist and lawyer who represented B.C.C.I. when it first began buying banks in the United States.

Scheme to Cover Losses

18 As losses mounted, the bank apparently hatched a scheme to cover them up by making interest payments

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry on loans with deposits from other customers. The idea was to deceive auditors from detecting the red ink in its loan portfolio. The scheme also involved offshore funds parked in lightly regulated countries that could be drawn down to patch up losses elsewhere.

And when capital was needed to absorb further losses, the bank artificially pumped up its share price by lending money to existing shareholders to buy more stock. The proceeds from the stock would help balance the bank's books, but actually the bank was merely taking depositor money and investing it in the bank.

Bankers, regulators and even some law-enforcement officials had only vague notions for years that the BCC Group S.A., the holding company for B.C.C.I. and its affiliates, was a strange and shadowy institution. Since the early 1980's, the company's reputation made banking officials uneasy -- a "stateless" bank that operated in the United States and about 70 other countries, chartered in Luxembourg, run by Pakistanis, owned by Arabs, headquartered in Britain and serviced by outposts in the Cayman Islands, a well-known haven for private banking. Police and intelligence experts nicknamed B.C.C.I. the "Bank of Crooks and Criminals" for its penchant for catering to customers who dealt in arms, drugs and hot money.

"We knew that the bank had financial troubles but not that there was massive fraud," said John Atkinson, the bank inspector for the Cayman Islands and a member of the international team that shut down B.C.C.I. "I was very surprised by the extent and size of the fraud." An Unraveling Fraud Raises New Questions

The documents, charges and testimony -- along with interviews with investigators, regulators and former bank officials in the United States, Europe and the Cayman Islands -- shed light on how B.C.C.I. orchestrated its elaborate fraud. But they also raise new questions about how the bank got away with it for so long. And unraveling the fraud is necessary to address a crucial issue: whether B.C.C.I. was a unique criminal organization or just unusually adept at exploiting the weaknesses in international financial regulation.

Not until June -- days before international banking regulators seized the bank -- did anyone finally possess solid evidence of the multibillion-dollar fraud that had been the private handiwork of the handful of bankers who had engineered it.

Now, fresh evidence seems to arrive almost daily. Last week, several uncensored copies of the bank's independent audits were released on Capitol Hill along with copies of letters between the bank and its

accounting firm, Price Waterhouse. There was also a report prepared by the bank's own senior officers

19 last year who completed an internal investigation of the bank.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Two weeks ago, a state grand jury in Manhattan indicted B.C.C.I. for money laundering, bribery and fraud, and the Federal Reserve Board proposed a record $200 million fine on B.C.C.I. for secretly controlling three American banks -- First American, the Centrust Savings Bank of Miami and Independence Bank of Encino, Calif.

All of this activity was touched off by a confidential report last June to the Bank of England, Britain's top banking regulator, stating that B.C.C.I. "generated significant losses over the last decade and may never have been profitable in its entire history." It was that report that prompted the worldwide seizure of B.C.C.I. on July 5. Price Waterhouse Audit

When an international team of bank supervisors gathered in late June at the Bank of England on Threadneedle Street in London, they were shocked by a confidential report prepared by the bank's auditor.

Using codenames like "Sandstorm" for B.C.C.I. and "Fork" for its Cayman Islands affiliate, called the International Credit and Investment Company, Price Waterhouse sketched out in 45 pages what it termed "one of the most complex deceptions in banking history." It included phony loans, unrecorded deposits, secret files and illicit share-buying schemes -- all funneled through a global network of shell companies, friendly banks and wealthy Arab front men to cover up the scam.

The most visible B.C.C.I. front man in the United States, according to the Federal Reserve Board, was Ghaith R. Pharaon, a Harvard-trained Saudi businessman who has owned banks, hotels and manufacturing businesses around the world, including extensive projects in Argentina. From his estate in Richmond Hill, Ga., near Savannah, Mr. Pharaon befriended wealthy American politicans and business leaders, including former Atlanta Mayor Andrew Young and Bert Lance, the Georgia banker who served as budget director in the Carter Administration.

Mr. Pharaon bought Mr. Lance's National Bank of Georgia and later sold it to First American Bank. Mr. Young later had a contract with B.C.C.I. with a $50,000-a-year retainer to introduce B.C.C.I. around the world.

The bank curried favor with other prominent people through charitable donations or consulting fees, including former President Jimmy Carter and former Prime Minster James Callaghan of Britain, to lend B.C.C.I. an aura of influence and respectability.

And the bank maintained secret accounts for a collection of people and institutions that reads like a list of characters and organizations for a spy novel: Saddam Hussein, Abu Nidal, Manuel Noriega, the

Central Intelligence Agency and an assortment of drug runners and arms merchants. "It was the bank 20

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry of convenience for people with money to hide," said Jules Kroll, a New York investigator who has tracked the use of B.C.C.I. by the Iraqi leader and Peruvian Government officials.

There is some question whether B.C.C.I. deceived American savings regulators in 1988 and bought time for Centrust Savings in Miami to work itself out of its troubles. A year later, the regulators seized the bank, but not until the cost of bailing out the institution rose considerably. Part of the focus of a Federal investigation in Miami involves a capital injection into Centrust that may have been illusory, Federal investigators say.

But in other countries, where more than a million depositors, ranging from street sweepers to central banks, have funds tied up, people are likely to lose money. Just how much they will lose depends on what assets the liquidators find among the bogus loans -- a process likely to take years. There is a faint hope that the Government of Abu Dhabi and its ruler, Sheik Zayed bin Sultan al-Nahayan, which now own 77 percent of B.C.C.I., may be persuaded to back a rescue plan for a recast version of the bank. The Likely Victims Are Outside the U.S.

The chances are high, however, that the collapse of B.C.C.I. will mean billions of dollars' worth of lost personal savings, much of it expected to be lost by households in developing countries and among the aspiring Asian immigrants in Europe. And American-style deposit insurance, with the government guaranteeing the safety of accounts up to $100,000, does not exist in most countries.

In Britain, for example, deposit insurance covers 75 percent of losses up to a maximum of $:15,000, or about $25,500.

"We have people who had their life savings in B.C.C.I., small companies that deposited their pension- fund money there and local authorities with tax money in B.C.C.I. accounts," said Clive Russell, deputy senior partner of Halpern & Woolf, a London accounting firm that represents creditors of the bank. "For them it's a financial disaster."

The Abu Dhabi owners of the bank have objected to its seizure, though they acknowledged its "various operating problems in recent years," and "substantial losses." They have had little to say except that they were proceeding with a plan to rescue the bank. They also changed management and initiated an internal investigation of its problems last year.

Among the countless figures contained in the piles of documents on B.C.C.I., one of the more instructive is the mention of $2.5 million on page 12 of the confidential auditors' report to the Bank of England in June. That was the modest grubstake of capital invested by the initial shareholders in 1972, when B.C.C.I. was founded. 21

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry It was the brainchild of a Pakistani banker, Aga Hassan Abedi, and a handful of compatriots. He had large dreams of creating a globe-spanning bank that could compete with the big Western financial institutions but also cater to developing countries.

"From the outset, B.C.C.I. never had much capital," observed Robert M. Morgenthau, the District Attorney in Manhattan. "But they wanted to be a huge bank, so they were always desperate for funds and deposits." Rapid Growth Route

A rapid growth route was big customers. And Mr. Abedi tapped his contacts in Pakistan for the biggest, the Gulf Group, a shipping and trading conglomerate owned by the Gokal family of Karachi. The relationship began in 1972 when the company made substantial deposits in B.C.C.I.

In 1976, according to Price Waterhouse documents, the Gulf Group began borrowing heavily from B.C.C.I. for trade financing and shipping loans. The following year, the loans had grown to the point that B.C.C.I. transferred the Gulf Group accounts from the London office to its Cayman Islands subsidiary, B.C.C.I. Overseas, to sidestep Bank of England restrictions on lending limits.

But by 1978, the Gulf Group was in financial trouble and so were B.C.C.I.'s loans. To hide its losses, B.C.C.I. funneled money -- often unrecorded deposits -- from elsewhere in the bank into the Gulf Group accounts to make it appear that loan repayments were up to date when they were not.

Frequently, the funds were routed through B.C.C.I. shell companies. Sometimes payment documents were simply faked. Having B.C.C.I. executives work on to Gulf Group accounts on December nights was an annual ritual at the bank. The loan doctoring became a "full-time occupation," according to Price Waterhouse, and the team set up to handle it was dubbed the bank's "special duties" department.

The head of the team was reportedly Swaleh Naqvi, B.C.C.I.'s former chief executive, who is now living in Abu Dhabi. The elaborate deception involved some 750 accounts over a 15-year period, and loans to the Gulf Group from B.C.C.I. and through its many shell companies totaled more than $700 million. Today, the Gokal brothers holding company in Luxembourg, Gulf Holdings International, is in administrative receivership, the European equivalent of bankruptcy.

The Gulf Group scam highlights how difficult it was to detect B.C.C.I.'s stock manipulation. First, the hidden funds and bogus loans often passed through the International Credit and Investment Company in the Cayman Islands, a B.C.C.I. affiliate. Trying to Track Down A 'Bank Within a Bank'

The International Credit and Investment affiliate operated under the cover of the British colony's strict bank-secrecy laws, and its relationship with B.C.C.I. was misunderstood for years by auditors and

22 regulators. It was thought to be linked to Mr. Abedi's sizable charity programs -- and B.C.C.I. did

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry finance everything from $8 million worth of health and agricultural programs sponsored by Mr. Carter to slum clearance in Karachi and scholarships for poor students as well as third-world musicians and writers.

But regulators are only now learning that the affiliate's purpose was to serve as a conduit for the bank's secret and illicit dealings. It was not until last year that investigators discovered that the Cayman concern was what the Fed called the "alter ego" of B.C.C.I. Now, the Cayman affiliate has been called a "bank within a bank," that is, at the heart of the B.C.C.I. fraud.

The second aspect that made the frauds difficult to detect were the private files of Mr. Naqvi in London; a separate set of books that began with the Gokals' shipping and trading company. When B.C.C.I. was seized, the secret set of books amounted to some 6,000 files. Only recently have the Abu Dhabi owners of the bank agreed to turn over the files to British regulators.

"I.C.I.C. was not the bank within a bank," said Mr. Atkinson, the Cayman bank inspector, who was assigned to the job in 1989 by the Bank of England. "It was those 6,000 files."

Once its loan losses spiraled upward, B.C.C.I. could have admitted the problem, husbanded its capital and struggled to survive. Instead, it hid the losses and rolled the dice, hoping that future profits would come.

Its big bet was its money management and trading actitivies in London. But again, the hush-hush operation was booked in Cayman Island accounts.

The London treasury of B.C.C.I. apparently gambled and lost big on trading in financial futures, options contracts and cotton over several years. The usual internal controls on the size of investments that could be made with depositors' funds were ignored. The bank had a $1 billion limit on its investments, but in desperation the accounts swelled to a stunning $11 billion. From 1977 to 1985, the treasury unit's actual losses totaled $633 million, according to the Price Waterhouse report in June. But, the report added, those figures did not include a $225 million loss in 1985 that the auditors turned up.

In 1985, Luxembourg banking authorities asked Price Waterhouse to investigate the trading activities. The auditors found that B.C.C.I. was losing heavily on options and futures trading, and that these losses were "not being properly recorded." That led to a $225 million charge against earnings in 1985. At the time, the accounting firm concluded that B.C.C.I.'s failure to recognize the losses resulted from "incompetence."

Now, says a somewhat chastened Price Waterhouse, "with the benefit of hindsight, it appears more

23 sinister in that it now seems to have been a deliberate way to fictitiously inflate income." Back in 1985,

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry the accounting firm did not examine the prior year's trading because "no significant losses appeared to have occurred."

Photos: The most visible B.C.C.I. front man in America, according to the Federal Reserve Board, was Ghaith R. Pharaon, a Harvard-trained Saudi businessman. He is shown in 1987 with his wife, Mary, and Mayor Andrew Young of Atlanta and his wife, Jeanne, at a party at Mr. Pharaon's house outside Savannah, Ga. (Bob Morris/The Savannah News-Press); Clark M. Clifford; Robert A. Altman; Jimmy Carter; Andrew Young; Bert Lance; Robert M. Morgenthau; Aga Hassan Abedi; John Major; Ghaith R. Pharaon; Masihur Rahman; Sheik Zayed bin Sultan al-Nahayan; Alan Garcia (pg. D4) Charts: "Leading Figures in an Unfolding Drama" In the United States Clark M. Clifford: The prominent Washington lawyer and democratic presidential adviser represented B.C.C.I. and served as chairman of First American Bankshares Inc. of Washington. Represented Middle Eastern investors who bought the Washington banking company but disputes Government accounts that B.C.C.I. controlled the bank. Robert A. Altman: A Law partner with Mr. Clifford and president of First American. Jimmy Carter: The former President met B.C.C.I.'s founder and accepted $8 million in donations from the bank for health and other programs sponsored by the Carter Center at Emory University. The bank also gave $500,000 for the construction of the center. Andrew Young: The former United Nations Ambassador was paid $50,000 a year by B.C.C.I., for which he introduced the bank's founder to third world political leaders. Mr. Young also had a trading company that borrowed money from B.C.C.I. Bert Lance: Sold the National Bank of Georgia to Ghaith R. Pharaon, a Harvard-trained, Saudi Arabian With Extensive American investments. The Federal Reserve believes that Mr. Pharaon was a front man for B.C.C.I. He later sold teh bank to First American. Robert M. Morgenthau: New York prosecutor has investigated First American's -- and B.C.C.I.'s -- role in the purchases of New York banks. Announced an indictment against the bank last month accusing it of bribery, money laundering and fraud. Abroad Aga Hassan Abedi: Pakistani financier who founded the bank in 1972 and managed it -- some say loosely -- until health problems led to his resignation in 1990. He lives in Karachi, Pakistan, and has denied wrongdoing. John Major: The British Prime Minister was formerly responsible for bank regulation in Britain, but took little action against the bank. Ghaith R. Pharaon: A leading Saudi businessman in the United States. Operating from a hugh estate near Savannah, Ga., he befriended politicians and business leaders worldwide. He denies the Fed's charges that he was a front man for B.C.C.I., but bank audits show he was a major borrower and once was a stockholder of the bank. Maslhur Rahman: Former chief financial officer of B.C.C.I. who left after leading an internal investigation of the bank that turned up extensive fraud. Claimed in testimony before a United States Senate subcommittee that he and his

family have received death threats. Sheik Azyed bin Sultan al-Nahayan: Ruler of Abu Dhabi who was a B.C.C.I. stockholder and customer before taking control of the bank in 1990. Alan Garcia: Former

24 President of Peru who has been accused of looting the country and parking money offshore in American

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry banks. Peruvian officials say -- and he denies -- that he arranged for B.C.C.I to hold reserved in Peru. Chart: "Banking at B.C.C.I.: Charges of Phony Loans, Fake Profits and Bribes" Secret purchase of banks: B.C.C.I. is accused of lying to Unites States banking authorities and secretly gaining control of three American banks: First American Bankshares, the National Bank of Georgia and the Centrust Savings Bank. The Federal Reserve says B.C.C.I. bought control of the banks with money funneled through a coterie of Arab front men who earned huge fees. Two prominent Washington lawyers, Clark M. Clifford and Robert A. Altman, repeatedly assured the Fed that B.C.C.I. was not behind the purchase of First American. They later became top executives of First American. Both men insist now that they, too, were duped by B.C.C.I. Money laundering: The bank is charged with eight counts of accepting cash deposits of more than $10,000 each, from August through October 1988, without making records of the transactions as required by law. The secret deposits were made through the B.C.C.I. office in New York. The charge is falsifying business records. District Attorney Robert Morgenthau of Manhattan says the transations in numbered accounts "appear to be instances of money laundering." Hidden losses and fictitious profits: The confidential auditors' report to the Bank of England that brought the seizure of B.C.C.I. on July 5 sketched out an elaborate fraud over years to bury losses and manufacture profits in a multibillion-dollar coverup. The audit states that B.C.C.I. "may never have been profitable in its entire history." For example, the bank's treasury manager in London lost hundreds of millions of dollars on trading financial futures, options contracts and cotton. The losses were covered up by misappropriating deposits and creating phony loans to make the bank appear healthy, a former B.C.C.I. bank says. From 1977 to 1985, the losses and fake profits totaled about $850 million. The London treasury manager blackmailed B.C.C.I. when he left in 1986; he was paid $32 million to keep quiet in 1988. Estimates of B.C.C.I.'s total losses range up to $15 billion. Phony capital: When the bank was threatened by insolvency, it increased its capital by making loans to exisiting shareholders who purchased B.C.C.I. stock at artificially inflated prices. That made the bank appear to be financially healthy. However, in fact, the fresh capital was actually bank deposits that belonged to customers, according to a bank audit. Unrecorded deposits: Deposits were collected and never correctly placed on B.C.C.I.'s books as liabilities. The bank's auditor, Price Waterhouse, was tipped off by a senior B.C.C.I. executive in January 1991 that the unrecorded deposits might be as much as $600 million. These phantom deposits were used as a discretionary fund, based in the bank's Cayman Islands affiliate, to be used anywhere in the B.C.C.I. network to mask the losses. The funds could make it appear that payments on troubled loans were up to date, for instance. The biggest source of unreported deposits was from an Egyptian bank, Faisal Islamic Bank, which placed $246 million with B.C.C.I. The Cairo bank's funds have not been repaid. Bribery: In 1986 and 1987, B.C.C.I. paid bribes totaling $3 million to two senior officers of Peru's central bank in return for depositing Peru's cash with B.C.C.I., according to a New

York indictment. The illicit payments were made through an account in a Swiss bank's office in Panama, 25

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry an account opened by B.C.C.I. Grand larceny: The District Attorney in Manhattan charges that because B.C.C.I. falsely represented its financial health, $30 million that the American Express Bank had on deposit with B.C.C.I. when it was seized were obtained by fraud. So he will consider any losses American Express Bank suffers to be theft. American Express said it would not lose money because it owed money to B.C.C.I. (pg. D4)

Source: http://www.nytimes.com/1991/08/12/business/world-class-fraud-bcci-pulled-it-off-special- report-end-twisted-trail-piggy-bank.html?pagewanted=1 (Accessed: 26 March, 2015)

Appendix D The BCCI Affair A Report to the Committee on Foreign Relations United States Senate by Senator John Kerry and Senator Hank Brown December 1992 102d Congress 2d Session Senate Print 102-140

1. EXECUTIVE SUMMARY 2. Introduction and Summary of Investigation 3. The Origin and Early Years of BCCI 4. BCCI's Criminality 5. BCCI's Relationship with Foreign Governments, Central Banks, and International Organizations 6. BCCI in the United States - Initial Entry and FGB and NBG Takeovers 7. BCCI in the United States - Part Two: Acquisition, Consolidation, and Consequences 8. BCCI and Law Enforcement - The Justice Deparment and the US Customs Service 9. BCCI and Law Enforcement - District Attorney of New York 10. BCCI and Its Accountants 11. BCCI, The CIA and Foreign Intelligence 12. The Regulators 13. Clark Clifford and Robert Altman 14. Abu Dhabi: BCCI's Founding and Majority Stockholders 15. Mohammed Hammoud: BCCI's Flexible Frontman 16. BCCI And Georgia Politicians 17. BCCI's Lawyers and Lobbyists 18. Hill and Knowlton and BCCI's PR Campaign 19. Ed Rogers and Kamal Adham 20. BCCI and Kissinger Associates

21. Capcom: A Case Study of Money Laundering 22. Legislative and Policy Recommendations

26 23. Appendix - Matters For Further Investigation, Witnesses and Writs

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Appendix E

BCCI scandal: long legal wrangling over collapsed bank Simon Bowers Thursday 17 May 2012 21.39 BST Bank of England internal memo in 1982 described BCCI as 'on its way to becoming the financial equivalent of the SS Titanic'

The Bank of Credit and Commerce International was the brainchild of Pakistani businessman Agha Hasan Abedi, who envisioned a bank focused on the third world. It was set up in 1972 with financial backing from Abu Dhabi, where the ruling family, headed by the late Sheikh Zayed, was said to have a very close relationship with the BCCI.

The emirate was the bank's largest depositor, largest borrower, and for most of its existence its largest shareholder. Ultimately a settlement with Abu Dhabi also provided almost half of the funds recovered for creditors.

The bank set up in the City, with offices at 100 Leadenhall Street, close to the Bank of England, and went on to open 22 UK branches.

The rapid growth unsettled some regulators at Threadneedle Street. As early as 1982 one internal memo described BCCI as "on its way to becoming the financial equivalent of the SS Titanic!".

However, the late governor Eddie George, above, and his bank supervisory team persuaded themselves that ultimate regulatory responsibility for the group lay with Luxembourg, where the bank was incorporated.

This decision led liquidators to sue the Bank of England, alleging regulators had acted with malicious recklessness. The action was a costly disaster, most notable for a 119-day speech — thought to be the longest in British legal history — delivered by counsel for the Bank Nicholas Stadlen QC. The claim was ultimately abandoned, with BCCI creditors bearing the Bank's £74m costs as well as a £57m legal bill for its own legal team.

The name of BCCI has been echoing around Britain's civil and criminal courts almost continually for two decades. In 1997 Abbas Gokal, one of BCCI's biggest customers and a close friend of Abedi, was

convicted by the Serious Fraud Office and sentenced to 14 years in jail. He was released early in 2003

27 by the Home Office, despite failing to meet the terms of a £3m confiscation order against him.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Abedi died in 1995 in Pakistan having never faced trial despite charges against him in the UK. One of his alleged key allies in fraudulent activities was said to be Saudi Arabian businessman Ghaith Pahraon, above. The son of a Saudi ambassador to Europe, he remains wanted by the FBI and US tax authorities. Deloitte liquidators had been close to extracting a settlement from him, but he wanted assurances from the US that he would not face a jail term — which it refused to give.

Source: http://www.theguardian.com/business/2012/may/17/bcci-scandal-long-legal-wranglings (Accessed 29 March, 2015) © 2015 Guardian News and Media Limited or its affiliated companies. All rights reserved.

Appendix F

Bank of Credit and Commerce International (BCCI)

The BCCI case was a major banking fraud of some £800 million. The bank collapsed in 1991. Hundreds of thousands of people around the world lost their savings amidst accusations that the bank's senior executives had fraudulently siphoned off funds

BCCI was a bank trusted particularly by the UK's Asian community though victims also included local councils such as Western Isles, Westminster City and Harlow. The case attracted the media spotlight and caused great concern in political circles and in the banking sector. It was one of the SFO's biggest investigations, requiring spill-over premises to house more investigators.

Working with the City of London Police, the SFO by 1997 had secured convictions against four BCCI executives and the mastermind of the fraud, shipping magnate Abbas Gokal. His Geneva-headquartered Gulf Group was used to launder funds stolen from BCCI. He was arrested in transit at Frankfurt airport on a flight between Pakistan and the USA and was returned to the UK for trial.. He was jailed for a total of14 years and a further three when he later failed to pay against a confiscation order.

Source: http://www.sfo.gov.uk/our-work/our-cases/historic-cases/bank-of-credit-and-commerce- international-(bcci).aspx (Accessed 29 March, 2015) © Crown Copyright 2015

28

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Appendix G

1991: International bank closed in fraud scandal

BCCI has 120,000 UK based customers In Context

Touche Ross reported that BCCI had a £5.6bn deficit at the time of closure. It was the largest financial fraud in the world to that date.

The Abu Dhabi government tried to rescue the bank with a £1.8bn cash injection proposal.

It later emerged that BCCI had stolen £1bn from the personal account of Sheikh Zayed of Abu Dhabi.

Up to 30 local authorities in the UK lost around £82m after investing in BCCI on the basis of approval by the Bank of England.

In 2001 the liquidators, Deloitte & Touche, were given unprecedented permission to sue the Bank of England for almost £1bn on behalf of 6,500 UK depositors who lost savings when BCCI collapsed. The lawsuit began in January 2004 and was the first the Bank had faced in its 300-year history.

Deloitte dropped the case in November 2005 after a reserve judgement from the High Court said the case was no longer in the best interest of creditors.

In March 2004 the Bank of India was ordered to pay $82m (£45m) in compensation by a British High Court judge after investigations revealed insider knowledge of deposits were used to defraud BCCI creditors.

The Bank of England has closed down UK branches of the Bank of Credit and Commerce International

(BCCI) over allegations of fraud. 29

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry The bank's 120,000 UK customers were stunned by the speed of the closure.

Even BCCI staff were not prepared for the largest ever intervention of this kind by the Bank of England, as deposits worth £250m were frozen.

Over the weekend liquidators from accountants Touche Ross will be entering all 25 branches to carry out detailed examinations of their finances.

The Bank of England also intends to stay open and set up a telephone hotline to help worried investors.

They are advising that the UK Deposit Protection Fund will guarantee investments up to £15,000 but investigators need to find out exactly how much is left in BCCI coffers.

London is at the centre of a global operation to investigate the activities of Luxembourg based BCCI, which is one of the biggest privately owned financial companies in the world.

We had no clear evidence under which we could act

Robin Leigh-Pemberton

Last year they were fined $15m for laundering drug money for former President of Panama General Noriega. At the time there were calls to shut down the bank, as six of its former executives were also jailed.

Speaking today, the Governor of the Bank of England Robin Leigh-Pemberton explained: "We had no clear evidence under which we could act, under the Banking Act, until earlier this year."

There are already rumours that the bank made a huge operating loss last year and probably would have collapsed within weeks anyway.

Opposition MPs are demanding to know why action was not taken sooner but BCCI's controlling shareholder - the Abu Dhabi government - has accused the British Government of acting too quickly.

Today's closure comes in the wake of a report commissioned by the Bank of England and published by BCCI's auditors, Price Waterhouse, in June.

Source: http://news.bbc.co.uk/onthisday/hi/dates/stories/july/5/newsid_2495000/2495017.stm (Accessed 29 March, 2015)

Appendix H

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry

BCCI: Pakistan's International Bank Discussion in 'Economy & Development' started by T-Faz, Feb 23, 2010.

The Bank of Credit and Commerce International (BCCI), a major international bank founded in 1972 by Agha Hasan Abedi (creator of UBL), a Pakistani financier. Registered in Luxembourg, with its head office in London and main operations running in Karachi, Abedi with his large number of Pakistanis in the field of international banking led the bank to become a global juggernaut with almost 80 per cent of the BCCI's top executive positions at the head office and in branches in various countries were held by Pakistanis.

BCCI had an interesting structure. It was an elaborate corporate tangle, with BCCI's founder, Agha Hasan Abedi and his assistant, Swaleh Naqvi, in the center. This convoluted structure was an essential component to its amazing growth – and guaranteed its eventual collapse. The structure was conceived of by Abedi for the specific purpose of evading regulation or control by governments.

ISI had a large hand in developing and running the bank and used it for financing amongst many things Nuclear armament of pakistan, financing mujahideen and other such endeavors around the world. From CIA to Abu Nidal, all and everyone had an account with BCCI and it become the 7th largest bank on the world.

Unfortunately its amazing growth, coupled with its links with terrorist and nuclear armament caused it to be shut down by an american committee led by John Kerry. The final nail in the coffin came when BCCI acquired an american bank and the americans were not happy with a Pakistani Conglomerate running worldwide finance.

BCCI, AQ Khan and many other pakistani ventures made the west suspicious of Pakistani's and they were kept away from higher tier banking, science and other institutions.

Just like today when pakistani financiers are not allowed to buy stock in US and many other wester countries, hindering progress and development.

Head Office in Pakistan Karachi

Conference Hall in Karachi

It was shut down in 1990. Abedi died in Karachi in 1995. 31

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry

BCCI achievement shocked the western world BCCI did 15 % of the money laundering the world and got shot down for it and Citi Group did 80 % of it and never got touched.

Source: http://defence.pk/threads/bcci-pakistans-international-bank.48257/ (Accessed 29 March, 2015)

© COPYRIGHT 2005-2014 — PAKISTAN DEFENCE. ALL RIGHTS RESERVED

Appendix I

BCCI Case May Be History's Biggest Bank Fraud Scandal : Finance: Losses from seized institution may reach $15 billion. Some Third World central banks could collapse. July 11, 1991|SARA FRITZ and JAMES BATES | TIMES STAFF WRITERS

WASHINGTON — By all accounts, the case of the Bank of Credit and Commerce International is already shaping up to be the biggest bank fraud scandal in history.

Estimated losses range as high as $15 billion. Central banks of several Third World nations are in danger of collapse as a result of BCCI's closure. Competing lawsuits brought by disgruntled depositors are certain to tie up courts around the world for years go come.

And, in the United States, where perhaps as many as four grand juries and several congressional committees are exploring aspects of the BCCI case, the alleged fraud by bank officials threatens to tarnish the reputation of some prominent political figures, such as Democratic super-lawyer Clark M. Clifford.

BCCI was seized last Friday by banking regulators in Britain, Luxembourg, the United States, Switzerland, Spain, France and the Cayman Islands after an audit discovered that the bank was hiding massive losses and was on the verge of financial collapse. Until then, major questions existed about the allegedly fraudulent international financial empire that had been secretly built by the Abu Dhabi-owned bank. BCCI executives had cleverly evaded the efforts of banking authorities to penetrate the firm's internal affairs.

But, as a result of the seizure, law enforcement officials are now expected to gain access to BCCI

32 internal documents that will disclose the full scope of the alleged scandal and possibly result in major

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry indictments in several countries. Even before Friday's action, sources say, ex-BCCI employees previously convicted of laundering drug money had been cooperating with law enforcement officials in Florida.

What already seems clear to bank regulators is that BCCI Holdings, a $20-billion banking firm controlled primarily by Arab shareholders, is at the center of an alleged fraud of unprecedented complexity that demonstrates the weakness of the anti-fraud laws in the international banking system.

"We're going to see an international liquidation, and it's going to be a mess," a top U.S. official who is familiar with the investigations predicted. "There are going to be a lot of people who are going to lose money."

Benchmark Losses

Although the exact losses caused by BCCI's demise are not likely to be known for some time, congressional sources estimate them at between $10 billion and $15 billion. U.S. law enforcement sources peg it at more than $5 billion, and the bank's shareholders reportedly have acknowledged a loss of $4.5 billion caused by bad loans and other problems.

No matter which of these estimates proves correct, experts say the foreign exchange losses caused by BCCI will far exceed the previous benchmark set in the late 1970s with the collapse of Massey Ferguson, an over-borrowed multinational tractor manufacturer.

With BCCI's collapse, many depositors are looking to Abu Dhabi's ruler, Sheik Zayed ibn Sultan al Nuhayan, who controls 77% of BCCI, to compensate the victims. Officials of Abu Dhabi and the Bank of England are currently meeting in London to discuss the matter.

Among the hardest-hit victims are European depositors, mostly Asian small business owners, who apparently were lured to BCCI by a scheme that allowed them to avoid paying withholding and value- added (indirect sales) taxes. Under British law, residents' deposits are insured up to 75%, to a maximum of 15,000 pounds.

Meanwhile, the central banks of a number of countries such as Nigeria, Swaziland, Peru and a few Caribbean countries are threatened by the demise of BCCI, which is believed to have held large deposits from many Third World nations. In Peru, investigators are probing the dealings between BCCI and former President Alan Garcia Perez.

Political Repercussions

33

In the United States, the political impact may far exceed the financial fallout of BCCI's collapse. In fact, Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry U.S. officials say, it appears that BCCI may have been using the money it took from Third World banks to shore up the institutions it controlled in the United States.

BCCI-installed officers are still running First American Bank in Washington, D.C., and banking authorities maintain that BCCI has a secret controlling interest in Independence Bank in Encino, Calif. Earlier this year, the Federal Reserve Board acted to sever the link that officials believe had existed between those two institutions and BCCI.

Both banks are federally insured and separately capitalized, so they are not threatened by BCCI's seizure.

First American executives deny that there has been any untoward influence on them from BCCI. "We don't take orders from them," said Jack Beddow, First American's president and chief executive officer.

Still, sources say Clifford and his law partner, Robert Altman, will soon be removed as officers of First American, and they--along with other unidentified political figures in both parties--are under investigation by law enforcement officials.

Loans to Politicians

According to investigators, First American's portfolio included numerous loans to both Republican and Democratic politicians.

BCCI, founded in 1972 by Pakistani banker Agha Hasan Abedi in a partnership with Bank of America, had from its earliest days a financial alliance with Arab financier Ghaith R. Pharaon, whose father was an adviser to Saudi kings. BCCI provided financing for many of Pharaon's business projects, such as the development of hotels in Jidda.

Although Bank of America eventually withdrew from the partnership, BCCI quickly expanded its influence in Europe, the United States and the Third World, eventually operating about 350 branches worldwide with ties to about 70 countries.

In most of those places, according to investigators, the bank sought to win the favor of prominent politicians with kickbacks, loans and jobs for relatives. In fact, it is widely believed that the bank was founded, in part, to promote Arab interests in the United States--presumably in hopes of influencing U.S. foreign policy in the Middle East.

As an international bank with strong ties in the Third World, BCCI was a perfect conduit for covert

money transfers by the Central Intelligence Agency. CIA officials funneled cash through First 34

American, investigators say, even though the agency was aware of the unsavory reputation of the bank's Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry parent company.

Former Customs Commissioner William von Raab recalls that, when he contacted then-CIA Deputy Director Robert M. Gates in the late 1980s to ask about BCCI's role in laundering drug money, Gates joked: "Oh, you mean the Bank of Crooks and Criminals International?"

In 1978, apparently acting as a proxy for BCCI, Pharaon purchased the National Bank of Georgia from the financially troubled Bert Lance, ex-budget director and confidant to former President Jimmy Carter. Pharaon, who did not return telephone calls placed earlier this week to his homes in Paris and Saudi Arabia, earlier told The Times that BCCI advised him, but he has consistently maintained that BCCI's role in his business ventures never went beyond advice.

With a firm foothold in Georgia, BCCI executives headed for the nation's capital, where in 1981 they took control of politically connected First American and installed Clifford and Altman as the bank's top officers. First American soon became Washington's biggest bank.

In June, 1986, after BCCI suffered a huge loss by speculating on options on Treasury securities, First American bought National Bank of Georgia from Pharaon for a rich price of at least $220 million. At the time, according to investigators, the Georgia bank was already owned by BCCI, which used the sale to, in effect, transfer cash to shore up its Luxembourg-based operation.

BCCI allegedly bypassed banking laws and avoided regulatory scrutiny in its dealings in the United States. Federal banking law requires bank holding companies such as BCCI to gain federal approval before acquiring a bank and becoming involved in its affairs. This was not done in the case of the U.S. banks BCCI allegedly controlled, National Bank of Georgia, Independence Bank of Encino and First American of Washington.

BCCI's role with Independence started in 1985, when it arranged a $5-million letter of credit from a French bank. Pharaon used the letter of credit to borrow $11 million from the Bank of Boston to finance his purchase of Independence. Authorities now maintain that Pharaon has acted as a front man and that BCCI actually controls Independence in secret.

Pharaon has said BCCI's only involvement with Independence Bank was to advise him on the purchase. But interviews with former bank officers suggest, for the first time, that BCCI's involvement with Independence Bank went well beyond the advisory role and that contact with BCCI executives occurred frequently.

"When you look back at the doggone thing in retrospect, you want to shrug your shoulders," said Morton

35 R. Michaels, Independence's former president. "There was an awful lot of contact with BCCI people.

Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry This stuff starts to make a little more sense."

Before the sale closed, Michaels said, BCCI executives reviewed the books. Afterward, Pharaon brought in a senior BCCI executive from London, Kemal Shoaib, as chief executive and chairman. Senior BCCI executives regularly visited Encino.

In 1988, when Michaels wanted to hire a new senior vice president to oversee Independence Bank's branches, the candidate was asked to fly to London for interviews with BCCI executives. "We were told that they preferred we not hire him," he said.

Executives of Independence and First American had periodic contact, even though there was no publicly acknowledged link between the banks. Mike English, former Independence executive vice president, recalled that, when he wanted to buy data-processing equipment, he was told to fly to Washington to examine First American's.

Clifford and Altman contend they were unaware that BCCI owned an interest in First American. Federal Reserve officials say they would never have approved the sale of First American to Arab investors associated with BCCI if they had not been assured by Clifford and others that it would have no relationship to the foreign bank.

BCCI and Pharaon invested also in the financially troubled CenTrust savings and loan of Miami before it became insolvent. CenTrust owner David Paul was an active contributor to many American politicians.

For years, the Fed suspected there was--in the words of one official--"something fishy" about these transactions involving BCCI. But officials insist that they were powerless to intervene under current banking laws.

Indeed, it now appears that BCCI was structured in such a way as to evade the control of any single national regulatory agency. Its operations were centered in the Cayman Islands and Luxembourg, two jurisdictions that are notorious for loose banking laws. As one investigator put it, "BCCI was located everywhere and nowhere at the same time."

In many ways, BCCI resembled some of the high-flying savings and loans in the United States during the 1980s because it frequently baffled rivals by its ability to offer exceptionally high rates of interest for deposits while undercutting the competition on loans.

"We would wonder how do they do it?" recalled a former officer of a major Dutch bank. "What's the trick? We knew we couldn't pay out the same sort of interest, do those loan deals and make our books 36

Page

Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry meet."

Authorities now believe that deposits were taken in, but not recorded, and, instead, were used to help cover huge losses on bad loans and for other activities, such as currency trading. One improper loan to a London shipping company reportedly was disguised by using 95 shell companies.

One major source of BCCI funds was the central banks in developing countries. BCCI courted Third World leaders, who viewed their deposits in the bank as a source of pride. "They would look for financially weak, politically weak countries that could be seduced," said financial author James Ring Adams, who is writing a book about BCCI.

Investigators believe that BCCI executives used the Third World central banks to disguise money- laundering activities for drug dealers throughout the world. In fact, a few U.S. officials woke up to the problems associated with BCCI when company employees pleaded guilty to money-laundering charges in Miami in 1990 and paid a fine of about $15 million.

Yet it was not until officials at the Bank of England received a report by the accounting firm of Price Waterhouse alleging massive wrongdoing that banking authorities realized the need to clamp down on BCCI. The report told banking officials that BCCI was operating a secret "bank within a bank" designed to disguise the losses.

Investigators in the United States and elsewhere who had been fighting to obtain BCCI records clearly welcomed Friday's seizure. Among them was Manhattan Dist. Atty. Robert Morgenthau, who for more than a year has been investigating allegations of banking fraud and public corruption relating to BCCI.

"Our investigation has been impeded by banking and securities laws in Great Britain, Luxembourg, Cayman Islands and Abu Dhabi," Morgenthau told The Times. "However, the action taken last week tends to support our theory of the case . . . . More people with relevant information now may come forward and cooperate with us."

In recent months, federal prosecutors in Washington have joined in the BCCI inquiry, investigating complaints that First American, Independence and the National Bank of Georgia misrepresented themselves to federal authorities. Federal grand juries in Miami and Tampa are believed to be hearing related cases.

Clifford and Altman have testified before a federal grand jury in Washington as well as in closed

proceedings conducted by the Federal Reserve. They are being represented by Washington attorney Robert Bennett and former U.S. Atty. Robert Fiske in New York.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry Bennett said that Clifford and Altman are fully cooperating with authorities and "are completely innocent of any wrongdoing."

On Capitol Hill, several committees are contemplating hearings on the BCCI case. Sen. John Kerry (D- Mass.) has asked banking regulators to supply his Senate Foreign Relations subcommittee with BCCI documents that previously were being sought from the bank. In London, the Serious Fraud Office also has undertaken an investigation of BCCI.

At a minimum, the case is certain to bring about reform of banking regulations in the United States and elsewhere. Although regulators are now being blamed for failing to act sooner, even their critics acknowledge that the laws were inadequate to deal with BCCI.

Nevertheless, as one U.S. official observes, "No amount of national regulation or international coordination is going to stop bankers who want to cook the books."

Fritz reported from Washington and Bates from Los Angeles. Staff writers Joel Havemann in Brussels and Robert L. Jackson, Ronald J. Ostrow and Karen Tumulty in Washington also contributed to this story.

Source: http://articles.latimes.com/1991-07-11/news/mn-2869_1_independence-bank (Accessed 30 March, 2015)

Copyright 2015 Los Angeles Times

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry

Dr. Owais Shafique Chaudhary

PhD in Business Administration – Specializing in Economics & Finance

Owais Shafique is currently pursuing a Doctor of Philosophy (PhD) Degree in Business Administration, specializing in Economics and Finance, from Malaysia. He currently holds a Masters of Business

Administration Degree, MBA, (Equivalent to M.Phill/MSc./MS) with 1st Position, Specializing in

Finance, from the Virtual University of Pakistan. He also holds a BBA (Hons) Specializing in Finance from The Islamia University of Bahawalpur, Pakistan. He is an exceptional scholar and was awarded with “Academic Excellence” from Sadiq Public School of Bahawalpur, one of the most prestigious institutions of Pakistan.

He is a larger than life character. He is a free-lance research scholar authoring multiple internationally acclaimed research journals, books, short stories, essays and a volunteer social welfare worker. His works specialize in highlighting the social and economic stigmas that haunt Pakistan. He is moving lives by fighting against women rights violations and violence against women. He is a dedicated

supporter of women empowerment and women’s right to proper and quality education.

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Case Study of BCCI: An Irony or a Coup Dr. Owais Shafique Chaudhry He possesses an extensive knowledge of crisis management, Islamic banking and finance, micro-credit and microfinance, banking, finance, credit & risk management, taxation, business administration, project appraisal, project management and international business. He is well known for his analyzing ability and crisis management skills. He has been awarded at several instances time and again.

His areas of interest include but are not limited to Islamic Banking and Finance, Micro-credit and

Microfinance, Creative Accounting, Risk Management, Crisis Management, Corporate Finance,

Taxation, Accounting, Managerial Finance, Advanced Financial Statement Analysis, Investment

Analysis & Portfolio Management, Leadership, Entrepreneurship, International Business, Economics,

Project Appraisal, Project Management, Organizational Behavior, Operations Management, Human

Resource Management, Marketing & Information Technology.

He is an internationally acclaimed author with 8 International Book Publications and 10 International

Research Paper Publications in his name. For more information just Google him.

* Copyright © 2014 Owais Shafique. All rights reserved.

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