Regulators Around World Seize BCCI; Fraud Is Alleged

LUXEMBOURG â€”  In an unprecedented move, banking regulators from around the world seized the operations of scandal-plagued Bank of Credit & Commerce International after the Bank of England uncovered what it says was a massive fraud by the company.

One seizure was in Los Angeles. State regulators seized the BCCI office shortly before 9 a.m. Friday.

Luxembourg-based BCCI has been linked to a number of scandals worldwide involving such figures as former Panamanian leader Manuel A. Noriega and former U.S. Defense Secretary Clark Clifford. Last year, it paid a record $15-million fine for money laundering in the United States.

The head of the Luxembourg central bank said authorities in countries around the world took concerted action because there was evidence that “an organized circle� in the bank was engaged in fraud.

“There are such huge international and internal problems that this may signify the end of BCCI,� Pierre Jaans said.

“It was the Bank of England that discovered, during a routine investigation, that a whole organized service was operating inside BCCI in order to defraud clients, shareholders and the internal auditors,� Jaans said.

The Los Angeles office, which has operated since 1983, had been under close supervision by state regulators and the Federal Reserve Bank of San Francisco.

The Los Angeles office had no domestic depositors but did have $40 million in foreign deposits.

It had made import-export loans, which state regulators have started to sell. Its total assets amounted to $137 million.

This year, it was discovered that BCCI secretly owned a controlling interest in First American Bankshares, Washington’s largest bank group. Clark Clifford, the First American chairman and a secretary of defense during the Johnson Administration, said BCCI duped him.

European authorities said Friday’s action was not connected to the money-laundering cases.

The Federal Reserve Board said the actions taken in Europe do not affect operations of First American or Encino-based Independence Bank, also affiliated with BCCI.

In May, the Fed ordered BCCI to sell its alleged secret controlling interest in Independence Bank, which has maintained that it is owned by Saudi financier Ghaith R. Pharaon.

BCCI, which operates in 69 countries, has assets of $20 billion. The group is 77% controlled by the rulers of Abu Dhabi.

Witnesses in Luxembourg said representatives from Abu Dhabi were present, with bodyguards, at a crisis meeting of executives Friday. The tiny grand duchy is a favorite base of the international financial community because of tight banking secrecy laws and favorable tax conditions.

Jaans said central banks in all of the 69 countries where BCCI has interests had taken action, except for Middle Eastern central banks.

BCCI pleaded guilty in the United States to money-laundering charges in January, 1990. It agreed to pay a $15-million penalty, the biggest assessed against a bank.

Four bank officials from Panama and Miami were convicted of federal charges of laundering drug money for Noriega when he was head of Panama.

The U.S. banks are separately capitalized, federally insured institutions and will continue to operate normally, the Fed said.

The Federal Reserve has had orders in place for some time that prohibit transactions between BCCI and the U.S. banks. The Fed has also told BCCI that it must sell its stake in First American.

BCCI ChronologyHere is a chronology of key events surrounding the Bank of Credit & Commerce International.

* 1972: BCCI founded by a group of Pakistani bankers.

* 1982: Persian Gulf investors with stake in BCCI acquire First American Bankshares Inc. of Washington, then known as Financial General Bankshares. Its chairman, former Defense Secretary Clark Clifford, assures U.S. banking authorities that First American would operate separately from the BCCI.

* July, 1986: U.S. undercover agents begin a Colombian drug money-laundering investigation.

* 1987: Laundering investigation spreads to BCCI.

* October, 1988: Federal officials indict 85 people and companies in a $32-million global money-laundering case. Among the defendants are two BCCI subsidiaries and nine bank officials.

* Jan. 16, 1990: Two BCCI divisions plead guilty to money-laundering charges in federal court in Florida. As part of the plea agreement, BCCI agrees to forfeit $14 million in assets frozen by the U.S. government--the largest amount by a financial institution in the United States.

* April, 1990: The government of Abu Dhabi, the largest of the United Arab Emirates, and its ruler, Sheik Zayed al-Nahyan, purchase a majority stake in BCCI.

* July 30, 1990: Five of BCCI’s officers and a Colombian businessman are convicted of conspiracy in a scheme to launder $32 million in cocaine profits. Among them was Amjad Awan, a former BCCI executive and once the personal banker of ousted Panamanian dictator Manuel Noriega.

* Dec. 1, 1990: Awan gets 12 years in federal prison. Four other BCCI officers are sentenced to terms ranging from three to 12 years.

* March 4, 1991: BCCI says it will relinquish investment in First American Bankshares, the largest bank holding company in the Washington area.

* May 7: U.S. banking regulators reveal that BCCI had secretly acquired control of Independence Bank in Encino.

* March 24: Time magazine reports BCCI hired former federal Budget Director Bert Lance to help it gain a foothold in the U.S. banking market.

* June 26: Clark Clifford testifies before a federal grand jury that he didn’t know of BCCI’s hidden stock ownership of First American Bankshares.

* July 5: Bank regulators in eight nations seize BCCI operations; the Bank of England alleges that the bank engaged in “widespread fraud over a prolonged period.�