The BCCI Affair: A Report to the Committee on Foreign Relati

[admin]

Part 2 of 2

1989 Chicago Investigation

Following the announcements in October 1988 of the Florida indictments of Capcom UK for money laundering and drug trafficking, the futures markets activities of Capcom US, according to CFTC Chairperson Gramm, "became of great concern" to the CFTC.(123)

Indeed, the CFTC and the Chicago Mercantile Exchange commenced an inquiry into Capcom. According to Chairperson Gramm:

We were also interested in examining the Capcom US records to identify potential evidence that might suggest money laundering. Although money laundering is not a violation of the Commodity Exchange Act, the commission staff wanted to be sure all relevant information was available to the authorities who could best use it.(124)

On August 15, 1989, the CME Clearing House Finance Subcommittee reviewed the staff report of the activities of Capcom Futures from January, 1986 through May, 1989 and concluded that there was a reasonable basis to charge Capcom U.S. with the following violations: "Act of bad faith" (commingling customer funds with house funds); Permitting the Misuse of facilities; Detrimental Act; Uncommercial conduct; Accepting new trades when account undermargined; Transfers of positions with no change in ownership; notification of reduction in capital in excess of 20%; and non-compliance with financial requirements.

The CME found that trading at Capcom was often done on the basis of oral instructions received from customers which were then confirmed in writing. In some instances, according to the CME, "the files showed no confirmations." Moreover, the CME's internal investigation found that:

There were several transfers of funds from unaffiliated Capcom-U.S. customer accounts into the Ixora account, an account owned and controlled by Z.A. Akbar. According to the CME, no written authorizations were obtained prior to the transfer of the funds.

According to the CME, Akbar, the owner of the Ixora account, told the firm "he intended to use the account for trading and the firm anticipated significant trading volume."(125) The Ixora account actively traded from December, 1986 until May, 1987. From November, 1987 through October, 1988, there were twelve receipts into the account totaling $9.84 million and twenty-five disbursements totaling $9.82 million. CFTC Chairperson Gramm testified that IXORA was also "involved in a complicated $2 million transaction involving Finley International, Ltd. and Capcom UK."(126) Finley, as noted earlier, was the account used to launder General Noriega's money.

Certain of the trades in the Ixora account were clearly BCCI-related. For instance, a confirmation letter, dated April 27, 1987 is addressed to Mustafa Kamal c/o Bande Hasan. Mr. Hasan was an employee of BCCI in Miami. Moreover, CFTC Chairperson Gramm told the Subcommittee that:

Information developed in our inquiry with respect to the Ixora account at Capcom US, however, indicated that certain disbursements were made to persons apparently unrelated to the purported account owners, including Akbar Bilgrami, who may be the same Akbar Bilgrami identified as the Director of Latin American Overseas by the October 1988 indictment.(127)

The Subcommittee has obtained documents which show that Romrell is the individual named on the IXORA account at First National Bank of Chicago. Moreover, Ixora account statements and bank statements were sent to him at his Western Telecommunications offices. CFTC Chairperson Gramm testified to the Subcommittee that "In February of 1988 S.Z.A. Akbar instructed that a cash disbursement of $100,000 be made the IXORA account ... to Mr. Romrell's account." (128) Concerning the IXORA account, Romrell told the Subcommittee:

[I] learned from the Subcommittee that Ixora also had an account at Capcom, but I have no knowledge of that account.

Ixora was a Cayman Islands corporation that was owned by Mr. Akbar. Mr. Akbar asked me to find the name of a Cayman Islands lawyer to handle this matter....To my knowledge, Ixora never conducted any business whatsoever.(129)

According to Chairperson Gramm, investigators were unable to learn anything more about the IXORA account because "Mr. Saghir exercised his fifth amendment rights with respect to all questions concerning this account when his investigative testimony was taken by the CFTC.(130)

The CME also found that there were multiple transfers of funds between Mohammed Zaheer, the brother of Capcom Futures' President, M. Saghir and two unaffiliated customer accounts.

On October 29 1987 there were six receipts in the Zaheer account totaling $4.84 million and the next day there were two disbursements totaling $4.80 million. The CME noted that "from the period December 31, 1986 through May 31, 1989, the ledger balance of the account was usually less than $150,000." These transfers are particularly suspect because an investigative firm retained by the CME discovered that Mr. Zaheer worked in a service station in Karachi, Pakistan and his position at this service station is described as "not very high."(131)

After reviewing the Saghir/Zaheer transactions, Gerald Beyer, Vice President for the CME, told the Subcommittee that "On a person level, when I was involved in this investigation, I was certain that it involved drug money and laundering of money.

But there was no way we could prove that. We discussed that in our committee; we discussed that among ourselves."(132)

Despite suspicions about highly unusual transactions, CFTC Chairperson Wendy Gramm told the Subcommittee:

In terms of finding trading violations or Commodity Exchange Act violations that perhaps could support money laundering, we did not find any discernible pattern...[N]o one has ben able to --at least other law enforcement officials have not been able to find money laundering in Capcom US, to our knowledge, as of now.(133)

Money laundering, as Chairperson Gramm testified, is not even a violation of the Commodities Futures Trading Act. Incredibly, it appears that the CFTC and the self-regulatory organizations have never even made a criminal referral for possible money laundering:

Senator Kerry. [H]ave you ever specifically referred, or have any of the exchanges ever made a criminal referral for money laundering?

Dr. Gramm. We have raised concerns.

Senator Kerry. Have you made a criminal referral for money laundering?

Dr. Gramm. No. Not-- not specifically in that regard...

Capcom Today

Chairperson Gramm told the Subcommittee that the results of the inquiry by the CFTC "contributed to the removal of Capcom US from US financial markets."(134) According to Gramm:

The Chicago Mercantile Exchange, CME, immediately restricted the trading activities of Akbar and subsequently made specific findings in October of 1989 that Capcom US had violated CME rules, including accepting new trades in an undermargined account and improperly transferring positions between accounts. Capcom US paid a fine of $500,000 and agreed to withdraw as a CME clearing member.

Early in 1989 the Chicago Board of Trade, the only US exchange for which Capcom UK was a member, suspended Capcom UK indefinitely and Capcom UK was subsequently expelled on August 24, 1989. Also, on June 30, 1989 they allowed Capcom US to withdraw from CBOT membership. In accepting the Capcom UK settlement, the Board of Trade had reason to believe that Capcom UK had entered into reckless and unbusinesslike dealings, was unable to demonstrate capital compliance, and engaged in fraud and dishonorable conduct in its dealings with the exchanges, among other things.

In October of 1990 the NFA, the National Futures Association, found Capcom US to have violated NFA rules by making misrepresentations to a customer and making unauthorized trades, failing to collect proper margin from a customer, and failing to supervise employees and agents. As a consequence NFA ordered Capcom US to relinquish its FCM registration and NFA membership and never to reapply, and to dissolve its corporate status at the earliest possible date.

Ms. Gramm also stated that "all of the information developed by the commission [including that developed by the exchanges]....was made available to the prosecutors in charge of the criminal case pending in Tampa."

While Capcom UK was indicted in the US, it has never been tried and has successfully avoided service of process. More amazingly, Capcom UK continues to operate in London to this day. In fact, it has developed new European clients. While ZA Akbar is in jail in France, his legal defense bills, in excess of $100,000 a year are being picked up by Capcom. Moreover, Akbar's brother and Mrs. Puri, until recently, served on the board of Capcom.

Conclusion

Turmoil in the Persian Gulf after the fall of the Shah of Iran in 1979 left a vacuum in the CIA's capability to gather information. The huge CIA operation in Iran was lost, including its most important listening stations to monitor the Soviet Union and China. With Iran and Iraq locked in a land war, options remaining were limited to several friendly nations: Saudi Arabia, U.A.E., Oman, and Kuwait. With the revolutionary changes in technology that spawned the modern communications industry in the 1980's came the need for the proper U.S. agencies to employ it, and, conversely, for our allies to gain access to it.

It was in this climate that majority shareholders in BCCI approached U.S. executives in the communications industry to serve on the board of Capcom. The Americans, Larry Romrell, Robert Magness, both of Telecommunications Inc., and Kerry Fox of American Telecommunications Company, had no knowledge or background in commodities trading, and evidently were never involved in the management of the firm.

The evidence of the role of Saudi Intelligence officials, Adham and Khalil, who are the principle liaisons with the CIA over two decades, owning and controlling Capcom, is disturbing to the Subcommittee for two reasons. First, the Subcommittee is concerned by the possibility of a foreign intelligence service promoting a policy agenda in the U.S. Secondly, the close relationship of Saudi Intelligence to the CIA leads to the question of whether or not the CIA was aware of Saudi activities in the U.S.. The CIA has unequivocally told the Subcommittee that it did not use and has no knowledge of Capcom, and that it was unaware of the investments in Capcom by Sheik Adham and Sheik Khalil.

Unfortunately, it will be increasingly difficult to ascertain the purposes for which Capcom was used. In a December, 1990 letter, it was noted that Mrs. Puri, wife of A.J. Puri, was handling the "final details" of the Capital Fund wind-up. Although the meaning of final details is ambiguous, the London Independent reported in August, 1991 that "more than 100 boxes of files and other papers belonging to BCCI-linked Capcom Financial Services...were destroyed on the orders of a senior Capcom official...The request to destroy the documents was made by Sushma Puri...Ms. Puri is also co-director along with Capcom's founder, S.Z.A. Akbar, of Futures Advisory Services."(135)

Documents do still exist in the United States. Andrea Cocoran of the CFTC told the Subcommittee that the CFTC has all the records. Chairperson Gramm added that "We do have an investigation that continues regarding Capcom US."(136)

While it is encouraging to learn that the CFTC is continuing to investigate Capcom, four years have lapsed since Capcom was originally indicted. Counsel for Larry Romrell, the Chairman of Capcom, told the Subcommittee in the spring of 1992 that his client had not been interviewed nor had his records been subpoenaed by any law enforcement agency: the Subcommittee was the first government entity to show interest in Mr. Romrell's role in the entire Capcom affair. Clearly, in the United States, a much greater investigative effort needs to be devoted to Capcom. It is hard to understand why British regulators -- in light of the Peat Marwick report -- have allowed Capcom UK to continue operations. Subcommittee staff have been advised that Lord Justice Bingham has looked into the irregularities surrounding Capcom in the United Kingdom. His findings regarding Capcom's activities in the UK will, it is hoped, expose more of the facts concerning its extensive activities in the UK than the US investigations have been able to uncover.

In terms of the broader lessons of Capcom, regulation of the futures markets need to be greatly strengthened. Even a cursory background check on Akbar would have revealed that he had managed the Treasury accounts at BCCI which lost $400 million in the futures markets in the early eighties. Moreover, regulators who appeared before the Subcommittee testified on the one hand that annual audits of Capcom US turned up nothing irregular, but that Capcom's books and records were a mess. That such a contradiction was allowed to continue for four years indicates that the CFTC needs to critically review the effectiveness of the various exchange audits. Finally, money laundering should be made a crime under the Commodities Futures Trading Act.

APPENDIX 1

Romrell Proposals To Akbar

1. Installation of a subscription T.V. service in Saudi Arabia: "...I would rather work with you and Mr. Khalil on this venture."(137) (Khalil was the Minister of Communications in Saudi Arabia.)

2. "...Mr. Khalil, the Saudi Sheikh...I will go over the material with him and I feel confident he will be interested..."(138)

3. Advice on how to proceed on TCI's bid to the Saudi Arabian government for cable television distribution system located at the Royal Saudi Air Defense Command School, Jeddah.(139)

4. Advice on proposal to TCI to install a cable system for the Ministry of Defense and Aviation Army Air Defense Command.(140)

5. $90,000,000 investment in a hospital in Houston, Northwest Medical Center. Proposal that Magness and Romrell take 25 percent, BCCI 50 percent, doctors 25 percent.(141)

6. $22,000,000 joint purchase of Stouffers Inn, Denver.(142)

7. BCCI loan proposed for $2,600,000 for a related investor group to purchase 30 percent in cattle feedlots owned partly by Magness and Romrell.(143)

8. Purchase proposal of Winterwood Townhomes, Steamboat Springs, using BCCI loan of $2,500,000 arranged by Romrell.(144)

9. Proposal of an investment of $3,100,000 in Marina Del Rey, California.(145)

10. $300,000 credit line from BCCI for operation of Amigo Farms. (April 18, 1984)(146)

11. $50,000 credit line for Romrell and Magness from BCCI. (June 5, 1984)

12. Beehive International building in Salt Lake City, Utah; Corporate Secretary and General Counsel is Romrell's brother; "with his inside information we could make a good deal."(147)

13. Oil and gas investment in Windsor Reservoir.(148)

14. "$6 million of credit on real estate to a friend of Romrell.(149)

15. "Duds 'n Suds" share offering purchase proposal before public issue proposed by Romrell to Akbar.(150)

16. Proposal for BCCI to be a partner in a land deal in Phoenix with Mr. Noel Cullison, who Romrell had arranged to borrow $525,000 from Capcom.(151)

17. $2,635,899 balance in loan credit from BCCI to Winterwood.(152)

18. "I scheduled a meeting with Mr. Shoaib and Mr. Nazarian with myself and Mr. Magness."(153)

19. "Also, I am enclosing another letter from Tony Coelho. Tony Coelho would be the third most important man in the U.S. Government, with the President and the Speaker of the House being first and second most important."(154)

APPENDIX II

Money Flow From BCCI to Capcom and Related Individuals

The following transactions are an indication of the dimension of the relationship between the BCCI group and Capcom and related individuals, transactions which occurred in Capcom, and other financial details which have been found on documents produced to the Subcommittee. In some instances, this information resolves and explains questions regarding Capcom, but in others it raises questions.

The itemization of these transactions is presented here only as a log to put on public record in some consolidated order the evidence of financial events which relate to Capcom.

A. ATC / FOX / Akbar et al.

Akbar and entities which be controlled issued credit and purchased equity in American Telecommunications, Inc (ATC). The Chairman and CEO of ATC is Mr. Kerry Fox. Mr. Larry E. Romrell is a Director of ATC. Mr. Fox was a Director of Capital Fund, a Capcom public investment fund which was the recipient of large amounts of moneys skimmed or laundered by Capcom, as described later in this report.

The following transactions occurred between Mr. Kerry Fox, ATC, Akbar, Capcom, Financial Advisory Services, and BCCI:

1. 150,000 shares of ATC purchased by Zask Investments and Trading, owned by Akbar, operated out of Liechtenstein.

2. 30,000 shares purchased as in 1 above.

3. 177,102 shares purchased by Financial Advisory Services (FAS), owned and controlled by Akbar, linked to Capcom as an "introducing agent".

April 20, 1988.

4. $100,000 borrowed by ATC from Zask, June 1, 1989.

5. 50,000 warrants of ATC stock purchased by FAS.

6. 50,000 warrants of ATC stock purchased by Zask.

7. 25,000 warrants of ATC stock (not purchased) owned by Akbar.

8. June 11, 1991 letter from Fox to Akbar offers ATC warrants to Capital Fund, referring to the February 12, 1987 and August 5, 1988 grants of warrants.

9. September 30, 1988 letter from Fox to Akbar solicited Akbar's support in arranging receivables financing in the amount of $1.5 million.

10. $100,000 loaned to ATC June 15, 1988 by Akbar. Fox refers to ATC making losses and asks Akbar to consider making another $100,000 credit.

11. Request from Fox to Akbar May 3, 1988, stating that Fox had "nowhere else to turn" and was in a "near term but critical cash flow problem" (emphasis added), for "another" immediate loan of $250,000 and longer term $2-3,000,000 financing package.

NOTE: Akbar was a Director of ATC to November 4, 1988, when he resigned subsequent to his and Capcom's October 10, 1988 indictments for drug money-laundering. Some of the above transactions occurred after the indictment and conviction of Akbar.

B. BCCI / Fox, Romrell / Khalil / Adham

Fox and Romrell acted as a front for A.R. Khalil for the purchase of three real estate assets in the U.S., as described later in this report. Akbar was the BCCI officer who arranged the financing.

1. $530,000 loan from BCCI to Fox/Romrell for construction of "Potato Patch" house, Vail, Colorado.

2. $908,625 loan from BCCI as of February 7, 1983, apparently for Vail Associates apartments.(155)

3. $2,000,000 loan BCCI to Dr. Charles Howard, Houston for sale of "Potato Patch" house by Romrell/Fox, who arranged loan and received part of proceeds.

4. November 8, 1982 letter from BCCI, Cayman to Fox/Romrell confirming loans outstanding:

$754,619 (Potato Patch, Vail)

$108,742

$532,003 (collateral: 1st mortgage on Khalil's Vail house)

5. Payments of $15,000, $34,995, and $20,000 were paid by Khalil to Fox/Romrell in March, April 1981, apparently to find costs of a real estate construction project.

6. Fox/Romrell had an account at BCCI, Cayman, #03002241, which had a balance of $388,486.33 on December 1, 1981.

7. $2,635,899 balance in loan accounts at BCCI for Magness, Romrell properties (Amigo Farms).(156)

8. $2,000,000 loan request by Romrell from BCCI, Cayman for IXORA Investments, Ltd, a company owned by Akbar cited by the CME in 1987 for 53 irregular transactions which imply money-laundering, although the Audit Report stated "We cannot speculate on the reasons, known only to them." The CME required total financial disclosures against the threat of expulsion, which caused ownership and directorship changes in 1987/88.

The transfers into the account came from A. Bilgrami, the BCCI officer convicted of drug money-laundering and presently serving prison sentence in Florida.

$1,950,000 was dispersed from the IXORA account at Capcom U.S. to Capcom U.K. on September 23, 1988.

A letter of January 1990 from First Chicago indicates that IXORA is an account owned by Akbar c/o Romrell, who had apparently acted for the company IXORA for many years.

9. A British accountant investigating for the Serious Fraud Office, London, noted:

"...a series of transfers made out of and back to the Winterwood Associates [Romrell/Magness] funding around year end 1985. Two amounts of $1,000,000 were credited to this account from Bank America Int'l, N.Y. prior to Dec. 31, 1985. Subsequently, on 2 Jan. 1986, one amount of $1,000,000 was transferred to 1st Interstate Bank favoring Larry Romrell and another of $1,018,750 transferred to Account No. 01024628 of Mr. A.R. Khalil with BCCI. Ziauddin Akbar and K. Muneer were involved in authorizing both transfers." "The 01024628 account has been identified from our investigation into treasury operations as a London treasury pool account."

This suggests that the Winterwood Associates account of Romrell/Magness and/or Romrell may have been connected to the "routing of funds" by BCCI.

10. Kamal Adham, majority shareholder of Capcom, was responsible for estimated losses at BCCI of $199 million as of December 29, 1990.(157)

11. A "Note for File 11.9.84" indicates that BCCI loaned Magness and Romrell $75,000 each to buy shares in Capcom.

C. Capital Fund (Capcom) / Kerry Fox

This was a public investment fund organized by Akbar/Capcom with Kerry Fox as Director. It was the recipient of funds from skimming and money-laundering.

1. October 14, 1985 share capital of $900,000 was authorized and by January 1, 1986, $10,000,000 was fully subscribed by investors.(158)

2. Akbar controlled entities, Notan Trading and Investment, Zask Investments and Trading, Pate Holdings, Riziaudden Akbar contributed $8,145,000 of the $10,000,000 to capital fund, thereby benefiting of 80 percent of the funds skimmed or laundered into Capital Fund.

3. October 31, 1988 Special Audit identified $2,900,000 of funds artificially "processed" between certain accounts of which Capital Fund was the recipient.

4. $734,158 was skimmed into Capital Fund from 16 customer accounts by "internal matching."(159)

D. Capcom Financial Information

1. Audit as at October 31, 1988 for Capcom: 1988 showed Brokerage Commission Income 7,156,692 and loss on ordinary activities 8,514,936. Stock ownership at this date by Directors was as follows:

a. Romrell: 250,000 shares, down from 2,750,000 shares in 1987

b. A.R. Khalil: 8,250,000 shares (1/3 of outstanding)

c. A.K. Puri: 3,620,000 shares

d. B. Magness: 250,000 shares

e. S.Z.A. Akbar: 6,000,000 shares

2. February 3, 1988 Khalil "sold" 8,250,000 shares to Akbar for 8,250,000. However, 4,000,000 cash was debited to a Capcom account which did not have sufficient funds and the balance of 4,250,000 was offset of "other obligations." The transaction appears to be only a camouflage of Khalil's interest to circumvent disclosure requirements imposed by regulatory authorities in late 1987.(160)

3. October 31, 1988 Special Audit revealed a total of $3,600,000 of artificially processed transactions between accounts at Capcom.

4. October 31, 1988 Special Audit detailed 11,518,360 provision against "doubtful customer balances."

5. Auditors noted an unexplained deposit in Capcom of 8.6 million by an Egyptian Dr. Attia with no trading having taken place.

6. $53,000,000 schedule of "profits" for the ARKY account at Capcom found in Akbar's desk. Presumably this is the account of A.R. Khalil. These "profits were made from October, 1984 to September, 1985, the period in which BCCI lost $430 million at Capcom. This is the clearest evidence that the shareholders of Capcom and/or Akbar stole funds from BCCI through artificial market transactions.(161)

7. $525,000 loan to Mr. Noel Cullison for a real estate development in Phoenix, arranged and managed by Romrell.(162)

8. Romrell borrowed $400,000 from Mideast Finances, Ltd., P.O. Box 211, Port Vila, Vanuatu for the purchase of his shares in Capcom Futures, Chicago. the credit was strictly limited to the value of his Capcom Futures shares, with no other liability. The document is dated September 30, 1988, but is not signed, leaving open the issue of whether this was the actual form of financing for his share purchase.

9. Magness entered into the same financing arrangement with Mideast Finances, Ltd, Vanuatu as in (8) above, dated September 30, 1988. The document in file is not a signed copy either.

10. A Resolution of the Board October 3, 1988 Authorized Share Capital Increase of Capcom Financial Services, Ltd, London to 100,000,000 (approximately $150,000,000). The intent evidenced by this document evidences the large scope of business contemplated by Capcom. Such a capitalization would have placed it among the largest brokerage houses in the world within three years from start-up.

11. May 11, 1989 letter from Parry to Romrell requiring confirmation of the debt of Romrell ($400,000) and Magness ($100,000) to Capcom Financial Services, Ltd, requesting repayment and confirmation that Capcom Futures, Inc shares are the security for this indebtedness.

This document suggests that the financing of Romrell's and Magness' shares was not done through Mideast Finances Ltd, Vanuatu, or that Capcom Financial Services, Ltd owns Mideast Finances, Ltd and assigned the debt.

It should be noted that in the Capcom group was a company called Capcom Bankers, Ltd, Suite 11, Melitco House, Rue Pastenn, port Vila, Vanuatu.

12. August 14, 1986 letter from Akbar, Capcom Financial Services to Romrell, Western Telecommunications states that Romrell's balances on July 18, 1986 at Capcom were as follows:

Investment Account $48,670 CR

Loan Account 53,250 DR

The loan account had been paid down with profits from the Investment Account leading to a new balance as follows:

Investment Account $14,260 CR

Loan Account 30,000 DR

This implies that the Capcom share financing was "self-liquidating" from internal Capcom transactions, so that Romrell would finally own the shares without paying for them.

13. It is reported that BCCI lost $430,000,000 in the Capcom affair.(163) This allegedly occurred from September, 1984 to July, 1985.

14. An internal Capcom account GESS (General Securities Corp) loaned FAS (Financial Advisory Services, Ltd, owned by Akbar) 1,627,812.03 to purchase its office building at 107 Grays Inn Road, London on September 1, 1986.

The repayment of the loan does not connect to its funding, having come from the following. Sources: Sheikh Nooruddin, Middle East Bank, with funds which should have gone to GESS, instead going to GOOD (195,000), TWOY (350,000), GESS (1,209), totalling 1,754,000.

15. A snapshot of internal account management at Capcom is provided by an audit review revealing the following:

Finley International (presumably the company through which Noriega's money passed) sent $1,000,000 on September 16, 1988 and $10,000,000 on September 19, 1988. Akbar's explanation to the auditors was that "funds were to cover losses made by GESS when covering GOOD's position in silver in 1987."

16. The audit report stated that Predelict Investments, Ltd, owned by the Nigerian National Petroleum Corporation, loaned Capcom $10,000,000 from its Capcom Sub-account 134-170-054/52/200, with a two percent fee paid to Predelict, as noted on a letter October 4, 1988. The funds were returned to Predelict 12/10/88.

17. "The owner of the GOOD account is El Rayan, an Islamic Investment company based in Cairo...one of the largest in Egypt in import/export and real estate and funds management...Egyptian authorities closed El Rayan in November 1988." It was described as "Capcom's biggest account" and may have "lost" up to $90,000,000.(164)

It should be noted that the code used on all telexes from Romrell to A.R. Khalil at the Kamal Adham office in Jeddah is "GOOD".

18. A total of $47,500,000 in nine separate transfers was paid to Capcom from Credit and Finance Corp, Cayman; BCCI Overseas, Cayman; Bank of New York. These transactions relate to Blackmail, Akbar, $32 million as discussed later.(165)

19. $150,000 payment February 10, 1988 through Capcom from Ahmed Tawfick to Shakarchi Trading, A.G., the Zürich-based company recently identified in a $1 billion money-laundering scandal in Switzerland.(166)

20. $68,000,000 was paid from Treasury at BCCI to Brenchase, Ltd, a wholly owned Capcom subsidiary, on June 25, 1985, "for an unknown purpose."(167)

21. "Two payments of $50,000,000 were made to Capcom in March, 1986 out of external funds [BCCI Treasury] for which no liability for repayment was recorded."(168)

22. Capcom Financial Services, Ltd loaned $10,000,000 originally to Capcom Futures, Inc, Chicago, then replaced that loan with a $12,500,000 loan.(169)

23. Romrell had a series of payments to and from Capcom in London around July 1, 1987 for his personal account at Capcom: $25,000, $148,000, $22,000, $50,000.

_______________

Notes:

1. According to Akbar Bilgrami, the losses at BCCI were accumulating long before Akbar assumed his responsibilities at BCCI's Treasury. According to Bilgrami, the "hole" in BCCI dated from the mid-seventies and increased until the early 1980's when the accountants began to suspect that BCCI was in financial difficulty. BCCI's Treasury losses were nothing more than a convenient means for explaining the actual financial condition of the bank.

2. Tape 150N, 9/2/88, 11:20 a.m., London, from U.S. v. BCCI, et al in Tampa.

3. S. Hrg. 102-305, Pt.1, p.513.

4. Price Waterhouse, 1991 Report, Section 4, Treasury, p.16.

5. Id at 17.

6. Price Waterhouse, 1991 Report, p.2.

7. Id. p.21.

8. By October 3, 1988, a Resolution of the Board of Directors authorized an increase in share capital to 100,000,000, a staggering amount, raising the question as to how the firm planned to grow so quickly.

9. S. Hrg. 102-350, Pt. 1, p.513.

10. Bandung Productions, transcript, "The Fraud of the Century", September 11, 1991, pp. 53-59.

11. S. Hrg. 102-350, Pt. 1, p.513.

12. Markets, by Martin Mayer, Norton Publishing, 1988, p.xxi.

13. Id. p. xxiv.

14. According to the Chairperson of the Commodities Futures Trading Commission, Wendy Gramm, the futures markets operate on the same principle of "know your customer" as banks. According to Gramm:

The futures broker, the futures commission merchant, does have responsibilities with regard to its customer accounts, including knowing its customers. The self-regulatory organizations have an obligation to ensure that they are meeting those responsibilities, and also do audits concerning brokers' activities with regard to their customers.

see Gramm testimony, S. Hrg. 102-350, Pt. 6, p.647.

15. Price Waterhouse Report, June 22, 1991, p.21, Reprinted in S. Hrg. 102-350, Pt.5.

16. According to the Chairperson of the Commodities Futures Trading Commission, Wendy Gramm, Capcom US "was a relatively small, smaller than average company, with not many customer accounts and unremarkable in its trading." see Gramm testimony, S. Hrg. 102 -350, Pt.6, p. 647.

17. Capcom 1987 Annual Report. In testimony before the Subcommittee, Andrea Cocoran, Director of Planning and Supervision at the CFTC, confirmed that Capcom UK realized a net loss on futures trading of $76,206,064 to Refco. see testimony, Andrea Cocoran, S. Hrg. Pt.6, p.651.

18. In her testimony to the Subcommittee on July 30, 1992, Wendy Gramm, the Chairperson of the Commodities Futures Exchange Commission (CFTC), noted that "we found that certain principals of Capcom US, specifically S.Z.A. Akbar, Sushma Puri, and Mohammed Saghir, had previously worked at BCCI. S. Hrg. Pt. 6, p.7.

19. Price Waterhouse Report, June 22, 1991, p.21, emphasis added

20. Id.

21. Price Waterhouse Report, July 22, 1991, p.20. Reprinted in S. Hrg. Pt. 5.

22. Id. p.21

23. S. Hrg. 102-350, Pt. 1, p.513.

24. Id. p. 513.

25. Mazur tapes 150N, 9/20/88, 11:20 p.m., p.73, line 22-23, p.74, line 15

26. Handwritten Consolidated Profit and Loss Statement, Capcom, October 31, 1985.

27. February 17, 1989 Audit, Coopers and Lybrand Investigation of Capcom, p. 2.

28. Wall Street Journal, Peter Truell, 11/22/91, p.A1.

29. According to the 1991 Price Waterhouse report, "the adjustments in 1985 occurred in the period 25-28 June when amounts totalling $191 million were drawn down in the names of Khalil [and others]" and were paid to "Z.A.Akbar ($142 million) to adjust various Treasury pool accounts." Price Waterhouse Report, June 22, 1991, p.30.

30. For example, the account was to be in his name; accounts were opened in the name of his wife; BCCI Visa cards were issued to him, his wife and their children, and the bills were paid from the BCCI accounts.

31. Account Opening Forms, dated 24 August 1982. Correspondence was to be sent to Amjad Awan, BCCI Branch Manager in Panama.

32. 158626 July 1988 Letter from Subhan Siddiqui to BCCI Luxembourg.

33. Throughout the course of these events, "Finley International Ltd." is alternatively spelled "Findlays," "Finlay," "Finley International Co.," or "Finleys International Ltd." The account numbers and transfer letters of the various banks leave no doubt that all the names refer to Finley International Ltd., a Capcom customer. Finley International Ltd. is a company registered in Liberia whose only two officers are S. Z. Akbar and G. R. Khan. Akbar served as its chairman and treasurer.

34. 26 July 1988 Letter from Noriega to the manager of BCCI Luxembourg.

35. 8 September 1988 Letter from Eva de Teran of Banco Nacionale de Panama to Middle East Bank (to the attention of Amanullah Khan).

36. Complaint, Republic of Panama v. BCCI Holdings, et al., Case No. 90-2913-CIV-RYSKAMP (D.C. Fla.), dated 18 January 1991, at 6.

37. 13 September 1988 Letter from Eva de Teran of Banco Nacionale de Panama to Middle East Bank (to the attention of Amanullah Khan).

38. Akbar claimed that the $23 million received by Finley were remitted by a real estate investor named Al Fathi Tawfik who died in 1988. Akbar denied that any connection existed between the Finley deposits and Noriega. Ian Glendinning Watt, a Chartered Accountant of Peat, Marwick appointed to investigate Capcom's trading, found Akbar's explanations on this and every other matter to be "unsatisfactory," Affidavit of Ian Glendinning Watt dated 20 January 1989, at 44, "deficien[t]," id. at 45, "most curious," "illogical," and "not capable of corroboration." Id. at 46.

39. Among various papers in Mr. Akbar's desk at the time of his arrest was a schedule indicating that an account with the code name ARKY [presumed to be A.R. Khalil] earned profits of $53 million between October 1984 and September 1985." "The owner of account GOOD is El Rayan, an Islamic Investment Company based in Cairo...Egyptian authorities closed El Rayan in November,s 1988." "...it may have lost $90,000,000." The closing of El Rayan was the month following Akbar's indictment for drug money-laundering, October 19, 1988. Numerous fax transmissions from Romrell to Khalil at the "Kamal Adham Office" in Jeddah are inscribed "Code: GOOD".

40. Watt Affidavit, p 18. Reprinted in S. Hrg. 102-350, Pt. 6.

41. The company behind the GESS account is General Securities, registered in Panama. Watt Affidavit at 20.

42. See, e.g., Watt Affidavit, at 38, 40, and 42.

43. The Finley account at Middle East Bank. See 13 September 1988 Letter from Akbar and Khan (on Finley letterhead) to Middle East Bank. Akbar admitted that he controlled the GESS account, see Watt Affidavit at 20, denied having any control over the GOOD account, id. at 38, and offered no explanation for the $2.5 million transfer to the Red Roses Account at the Trade Development Bank in Zurich. Id. at 42.

44. Staff Review of Capcom client list, provided by the Commodities Futures Exchange Commission. The Subcommittee would like to thank the staff of the Commodities Futures Exchange Commission which has provided important assistance to the Subcommittee.

45. The Price Waterhouse Report stated that Adham's exposure of losses at BCCI as of December 29, 1990, was $249,000,000; estimated losses were $199,000,000. Price Waterhouse Report, June 22, 1991, p.6

46. Transcript, Federal Reserve Board Hearing, April 23, 1981, p.65.

47. Khalil also had known Powell for several years prior to the creation of Capcom, although Powell was not connected, as far as the Subcommittee knows, to any communications business.

48. Letter, Romrell to Akbar, November 17, 1981.

49. Answers of Larry Romrell to questions from Subcommittee, July 3, 1992, questions 28.

50. "89225 1 BCCLNA G.

TCI ENGL

6/9/83

Attn. Mr. Akbar

At the TCI Stockholders meeting this morning it was announced there would be a one for one stock split of TCI stock, effective date 6/24/83.

Best regards,

Larry Romrell. (Telex, 6/9/83)

51. Letter, Romrell to Akbar, April 2, 1984, WTCI letterhead

Further in the same letter:Magness and I are most anxious to visit with you with regard to the business opportunity we discussed in Chicago or New York." The opportunity referred to in the letter appears to be the founding of Capcom.

52. Letter, March 19, 1984, draft of Telex to Akbar.

53. staff interview with Romrell, 6/16/92. In his written response, provided under oath, Romrell stated: "In 1984 following the spin-off of WTCI, the stock might become available on the market. I contacted Mr. Akbar to inquire whether BCCI would lend money with which I could purchase shares. In that conversation, I understood that Mr. Akbar agreed to establish a line of credit for me, and that he was also interested in purchasing stock. There was no discussion of any joint line of credit, or even of how Mr, Akbar might finance his purchase. The March 19, 1984 reflects that understanding. However, I never received a response from Mr. Akbar. I never received the line of credit mentioned, I never put Akbar in touch with my broker, and, to my knowledge, Mr. Akbar never invested in TCI or WTCI." Affidavit, Larry Romrell, July 3, 1992, answer 40.

54. Letter, November 14, 1984, Romrell to Akbar at BCCI, London.

55. Letter, Betram Perkel, Law Offices of Jerome Kern, February 11, 1992. p.2, Reprinted in S. Hrg. 102-350. Pt.6.

56. Letter, February 27, 1984

57. Undated note on Western TCI note paper, styled Romrell.

Akbar's representation, as recorded by Romrell, is further evidence that from the beginning Akbar contemplated a BCCI link since there could not possibly be any other means for earning such commissions in a start-up company.

58. Telex, May 27, 1984.

59. Magness Affidavit, 5/19/92, p.3.

60. Id, p.3.

61. While Magness was already a wealthy man, this must be considered a significant investment on the part of Romrell who was at that time a salaried employee making $38,000.00.

62. Note for file, 11.9.84, hand-written.

63. Letter, February 6, 1985, Romrell to Mr. Ajay Puri, Capcom, London.

64. Letter, November 7, 1984, Larry Romrell to Mr. Ajay Puri, Capital Commodities Dealers, Ltd, London, attached.

65. Letter, November 7, 1984, Larry Romrell to Mr. Ajay Puri, Capital Commodities Dealers, Ltd, London.

66. Letter and loan documents attached, June 11, 1985, Letter from Romrell to Mr. Ajay Puri, Capcom.

67. Written responses from Larry Romrell, July 3, 1992, answer 53.

68. Staff interview with Larry Romrell, June 5, 1992.

69. Letter, August 22, 1986, Romrell to Akbar.

70. Letter, Romrell to Khalil, Adham, July 27, 1987.

71. The loan documents specified: "(a) that the total liability of the borrower in the repayment of the loan and all its accrued interests is strictly limited to the value of his shares in Capcom Financial Services, Ltd..." Paten loan agreement ("old and new loans"), signed, Romrell, June 30 1987.

72. Signed Larry Romrell et al, letter March 28, 1988, Capcom to Arthur Anderson, London, emphasis added.

73. Written responses from Larry Romrell, July 3, 1992, answer 58.

74. Letter, July 20, 1987, L.E. Romrell to Sheik Abdul Raouf H. Khalil, Sheik Kamal Adham, Mr. El Ghary, emphasis added.

75. Letter, July 25, 1987, L.E. Romrell to Sheikh Abdul Raouf H. Khalil, H.E. Sheikh Kamal Adham, El Sayed E. El Jawhary.

76. Mazur tape 150N, 9/20/88, p.9, line 1.

77. Affidavit, Robert E. Powell, July 8, 1992, p.5. Reprinted in S. Hrg. 102-350, Pt. 6.

78. Letter, Harry H. Schneider, Department of the Air Force, "To Whom it may Concern," January 3, 1977.

79. Affidavit, Robert E. Powell, July 8, 1992, p. 1. Reprinted in S. Hrg. 102-350, Pt. 6.

80. Affidavit, Robert E. Powell, August 2, 1992, p.1. Reprinted in S. Hrg. 102-350, Pt.6.

81. Affidavit, Robert E. Powell, June 21, 1992, answer to question 17. Reprinted in S. Hrg. 102 -350, Pt. 6.

82. Id., answer to question 19.

83. Affidavit, Robert E. Powell, August 2, 1992, p.2. Reprinted in S. Hrg. 102- 350, Pt. 6.

84. Affidavit, Robert E. Powell, June 21, 1992 answer to question 23. Reprinted in S. Hrg. 102- 350., Pt.6.

85. Id. answer to question 24.

86. Fox has acknowledged to the Subcommittee that he maintained a top secret clearance during this period because he worked with sophisticated electronics components in Saudi Arabia for Martin Marietta and Rockwell International.

Romrell told the Subcommittee that Fox once worked for ARAMCO -- the middle east oil concern. Staff interview with Romrell, June 5, 1992.

87. Letter, Fox to Jamil Khan, BCCI Overseas, Cayman Islands, April 22, 1987.

88. Statement of Witness, Kerry Fox, September 19, 1990

89. Interview with Larry Romrell, June 5, 1992.

90. Letter, June 28, 1982, Fox to Richard Bowman and Statement of Witness, September 19, 1990.

91. Id.

92. Id.

93. Id, p.2.

94. Statement of Witness, Kerry Fox, September 19, 1990.

95. Staff interview with Larry Romrell, June 5, 1992.

96. Documents show that "the Lake House", Rockwall, Texas, was purchased "with or through BCCI...Khalil bought the house in 1981, but immediately conveyed the property to BCCI in full satisfaction of debt to Khalil Investment and Trading Co., Panama. Letter, Fox to Khan, August 23, 1989.

97. Letter, Fox to Akbar, February 2, 1982. In 1984, Romrell's annual salary was approximately $38,000.00. Staff interview with Larry Romrell, June 5, 1992.

98. Letter, Lynn H. Cole, lawyer for Kerry Fox, to David McKean, July 27, 1992.

99. Letter from S. Walker and Co., October 4, 1985.

The "Advisor" to the Fund was Futures Advisory Services, an Akbar controlled company. The Administrator for the Fund was Cayhaven Corporate Services, Cayman Islands. The broker for the Fund was Capcom, London. Letter attached to Capital Fund prospectus, October 11, 1985. he main U.S. bank for the FUND was Bank of America International, New York. Authorized share capital in October, 1985 was $900,000. Account 2-04-19489 / BOA, Cayman Islands.

100. Letter, Puri to Fox, December 4, 1985.

101. Watt Affidavit, p.25. Reprinted in S. Hrg. 102- 350, Pt.6.

102. Id.

103. Note to File, Fox, December, 1988.

104. Fox affidavit, September 18, 1990.

105. Resolution of Board of Directors of Capcom Financial Services, Ltd, July 30, 1987; letter, December 22, 1987, Saghir to Romrell.

106. S. Hrg. 102-350, Pt.6, p.15.

107. Id.

108. Id.

109. Price Waterhouse Report, June 22, 1991, p.18.

110. S. Hrg. 102- 305, Pt. 1, p.30.

111. Peat Marwick McLintock Audit of Capcom for CBOT, May 4, 1989, p.21(b).

112. Id p. 21(b).

113. Mazur tape, 150N, 9/20/88, 11:20 a.m., p.57, lines 6-18.

114. Peat Marwick McLintock audit for CBOT, May 4, 1989.

115. Capcom Futures Inc. was not named in the original indictment. See 11/23/88 letter from Robert E. Powis of Interpass, Ltd., to Gerald E. Beyer of the Chicago Mercantile Exchange. Nor was it named in the second superseding indictment. See Second Superseding Indictment, United States District Court, Middle District of Florida, case no. 88-330-Cr-T-13(B).

116. Specifically, the indictment charged that the defendants had violated the following provisions of the United States Code: 21 U.S.C. s.846, the Attempt and Conspiracy section of the Drug Abuse Prevention Act; 18 U.S.C. s.371, the general provision regarding criminal conspiracy, and 18 U.S.C. s.1956, regarding the laundering of monetary instruments.

117. See, e.g., the Affidavit of Ian Glendinning Watt, dated 01/20/89, at 1.

118. Romrell office diary. To January 18, 1889. p. 6.

119. Id.

120. See Second Superseding Indictment, dated _______, United States District Court, Middle District of Florida, case no. 88-330-Cr-T-13(B).

121. See "Superseding Indictment Still Names Capcom Financial Services," Securities Week, 05/15/89, at 6.

122. Memorandum, 11 October 1988, signed by L. Romrell and J.C.F. Parry.

123. S. Hrg. 102-350, Pt.6, p.7.

124. S. Hrg. 102-350, Pt.6,p.8.

125. CFTC Chairperson Wendy Gramm did not indicate who the owner of the account was, but rather testified that "S.Z.A. Akbar had a power of attorney to direct trading in this account." S. Hrg. 102-350, Pt. 6, p.11.

126. S. Hrg. 102-350, Pt.6, p.12.

127. Id.

128. S. Hrg. 1-2-350. Pt.6, p.11.

129. Affidavit, Larry Romrell, July 3, 1992. Answer to question 61.

130. S. Hrg. 102-350, Pt. 6, p12.

131. In response to questions from the CME staff, Capcom characterized Mr. Zaheer as "a self-employed auto dealer with a dealership in Karachi, Pakistan."

132. S. Hrg. 102-350, Pt.6, p.658.

133. S. Hrg. 102-350, Pt.6, p.647.

134. S. Hrg. 102-350. Pt.6, p.7.

135. Independent, 18.8.91, p.6.

136. S. Hrg. 102-350, Pt.6, p.660.

137. Letter, Romrell to Akbar, October 27, 1982.

138. Letter, Mr. J. Barnathan, ABC, N.Y., April 29, 1982.

139. Letter, Romrell to Akbar, January 6, 1983.

140. Telex, Romrell to Akbar, December 17, 1982

141. Telex, Romrell to Akbar.

142. Letter, Romrell to Akbar, March 30, 1983.

143. Memo, Bob Saffel, August 17, 1983.

144. Letter, Romrell to Akbar, December 16, 1983.

145. Romrell to Puri, January 5, 1984.

146. Letter, Romrell to Akbar, [Personal guarantees given by Magness, Romrell to BCCI], April 18, 1984.

147. Letter, June 8, 1984, Romrell to Akbar.

148. Letter, Romrell to Akbar, December 18, 1984.

149. Letter, June 4, 1985, Romrell to Akbar.

150. Letter, January 17, 1986, Romrell to Akbar.

151. Letter, January 17, 1986, Romrell to Akbar.

152. Letter, July 7, 1987.

153. Letter, April 13, 1988, Romrell to Akbar, while at FAS, Ltd, after he left BCCI indicating continued interaction.

154. Letter, July 27, 1987, Romrell to Puri, emphasis added.

155. Letter, February 10, 1983 from Romrell to Fox.

156. Letter, July 7, 1987, Romrell to Ehrlich

157. Price Waterhouse Report, June 22, 1991

158. ' 1712Letter, December 4, 1985, Puri to Fox.

159. Watt Affidavit, p.25.

160. Arthur Anderson Special Audit Prepared for Counsel of Association of Futures Brokers and Dealers, Ltd, London, 5/10/89, p.22.

161. Watt Affidavit, p.22.

162. Letter, January 17, 1986, Romrell to Akbar.

163. September 11, 1991, "The Fraud of the Century", Bandung Productions, 53-79 highgate Road, London.

164. Peat Marwick McLintock audit of Capcom for CBOT, May 4, 1989, p.22(c).

165. Peat Marwick McLintock audit of Capcom for CBOT, May 4, 1989.

166. WATT Affidavit, supporting documents, Exhibit 20 (iii).

167. Price Waterhouse Report, June 22, 1991, p.20.

168. Price Waterhouse Report, June 22, 1991, p.21.

169. April 16, 1987, Joint Unanimous Resolution of Capcom Futures, Inc, Board of Directors.

[admin]

LEGISLATIVE RECOMMENDATIONS

1. THE SUBCOMMITTEE RECOMMENDS THAT THE UNITED STATES DEVELOP A MORE AGGRESSIVE AND COORDINATED APPROACH TO COMBAT INTERNATIONAL FINANCIAL CRIME. THE U.S. NEEDS TO TAKE FIRM ACTION AGAINST NATIONS WHO PERMIT THEIR PRIVACY AND CONFIDENTIALITY LAWS TO PROTECT CRIMINALS FROM U.S. REGULATORS AND LAW ENFORCEMENT.

Both BCCI and its customers used foreign bank secrecy and confidentiality laws to commit crimes, to prevent the detection of those crimes, and to obstruct law enforcement efforts to investigate and prosecute crimes once they were discovered.

The traditional approach of smaller nations such as the Cayman Islands and Luxembourg of offering strict bank secrecy as an inducement to attract foreign deposits has is poor international public policy, and threatens vital interests of the United States.

Current practices of major financial centers such as the United Kingdom and Switzerland, while providing for the exchange of information among regulators, and some mechanisms for the exchange of information among federal law enforcement, after criminal activity is uncovered, still impede an adequate flow of financial information concerning such activity in the earlier, investigative phase.

The United States needs to take a more aggressive and coordinated approach to developing an international regime for the sharing of financial information among governmental entities, and a substantial loosening in financial confidentiality and privacy laws to insure that government investigators in the U.S. can gain adequate access to and information about, financial transactions that cross international boundaries, but impact the U.S.

While the U.S. has become more focused in fighting drug money laundering through international cooperation in recent years, it has continued to take the position that the process of sharing on applications between law enforcement agencies is sufficient to protect U.S. interests, and no broad-scale changes in foreign bank secrecy laws are necessary. As Federal Reserve counsel Virgil Mattingly testified, sixteen months after the Federal Reserve began its formal investigation of BCCI, Swiss and French authorities were still denying it critical information as a consequence of their secrecy laws.(1) A much more aggressive approach by the United States to changing attitudes among the G-10 nations on this issue is essential.

Current toleration by the United States of bank secrecy and regulatory havens such as the Grand Caymans, Liechtenstein, the Bahamas, the Channel Islands, Vanuatu, Hong Kong, Aruba, and the Netherlands Antilles needs to be replaced by a policy that threatens to withhold access to the U.S. market for banks doing business in any nation that does not meet minimum standards for regulation and the sharing of information with the United States.

The Treasury, as the lead agency for handling U.S. policies concerning international financial crime, needs to be much more aggressive on these issues, to place substantial limits on the ability of criminals to use confidentiality and privacy laws as a shield against law enforcement.

2. THE SUBCOMMITTEE RECOMMENDS THAT THE INSPECTOR GENERAL OF THE JUSTICE DEPARTMENT INVESTIGATE THE POLICIES AND PRACTICES THAT LED TO THE JUSTICE DEPARTMENT'S INEFFECTIVENESS IN INVESTIGATING AND PROSECUTING BCCI, AND IMPAIRED ITS ABILITY TO COOPERATE WITH OTHER INVESTIGATIONS OF BCCI. THE JUSTICE DEPARTMENT NEEDS FUNDAMENTALLY TO RECONSIDER ITS POLICIES IN DEALING WITH COMPLEX FINANCIAL CASES. FUNDAMENTAL CHANGE IN HOW THE JUSTICE DEPARTMENT HANDLES INQUIRIES FROM OTHER GOVERNMENT AGENCIES AND THE CONGRESS IS ALSO ESSENTIAL.

The problems encountered by the Justice Department in investigating and prosecuting BCCI are familiar ones. As a consequence of a lack of understanding of the significance of the case, requests for additional resources from the Customs Agents and prosecutors involved were ignored, broader investigated leads were abandoned, and ultimately, BCCI was permitted to plead guilty and thereby avoid a trial that could have helped bring down the bank entirely.

Other problems compounded these original problems. Most significant was the Justice Department's unwillingness to share information with other ongoing governmental investigations, including those of the Federal Reserve, the New York District Attorney and the Senate. Instead, the Justice Department appeared on numerous occasions to be more concerned with protecting its ability to control information about BCCI, than with assisting the investigative efforts of others. Related to this problem was the lack of candor demonstrated by individual Justice Department employees in responding to inquiries of the Federal Reserve, New York District Attorney, and Senate. In addition, there were substantial problems of coordination between the Justice Department in Washington and its U.S. Attorneys office, as was especially demonstrated by the breakdown in communication between the U.S. Attorney in Miami and the Criminal Division of the Justice Department in Washington in 1991.

In response to the resource and coordination issues arising in BCCI, consideration needs to be given within the Justice Department to the recreation of the strike force concept, abandoned during the early years of the Reagan Administration, and used to devote substantial resources to major cases.

In response to the cooperation issues pertaining the Federal Reserve, New York District Attorney and Senate, consideration needs to be given by the Attorney General to adopting a new set of procedures and regulations governing such contacts, to direct Justice Department personnel to give a far higher priority to providing assistance in response to the legitimate requests of other governmental entities, limited only by such legal requirements as the withholding of documents placed before a grand jury.

3. THE SUBCOMMITTEE RECOMMENDS THAT THE CENTRAL INTELLIGENCE AGENCY AND STATE DEPARTMENT TARGET FOREIGN FINANCIAL INSTITUTIONS AS SUBJECTS FOR INTELLIGENCE GATHERING AND ANALYSIS.

Prior to BCCI's collapse, the CIA had disseminated only three analytic reports on BCCI itself, one of which was lost and of which no original remains. While the reports demonstrate the Agency's early recognition of BCCI's systematic engagement in money laundering and other criminality, they are also oddly limited in detail and scope, given the serious nature of the allegations discussed, and there was little follow up by the CIA to any of them. Moreover, these reports were not provided to the users, the Federal Reserve and the Justice Department, who most required them. Finally, these reports contained no information concerning several individuals who were affiliated with or owned BCCI, and with whom the CIA had had or was still having substantial contact. These gaps would suggest a remarkable lack of information at the CIA about the basic business dealings of important CIA contacts in the Middle East.

The State Department, by contrast to the CIA, knew almost nothing about BCCI prior to its collapse, and seemed to view the collection of information on foreign financial institutions as largely beyond its scope of responsibilities.

Given the risk to the United States from international financial crime, both agencies need to upgrade their capabilities to understand the strategies being employed by foreign financial institutions that may impact on vital U.S. interests, and to begin to include such entities as targets for collection and analysis.

4. THE SUBCOMMITTEE RECOMMENDS THAT THE CONGRESS CONSIDER ADOPTING ADDITIONAL OVERSIGHT MECHANISMS TO ENSURE THE CIA'S ACCOUNTABILITY ON THE PROVISION OF INFORMATION.

At various times, the Central Intelligence Agency provided information to the Subcommittee during the course of its investigation that was both misleading and untrue. Documents that existed were characterized as not existing. Information that was provided was incomplete. It required repeated efforts by the Subcommittee, extending over a year, to obtain more complete information, which was provided only following a meeting in February, 1992 between the Subcommittee chairman and Director Gates. Even then, as the CIA purported to provide a full account of its knowledge of BCCI, it cautioned the Subcommittee that its system of record-keeping could not guarantee that all information had in fact been provided. Moreover, information regarding certain persons who were shareholders, nominees, officers, or affiliates of BCCI, was provided solely in a summary form, containing relatively limited information and far less than is clearly in the CIA's possession.

Staff of the officer of the Inspector General of the Central Intelligence Agency has recently requested meetings with Subcommittee staff to discuss these issues.

It is recommended that the House and Senate Select Committees on Intelligence consider whether the current procedures and mechanisms are adequate to ensure accountability by the CIA in its responses to Congressional requests. Of particular concern is the lack of any practical mechanism for members who do not serve on the Committees to insure the CIA's responsiveness to their legitimate requests, as well as the difficulties of establishing whether or not the CIA's responses to inquiries are forthright and accurate.

5. THE SUBCOMMITTEE RECOMMENDS THAT FEDERAL AGENCIES IMPOSE NEW REQUIREMENTS ON FOREIGN AUDITORS TO PROTECT U.S. INTERESTS IN ANY CASE IN WHICH ANY SUCH AGENCY IS RELYING ON AN AUDIT CERTIFIED BY A FOREIGN AUDITOR. AT MINIMUM, THIS SHOULD REQUIRE FOREIGN AUDITORS WHOSE CERTIFICATIONS ARE USED BY INSTITUTIONS DOING BUSINESS IN THE U.S. AGREE TO SUBMIT THEMSELVES TO U.S. LAWS.

As the Subcommittee discovered during the course of investigating BCCI, the major accounting firms, such as Price Waterhouse, while operating globally, are structured to be independent partnerships in which no national partnership has financial obligations or ties to any other. As a consequence, when a foreign auditor certifies the audit of an entity doing business in the United States, the domestic auditor views itself to be not legally responsible for any of the actions taken by the foreign auditor, nor for providing any information to U.S. regulators and law enforcement personnel that may be in the possession of the foreign auditor. In the case of BCCI, this meant that Price Waterhouse in the United States was able to take the position that it could not answer any questions or provide the information requested by investigators, while Price Waterhouse in the United Kingdom -- which certified BCCI's books -- was able to take the position that it did not do business the United States, was not subject to service of process in the United States, and was not responsible to provide information to the United States, although BCCI was licensed as a foreign bank in several states.

The inability of U.S. regulators and law enforcement to gain access to foreign auditors who may have certified the accounts of entities doing business in the United States substantially impeded investigations and prosecutions of BCCI. It is recommended that the Congress develop a statutory mechanism to require all U.S. agencies to develop regulations imposing the requirement that any entity certifying the audit of an entity which is provided to any U.S. agency in so doing submit itself to U.S. jurisdiction and agree to the provision of documents and records as required by U.S. law. Additional mechanisms to insure accountability by auditors to government regulators and investigators should also be explored.

6. THE SUBCOMMITTEE RECOMMENDS THAT THE PRESIDENT AND THE SECRETARY OF STATE ADVISE THE GOVERNMENT OF ABU DHABI THAT ITS WITHHOLDING OF DOCUMENTS AND WITNESSES PERTAINING TO BCCI FROM U.S. FEDERAL LAW ENFORCEMENT INVESTIGATORS, THE FEDERAL RESERVE, THE NEW YORK DISTRICT ATTORNEY AND THE CONGRESS THREATENS VITAL U.S. INTERESTS AND WILL NOT BE TOLERATED.

As of the writing of this report, the most important remaining impediment to investigating and prosecuting the BCCI case is the withholding of critical documents and witnesses from U.S. law enforcement and regulators by the Abu Dhabi authorities. Given the ownership of BCCI by Abu Dhabi, and Abu Dhabi's controlling interest, through BCCI and its own shares, in CCAH, holding company for the First American Banks, the Abu Dhabi government has engaged in substantial non-sovereign activities in the United States. Its continued suppression of evidence in the case is so serious that it should raise some questions about the previously friendly relationship between the two nations. To date, neither the White House nor the State Department has made any statement criticizing the Abu Dhabi government for its refusal to cooperate adequately with the United States on this matter. The United States needs to express its deep concern over this matter, and its intention to take further steps if the failure to provide access to the witnesses and documents is not rectified immediately.

7. FURTHER ATTENTION NEEDS TO BE GIVEN TO THE PROBLEM OF THE REVOLVING DOOR IN WASHINGTON, AND THE IMPACT ON THE REGULATORY PROCESS AND ON LAW ENFORCEMENT OF POLITICAL INFLUENCE IN WASHINGTON. THE SUBCOMMITTEE RECOMMENDS THE CONSIDERATION OF LEGISLATING A FEDERAL STATUTORY CODE OF CONDUCT FOR ATTORNEYS WHO PRACTICE BEFORE FEDERAL AGENCIES.

BCCI's political connections in Washington had a material impact on its ability to accomplish its goals in the United States. In hiring lawyers, lobbyists and public relations firms in the United States to help it deal with its problems vis a vis the government, BCCI pursued a strategy that it had practiced successfully around the world: the hiring of former government officials. These former government officials played a major role both in making it possible for BCCI secretly to purchase Financial General Bankshares, and then to evade detection and impede investigative efforts to expose what it had done.

There is something fundamentally wrong with a political system in which former government officials, as in the case of BCCI, too frequently appear to be willing to provide assistance in circumventing U.S. laws and regulations to anyone who is willing to pay their fee.

In theory, ethical considerations would discourage former high public officials, government prosecutors, and regulators from using the skills and knowledge they obtained in government to assist clients who wish to circumvent, or at least, bend, the obvious import of the laws. However, in the highly competitive day-to-day practice of law and lobbying in Washington, D.C., it appears that such considerations are too often thrown aside to the need of the former officials to generate fees.

The problem of the revolving door and influence-peddling is serious enough when applied to domestic clients looking to influence the legislative, regulatory, or law enforcement process. However, as with BCCI, when former government officials provide put their expertise to use for foreign clients, even deeper problems emerge. First, the foreign clients have little stake in our society beyond their own self-interest, and thus, there is less incentive for them to adhere to U.S. laws apart from the threat of sanctions if they are caught breaking them. Second, some foreign clients may be accustomed to political influence and corruption within their own countries, and therefore pay for and expect such services to circumvent laws in the United States. Third, as in BCCI, foreign clients are less susceptible to being investigated, and prosecuted or held liable in the United States, if something goes wrong. Fourth, it is more difficult to determine the ultimate agenda of an entity which is based outside the United States.

Foreign investment in the United States may in some respects be an essential component of long-term prosperity, and in any case inevitable. Yet the continued willingness of so many attorneys and lobbyists in Washington to represent foreign clients without regard to the special problems they pose, suggests that consideration needs to be given to legislation that would force lawyers and lobbyists who represent foreign interests to adhere to a higher standard of practice, adequate to protect U.S. interests.

At present, essentially no mechanism exists whereby sanctions can be imposed on attorneys who fail to meet basic ethical obligations to regulatory bodies. Serious attention needs to be given to the development of a federal code of professional conduct, that would supplement the industry code adopted by the American Bar Association. Such a code would set forth minimum ethical standards for the practice of law before federal regulatory bodies, including requiring certain disclosures to the government by the attorney in cases in which the attorney has reason to believe the client may have made false statements to the government. The code would allow for any party, including the regulators themselves, to seek revocation of a lawyer's right to practice before that regulatory body for an infraction of the code, or before any federal regulatory body for a serious such infraction.

8. THE SELF-REGULATION OF THE U.S COMMODITIES MARKETS BY THE COMMODITIES FUTURES TRADING COMMISSION, THE CHICAGO BOARD OF TRADE, AND THE CHICAGO MERCANTILE EXCHANGE IS INADEQUATE TO PROTECT THOSE MARKETS AGAINST MONEY LAUNDERING INVOLVING TRADES FROM ABROAD. THE SUBCOMMITTEE RECOMMENDS THAT THE EXCHANGES MAKE MONEY LAUNDERING ILLEGAL, AND DEMAND THAT THIS REQUIREMENT BE ACCEPTED BY FOREIGN COMMODITIES EXCHANGES WITH WHOM THEY DO BUSINESS, AS A CONDITION OF ACCESS TO US EXCHANGES.

As the Subcommittee investigation found, commodities regulators with the responsibility for investigating Capcom showed little interest in conducting a thorough investigation of its activities, and in 1989 allowed Capcom to avoid such an investigation through agreeing to cease doing business in the United States. While the exchanges have developed sophisticated mechanisms for detecting money laundering that takes place within the U.S. markets, those markets interact with foreign commodities markets in a manner that makes detection of money-laundering that crosses international boundaries very difficult.

At present, the laundering of money, in and of itself, does not violate commodities regulations, and is not grounds for expulsion from the exchanges.

Commodities regulators in the U.S. need to push for the definition and criminalization of money laundering in all commodities exchanges with whom they deal, including those in foreign countries, and develop procedures for "spot" checks of various investment houses to detect money laundering. They also need to develop mechanisms with foreign commodities regulators to insure that mirror imaging and similar techniques for money laundering are not tolerated simply because the mirror images are separated by national borders.

9. THE SUBCOMMITTEE RECOMMENDS THAT FURTHER STEPS BE TAKEN TO INSURE ADEQUATE ACCOUNTABILITY OF FOREIGN FINANCIAL INSTITUTIONS DOING BUSINESS IN THE UNITED STATES, INCLUDING REQUIRING THAT FOREIGN BANKS FORM SEPARATELY CAPITALIZED HOLDING COMPANIES IN THE UNITED STATES AS A CONDITION OF LICENSE AND THE ESTABLISHMENT BY THE FEDERAL RESERVE OF A MINIMUM STANDARD FOR CONSOLIDATED REGULATION THAT EXCLUDES BANK REGULATORY HAVENS.

While foreign bank regulation in the United States has already been substantially strengthened as a result of the BCCI affair, foreign banks doing business in the United States are still treated differently from domestic banks, and to the competitive detriment of domestic banks. Under the changes in law implemented last year through the passage of the Foreign Bank Supervisory Enhancement Act as part of the banking reform bill, foreign banks are now effectively regulated, supervised, and examined at a level equivalent to U.S. banks. However, they are not separately capitalized within the United States, and are merely required to maintain certain levels of reserves here as a means of protecting U.S. creditors.

The result is that U.S. regulators have no means for determining the nature, source, and backing of these reserves, or the real ability to keep such reserves in the U.S. in the event of a crisis involving the foreign bank. The Treasury has already recommended that foreign banks engaging in the sale of securities and other expanded-banking activities be required to establish separately capitalized holding companies in the U.S. This approach should be adopted for all foreign banks as a matter of enhancing overall accountability.

In addition, the Federal Reserve needs to move forward with a certification process which reaches a determination as to whether the home country supervision of a foreign bank meets a base-line standard sufficient to justify granting banks regulated by that country the right to operate in the United States.

Under current law, any foreign bank operating on a consolidated basis regulated by any home country bank regulator is on an equal footing with all other foreign banks similarly regulated in seeking permission to operate in the United States. With the passage of the Foreign Bank Supervisory Enhancement Act last year, the Congress has implemented a number of suggestions made by the Federal Reserve to strengthen U.S. regulatory oversight of such institutions, which includes the ability of the Federal Reserve to differentiate among such institutions based on the quality or extent of regulation by the home state regulator. The Federal Reserve needs to make use of the authority granted in the Foreign Bank Supervisory Enhancement Act to specify what the baseline requirements for consolidated regulation are, and which jurisdictions do and which do not meet these requirements.

As BCCI demonstrated, lax regulation in such jurisdictions as Luxembourg and the Grand Caymans can enable an institution bent on fraud to engage in manipulation of accounts and assets at a significant level as a means of securing legitimate deposits. The U.S. remains a key market for foreign banks, and few nations would be willing to give up the right for their banks to operate in the United States. A certification process under which the Federal Reserve sets criteria under which home country regulation is deemed adequate, and excludes banks regulated by "havens" which fail to meet those standards, would have no impact on banks regulated by countries that met basic standards for such regulation. The adoption of such a process, including the creation of an approve and non-approved list of country regulators, is essential to protect U.S. banking from being infiltrated by criminals.

10. THE SUBCOMMITTEE RECOMMENDS THAT FOREIGN INVESTORS WHO PURCHASE SUBSTANTIAL SHARES OF U.S. BUSINESSES BE REQUIRED TO APPEAR PERSONALLY IN THE UNITED STATES AS INSURANCE THAT THE FOREIGN INVESTOR IS NOT ACTING AS A NOMINEE FOR SOMEONE ELSE.

Currently, U.S. lawyers are allowed to establish a nominee company on behalf of foreign investors. While there are certain disclosure requirements for investors who purchase over 5% of a company, there exists no requirement that the individual appear in the United States. Nominees whose names are used to purchase businesses on behalf of others is a common practice in much of the world, especially Latin America and the Middle East.

A requirement that any foreign investor who purchase more than 5% of a U.S. company, business, bank or financial entity, appear personally before the appropriate regulatory authority, with a waiver for investors who met certain defined criteria, such as showing adequate assets in the United States to meet judgments against them personally, would help to curtail the practice, as illustrated in the BCCI case, of nominee shareholders.

If the investor refuses to be present at a hearing, the legislation could required that the investment be made provided the U.S. attorney is willing to waive the attorney/client privilege and incur liability should the investment subsequently prove to be fraudulent in any way.

11. TURF WARS CONTINUE TO SEVERELY DAMAGE THE ABILITY OF LAW-ENFORCEMENT AGENCIES IN THE UNITED STATES TO DO THEIR JOB. THE SUBCOMMITTEE RECOMMENDS THE ESTABLISHMENT OF A COMMITTEE OF LAW ENFORCEMENT OFFICIALS WHOSE JOB IT IS TO CONDUCT OVERSIGHT OF, PREVENT, AND RESPOND TO FAILURES OF COOPERATION IN LAW ENFORCEMENT.

Turf wars in the BCCI case were evident everywhere, including within the U.S. Customs Service itself, among competing federal law enforcement agencies, within the Justice Department and U.S. Attorneys' Offices, and between federal law enforcement, the Federal Reserve, the New York District Attorney, and the Congress. These bureaucratic battles had a substantial and negative impact on investigating and prosecuting BCCI. They are not unique to the BCCI case, but endemic, and some structural response is essential.

This Subcommittee previously encountered this problem during the course of its investigations in 1987 and 1988. Since that time, the problem has not improved, and the Subcommittee has seen no signs that it is effectively being responded to by federal law enforcement.

It is recommended that the Congress establish, by statute, a law enforcement committee, reporting annually to the Justice Department and the Congress, which focuses on developing solutions to the continuing "turf wars" in the sharing of information and coordination of prosecutions among law enforcement entities in the U.S. The committee would consist of a representative from the Justice Department, a U.S. Attorney, a state Attorney General and a District Attorney, all appointed by the President and each subject to confirmation by the Senate.

12. THE SUBCOMMITTEE RECOMMENDS THAT A STATUTORY MECHANISM FOR THE RECEIPT BY CONGRESS OF FOREIGN FINANCIAL INFORMATION BE ESTABLISHED.

The Justice Department has for a number of years taken the position that U.S. treaties with foreign jurisdictions for the sharing of information in criminal, regulatory and investigative matters does not encompass the Congress, even when Mutual Legal Assistance Treaties (MLATs) have been entered into with those countries which do not by their language exclude the Congress. Accordingly, the Justice Department refused to assist the Subcommittee, and will not in general assist Congressional requests for information, including the enforcement of Congressional subpoenas, to the extent that they seek information that is held abroad. This position has recently been modified so that the Justice Department will cooperate in such assistance in cases in which the Foreign Country has already explicitly agreed to provide it to the Congress.

As the Iran-Contra Committees found in 1987, and as this Subcommittee has found during its work from 1988 through 1992, the inability of the Congress to obtain information from abroad either directly or through the Executive Branch due to the lack of procedures has substantially impeded the Congress' constitutional responsibilities in fact-finding and oversight of U.S. foreign policy and other extra-territorial activities.

Two possible legislative solutions would be a statute explicitly adding the enforcement of legislative branch subpoenas as a matter of U.S. domestic law to the mutual enforcement responsibilities of the Executive Branch under mutual legal assistance treaties with foreign countries; and a statute providing for direct application by the Congress to the foreign government for enforcement of the subpoena, backed by some form of limitation on Executive Branch cooperation with that foreign government in the event of non-compliance.

_______________

Notes:

1. S. Hrg. 102-350 Pt. 5 p. 153.

[admin]

APPENDICES

Matters For Further Investigation

There have been a number of matters which the Subcommittee has received some information on, but has not been able to investigate adequately, due such factors as lack of resources, lack of time, documents being withheld by foreign governments, and limited evidentiary sources or witnesses. Some of the main areas which deserve further investigation include:

1. The extent of BCCI's involvement in Pakistan's nuclear program. As set forth in the chapter on BCCI in foreign countries, there is good reason to conclude that BCCI did finance Pakistan's nuclear program through the BCCI Foundation in Pakistan, as well as through BCCI-Canada in the Parvez case. However, details on BCCI's involvement remain unavailable. Further investigation is needed to understand the extent to which BCCI and Pakistan were able to evade U.S. and international nuclear non-proliferation regimes to acquire nuclear technologies.

2. BCCI's manipulation of commodities and securities markets in Europe and Canada. The Subcommittee has received information that remains not fully substantiated that BCCI defrauded investors, as well as some major U.S. and European financial firms, through manipulating commodities and securities markets, especially in Canada, the Netherlands, and Luxembourg. This alleged fraud requires further investigation in those countries.

3. BCCI's activities in India, including its relationship with the business empire of the Hinduja family. The Subcommittee has not had access to BCCI records regarding India. The substantial lending by BCCI to the Indian industrialist family, the Hindujas, reported in press accounts, deserves further scrutiny, as do the press reports concerning alleged kick-backs and bribes to Indian officials.

4. BCCI's relationships with convicted Iraqi arms dealer Sarkis Soghanalian, Syrian drug trafficker, terrorist, and arms trafficker Monzer Al-Kassar, and other major arms dealers. Sarkenalian was a principal seller of arms to Iraq. Monzer Al-Kassar has been implicated in terrorist bombings in connection with terrorist organizations such as the Popular Front for the Liberation of Palestine. Other arms dealers, including some who provided machine guns and trained Medellin cartel death squads, also used BCCI. Tracing their assets through the bank would likely lead to important information concerning international terrorist and arms trafficker networks.

5. The use of BCCI by central figures in arms sales to Iran during the 1980's. The late Cyrus Hashemi, a key figure in allegations concerning an alleged deal involving the return of U.S. hostages from Iran in 1980, banked at BCCI London. His records have been withheld from disclosure to the Subcommittee by a British judge. Their release might aid in reaching judgments concerning Hashemi's activities in 1980, with the CIA under President Carter and allegedly with William Casey.

6. BCCI's activities with the Central Bank of Syria and with the Foreign Trade Mission of the Soviet Union in London. BCCI was used by both the Syrian and Soviet governments in the period in which each was involved in supporting activities hostile to the United States. Obtaining the records of those financial transactions would be critical to understanding what the Soviet Union under Brezhnev, Chernenko, and Andropov was doing in the West; and might document the nature and extent of Syria's support for international terrorism.

7. BCCI's involvement with foreign intelligence agencies. A British source has told the Bank of England and British investigators that BCCI was used by numerous foreign intelligence agencies in the United Kingdom. The British intelligence service, the MI-5, has sealed documents from BCCI's records in the UK which could shed light on this allegation.

8. The financial dealings of BCCI directors with Charles Keating and several Keating affiliates and front-companies, including the possibility that BCCI related entities may have laundered funds for Keating to move them outside the United States. The Subcommittee found numerous connections among Keating and BCCI-related persons and entities, such as BCCI director Alfred Hartman; CenTrust chief David Paul and CenTrust itself; Capcom front-man Lawrence Romrell; BCCI shipping affiliate, the Gokal group and the Gokal family; and possibly Ghaith Pharaon. The ties between BCCI and Keating's financial empire require further investigation.

9. BCCI's financing of commodities and other business dealings of international criminal financier Marc Rich. Marc Rich remains the most important figure in the international commodities markets, and remains a fugitive from the United States following his indictment on securities fraud. BCCI lending to Rich in the 1980's amounted to tens of millions of dollars. Moreover, Rich's commodities firms were used by BCCI in connection with BCCI's involving in U.S. guarantee programs through the Department of Agriculture. The nature and extent of Rich's relationship with BCCI requires further investigation.

10. The nature, extent and meaning of the ownership of shares of other U.S. financial institutions by Middle Eastern political figures. Political figures and members of the ruling family of various Middle Eastern countries have very substantial investments in the United States, in some cases, owning substantial shares of major U.S. banks. Given BCCI's routine use of nominees from the Middle East, and the pervasive practice of using nominees within the Middle East, further investigation may be warranted of Middle Eastern ownership of domestic U.S. financial institutions.

11. The nature, extent, and meaning of real estate and financial investments in the United States by major shareholders of BCCI. BCCI's shareholders and front-men have made substantial investments in real estate throughout the United States, owning major office buildings in such key cities as New York and Washington, D.C. Given BCCI's pervasiveness criminality, and the role of these shareholders and front-men in the BCCI affair, a complete review of their holdings in the United States is warranted.

12. BCCI's collusion in Savings & Loan fraud in the U.S. The Subcommittee found ties between BCCI and two failed Savings and Loan institutions, CenTrust, which BCCI came to have a controlling interest in, and Caprock Savings and Loan in Texas, and as noted above, the involvement of BCCI figures with Charles Keating and his business empire. In each case, BCCI's involvement cost the U. S. taxpayers money. A comprehensive review of BCCI's account holders in the U.S. and globally might well reveal additional such cases. In addition, the issue of whether David Paul and CenTrust's political relationships were used by Paul on behalf of BCCI merits further investigation.

13. The sale of BCCI affiliate Banque de Commerce et de Placements (BCP) in Geneva, to the Cukorova Group of Turkey, which owned an entity involved in the BNL Iraqi arms sales, among others. Given BNL's links to BCCI, and Cukorova Groups' involvement through its subsidiary, Entrade, with BNL in the sales to Iraq, the swift sale of BCP to Cukorova just weeks after BCCI's closure -- prior to due diligence being conducted -- raises questions as to whether a prior relationship existed between BCCI and Cukorova, and Cukorova's intentions in making the purchase. Within the past year, Cukorova also applied to purchase a New York bank. Cukorova's actions pertaining to BCP require further investigation in Switzerland by Swiss authorities, and by the Federal Reserve New York.

14. BCCI's role in China. As noted in the chapter on BCCI's activities in foreign countries, BCCI had extensive activity in China, and the Chinese government allegedly lost $500 million when BCCI closed, mostly from government accounts. While there have been allegations that bribes and pay-offs were involved, these allegations require further investigation and detail to determine what actually happened, and who was involved.

15. The relationship between Capcom and BCCI, between Capcom and the intelligence community, and between Capcom's shareholders and U.S. telecommunications industry figures. The Subcommittee was able to interview people and review documents concerning Capcom that no other investigators had to date interviewed or reviewed. Much more needs to be done to understand what Capcom was doing in the United States, the United Kingdom, Egypt, Oman, and the Middle East, including whether the firm was, as has been alleged but not proven, used by the intelligence community to move funds for intelligence operations; and whether any person involved with Capcom was seeking secretly to acquire interests in the U.S. telecommunications industry.

16. The relationship of important BCCI figures and important intelligence figures to the collapse of the Hong Kong Deposit and Guaranty Bank and Tetra Finance (HK) in 1983. The circumstances surrounding the collpase of these two Hong Kong banks; the Hong Kong banks' practices of using nominees, front-companies, and back-to-back financial transactions; the Hong Banks' directors having included several important BCCI figures, including Ghanim Al Mazrui, and a close associate of then CIA director William Casey; all raise the question of whether there was a relationship between these two institutions and BCCI-Hong Kong, and whether the two Hong Kong institutions were used for domestic or foreign intelligence operations.

17. BCCI's activities in Atlanta and its acquisition of the National Bank of Georgia through First American. Although the Justice Department indictments of Clark Clifford and Robert Altman cover portions of how BCCI acquired National Bank of Georgia, other important allegations regarding the possible involvement of political figures in Georgia in BCCI's activities there remain outside the indictment. These allegations, as well as the underlying facts regarding BCCI's activities in Georgia, require further investigation.

18. The relationship between BCCI and the Banca Nazionale del Lavoro. BCCI and the Atlanta Branch of BNL had an extensive relationship in the United States, with the Atlanta Branch of BNL having a substantial number of accounts in BCCI's Miami offices. BNL was, according to federal indictments, a significant financial conduit for weapons to Iraq. BCCI also made loans to Iraq, although of a substantially smaller nature. Given the criminality of both institutions, and their interlocking activities, further investigation of the relationship could produce further understanding of Saddam Hussein's international network for acquiring weapons, and how Iraq evaded governmental restrictions on such weapons acquisitions.

19. The alleged relationship between the late CIA director William Casey and BCCI. As set forth in the chapter on intelligence, numerous trails lead from BCCI to Casey, and from Casey to BCCI, and the investigation has been unable to follow any of them to the end to determine whether there was indeed a relationship, and if there was, its nature and extent. If any such relationship existed, it could have a significant impact on the findings and conclusions concerning the CIA and BCCI's role in U.S. foreign policy and intelligence operations during the Casey era. The investigation's work detailing the ties of BCCI to the intelligence community generally also remains far from complete, and much about these ties remains obscure and in need of further investigation.

20. Money laundering by other major international banks. Numerous BCCI officials told the Subcommittee that BCCI's money laundering was no different from activities they observed at other international banks, and provided the names of a number of prominent U.S. and European banks which they alleged engaged in money laundering. There is no question that BCCI's laundering of drug money, while pervading the institution, constituted a small component of the total money laundering taking place in international banking. Further investigation to determine which international banks are soliciting and handling drug money should be undertaken.

WITNESSES

(All witnesses testified in public session or in published depositions printed by the Subcommittee, except witnesses with *, who testified at hearing conducted within Subcommittee on Consumer and Regulatory Affairs of Senate Committee on Banking, Housing and Urban Affairs in coordination with this investigation, May 23, 1991.)

Robert A. Altman, former president, First American Bankshares and attorney for BCCI.

Fausto Alvarado, Member, Peruvian House of Deputies.

Fernando Ramon Marin Amaya. Investigator retained by Attorney General of Guatemala to investigate BCCI's activities in Guatemala.

Amjad Awan, federal prisoner, former BCCI official who handled accounts of Panamanian General Manuel Noriega.

Sidney Bailey, Virginia Commissioner of Financial Institutions, Richmond, Virginia.*

Robert R. Bench, Partner, Price Waterhouse, Former Deputy Comptroller for International Relations and Financial Evaluation.

Gerald Beyer, Executive Vice President, Chicago Merchantile Exchange.

Akbar Bilgrami, federal prisoner, former head of Latin American and Caribbean Regional Office, BCCI, Miami.

Jack Blum. A private attorney at the firm of Novins, Lamont & Flug. Formerly special counsel to the Foreign Relations Committee for the investigation of the Subcommittee on Narcotics, Terrorism, and International Operations into Drugs, Law Enforcement, and Foreign Policy, 1987-1988.

Parker W. Borg. Deputy Assistant Secretary of the Bureau of International Narcotics Matters at the Department of State.

James Bruton, Acting Assistant Attorney General, Tax Divisin, Department of Justice.

A. Peter Burleigh, Coordinator for Counter-Terrorism at the Department of State.

Jorge Del Castillo, Member, Peruvian House of Delegates.

Pedro Cateriano, Member, Peruvian House of Deputies.

Nazir Chinoy, federal prisoner, former General Manager, BCCI Paris.

Clark M. Clifford, formerly, chairman of First American Bankshares and attorney for BCCI.

Andrea Cocoran, Director of Planning and Compliance, Commodities Futures Trading Commission.

Michael Crystal, Queen's Counsel, representing English court-appointed liquidators of BCCI.

George Davis, President and CEO, First American Bankshares, Washington, D.C.

James F. Dougherty, Attorney, Miami Florida. Representing Lloyds of London in litigation concerning alleged fraud involving BCCI.

Scott M. Early, General Counsel, Chicago Board of Trade.

Lourdes Flores, Member, Peruvian House of Deputies.

Robert Genzman, U.S. Attorney for the Middle District of Florida.

Wendy Gramm, Commissioner, Commodities Futures Trading Commission.

John Heimann, former New York State Bank Supervisor and Comptroller of the Currency.*

Mark Jackowski, Assistant U.S. Attorney for the Middle District of Florida.

Nicholas de B. Katzenbach, Chairman, First American Bankshares, Washington, D.C.

Gregory Kehoe, First Assistant U.S. Attorney, Criminal Division, for the Middle District of Florida.

Richard Kerr, Acting Director, Central Intelligence Agency.

Alan J. Kreczko. Deputy Legal Advisor at the U.S. Department of State.

T. Bertram Lance, Former Director of the Office of Management and Budget.

Dexter Lehtinen, Former U.S. Attorney, Southern District of Miami, Florida.

Richard A. Lehrman, Esq., attorney, Miami, Florida. Represented Lloyds of London in case involving BCCI commmodities fraud.

Ricardo Llaque, Deputy Director of Exchange Operations, Federal Reserve Bank of Peru.

Paul Maloney, Deputy Assistant Attorney General for Criminal Division, U.S. Department of Justice, Washington, D.C.*

Virgil Mattingly, General Counsel, Board of Governors, Federal Reserve System.

Robert Mazur, Undercover Agent for Operation C-Chase, Drug Enforcement Administration.

Douglas P. Mulholland, Assistant Secretary for Intelligence and Research, Department of State.

Robert Morgenthau, District Attorney, County of New York, New York.*

Robert S. Mueller, III, Assistant Attorney General, Department of Justice, Washington, D.C.

Fernando Olivera, Member, Peruvian House of Deputies.

Laurence Pope, Associate Coordinator for Counter-Terrorism, Department of State.

William Von Raab. An attorney at the firm of William H. Bode Associates. Formerly Commissioner of the United States Customs Service, 1985-1989, oversaw Customs' handling of the sting operation that targeted BCCI, Operation C-Chase.

Masihur Rahman, Former Chief Financial Officer, BCCI London.

Mark Richard, Deputy Assistant Attorney General, Criminal Division, Department of Justice.

Edward M. Rogers, Jr., former White House aide.

Jesus Rodriguez, Member, Chamber of Deputies, Argentina.

Abdur Sakhia, former head, BCCI Miami.

Ahmed Al Sayegh, Director, Abu Dhabi National Oil Company.

Raul Alconada Sempe, former Secretary of Defense and former Secretary for Special Projects, Foreign Ministry, Argentina.

Grant Smith, Deputy Assistant Secretary, International Narcotics Matters, Department of State.

Brian Smouha, Court Appointed Fiduciary for BCCI Holdings (Luxembourg) SA and Bank of Credit and Commerce International, S.A., London, England.

John W. Stone, Chief of Enforcement, Federal Deposit Insurance Corporation.

William Taylor, Staff Director, Division of Banking Supervision and Regulation, Federal Reserve, Washington, D.C.

WRITS AND SUBPOENAS AUTHORIZED DURING INVESTIGATION

WRITS AUTHORIZED (4)

Amjad Awan

Akbar Bilgrami

Nazir Chinoy

Ian Howard

s

Sani Ahmed

BCCI

Roy Carlson

Kerry Fox

Grand Hotel, Washington DC

Abol Helmy

Kissinger Associates

Office of the Comptroller of the Currency

Price Waterhouse (US)

Price Waterhouse (UK)

First American

First American Georgia

Robert Magness

David Paul

Robert Powell

Ed Rogers

Larry Romrell