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

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Part 1 of 3

ABU DHABI: BCCI'S FOUNDING AND MAJORITY SHAREHOLDERS

Introduction

There was no relationship more central to BCCI's existence from its inception than that between BCCI and Sheikh Zayed and the ruling family of Abu Dhabi.

Abu Dhabi was present at BCCI's creation as one of two providers of BCCI's capital. It was BCCI's largest depositor, and its largest borrower, and for most of BCCI's existence, its largest shareholder. The relationship between the two entities was, as Price Waterhouse told the Bank of England days before BCCI's closure, "very close," with BCCI providing services to the ruling family of Abu Dhabi far beyond the ordinary relationship of a bank to either its shareholders or depositors.(1)

There are numerous examples of the centrality of the Abu Dhabi relationship to BCCI, and its unusual nature.

In 1972, when BCCI was created, Abu Dhabi shareholders purchased 20 percent of its stock with an investment of $500,000, and then generously agreed to have that interest drop to just over one percent of BCCI just three years later.

In January, 1978, when BCCI decided to enter the United States and purchase shares in Financial General Bankshares, and needed two additional names, the ruling family of Abu Dhabi supplied them.

In 1980 and 1981, when BCCI needed a purchaser for Bank of America's shares in BCCI, and had no one other than its bogus Grand Caymans bank-within-a-bank, ICIC, to buy them, Abu Dhabi stepped in once again to increase its interest in BCCI.

Throughout the 1970's and 1980's, the Abu Dhabi ruling family and the Abu Dhabi government placed billions of dollars in deposits at BCCI and its affiliates, such as ICIC, giving BCCI and its head, Agha Hasan Abedi, the right to manage those assets, and a power of attorney to act in the name of Sheikh Zayed.

In 1990, when accountants and regulators in the United Kingdom found fraud at BCCI, the Abu Dhabi ruling family and government stepped in again, agreeing to formally buy the bank, assert control, guarantee its losses, replace BCCI's head with the head of its own BCCI affiliate, the Bank of Credit and Commerce Emirates (BCCE), move BCCI's operations and records from London to Abu Dhabi, and work on a plan to find a way to save the bank despite its having acknowledged "mishandling" at least $2.2 billion of Abu Dhabi's money.

By July 5, 1991, when BCCI was closed globally, the Government of Abu Dhabi, its ruling family, and an investment company holding the assets of the ruling family, were the controlling, and official "majority" shareholders of BCCI -- owning 77 percent of the bank. But since the remaining 23 percent was actually held by nominees and by BCCI's alter-ego ICIC, Abu Dhabi was in fact BCCI's sole owner.

After July 5, 1991, it was in Abu Dhabi that most of BCCI's top officials remained, where they remain under the control of the Abu Dhabi government, under conditions said to be luxurious, which the Abu Dhabi government refuses to discuss. While there, they have remained incommunicado, and out of the reach of foreign investigators, unwilling, or unable, to tell the world what happened.

In short, there is no question that the relationship between Abu Dhabi and BCCI was central to both, and that no adequate understanding of BCCI is possible without an understanding of the Abu Dhabi relationship. Yet according to the testimony presented to the Subcommittee by Abu Dhabi, that relationship was one that boiled down to little more than victim (Abu Dhabi) and criminal (Abedi and BCCI). In essence, according to Abu Dhabi, BCCI abused Abu Dhabi's trust by stealing deposits and mismanaging a bank it owned, making Abu Dhabi by its own account BCCI's largest victim, losing what it describes as some $6 billion in all.

Thus, by Abu Dhabi's account, it never knew that most or all of BCCI's shareholders were front-men or nominees for BCCI, including the heads of state of several of the smaller sheikhdoms of the United Arab Emirates of which Sheikh Zayed is president, sheikhs who are generally understood to treat Sheikh Zayed with great deference. It never knew that such prominent shareholders as Kamal Adham and A.R. Khalil, two successive heads of Saudi intelligence, were also nominees for the bank, along with such well-known Middle Eastern financial figures as Faisal Fulaij of Kuwait and Ghaith Pharaon of Saudi Arabia. Unlike these other figures, who were part of BCCI's deceptions, and who by Abu Dhabi's account participated in BCCI's schemes to deceive Abu Dhabi, Abu Dhabi contends it was innocent of wrongdoing, and utterly duped.(2) To quote the testimony of Abu Dhabi's witness before the Subcommittee, Ahmed Al Sayegh:

We didn't know anything about the bank [BCCI] because of our passive role in the past [prior to taking control in April 1990].(3)

However, unlike any other shareholder, officer, attorney, agent or depositor of BCCI, Abu Dhabi has been in the position, since April, 1990, of having total control over BCCI's records. At least eighteen of its key officers, who have remained held incommunicado and under house arrest in Abu Dhabi since BCCI's collapse. During that period, Abu Dhabi has chosen not to make any of these witnesses available to U.S. law enforcement. While it did, temporarily, make some key documents available to the Federal Reserve concerning the involvement of non-Abu Dhabi figures in BCCI's wrongdoing prior to BCCI's closure, it has at all times prevented federal investigators from having free access to BCCI's records, and all access to those records has been ended since July 5, 1991.

Thus, Abu Dhabi has remained throughout the past fourteen months in the position of being able either to prove its assertions, or risk disproving them, through the simple act of granting access to the critical BCCI information it alone controls, in witnesses and documents. Yet it has chosen not to do so. In the process, Abu Dhabi has made, and broken, repeated commitments to provide both witnesses and documents to the Justice Department, the New York District Attorney, and the Senate, going as far back as November, 1990, and continuing to the present.

Given Abu Dhabi's suppression of critical information about its role in BCCI, its contention that it is innocent of all wrongdoing in connection with BCCI, would, on this basis alone, inevitably be viewed with some skepticism.

But despite Abu Dhabi's withholding of essential witnesses and documents, BCCI financial records obtained to date by investigators, together with testimony and statements from BCCI insiders, outline a picture of the relationship which suggests that Abu Dhabi officials were indeed knowing participants in substantial wrongdoing pertaining to BCCI's activities in the United States and elsewhere, that members of the Abu Dhabi ruling family participated in risk-free investments in BCCI banks, and that Abu Dhabi officials engaged, as of April, 1990 on some issues and on others much earlier, in a cover-up of fraudulent activity involving BCCI, which continues, in substantial part, to this day.

Findings

** Members of Abu Dhabi's ruling family appear to have contributed no more than $500,000 to BCCI's capitalization prior to April 1990, despite being the record owner of almost one-quarter of the bank's total shares, with a book value of over $750 million as of December 31, 1989. However, the Abu Dhabi Investment Authority, holder of a 10 percent interest in BCCI beginning in 1980, appears to have made some cash payments for its interest in BCCI, which had a book value of approximately $250 million as of December 31, 1989. An unknown but substantial percentage of the shares acquired by Abu Dhabi overall in BCCI appear to have been acquired on a risk-free basis -- either with guaranteed rates of return, buy-back arrangements, or both.

** The apparent interest held in BCCI by the Abu Dhabi ruling family, like the apparent interests held by the rulers of the three other gulf sheikdoms in the United Arab Emirates who owned shares of BCCI, materially aided and abetted Abedi and BCCI in projecting the illusion that BCCI was backed by, and capitalized by, Abu Dhabi's wealth. However, Abu Dhabi provided BCCI only the use of its name rather than substantial capital, until at least 1980-1981. At that time, "investments" made in BCCI by the Abu Dhabi Investment Authority to purchase shares of BCCI sold by the Bank of America to ICIC, appear to have involved actual payments from Abu Dhabi, according to some documents, on a no-risk, guaranteed return basis.

** Shares in Financial General Bankshares held by members of the Abu Dhabi ruling family in late 1977 and early 1978 appear to have been nominee arrangements, adopted by Abu Dhabi as a convenience to BCCI and Abedi, under arrangements in which Abu Dhabi was to be without risk, and BCCI was to guarantee the purchase through a commitment to buy-back the stock at an agreed upon price. Later, one of the two original members of the Abu Dhabi ruling family in fact sold back his shares to another BCCI front-man, Kamal Adham.

** Abu Dhabi's representative to BCCI's board of directors, Ghanim al Mazrui, received unorthodox financial benefits from BCCI in no-risk stock deals which may have compromised his ability to exercise independent judgment concerning BCCI's actions; confirmed at least one fraudulent transaction involving Abu Dhabi; and engaged in other improprieties pertaining to BCCI; but remains today in place at the apex of Abu Dhabi's committee designated to respond to BCCI's collapse.

** In April, 1990, Abu Dhabi was told in detail about BCCI's fraud by top BCCI officials, and failed to advise BCCI's external auditors of what it had learned. Between April, 1990 and November, 1990, Abu Dhabi and BCCI together kept some information concerning BCCI's frauds hidden from the auditors.

** From April, 1990 through July 5, 1991, Abu Dhabi tried to save BCCI through a massive restructuring. As part of the restructuring process, Abu Dhabi agreed to take responsibility for BCCI's losses, Price Waterhouse agreed to certify BCCI's books for another year, and Abu Dhabi, Price Waterhouse, the Bank of England, and BCCI agreed to keep all information concerning BCCI's frauds and other problems secret from BCCI's one million depositors, as well as from U.S. regulators and law enforcement, to prevent a run on the bank.

** After the Federal Reserve was advised by the New York District Attorney of possible nominee arrangements involving BCCI and First American, Abu Dhabi, in an apparent effort to gain the Federal Reserve's acquiescence in BCCI's proposed restructuring, provided limited cooperation to the Federal Reserve, including access to selected documents. The cooperation did not extend to permitting the Federal Reserve open access to all BCCI documents, or substantive communication with key BCCI officials held in Abu Dhabi, such as BCCI's former president, Swaleh Naqvi. Access was sufficient, however, to permit the Federal Reserve to identify critical documents regarding frauds involving non-Abu Dhabi shareholders and borrowers of BCCI and BCCI itself pertaining to CCAH/First American, the National Bank of Georgia and the Independence Bank. That access ended with the closure of BCCI July 5, 1991.

** From November, 1990 until September 21, 1992, Abu Dhabi failed to provide documents and witnesses to U.S. law enforcement authorities and to the Congress, despite repeated commitments to do so. Instead, it actively prevented U.S. investigators from having access to vital information necessary to investigate BCCI's global wrongdoing. As of September 21, 1992, Abu Dhabi began making certain documents available for review by U.S. law enforcement, in a move apparently timed to coincide with the publication of this report. No representation has been made by Abu Dhabi, or by U.S. law enforcement, as to the significance or completeness of the documents Abu Dhabi selected for law enforcement review at its Washington, D.C. Embassy. Moreover, none of the BCCI officials held in Abu Dhabi have yet to be made available for interview by U.S. law enforcement. At the time of writing of this report, none of the newly available documents had been made offered by Abu Dhabi for review by the Subcommittee.(4)

** The proposed agreement between Abu Dhabi and BCCI's liquidators to settle their claims against one another contains provisions which could have the consequence of permitting Abu Dhabi to cover up wrongdoing it may have had in connection with BCCI.

** Answers by Abu Dhabi's representative to key questions from the Subcommittee about Abu Dhabi's role in BCCI, were non-responsive, evasive, and misleading, although for the most part artfully crafted to avoid being literally untrue.

** There is some evidence that the Sheikh Zayed may have had a political agenda in agreeing to the involvement of members of the Abu Dhabi ruling family and its investment authority in purchasing shares of Financial General Bankshares, then of CCAH/First American. This evidence is offset, in part, by testimony that Abu Dhabi share purchases in the U.S. bank were done at Abedi's request and did not represent an actual investment by Abu Dhabi until much later.

Origin and Nature of BCCI-Abu Dhabi Relationship

The chapter on BCCI's early history describes in detail the early history of Abu Dhabi and BCCI, which is recapitulated in summary form here.

Abu Dhabi is the largest and wealthiest member of the United Arab Emirates, an oil-rich federation of sheikhdoms, formed in 1971, whose rulers own all the land and natural resources of their nations in fee simple absolute, with no distinctions being made among the wealth of the ruler, his family, and the nation itself. Sheikh Zayed of Abu Dhabi, installed in 1966 as head of the newly wealthy oil state through a British-led coup against his brother in 1966, soon after developed a relationship with Agha Hasan Abedi, head of the United Bank of Pakistan. Six years later, when Abedi decided to form BCCI, he did so after receiving the blessing of Sheikh Zayed, and a commitment of support. That support involved a tiny capital contribution to the bank by Abu Dhabi -- $500,000 -- and a huge placement of petrodollars.

As set forth in the chapter on BCCI's early history in some detail, the relationship between BCCI and Sheikh Zayed exceeded normal standards of bank/client relationships in a number of respects. BCCI was not merely a bank owned in part by Sheikh Zayed. Sheikh Zayed was not merely BCCI's largest depositor. BCCI for many years handled almost every financial matter of consequence for the Sheikh and his family, as well planning, managing, and carrying out trips abroad, and a wide range of services limited only by the desires of the Al Nayhan family itself.(5)

In his testimony of May 18, 1992, Abu Dhabi's representative Ahmed Al Sayegh suggested that Abedi's role in Abu Dhabi has been much overstated:

When Mr. Abedi was a respected banker and founder of BCCI, his role, therefore, was limited to his bank. . . . His role in the case, I guess, was limited to inducing potential investors in making commitments to his bank, whether buying shares or placing deposits. . . He was not a financial advisor [to Abu Dhabi or Sheikh Zayed].(6)

Other information obtained by the Subcommittee from many sources demonstrates that Al Sayegh's testimony on this point was untrue. In fact, for over twenty years, Abedi created and managed a network of foundations, corporations, and investment entities for Abu Dhabi's ruling family, of a complexity similar to the network he had created at BCCI itself. BCCI handled the financing arrangements for many of these entities, and managed a variety of Abu Dhabi's portfolio accounts in U.S. dollars.(7) As far back as 1969 and 1970, when Abedi was still head of the United Bank in Pakistan, Abedi established a cargo shipping company, the Hilal Group, operated by Associated Shipping Services, Limited, London, as an operational company for Abu Dhabi's Department of Private Affairs. Though primarily used to own cargo ships, the entity was also used for trading in equities, holding property investments, and other direct investments. One of the entities owned by Hilal Group, Progressive Investment, had Abedi on its board. Later, when BCCI established the Cromwell Hospital in London to provide a medical facility for the Abu Dhabi ruling family and other prominent Middle Easterners, Abedi arranged for the financing of the purchase for Abu Dhabi through a complex series of transactions involving BCCI and a shell corporation holding Sheikh Zayed's interests by which BCCI lent the funds for the hospital in pounds against dollar accounts of the Department of Private Affairs, with the result that the hospital investment did not appear on the books of the Department.(8)

Moreover, BCCI and Abu Dhabi also engaged in a series of joint ventures, managed by BCCI, throughout the 1980's. Typical of such ventures was the China-Arab bank, a joint venture of BCCI and the Abu Dhabi Investment Authority, established in China in 1985 coincident with BCCI's opening of offices in China, to use funds from Abu Dhabi to invest in China. BCCI accounting records show a number of other ventures involving BCCI and Abu Dhabi in China, as well as numerous financial relationships involving BCCI and Abu Dhabi interests throughout the 1980's.(9)

Contrary to Al Sayegh's testimony, Abedi had broad authority over the investments and finances of the ruling family until his stroke in 1989. As the present chairman of the Department of Private Affairs of Sheikh Zayed, Ghanim Al Mazrui testified in civil litigation in 1982, Abedi could even be viewed as an official of the Abu Dhabi government, because of his position on the Abu Dhabi committee responsible for overseeing Abu Dhabi's wealth.(10)

As Bert Lance observed, the relationship was exceedingly intimate:

Mr. Abedi . . . had, in effect, for lack of a better term, been kind and attentive to Sheikh Zayed when he was still wandering around in the desert and he had all his assets in his tent somewhere . . . I think this is important to you as you search for the truth, to understand that that relationship went back a long way -- and it went back before Sheikh Zayed became "the richest man in the world" at that point in time, with an income of some $4 billion or $5 billion, as the press reported; that there had been a relationship that had developed that Mr. Abedi had helped Sheikh Zayed when he had no real power or influence . . . Sheikh Zayed had absolute and total trust and coincidence in Mr. Abedi, that whatever Mr. Abedi said or suggested was something that Sheikh Zayed would look on with favor; that Mr. Abedi had, in effect, built the house where we were [meeting with Sheikh Zayed in his palace] outside of Lahore without any guidance or direction from Sheikh Zayed, and it was that sort of relationship. It was very, very unique.(11)

BCCI also provided members of the Abu Dhabi ruling family with personal services, ranging from Sheikh Zayed's own modest needs to the more elaborate requirements of his sons and members of his retinue. A history of BCCI's protocol department, and its relationship to Abu Dhabi, is set forth in the chapter on BCCI's early history.

Throughout the first critical decade of BCCI's eighteen year existence, as much as 50% of BCCI's overall assets were from Abu Dhabi and the Al Nayhan family, who were earning about $750 million a year in oil revenues in the early 1970's, an amount that rose to nearly $10 billion a year by the end of the decade. Until the formation of a separate affiliate, the Bank of Credit and Commerce Emirates (BCCE), BCCI functioned as the official bank for the Gulf emirates, and handled a substantial portion of Abu Dhabi's oil revenues. And yet from the beginning, there was an oddity about this central relationship: at no time while Abedi was in charge of BCCI did Abu Dhabi hold more than a small share of BCCI's recorded shares. Abu Dhabi appears not to have invested substantial funds in BCCI, but instead to have insisted on guaranteed rates of return for the use of its money. Thus, rather than being a major investor in BCCI, in the early years, Abu Dhabi only agreed to place extremely large sums of money as deposits at the bank, which BCCI used in lieu of capital.

As a result of the Abedi-Zayed agreement, Abedi now had essentially unlimited resources to create BCCI. He could now act simultaneously as manager of billions of Sheikh Zayed's personal wealth, as banker to the United Arab Emirates of which Sheikh Zayed was chief of state, and as chairman of a new bank that had guaranteed assets of hundreds of millions of dollars from its inception.(12)

Abedi thus relied on the Sheikh's resources to finance his rapid expansion, not through capital investment, but as a huge depositor. The result was BCCI's finances quickly became so intermingled with the finances of Abu Dhabi that it was difficult even for BCCI insiders to determine where one left off and the other began. Whether Abu Dhabi insiders, including Abu Dhabi's representative on BCCI's board of directors, Ghanim Al Mazrui, knew of this intermingling, remains an open question.

Abu Dhabi's Ownership Interest In BCCI

Although Abu Dhabi had a key interest in BCCI from its creation, in accord with Abu Dhabi's failure to provide the initial funds for capitalization, BCCI's early stock recordations did not show Abu Dhabi as the actual owner of the bank. A snapshot of BCCI shares from Bank of America files as of September 30, 1977 described BCCI's majority owner as ICIC, at 50.1 percent; its most important minority owner as Bank of America, at 30 percent; and its largest Arab owner as Majid Al-Futaim of Dubai in the United Arab Emirates at just 4 percent, with the members of the family of Abu Dhabi owning just 3.4 percent all told.(13)

According to Abu Dhabi itself, it actually had a 20 percent interest in BCCI in 1972, which then dropped to less than five percent some two years later, with Abu Dhabi remaining a "passive investor," without formal representation on BCCI's board until 1981.(14)

In response to the Subcommittee's request for information on the history of Abu Dhabi's ownership interest in BCCI, Abu Dhabi provided on May 13, 1992, a list of Abu Dhabi shareholding in BCCI Holdings (Luxembourg) S.A., one of BCCI's two flag-ship holding companies, which it described as "based on preliminary review of documents."

The shareholding list provided by Abu Dhabi does not begin until 1975, three years following BCCI's founding in 1972, and after, for reasons not fully explained, Abu Dhabi's declared ownership in BCCI shares had dramatically dropped. It shows an unusual pattern of ownership of BCCI shares by the Al Nayhan family and the Abu Dhabi Investment Authority (ADIA).

Overall, after beginning at 20 percent in 1972, the Al-Nayhan family's ownership of BCCI dropped to less than three percent in 1975, and then to just over one percent of BCCI in 1976, where its interest remained, with small increases until 1980. In 1980, the Al Nayhan family's holdings of BCCI sharply increased to over 8 percent, in 1981 increased sharply again to over 18 percent, and by 1984 had reached 27 percent, and by 1986, 33 percent, where it remained until 1990, when Abu Dhabi became -- officially -- a 77 percent owner of BCCI.(15)

What is unusual about this pattern is the drop from Abu Dhabi's holdings of 20 percent to less than 2 percent in three years, followed by an increase from 2 percent to 18 percent five years later. It is difficult to understand why any shareholder of a rapidly growing bank would be willing to sell off or dilute so much of its interest in the years in which the bank's value was rapidly increasing, and then buy back that interest at far greater cost following five years of growth.

Sheikh Zayed's own holdings of BCCI displayed a still stranger pattern. After owning 20 percent of BCCI in 1972, his personal ownership had dropped to 2.26 percent in 1975, dropped still further to less than one percent -- just .59 percent -- in 1976, and lower yet in 1977 to .47 percent of BCCI, before suddenly climbing in 1980 to 4.11 percent, when Sheikh Zayed purchased 80,000 shares in the bank. Sheikh Zayed then resold these same 80,000 shares the following year, reducing his ownership interest from the 4.11 percent back to .47 percent. In 1984, he purchased BCCI shares anew and his interest again climbed to over four percent, the vicinity in which his personal interest in BCCI remained to BCCI's closing.

Despite explicit requests to do so, Abu Dhabi failed to provide to the Subcommittee any explanation of the peregrinations of Abu Dhabi's ownership of BCCI stock, the price paid for the shares purchased, or the price received for the shares sold. Prior to the May 14 hearing, staff advised lawyers for Abu Dhabi that the purchase and sales prices of the stock and any funds provided by Abu Dhabi to BCCI as capital were critical issues requiring answers. Apart from the statement that Abu Dhabi paid $500,000 for its original interest in BCCI in 1972, Abu Dhabi provided no answer to these questions. To the extent that Abu Dhabi did not pay for such shares, there would be substantial questions as to whether it, like BCCI's other shareholders, was also a nominee for BCCI.

The patterns shown above, for the period up to April, 1990 are in some respects more consistent with a nominee relationship as with an ownership relationship, except for the 10 percent ownership of BCCI held from 1980 on the Abu Dhabi Investment Authority, which appears to be genuine. However, even that ownership interest in BCCI by Abu Dhabi cannot be viewed as conclusive in the absence of access to any buy-back arrangements from BCCI that might have existed.

For example, evidence for concluding that Sheikh Zayed's interests in BCCI could have been as a nominee for BCCI, or interchangeable with BCCI, is the purchase by him for an unknown price and sale for another unknown price, of 80,000 shares in BCCI, over one year. This is not a normal practice for share trades in a privately held bank by a party with a long-standing ownership interest in the bank. Similar transactions involving BCCI's manipulation of shares in CCAH/First American were definitively found by the Federal Reserve to have been either shams or nominee transactions.

On the other hand, Abu Dhabi did, from 1981 onwards, own ever increasing percentages of BCCI, principally through Sheikh Zayed's son, Sheikh Khalifa, and the Abu Dhabi Investment Authority, becoming the largest shareholders of the bank at some point in the 1980's. This suggests the possibility that Abu Dhabi actually owned the stock, regardless of guaranteed returns or buy-back arrangements to "eliminate" risk to Abu Dhabi.

Following the May 14, 1992 hearing in which Abu Dhabi's representative, Ahmed Al Sayegh, testified, the Subcommittee tried again to elucidate the truth about this issue.

It reiterated in questions to Al Sayegh the request that Abu Dhabi specify the capital actually paid in by the Abu Dhabi shareholders at the time of each stock purchase, including the date of each infusion of capital, and the amount paid in. Al Sayegh did not provide the answer to the question of how much Abu Dhabi paid each time for its shares of BCCI stock. Instead, he stated:

Many of the Majority Shareholders' share purchases were from third parties, rather than purchases of newly-issued stock, and other stock acquisitions came in the form of dividends. . . In any event, I am unaware of the details of amounts paid for shares in particular transactions.(16)

The Subcommittee has asked Abu Dhabi to provide a knowledgeable witness regarding such questions for over two years, beginning in July, 1990. In the spring of 1992, it requested that Abu Dhabi's representative on BCCI's board of directors, Ghanim Al Mazrui, appear to testify. Instead, Al Sayegh was selected. His written answers were provided to the Subcommittee five weeks after his testimony, through Abu Dhabi's Washington, D.C. lawyers at Patton, Boggs & Blow. Hence, Al Sayegh's statement that he is "unaware of the details" amounts to nothing less than a refusal by the government of Abu Dhabi to answer the questions asked: what the Abu Dhabi shareholders of BCCI actually paid for the fifteen separate purchases of BCCI stock listed by Abu Dhabi as having been made and what other shareholders paid for the shares of BCCI stock sold in that period by Sheikh Zayed, his son, Sheikh Khalifa bin Zayed, and the Abu Dhabi Investment Authority. Answers to those questions would be vital in demonstrating that Abu Dhabi was a legitimate, non-nominee shareholder for all of its shares. The fact that Abu Dhabi has refused to answer these questions suggests that the facts if revealed would not be helpful to Abu Dhabi's position that it was never a nominee for BCCI, and was always at risk.

Information contained in the Section 41 report of Price Waterhouse of June, 1991, provided to the Bank of England and obtained by the Subcommittee in an uncensored form only in late August, 1992, further suggests that the shares in BCCI held by the ruling family of Abu Dhabi were purchased according to BCCI's typical practices for nominees -- paid for by loans from BCCI itself, with buy-back agreements and guarantees to insure the purchaser against loss.

The Section 41 report states that the initial capitalization of BCCI was just $2.5 million, and that subsequent increases of capitalization, to $845 million as of December 31, 1990, had been carried out through the extensive use of nominee arrangements, financed directly by loans from BCCI and its bank-within-a-bank, ICIC Grand Caymans.

In the report, Price Waterhouse specifically found that members of the Ruling Family of Abu Dhabi acquired their shares on the basis of guaranteed rates of return and buy-back arrangements, with the result that they were not at risk for their ostensible "shareholdings" of BCCI.(17)

While the evidence is not conclusive, there is a significant possibility that BCCI simply loaned the ruling family the funds for its stock, or provided them gratis.

A list of major loans to shareholders of BCCI prepared in connection with a BCCI audit for the year ending September 30, 1987, shows lending to the Ruler of Abu Dhabi as standing at $620,800,000 -- some $74 million more than the authorized "limit" for lending to Sheikh Zayed establish by BCCI's credit committee, and more than twice the amount lent to the next highest borrower, Ghaith Pharaon at $283,900,000. A second such list, dated July 31, 1991, shows loans to the Abu Dhabi group from BCCI totalling $371.8 million, with an additional $17.5 million in loans to Abu Dhabi from BCCI's affiliate, ICIC, for a total lending to Abu Dhabi of just under $390 million. After the Abu Dhabi group, BCCI's next highest level of lending to a shareholder was to its front-man, Kamal Adham, at $323.5 million. In either period, the size of the lending to Abu Dhabi was sufficiently substantial that it could have been applied to any number of purposes by either BCCI or Abu Dhabi, including the financing of a significant proportion of the holdings of members of the Abu Dhabi ruling family in BCCI itself and in CCAH/First American.(18)

Abu Dhabi's Involvement in the FGB Purchase

A lengthy account of how Abu Dhabi became involved as shareholders in the purchase of Financial General Bankshares (FGB) is set forth in the chapter on BCCI's entry into the United States.

The key questions that have arisen regarding those facts are whether Sheikh Zayed had a political agenda in participating in BCCI's secret purchase of FGB; whether the Abu Dhabi shareholders were BCCI's nominees in connection with those purchases; whether the Abu Dhabi shareholders knew that BCCI was the real owner of FGB; and whether Abu Dhabi shareholders or representatives knowingly participated in false statements made to the Federal Reserve in connection with the purchase.

Political Agenda?

From the first public awareness of the FGB takeover, reported in early 1978, the issue of whether the Middle Eastern investors in FGB had a political agenda was of substantial concern to regulators. As Virginia's chief banking regulator, Sidney Bailey stated in the public hearing at the Federal Reserve concerning the takeover in the spring of 1981:

There can be little doubt that some incentives other than orthodox investment motives must have prompted this effort. . . One obvious plausible answer to this riddle lies in the unique position of Financial General in the market. No other single financial institution is situated in both the financial and government hubs of the United States.(19)

Bailey wondered whether that secret agenda was somehow related to political goals of the Middle Eastern group involved.

According to Bert Lance, BCCI's initial partner in its most important acquisitions in the United States, both Sheikh Zayed and Abedi indeed felt that BCCI could become a critical element in strengthening ties between the United States and their constituencies. As Lance described a meeting between him, Sheikh Zayed and Abedi in Islamabad, Pakistan in late 1977:

Abedi was concerned about the shifting tides towards the Soviets in Afghanistan, Iran, India and the Mideast. Both Abedi and Zayed each expressed their concerns about the Arab worlds lack of ties to the US. They wanted to do something about it.(20)

This point of view was reflected in a contemporaneous press account in the Washington Post on December 18, 1977. As the article stated:

An Atlanta source close to the negotiations says the Arabs see Lance as giving them access to the administration. Though a private citizen, Lance is a regular visitor at the White House and is the chairman of a $500-to-$1,000-a-plate fund-raiser for President Carter scheduled for January in Atlanta. "Under normal circumstances," says this source, "NBG would be the last bank anyone would be interested in. But the investors see this as an opportunity to do a favor for someone close to the President."(21)

In response to a written question from the Subcommittee chairman, Al Sayegh denied that any of the Abu Dhabi investments in CCAH/First American were related to a larger political agenda:

The suggestion that Sheikh Zayed purchased shares in Financial General Bankshares to acquire influence in the United States suggests improper motives on his part. Not only . . . did he never purchase FGB shares, but the suggestion of improper motive is vehemently denied. The shares that were purchased for Sheikh Sultan and Sheikh Mohammed were solely intended as a passive commercial investment, not to acquire influence in the United States.(22)

Lance, who was present during the period of the original FGB purchases, had no motive to lie on this particular matter. It is not clear who the Washington Post's source was. Al Sayegh, who was not present during any of the events material to this issue, might well not wish to admit any political agenda that existed on the part of the Sheikh. However, the overall evidence accumulated by the Subcommittee on this point is insufficient to be conclusive either way.

Were Abu Dhabi Investors Nominees in CCAH/First American?

The Federal Reserve's judgments about the nominee role of the four Middle East investors in the FGB takeover were reached in large part on the basis of documents provided Federal Reserve investigators in the spring of 1991 by Abu Dhabi in Abu Dhabi.

These BCCI documents were in Abu Dhabi, because Abu Dhabi had insisted on moving them from London to Abu Dhabi in the spring of 1990 after being told of fraud at BCCI by BCCI's external auditors, Price Waterhouse, and agreeing to take over BCCI and to provide new funding for the bank to keep it from collapsing.

During their trip to Abu Dhabi in March, 1991, to review the BCCI documents that been moved there one year earlier by Abu Dhabi, the Federal Reserve investigators were not permitted open access to documents. Instead, they advised the Abu Dhabi government of the documents they wanted, and in return, were provided with access to certain files, which were brought by Abu Dhabi representatives to the Federal Reserve investigators' hotel rooms. As a consequence, the investigators recognized at the time that there was a very significant possibility that they were not being provided access to other important files, and that files pertaining to Abu Dhabi could have been hidden or destroyed.(23) The materials provided by Abu Dhabi to the Federal Reserve documented in detail the mechanisms by which Adham, Fulaij, Khalil, El Gohary, and others were used by BCCI as nominees. The materials provided did not include any documents concerning similar arrangements involving Abu Dhabi. Accordingly, the Federal Reserve's judgments about nominees did not reach the question of whether the Abu Dhabi shareholders had arrangements similar to that of the remaining Arabs involved in the 1978 and 1980 FGB takeover.

The Subcommittee has, however, interviewed and received additional statements in some detail, supplemented in more general terms by his sworn testimony, from a key BCCI official who handled the finances of the Sheikh of Abu Dhabi for BCCI in the relevant period, and who had frequent contact in the period 1977 through 1980 with Abdullah Darweish, the Abu Dhabi official handling the shares on behalf of one of Sheikh Zayed's sons during the takeover. This witness, Akbar Bilgrami, convicted of money laundering the Tampa case in 1989, handled personal finances for Sheikh Zayed's Private Department held at BCCI in the late 1970's, working closely with Abedi, Sheikh Zayed, and Darweish, and having numerous direct contacts with each of them in this period.

Bilgrami told the Subcommittee that while he and Darweish were in Marbella, Spain in late 1977 or early 1978, Darweish received a stack of legal papers from BCCI concerning the proposed FGB takeover and the role of the Abu Dhabi investors. Darweish asked Bilgrami to read and review these documents before he would sign them. Bilgrami read them carefully, and told Darweish that while many of the provisions were left in blank, the terms of the documents were for BCCI to provide loans, with buy-back agreements, to several members of the Abu Dhabi ruling family, in nominee arrangements. Bilgrami said the arrangements were complex and involved several interim entities between BCCI and the ruling family shareholders, but that the documents very clearly set forth a nominee relationship involving loans from BCCI for the purchase of shares in the U.S. bank. According to Bilgrami, Darweish told him this was "Abedi's operation," and that it was Darweish's understanding that Abu Dhabi participation in "Abedi's operation" had been cleared and that Darweish would sign the documents. At the time, Darweish advised Bilgrami that he was not happy about signing documents with blanks in them, but that he had little choice since the arrangements had already been made.(24)

Bilgrami concluded at the time that none of Abu Dhabi's funds were being invested in the U.S. and that Abu Dhabi's investors in FGB were all nominees, for several reasons. First, the documents described loans from BCCI to pay the Abu Dhabi investors for the share purchases. Second, the documents referred to "buy back" arrangements, which would give BCCI control over the shares, including the right to buy or sell them, and to set the price of any sale. Third, Bilgrami had had sufficient experience with the Abu Dhabi government to know that Darweish would not sign any document with blanks in it if Abu Dhabi itself was making an investment. Documentation for such investments were closely scrutinized by several levels of Abu Dhabi officials, and blanks would not have been permitted. Finally, Darweish made it clear to Bilgrami that the purchase of the U.S. bank was an "Abedi operation from beginning to end."(25)

According to Bilgrami, he made a copy of these documents for himself, in order to understand them better, and looked at them carefully at the time and at least one additional occasion to make sure he understood them. He said that he carried the documents with him whenever he was transferred to a new country by BCCI, and believed they remained among his papers at the time of his arrest in October 1988 in Tampa. However, it was his understanding from federal investigators that they had not been found among his seized papers.(26)

Bilgrami's account concerning Abu Dhabi having been nominees has been corroborated generally by another Pakistani who was also close to Darweish and involved in the circumstances pertaining to the FGB takeover in 1977 and 1978.(27) In addition, it is corroborated by the circumstances of Abu Dhabi's shareholders being selected by BCCI to participate in the FGB within days of the preparation of a memorandum by a BCCI employee, Abdus Sami. In the memorandum, dated January 30, 1978, Sami advised Abedi that the details of the FGB takeover had been agreed upon, but that BCCI needed to select two additional shareholders to supplement the two who had already agreed to participate. The memorandum implies that the two are to be nothing more than nominees:

We have already given the names of Sheikh Kamal Adham and Mr. Fulaig [sic]. We want two other names immediately.(28)

Within days, BCCI had the additional two names -- Darweish and Sheikh Zayed's son, Sheikh Sultan bin Zayed Al Nahyan.

According to Abu Dhabi, their participation was solicited by Abedi, and they understood them to be passive investments in a bank with high growth potential.(29) But if they were in fact investments, little if any investigation could have been done by the Abu Dhabi investors into the proposed investment between the time of the Sami memorandum and the time of their share purchases. And the language of the Sami memo -- which refers to names being given, rather than investments being sought -- suggest a nominee relationship instead, especially given the fact that the two names BCCI already had were indeed nominees for BCCI.

As Price Waterhouse told the Bank of England in its June 1991 Section 41 report:

We have . . . seen evidence to suggest . . . that the four investors [Kamal Adham, Faisal al Fulaij, Sheikh Sultan Bin Zayed and Abdullah Darweish on behalf of Sheikh Mohammed Bin Zayed] were used to keep individual ownership below 5% and to ensure that BCCI's name did not appear.(30)

Thus, documents reviewed by Price Waterhouse suggested that the two Abu Dhabi shareholders in the original FGB takeover were as much nominees as Adham and Fulaij.

According to information obtained from a Pakistani national familiar with the transaction, Sheikh Sultan's shares, and the shares held by Darweish on behalf of Sheikh Mohammed, were "allocated" by BCCI for the purpose of avoiding the SEC filing requirement that would have had to have been undertaken if the Abu Dhabi interests were combined together.

It is also significant that Bilgrami's description in staff interviews of the papers allegedly involving Abu Dhabi acting as a nominee for BCCI in 1977 and 1978 closely resembles the actual nominee arrangements BCCI reached with all of the other Arab shareholders -- documents that Bilgrami has never seen.

Abu Dhabi has vigorously denied that it was involved in any nominee arrangements with BCCI. However, given the fact that BCCI had nominee arrangements with the leaders of three other emirates in the United Arab Emirates, as well as with all of the other principal Arab "investors" involved with BCCI, the lack of involvement of Abu Dhabi in nominee arrangements would have been contrary to BCCI's practice. It is difficult to imagine that they would have chosen to be, alone among the Middle Eastern shareholders, including several others from the UAE, principals, rather than nominees, for Abedi and BCCI in the takeover of Financial General Bankshares. There is an additional plausible alternative: that the Abu Dhabi ruling family viewed BCCI already as an institution they owned and controlled, and therefore they did not distinguish between investments made by them personally and guaranteed by BCCI, or nominee arrangements under which they merely held stock for BCCI.

Accordingly, while the direct documentary evidence that would back up Bilgrami's assertions has not been made available by Abu Dhabi authorities, Bilgrami's account, supported by the other facts available to the Subcommittee, is credible. Either the Abu Dhabi shareholders were nominees for BCCI in the early days of the FGB takeover, or alternatively, they did not distinguish between their holdings of FGB and BCCI's.

[admin]

Part 2 of 3

Darweish's Arrest and BCCI's Role in Abu Dhabi in 1980

From 1977 to December, 1981, Abdullah Darweish was chairman of the private department of Sheikh Zayed and the ruling family of Abu Dhabi, responsible for handling their investments and functioning as a liaison to Abedi and BCCI. According to the Abu Dhabi Attorney General, Darweish's responsibilities were "holding the administration and investment of all monies and assets of this department."(31) Darweish had essentially sole authority for these funds, and worked closely with BCCI on many of the investments. On December 8, 1981, Darweish was arrested in Abu Dhabi and charged with defrauding the ruling family, with his role as chief financial advisor replaced by Ghanim Al Mazrui as head of a committee.

At the time of his arrest, Darweish was still a shareholder in Financial General Bankshares in Washington, having purchased shares in FGB on behalf of Sheikh Mohammed, one of Sheikh Zayed's sons, in the capacity as his guardian. According to various BCCI officials who knew Darweish, there had been a power struggle in Abu Dhabi between Crown Prince Sheikh Khalifa, Sheikh Zayed's son, and Sheikh Zayed, in which Darweish had been caught, with the result that when a compromise was reached between father and son, Darweish was the sacrifice. But his arrest also set into a motion litigation involving others who had been financially injured as a consequence of the power shifts which took place over the incident involving a Panama corporation, registered in the name of Sheikh Zayed, Financiera Avenida. Financiera had been established to invest Sheikh Zayed's wealth, without BCCI's involvement. After Darweish's removal, everyone associated with Financiera lost out, with the investment funds moving to the control of Sheikh Khalifa's long-time aide, Al Mazrui, who replaced Darweish, and to BCCI. The ensuring litigation opened a window into the operations and investments of Sheikh Zayed, and BCCI.

Depositions and documents produced during the litigation in New York, Chicago, London, Switzerland and Abu Dhabi showed that Abedi had come, as of 1980, to supervise essentially all of the handling of Sheikh Zayed and Abu Dhabi's wealth -- through his service on the investment committee of the Department of Private Affairs that supervised the placement of the Sheikhs' wealth outside of BCCI; through his handling, for a period, of essentially all of the oil revenues dedicated by Sheikh Zayed to his private investments; and in his capacity as chairman of BCCI, through his control over Abu Dhabi's funds on deposit at BCCI.

As Abu Dhabi's representative, Ahmed Al Sayegh, testified, "in excess of $2 billion was entrusted to Abedi and Naqvi for investment by Their Highnesses Sheikh Zayed and Sheikh Khalifa under a power of attorney between 1980 and 1990."(32) Al Sayegh did not identify how much in excess of $2 billion was entrusted to BCCI, but given Abu Dhabi's testimony that it lost $6 billion in all in BCCI's collapse, the amount must have been considerable.

In the context of Darweish's fall in 1980, several things happened to intensify the relationship between BCCI and Abu Dhabi. Sheikh Zayed directed that all of his personal oil revenues be placed in BCCI. He directed his investment authority, ADIA, to acquire a 10 percent state in BCCI from ICIC, after ICIC as BCCI's alter ego agreed to buy-back those shares from its departing U.S. partner, Bank of America. And he placed the chairman of his private department, Al Mazrui, on BCCI's board of directors, where Al Mazrui ultimately became chairman of the board. To a remarkable degree, the fallout from the Darweish arrest was the merger of Abu Dhabi's interest, and that of BCCI. This coincidentally took place at the exact time of the Financial General Bankshares takeover in Washington.

Ghanim Al Mazrui

As suggested above, for more than fifteen years, Ghanim Faris Al Mazrui has served Sheikh Zayed as a financial advisor and manager, having been secretary general of the Abu Dhabi Investment Authority (ADIA) from 1976 to the present, which handles the principal government investments of Abu Dhabi; chairman or acting chairman of the Private Department of Sheikh Zayed, which handles the principal personal investments of the ruler of Abu Dhabi, from 1982 to the present; and chairman of a "Shareholders Working Group," which Abu Dhabi describes as "an informal committee appointed to oversee and coordinate the Majority Shareholders' response to the closure of BCCI," since July, 1991, and continuing to the present.(33)

From 1981 on, Al Mazrui also served on the Board of Directors of BCCI itself, in his capacity as secretary general of ADIA, which held 10 percent of BCCI's shares.

Simultaneous with Al Mazrui's appointment to the Board of Directors of BCCI, was his appointment to the Board of Directors of two other banks in Hong Kong, ostensibly unrelated to BCCI, called the Hong Kong Deposit and Guaranty Bank and Tetra Finance, Inc. Both entities, on which he served with several other important Middle Eastern officials, including Yassin Hassan, Kamal Adham's original contact for the FGB takeover, collapsed just two years later, with a total loss of capital and depositor losses amounting to several hundred million dollars.(34) The collapse, however, did not appear have an impact on Al Mazrui's career, and he remained in place handling the ruling family's finances and entrusted with investing billions of Abu Dhabi's oil revenues as well, up to the time of BCCI's collapse a decade later.

Given his long service to both Abu Dhabi and his decade of hands-on experience with BCCI, substantial questions have arisen as to what Al Mazrui knew concerning BCCI's frauds, and when he knew about the frauds. In response to a question to Abu Dhabi from Senator Kerry concerning this issue, Abu Dhabi's designated witness, Ahmed Al Sayegh, stated that Al Mazrui first learned of BCCI's problems, and its involvement in false or deceitful accounting practices, in April, 1990, from Price Waterhouse, along with other members of BCCI's board of directors. According to Al Sayegh, in the same period, BCCI officers, whose names he failed to specify, met with Abu Dhabi officials, with names again not specified but which apparently included Al Mazrui:

in an effort to persuade the Government to make a substantial capital injection into the bank. BCCI's officers confirmed that the Bank was experiencing severe financial difficulties and disclosed the misuse of $2.2 billion of managed funds on behalf of the Ruling Family.(35)

Thus, Abu Dhabi's chief representative on BCCI's board, and Sheikh Zayed's trusted financial manager, Al Mazrui, had for the previous decade somehow failed to detect BCCI having misused, and apparently defrauded Abu Dhabi of, up to $2.2 billion, in addition to having presided over the failures of the two Hong Kong banks in 1983. Moreover, Al Mazrui himself had participated in improprieties and received no-risk financial pay-offs from BCCI.

As Price Waterhouse told the Bank of England, in June, 1991, neither Al Mazrui nor any other representative of Abu Dhabi had advised them that substantial funds of Abu Dhabi had been "mismanaged" by BCCI. The auditors could not determine what else Al Mazrui knew and when he knew it. But the auditors had determined that Al Mazrui himself had been involved in unusual financial practices with BCCI from 1986 on:

The extent to which the major shareholders and in particular their board representative H.E.G.F. Mazrui was aware of the matters discussed in this report [that is, BCCI's frauds] cannot be established. We are, however, informed that H.E.G.F. Mazrui and the government were briefed fully on all the problems in April, 1990, notwithstanding that they allowed the 1989 accounts to be finalised in discussions with ourselves and the Regulators without disclosing this information. In addition, up until discussion of our Report to the Directors and Regulators of 3 October 1990, H.E.G.F. Mazrui contended that the loans for collection by the shareholders which have now been proven to be totally fictitious, were recoverable.(36)

Price Waterhouse further advised the Bank of England that Al Mazrui had his own accounts at BCCI's bank-within-a-bank, ICIC, which showed that he received funds in 1986 and earlier from no-risk transactions involving BCCI shares in which he was guaranteed against possible loss. Price Waterhouse told the Bank of England that Al Mazrui confirmed that he benefitted from these transactions and informed the Abu Dhabi government of his involvement in them, ostensibly for the first time, in April 1990. Price Waterhouse told the Bank of England that Al Mazrui also confirmed a fictitious loan made to the Crown Prince of Abu Dhabi by BCCI, but claimed that he did not remember signing the false confirmation. Al Mazrui told Price Waterhouse that his signature must have been forged, a contention Price Waterhouse rejected.(37)

In summary, the Section 41 report by Price Waterhouse shows that Al Mazrui received substantial personal financial benefits from BCCI through no-risk stock trading; argued that BCCI loans which were really fictitious were recoverable; and personally confirmed a bogus BCCI loan to the Crown Prince of Abu Dhabi and then lied about it, before confessing all to Abu Dhabi authorities in April, 1990. Yet more than two years later, Al Mazrui remains in place as the head of Abu Dhabi's working group to deal with BCCI-related problems. Al Mazrui has neither been fired, nor resigned, from the positions of trust he has clearly violated.

Given these facts, Al Mazrui's continued role in handling Abu Dhabi's response to the collapse of BCCI, raises additional questions. One possible explanation is that Sheikh Zayed and the ruling family are remarkably tolerant of incompetence, deception, fraud, and the personal enrichment of top advisors. Alternative explanations are that Al Mazrui's improprieties had previously been sanctioned by higher-ups, or were consistent with ordinary practices in the Emirate.

Abu Dhabi's Commitments in April-May, 1990

On April 18, 1990, Price Waterhouse provided a devastating report on BCCI to the Bank of England which was simultaneously provided to BCCI's board of directors, including Abu Dhabi representative Al Mazrui. The report stated that a number of financial transactions at BCCI booked in its Grand Caymans affiliates and other offshore banks were "false and deceitful," and that it was impossible at the present time to determine just how far the fraud reached.

Price Waterhouse's report was prompted by its own critical need to solve a problem. It was no longer in a position to certify BCCI's books, unless someone provided financial guarantees to protect against loss. Either BCCI had to be closed down now, or the Bank of England itself had to give its assent to keeping it open in some new form as a means of avoiding losses to BCCI's million or more depositors. New management needed to be installed. New financing had to be found, and the holes in BCCI's books had to be plugged.

The obvious solution was to ask Sheikh Zayed and the government of Abu Dhabi to take over the bank. As Zayed and the Al Nayhan family who ruled Abu Dhabi had been major depositors of BCCI, and had long had billions in family finances handled by BCCI, they stood to lose as much as anyone if the bank collapsed. Accordingly, Abu Dhabi would have to be told the truth about BCCI's perilous condition, and asked to commit funds to keeping the bank solvent.

A series of urgent meetings were held in Abu Dhabi and Luxembourg, beginning in March, 1990, in which Naqvi confessed his errors and resigned from his position as CEO at BCCI. A new management team was brought in. Unfortunately, rather than constituting a strong group of banking professionals, the new team was headed by a long-time Abu Dhabi insider from BCCI itself, Zafar Iqbal, the former head of BCCI's branch in the United Arab Emirates, the Bank of Credit and Commerce Emirates, or BCCE, who had long had a close personal relationship with important members of the ruling family of Abu Dhabi arising out of his provision of intimate personal services for them in Pakistan and elsewhere. Within the bank, Iqbal was not considered to be an expert on much besides pleasing the Abu Dhabi ruling family. BCCI junior officers knew him as the man who had for years provided "singing and dancing girls" to the ruling family, and related personal services.(38) BCCI operations were moved, without objection from the Bank of England, to Abu Dhabi, along with all of BCCI's most important records. And assurances were given to Price Waterhouse that Abu Dhabi would make an open-ended financial commitment to bail out BCCI, enabling Price Waterhouse to sign off on its books. As Price Waterhouse stated to the chairman of the Abu Dhabi Finance Department on April 25, 1990:

Your representative, HE G Al Mazrui, has confirmed to use that you are fully aware of the nature and magnitude of the uncertainties and prepared to provide the necessary financial support in the event that losses arise from realisation of these loans.(39)

Price Waterhouse then duly certified BCCI's books, subject to a single caveat -- that the basis of the preparation of the certification was Abu Dhabi's intention to maintain BCCI's capital base while it reorganized and restructured.

By agreement, Price Waterhouse, Abu Dhabi, BCCI, and the Bank of England had in effect agreed upon a plan in which they would each keep the true state of affairs at BCCI secret in return for cooperation with one another in trying to restructure the bank to avoid a catastrophic multi-billion dollar collapse. Thus to some extent, from April 1990 forward, BCCI's British auditors, Abu Dhabi owners, and British regulators, had now become BCCI's partners, not in crime, but in cover-up. The goal was not to ignore BCCI's wrongdoing, but to correct it in order to keep the bank in operation, and therefore, to hide the truth from the public because the truth would force the bank to be closed.

If Abu Dhabi had honored the commitment made to Price Waterhouse and the Bank of England, when BCCI was closed globally, BCCI's innocent creditors and depositors would not have suffered a penny in losses, since Abu Dhabi had agreed to guarantee them as the price for the Price Waterhouse certification.

Coverup and Obstruction of Investigations

In April, 1990, Naqvi and the other chief officers who resigned with him from their positions in BCCI were placed under house arrest in Abu Dhabi, as Abu Dhabi took formal control of BCCI. Unfortunately, as it did so, it did not disclose to Price Waterhouse certain information that it now had about the extent of the fraud at BCCI, and it took positions that had the clear intention of seeking to sweep the true nature of BCCI's problems under the rug, and to avoid the disclosure to BCCI's regulators of what had really taken place. Essentially, Abu Dhabi was now seeking to make certain that the money it was spending on BCCI would suffice to keep secret many of the facts about the relationship between Abu Dhabi and BCCI, even, as necessary, from Price Waterhouse, the outside auditors for the bank it now owned.

In September, 1990, Price Waterhouse learned that BCCI had concealed further lending of over $500 million to its major customs by "parking" that lending with a Middle Eastern bank, namely, the National Commercial Bank of Saudi Arabia controlled by Khalid bin Mahfouz, the most powerful banker in the Middle East, who was later indicted in the United States in connection with his activities pertaining to BCCI and First American. Price Waterhouse also learned that since Naqvi's removal, the practice had continued, "with the knowledge and approval of the Board representative of the controlling shareholders" -- the government of Abu Dhabi. The auditors had begun to realize that Abu Dhabi officials were now colluding with BCCI in continuing fraudulent practices, and in hiding them from Price Waterhouse.(40)

Since March or April, 1990, Naqvi, who had personally handled in excess of $2 billion of Abu Dhabi's funds and was personally responsible for many of BCCI's frauds, had been living under house arrest in Abu Dhabi. Abu Dhabi had decided to retain Naqvi as a consultant to advise them on BCCI, and were giving him access to BCCI's documents. According to Price Waterhouse, Naqvi was maintaining some 6,000 files personally in Abu Dhabi, whose very existence had still never been disclosed to the auditors. For months, as Price Waterhouse continued its efforts to review BCCI's books, it had been lied to by BCCI and it was finding, by Abu Dhabi, kept in ignorance of the bank's most vital records, and only stumbled onto the fact of their existence in November, 1990.(41)

As Price Waterhouse described it, when they confronted Abu Dhabi with their concerns about Naqvi, and a request to review the files he controlled, they were told by Abu Dhabi authorities that the auditors could not have access to them, and that they would remain under the control of the discredited Naqvi:

Price Waterhouse's report to the directors of 3 October 1990 revealed that management may have colluded with some of BCCI's major customers to misstate or disguise the underlying purpose of significant transactions. Following this, the controlling shareholders of BCCI [Abu Dhabi], under pressure from Price Waterhouse, agreed to a full investigation of the problem accounts and to enforce the resignations of Abedi and Naqvi as directors.

An Investigative Committee comprising representatives from Price Waterhouse, E&W Middle East Firm (who were auditors of the Abu Dhabi Government interests), two firms of lawyers and the Abu Dhabi Government was established in November 1990 to supervisor the investigation into the problem accounts. Price Waterhouse were advised by senior BCCI management that Naqvi had been retained as an "advisor" to provide explanations to the Abu Dhabi Government and that they could not have access to files being used by him. Price Waterhouse made clear to the controlling shareholders that without access to Naqvi and the files he was using there could be no investigation.

Ultimately access was granted and we were shocked to find that Naqvi was holding around 6,000 files. After initial steps to secure the files, a preliminary review revealed that amongst them were details of transactions and agreements not previously disclosed to us despite management's prior assurances that they had provided all relevant information to Price Waterhouse.(42)

Abu Dhabi had placed Naqvi, a principal architect of BCCI's frauds, in charge of BCCI's most important and secret records without telling them. For the past eight months, Naqvi and Abu Dhabi had maintained exclusive control of those records, with essentially unlimited opportunities to destroy them or falsify them throughout that time. By the time Price Waterhouse finally obtained access to these records in November and December, 1990, it found massive fraud in the materials that still existed. But the auditors had no way of determining the extent to which those documents were already cleansed of any material damaging to the new owners of BCCI, along with any other material which Abu Dhabi or Naqvi wanted hidden forever.

During December, 1990, at the very time that the New York District Attorney had obtained some of the most critical of its earlier audit reports, Price Waterhouse completed its initial review of the formally hidden Naqvi files. In that review, Price Waterhouse found evidence of phony loans and hidden deposits amounting to hundreds of millions of dollars, nominee arrangements, hold harmless agreements relieving borrowers of any obligation to repay loans, and other, similarly criminal practices at the bank. Again, to Price Waterhouse's shock, Abu Dhabi had known of these practices since at least April, 1990, and never disclosed them to the auditors.(43)

The implications of these findings for BCCI's future were devastating. If there were in fact deposits that had been made to BCCI amounting to hundreds of millions that had never been recorded at the bank, how was anyone to ever determine what claims by BCCI depositors might be real, and what claims might be phony? Price Waterhouse decided that it dare not put this information in writing, and would confine itself to reporting it orally to the Bank of England, which it did in January 1991. In response, Abu Dhabi again agreed to make good any losses in connection with these unrecorded deposits.(44)

Attempt At Restructuring 1990 and 1991

The key goal of Abu Dhabi from the time it took control of BCCI in April, 1990 was to find a way to save its interest in the bank. By the account of Al Sayegh and Abu Dhabi:

In April, 1990, senior management revealed that BCCI had suffered significant losses and Price Waterhouse for the first time identified certain transactions that had been "either false or deceitful." The Price Waterhouse report was sent to the Bank of England and was discussed at a meeting between the Bank of England, the Luxembourg Monetary Institute, Price Waterhouse, and BCCI management in April, 1990. With the full support of the Bank of England, the Ruling Family purchased some 15 million outstanding BCCI shares, and the Abu Dhabi Department of Finance (which previously had owned no BCCI shares) purchased another 15 million outstanding shares and subscribed for 10 million additional shares issued by BCCI. The share issuance was intended to cover the losses which had been identified and to restore the liquidity of the BCCI subsidiary banks. As a result of these steps, and the outlay of $1.2 billion, the Abu Dhabi investors now owned 77 percent of the stock of BCCI.(45)

Abu Dhabi immediately removed Naqvi from control of BCCI and replaced him with Zafar Iqbal, then head of the Abu Dhabi operation of BCCI, the Bank of Credit and Commerce Emirates, whose qualifications for the position have been discussed above. They decided to shrink the bank, and:

with the encouragement of the College of Regulators, a decision was made to move the headquarters of BCCI to Abu Dhabi form London, so that the Majority Shareholders could begin to monitor some of the activities of BCCI management.(46)

Planning began to find a way to restructure BCCI into a three-headed entity, with separate "independent" banks based in three locations, Abu Dhabi, Hong Kong and London, in a proposal that evidently had some support if not final approval from the Bank of England and the College of Regulators through the spring of 1991. As described in a legal analysis provided to the BCCI Creditors' Committee after BCCI's collapse by the firm of Norton Rose in London, this transaction would have involved the Government of Abu Dhabi committing "some US$4 billion . . . under financial support arrangements." These arrangements were signed between BCCI and Abu Dhabi on May 22, 1991. Under their terms, most of BCCI's problem loans were transferred at book value -- far in excess of their real value -- to new companies owned directly by the Government of Abu Dhabi. In return, Abu Dhabi gave BCCI SA promissory notes denominated in US dollars and UAE dirhams, equivalent in face value to $3.061 US, with additional guarantees totalling another $750 million for a group of remaining loans with some value.(47)

The three separate and independent banks to arise out of BCCI's ashes were to have control and management of the operations of the former BCCI banks divided into Europe and Canada, for the United Kingdom bank; the Middle East and Asian subcontinent, for the Abu Dhabi bank; and the Far East, for the Hong Kong bank. Under the plan, a substantial portion of the BCCI global network would have been wound up or sold off. The banking operations of BCCI would have been transferred from Luxembourg to Abu Dhabi by the end of 1991 and from Grand Caymans to Abu Dhabi by the end of 1992.(48)

Snags developed, however, as the restructuring proposal proceeded. The first was the New York District Attorney obtaining information in the late autumn of 1990 concerning the previous Price Waterhouse audit reports, including the April, 1990 reports, that triggered Abu Dhabi's takeover of BCCI.

In November, 1990, the New York District Attorney advised the Federal Reserve that a source stated that the reports showed that there had been massive lending -- amounting to $850 million or more -- by BCCI to First American's shareholders, none of which had ever been disclosed to the Federal Reserve.

The Federal Reserve, after some significant obstacles, was permitted by BCCI in December, 1990 to view those reports in London.

On December 21, 1990, Federal Reserve attorneys met with attorneys for Abu Dhabi and BCCI from the Washington law firm of Patton, Boggs and Blow. The Federal Reserve learned from Patton Boggs for the first time about the massive restructuring of BCCI planned by Abu Dhabi to respond to unspecified capital "deficiencies" at BCCI. Patton Boggs confirmed that what the Federal Reserve already knew from the Price Waterhouse audit reports -- that BCCI had lent large sums to CCAH's shareholders which were secured by CCAH's shares. Two weeks later, the Federal Reserve opened a formal investigation. Less than three weeks later, it concluded that criminal activity had been involved in the First American purchase, referred the matter to the Justice Department, sent a proposed cease and desist order to BCCI, and widened its investigation.(49)

Thus, during the spring of 1991, Abu Dhabi faced a new problem. At any time, the Federal Reserve could, if it so desired, make it impossible for the Bank of England to proceed with the restructuring. Accordingly, Abu Dhabi found itself in the position of having to cooperate with the Federal Reserve's investigation of BCCI and First American, and provide information which could simultaneously confirm some of BCCI's frauds, and thus increase the risk that bank which it was trying to save would not survive.

The compromise reached by Abu Dhabi was to permit Federal Reserve investigators to travel to Abu Dhabi and review BCCI documents, but only those documents pertaining to transactions involving U.S. banks, and only as selected by Abu Dhabi. The Federal Reserve investigators went to Abu Dhabi, told them what categories of documents they wanted, and Abu Dhabi officials then "located them" from its BCCI document files. When investigators sought to meet with Swaleh Naqvi, access to Naqvi was granted, but only after Naqvi was provided an attorney who protested that he could not allow the investigators to speak with Naqvi until the lawyer was more familiar with the case.(50) The result was that the Federal Reserve obtained substantial, but incomplete, information concerning BCCI's activities in the United States, and very little information of any kind concerning Abu Dhabi's role, or what took place at BCCI apart from its role in purchasing U.S. banks.

After the Federal Reserve, First American, and BCCI entered into consent decrees on March 4, 1991, Subcommittee staff contacted Abu Dhabi's U.S. attorneys at Patton, Boggs and Blow in an effort to understand the ramifications of the decrees and the proposed restructuring of BCCI. In the meeting, staff expressed their concerns about the fact that BCCI's former head, Swaleh Naqvi was still in place providing advice and assistance to BCCI; that BCCI's current head, Zafar Iqbal, was to remain in control of the banks throughout the restructuring and presumably afterwards; and that a structure was to emerge out of BCCI which failed to respond to what was even the one an obvious lesson of the BCCI affair -- dividing BCCI into more than one part was dangerous to the health of the international banking system. The attorneys at Patton, Boggs and Blow, who were at the time representing both Abu Dhabi and BCCI, acknowledged that they shared the concerns about Iqbal and Naqvi, and would pass the Subcommittee's concerns on to their clients. Staff questioned the attorneys as to whether the three independent banks could do business with one another, and what protection would be in place to prevent further fraud from taking place. In response, Middleton Martin, Abu Dhabi's principal lawyer at Patton, Boggs and Blow in Washington, suggested that Abu Dhabi was a "white hat" among whomever might be the "black hats," and was doing its best to solve BCCI's many problems.(51)

At the direction of the chairman of the Subcommittee, staff met with staff of the Federal Reserve to express Senator Kerry's concerns about the proposed restructuring, and the wisdom of permitting BCCI to be restructured in three parts. The Federal Reserve took the position with staff that the decision was the Bank of England's. The Federal Reserve's principal goals were to sever BCCI's relationship with First American and to find out the nature and decree to which U.S. banking laws had been violated by BCCI, its shareholders, and officers. However, Federal Reserve investigators were also disturbed by the continued participation of BCCI directors and officers in the future of the proposed three banks, and objected especially to the continued involved of Iqbal. By the late spring of 1991, both U.S. and U.K. regulators began to insist on the removal of Iqbal as the head of BCCI. Al Mazrui, who had worked closely with Iqbal for many years, resisted, temporarily paralyzing the restructuring plan that had previously been agreed to among the various regulators, Abu Dhabi and BCCI.(52)

While tentatively assenting to Abu Dhabi's proposal for restructuring BCCI, the Bank of England, in about March, 1991, also authorized a Section 41 report by the auditors, named for the provision in British banking laws by which regulators can commission an audit report of a bank by its outside auditors for the regulators. That report was initiated at least in part in response to new information developed by Price Waterhouse in December, 1990 or January 1991 about the broad extent of BCCI's frauds. The Section 41 report was completed in late June. The fraud outlined in that report resulted in the Bank of England deciding, within days, to abandon its previous support for a restructuring and to close the bank. Just two days before BCCI was closed, Abu Dhabi had provided the British and Luxembourg regulators with the latest -- and what proved to be the final -- draft restructuring plan for BCCI.(53)

Abu Dhabi and BCCI's Closure

Abu Dhabi representatives were outraged by the sudden closure of BCCI. They had not been expecting the action, had committed nearly $4 billion to keep BCCI open, and had been working closely with regulators in an effort to make the restructuring succeed. Moreover, in an effort to appease the Federal Reserve and prevent a collapse of First American, while also protecting against the loss of the value of its investment in First American, Abu Dhabi had also made a series of payments totalling about $190 million to keep First American from possible failure. The last of these payments was made only days before the final closure of BCCI, a closure which Abu Dhabi could reasonably conclude might well have been timed not to take place until the moment they had put up the final installment of cash to help prop up First American.(54)

In the wake of BCCI's collapse, any cooperation from Abu Dhabi to the Federal Reserve ceased.

Abu Dhabi's first step in response to the closure of BCCI was to set into motion legal proceedings in Abu Dhabi entitling it to seize the promissory notes it had issued to BCCI as part of the restructuring plan. As Norton Rose described it:

On Tuesday, July 16, 1991 the Government of Abu Dhabi filed Plaint No. 1560 with the Abu Dhabi Civil Court of First Insurance. . . The Court ordered such seizure and consequently that afternoon four court officers attended the head of BCCI Group . . . where they located the outstanding promissory notes and two guarantees, sealed them in yellow enveloped, and deposited them in a safe (which was marked red) at the Bank. The keys to the safe are apparently being kept in the Treasury of the Abu Dhabi Civil Court.(55)

Thus, Abu Dhabi insured that actual documents representing the additional financial obligations it entered into with BCCI -- ranging from $1.2 billion to $2.8 billion depending on how one valued the notes -- would be locked under seal and kept from BCCI's liquidators, who otherwise might be able to recover additional funds from Abu Dhabi on the basis of the notes, but now would be stymied through the notes' impoundment.(56)

Abu Dhabi spent the remainder of July, 1991 trying to avoid the liquidation of BCCI and to restart the restructuring plan. It applied to the courts in the UK and Luxembourg to adjourn the petition for liquidation to permit the consideration of the restructuring. But the effort was fruitless. Even if the courts did not ultimately reject it, within a few hours of its closure on July 5, 1991, BCCI had effectively been obliterated, leaving some 14,000 employees out of work, and some one million depositors out of luck. BCCI had lost billions of their money long ago. But it was BCCI's closure that forced the world to recognize the losses.

Abu Dhabi and the Liquidators

Shortly after BCCI's closure, liquidators were appointed by the District Court of Luxembourg, where BCCI was incorporated, to handle the winding up of BCCI and the recovery of the maximum possible amount of assets for distribution to innocent depositors and creditors of BCCI worldwide. The mandate of BCCI's liquidators was to recover funds, not necessarily to aid in investigations of BCCI. As chief liquidator Brian Smouha testified:

[O]ur responsibility is to use the resources in the liquidation estates to maximize recoveries to be made available to creditors and depositors. [A]s far as we are able consistent with that responsibility, we endeavor to cooperate with numerous investigative authorities in a number of countries.(57) [emphasis added]

Thus, to whatever extent investigative efforts might threaten to reduce the recovery of funds for BCCI's depositors, BCCI's liquidators have a responsibility under the terms of their appointment to sacrifice the investigation and uncovering the truth about what happened to the goal of maximizing funds to return to the creditors.

Following their appointment, the liquidators found two key situations they had to deal with in order to recover substantial assets for BCCI. The first was in the United States, which had more than $330 million in BCCI assets frozen unless an agreement could be reached with the Justice Department, New York District Attorney, and Federal Reserve. The second was with Abu Dhabi. Abu Dhabi had previously guaranteed BCCI's debts as of April, 1990. At the time of the liquidation of BCCI, it was BCCI's sole owner. Abu Dhabi has one of the world's deepest pockets as a result of its huge oil reservoirs, and its revenues from oil of $10 billion or more annually. There would be numerous possible theories for recovering funds from Abu Dhabi if its role were litigated by the liquidator. On the other hand, Abu Dhabi also held a number of cards were any such litigation to take place. First, it controlled BCCI's records. Second, it controlled key BCCI witnesses. Third, its wealth could easily be turned to time-consuming litigation, delaying any pay-out to innocents for a decade or more. As a result, the liquidator either had the choice of reaching an agreement with Abu Dhabi which met it interests, or of entering in a difficult, contentious, and drawn-out battle with Abu Dhabi with uncertain results.

The U.S. situation was, needless to say, far easier to resolve. The liquidators were to a remarkable degree able to integrate the goals of assisting investigators and helping depositors in the context of the plea agreements they reached in the United States on January 24, 1992. In those agreements, BCCI's liquidators entered pleas of guilty on behalf of BCCI to federal racketeering and similar New York state charges. The pleas promised full cooperation by the liquidators with U.S. law enforcement authorities and worked out a fair distribution of BCCI's assets in the United States that protected U.S. interests while facilitating the return of excess funds to BCCI's worldwide creditors. BCCI's liquidators also provided substantial assistance to the Subcommittee investigation, providing thousands of BCCI documents in the United States, waivers of the attorney-client and work-product privilege of BCCI's attorneys and investigators, and other important help.

But on the issue of BCCI and Abu Dhabi, the goals of investigating what happened, and the liquidators need to insure the maximum recovery, were not so easily aligned.

Abu Dhabi took a number of positions with the liquidators which together amounted to Abu Dhabi maintaining its ability to cover-up any information it wished the world not to know.

First, Abu Dhabi made it clear to the liquidators that they could not press for the return of BCCI's documents held in Abu Dhabi, despite the fact that under any ordinary standard of bankruptcy law outside the jurisdiction of Abu Dhabi, the liquidators have the right to control those documents, and the obligation to make them available to parties at interest in the liquidation.

Second, Abu Dhabi made it clear that the liquidators themselves would have only limited access to BCCI's documents in Abu Dhabi for the limited purpose of using them to try to litigate claims against non-Abu Dhabi borrowers from BCCI. As Smouha acknowledged:

[W]e have, after initially being denied access to those documents, since late summer [1991] had access to the Central Credit Division and other Central Office documents in Abu Dhabi for loan recovery purposes. Many of the critical documents in Abu Dhabi were put under the control of a court appointed receiver in Abu Dhabi. The receiver has not permitted us to remove documents from Abu Dhabi.

With respect to witnesses, as you know, certain key ex-employees of BCCI are under arrest in Abu Dhabi. We have asked for access to certain of those persons. We have been advised that these persons are under control of [t]he public prosecutor in Abu Dhabi and that access must be obtained through that official.(58)

As of the writing of this report, that access had yet to be obtained by anyone outside the Abu Dhabi government.

Third, Abu Dhabi insisted that it alone would have the right to reach judgments about whom to sue on BCCI's behalf from among BCCI's lawyers, accountants, and top officers, and how to proceed against them, while permitting the liquidators to share in 50 percent of any returns on such claims, with the other 50 percent to be given to Abu Dhabi itself.(59) As Michael Crystal, an attorney for the liquidators, testified:

Under the proposed arrangements . . . these claims will be managed . . . by the Government of Abu Dhabi's lawyers under a cooperation arrangement under which we have a say in the case management.(60)

In fact, the literal language of the Contribution Agreement proposed leaves this decision entirely to Abu Dhabi's discretion, regardless of whom they may consult on "case management":

[T]he claims of Principal BCCI Companies against certain specified third parties are to be assigned to the Government of Abu Dhabi [and] will be pursued by them. [This applies to] the former auditors and certain former solicitors of the Principal BCCI Companies; certain named individuals who were formerly responsible for the management of the principal BCCI Companies.(61)

The right to make decisions about how and against whom to pursue claims is a basic right of any liquidator, and one of the most important responsibilities, as the issue of who is sued, how a case is managed, and whether or not to settle such claims goes to the heart of a liquidators' ability to maximize a recovery.

Here, the interest of Abu Dhabi and the liquidators could dramatically diverge. For example, Abu Dhabi might well be more interested in insuring the silence of BCCI's professional advisors, lawyers and accountants, than in the maximum recovery of assets from them. Accordingly, if the liquidators acquiesced in Abu Dhabi's insistence on having the sole right to make this decision, Abu Dhabi could choose to settle claims against those who know the most about Abu Dhabi's participation in BCCI's improprieties, in return for their silence. Contrary to the import of Crystal's testimony, if Abu Dhabi decided to settle its claims against BCCI officers like Swaleh Naqvi, against its auditors like Price Waterhouse, and against its attorneys, in return for their agreement to say nothing further about what they had learned concerning BCCI to anyone, including government investigators, the liquidators would be bound to accept the decision.

Finally, as would be normal in any such agreement, the liquidators would release Abu Dhabi from any claims that the liquidators, on behalf of BCCI, its depositors and creditors, would have against Abu Dhabi.

In return for these key concessions by the liquidators, Abu Dhabi agreed to provide $1.7 billion to the pool to be used to repay creditors and depositors. Given Abu Dhabi's contention that it was defrauded of $6 billion, and its professions of innocence, its claims would be treated equally with those of innocent creditors and depositors, with the result that half or more of the $1.7 billion contributed by Abu Dhabi would likely be returned to Abu Dhabi itself, going from one Abu Dhabi pocket to another, leaving depositors receiving no more than 30 cents on the dollar for their losses and according to some creditors' contentions, far less.

Given the difficult choice between accepting these unusual demands from Abu Dhabi in return for Abu Dhabi's $1,7 billion contribution or of litigating Abu Dhabi's liability, the liquidators accepted to Abu Dhabi's demands and initialed agreements with Abu Dhabi on February 20, 1992, incorporating the concessions described above, subject to approval by BCCI's creditors and depositors. These agreements, which also included detailed and reasonable provisions for the pooling of BCCI assets and other important technical issues pertaining to the liquidation, were then provided to the courts for ratification, ratified by the British court, and remain pending before the Luxembourg court.

The practical consequences of the agreements reached by the liquidators with Abu Dhabi have meant that the liquidators have essentially chosen not to contest Abu Dhabi's positions concerning its innocence in the affair; have decided not to investigate any wrongdoing by Abu Dhabi in connection with BCCI; have acquiesced in Abu Dhabi's sequestration of documents that legally belong to the liquidators and witnesses to whom the liquidators legally should have access; and have even placed Abu Dhabi in the position of being able to purchase the silence of the auditors and lawyers who handled BCCI's affairs.

The secrecy, if not necessarily the real reason for the secrecy, concerning the actual nature of Abu Dhabi's possibility liabilities to the creditors, has been acknowledged by the liquidators themselves. For example, the presentation made to BCCI's creditors and depositors by the liquidators in their March 16, 1992 report describing the proposed agreement with Abu Dhabi explicitly states under the title "Disadvantages" of the agreement, that:

The Liquidators are advised by their legal advisors that it would be inappropriate to provide a detailed assessment of claims against the Majority Shareholders, because to do so might be highly prejudicial to the interests of creditors were the Majority Shareholder Agreements not to become unconditional.(62)

This remarkable sentence contains the essence of the dilemma in the liquidator-Abu Dhabi deal. If the liquidators were to tell those whom BCCI injured what Abu Dhabi might have done and what its potential liability might be, either the creditors, Abu Dhabi, or both might withdraw from the agreement, with ten years of more of difficult litigation ensuing. Those being asked to sign off on the agreement, were being required to do with full warning by the liquidators that the liquidators were already suppressing information on Abu Dhabi's liability in order to obtain the agreement.

Equally important, the practical consequences of the agreements reached by the liquidators with Abu Dhabi have been that the liquidators are as a practical matter acquiescing in Abu Dhabi's frustration of U.S. law enforcement, regulatory, and Congressional investigations concerning its activities pertaining to BCCI. This is disputed by the liquidators. As Michael Crystal testified:

The commercial situation is not intended by the court appointed fiduciaries, nor does it, touch and concern the ongoing obligations of regulators to inquire into the past, to look into history, and to consider whether there has been criminal misconduct which needs to be prosecuted. There's nothing in the plea agreement which we think cuts across those two separate interests.

The plea agreement requires us to cooperate with regulators to ensure that crime is prosecuted and we have taken assiduously our duties to provide full cooperation to the relevant regulatory authorities under the plea agreement.

So far as the commercial arrangements are concerned . . . they will not prevent regulators in jurisdictions who have access to international treaties . . . from continuing to pursue criminals and bring them to justice in a variety of jurisdictions.

The arrangements with Abu Dhabi don't prevent that. They don't prohibit it.(63)

Crystal's testimony on this point was technically correct, but as a practical matter, misleading. In giving the power of the liquidators to reach independent judgments about how to pursue those most knowledgeable about BCCI's wrongdoing -- and the extent of wrongdoing by Abu Dhabi -- the agreements with Abu Dhabi initialed by the liquidators have already had, and will continue to have, a profound negative impact on ongoing criminal investigations in the United States pertaining to BCCI.

Moreover, there is, to say the least, a very large tension between the legal commitment the liquidators made to the Justice Department and the New York District Attorney to provide BCCI's full cooperation to the United States, and the legal commitment the liquidators have now made to Abu Dhabi. In time, that tension could imperil the ability of the liquidators to recover any assets from the United States. U.S. law enforcement would be fully entitled to declare that the commitments made to Abu Dhabi have precluded the cooperation with the United States required under the plea agreement entered into by the liquidators on BCCI's behalf. With the liquidators thus declared in breach of their commitments to the Justice Department, New York District Attorney, and Federal Reserve under the plea agreements, the latter institutions and the U.S. courts could be free to take the position that BCCI's U.S. assets had been forfeited by the liquidators in the process.

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Part 3 of 3

Al Sayegh's Testimony And Answers to Questions

Beginning in the spring of 1991, the Subcommittee asked Abu Dhabi's and BCCI's lawyers at Patton Boggs and Blow that Abu Dhabi or BCCI provide knowledgeable witnesses to testify in public concerning the key issues pertaining to BCCI. These requests were ignored, or rejected, until the spring of 1992, when the Subcommittee advised Abu Dhabi's attorneys that they themselves could be subpoenaed to testify before the Subcommittee in their capacity as business agents for Abu Dhabi in the event that a knowledgeable Abu Dhabi witness was not produced. Recognizing that Abu Dhabi was continuing to refuse to produce the key BCCI officials, such as Swaleh Naqvi, the Subcommittee requested that Ghanim Al Mazrui be produced, or an equally knowledgeable associate.

A hearing date was set for May 14, 1992. Until a few days before the hearing, Abu Dhabi did not inform the Subcommittee of the identify of the witness who testify. Shortly before the hearing, he was identified as Ahmed Al Sayegh, a member of the steering committee, headed by Al Mazrui, responsible for handling Abu Dhabi's response to BCCI's closure, and a person with no knowledge of, or involvement in, Abu Dhabi's activities with BCCI over the previous two decades. That lack of knowledge was, unfortunately, reflected in a number of answers by Al Sayegh to important questions from the Subcommittee.

Al Sayegh was, for example, unaware that from at January 1978 through November 1990, Clark Clifford and Robert Altman represented Abu Dhabi, testifying that "I don't think they were ever our lawyers, Senator." In fact, Clifford and Altman made numerous filings with regulators on the behalf of various members of the Abu Dhabi ruling family, had extensive correspondence with representatives of Abu Dhabi, met with Abu Dhabi's representatives during the Financial General Bankshares takeover, and had signed powers of attorney, spanning more than a decade, for Sheikh Zayed personally, for the Abu Dhabi Investment Authority, for at least one of Sheikh Zayed's sons, and for Abdullah Darweish, guardian of another of Sheikh Zayed's sons.(64)

Al Sayegh was similarly unaware of who made the decision to install Zafar Iqbal as head of BCCI in April, 1990; of communications involving Bert Lance and Sheikh Zayed concerning the FGB takeover in 1978; of the structuring of the participation of Abu Dhabi ruling family members in the FGB takeover from 1978 through 1981; of the affairs of Sheikh Zayed's private department at any time; of whether or not Sheikh Zayed in any period placed all of Abu Dhabi's oil revenues in BCCI; of how much Abu Dhabi had invested in CCAH/First American. Al Sayegh further contended that Agha Hasan Abedi was never a financial advisor for Sheikh Zayed or the Abu Dhabi government.(65)

This lack of knowledge, coming in testimony ten months after BCCI's closure, reflected an obvious decision by Abu Dhabi not to send someone to testify before the Subcommittee who knew what had actually taken place between BCCI and Abu Dhabi over the previous twenty years.

Al Sayegh did, however, present Abu Dhabi's formal positions concerning its role in the BCCI affair, and its intentions of fully cooperating with the United States in investigating what happened. As he declared in his opening statement:

First, the majority shareholders had no involvement in the frauds perpetuated by BCCI which went on for some 18 years while they were passive minority shareholders.

The investment decisions they made during that time were based upon unqualified auditor's reports supplied by respected accounting firms and the knowledge that the bank was regulated in many countries. They were investors in a bank, not managers of a bank and relied on auditors and regulators to do their jobs.

Second, the majority shareholders are the single biggest victim of the fraud and probably its only intended victim . . .

[I]t must be understood that the majority shareholders do not control the prosecutions in the UAE, though they are doing everything in their power to assist in the ongoing investigation. . . We too enjoy a separation of powers whichinclude an independent judicial system responsible for criminal proceedings. The separation of powers is respected and upheld at the highest levels of UAE government.

Third, and most importantly for our purposes here today, the Majority Shareholders have every intention of fully cooperating with competent United States authorities in pursuing their own investigations, subject only to any restrictions placed on the under UAE law and the needs of our domestic investigations. . .

[M]y appearance today renews the Majority Shareholders' commitment to cooperate with the investigative efforts of your subcommittee and other competent U.S. authorities to the extent that we are able to do so in a manner consistent with our own vital interests and the law of the United Arab Emirates.(66)

The key points made by Al Sayegh were that Abu Dhabi was innocent, victimized, and would fully cooperate with the United States on investigating and prosecuting BCCI -- to the extent permitted by the law of its country and to the extent permitted by its "vital interests."

By Al Sayegh's account, Abu Dhabi's decisions to invest in BCCI was based not on the personal relationship between Sheikh Zayed and Abedi described by everyone else familiar with what actually happened, but on Abu Dhabi's reliance on BCCI's regulators in Luxembourg, the UK and the Grand Caymans, and on Price Waterhouse and Ernst & Whinney, BCCI's accountants.

By Al Sayegh's account, the chief difficulties in making documents and witnesses available to the investigators of other countries is that the Abu Dhabi legal system does not permit it, as its legal system is based on a separation of powers that prevents the Executive Branch from exercising any influence over the judicial process. In support of this account, Abu Dhabi's attorneys provided the Subcommittee with extracts of various laws of the United Arab Emirates, most of which have no applicability whatsoever to matters in dispute, but which do contain several relevant passages:

WE ZAYED BIN SULTAN AL NAHYAN, the President of the United Arab Emirates, having examined the Provisional Constitution and in view of the proposal made by [various Abu Dhabi cabinets and councils] HAVE ISSUED THE FOLLOWING LAW: . . .

[J]udges shall be independent having no dominant control over them in the performance of their duties other than the provisions of the Islamic Doctrine, the laws in force and their conscience. No individual or authority may violate the independency of the judicial authorities or interfere in matters of justice. . .

The function of the public prosecution shall be exercised before the Federal Courts by an attorney general . . .

The appointment of the attorney general and the other members of the Public Prosecution to the grade of prosecutor shall be effected by a decree issued by the President of the State [Sheikh Zayed] following approval of the Cabinet upon the nomination of the Minister of Justice. . .

The Minister of Interior may detain an alien against whom a deportation order has been issued, for a period not exceeding two weeks. . .

Following his arrest, an accused may not be detained for more than forty-eight hours [unless there is an order by the prosecutor] to detain him provisionally pending interrogation for a period of seven days subject to renewal for further periods not exceeding fourteen days. [A judge may] extend the detention for a period not to exceed thirty days, subject to renewal . . .(67)

As Al Sayegh's prepared testimony, these final provisions were the basis for the ordering of the summary arrest of the BCCI officials suspected of being involved in the irregularities and fraudulent activities, and their detention since, as under the interpretation given the law, the phrase "subject to renewal" allows the judge to continue to hold the accused from month to month so long as the prosecution wishes, without any limit whatsoever, for years, decades, or life, if matters remain under investigation.(68) Indeed, Subcommittee staff have interviewed one knowledgeable Pakistani insider about BCCI and Abu Dhabi who spent years in prison in Abu Dhabi without trial, after being involved in a dispute with a member of the ruling family.

Similarly, Al Sayegh's prepared testimony described BCCI's bank records as under the "protective custody of the U.A.E. federal civil court," which has provided "access to the Majority Shareholders," Abu Dhabi, to "gather evidence upon which the prosecution can proceed," while the U.A.E. prosecutor, appointed by Sheikh Zayed, "has ordered that the documents . . . remain confidential" for reasons not explained.(69)

Given the fact that Sheikh Zayed, according to his own attorneys in submissions with the Federal Reserve, owns all of Abu Dhabi's resources and land, and that the laws themselves are styled as decrees by Sheikh Zayed, in consultation with other bodies and officials who are appointed by Sheikh Zayed, not by popular vote at elections, the notion that the United Arab Emirates's justice system is somehow completely independent from the interests of the ruling family of Abu Dhabi stretches credulity.

Following the conclusion of Al Sayegh's opening statement, Senator Kerry asked him whether Abu Dhabi was now prepared to cooperate with the United States on investigating BCCI. Al Sayegh gave, in essence, a commitment to complete the process of negotiating cooperation agreements with the U.S. within weeks:

Senator Kerry. Can we understand now that Mr. Naqvi and Mr. Iqbal and others will be made available to both members of the committee staff and Justice Department personnel

Mr. Al Sayegh. Yes, Senator. We are in discussions now, ongoing discussions, with the Department of Justice on terms for an agreement to provide access to both individuals and documents . . . They started a few weeks ago, Senator. I am certain we could wrap them up quickly.(70)

These statements were widely reported in the press the following day. Contrary to Al Sayegh's assurances, as of the date of the writing of this report four months later, no access to documents or witnesses has been provided to either the Subcommittee or to federal law enforcement by Abu Dhabi.(71)

As noted above, Al Sayegh did not have the personal background and knowledge of the facts concerning Abu Dhabi's involvement with BCCI to answer a number of basic questions asked by the Subcommittee in his oral testimony. Moreover, the testimony came following some seven hours of testimony from other witnesses. Accordingly, Senator Kerry requested, and Al Sayegh agreed to provide, answers to a number of remaining questions in writing, which were sent to Abu Dhabi's lawyers on May 20, 1992, with answers received July 8, 1992.

In replying to the 65 additional questions from Senator Kerry, Al Sayegh expressed his unhappiness at the number, nature, and tone of the questions, contending that some "inquired into my own personal affairs and the personal affairs of the Majority Shareholders or their representatives that had no relation whatsoever to matters involving BCCI and CCAH" and that others "contained factual allegations that are baseless and seem designed to embarrass the Majority Shareholders and their representatives." Accordingly, Al Sayegh requested a meeting with Senator Kerry to take place before he answered the questions. Senator Kerry declined.

Senator Kerry's questions sought to clarify points left unclear during the hearing. Unfortunately, in a number of cases, Al Sayegh's answers did not provide the clarification sought.

For example, Question 6 asked whether the Abu Dhabi Investment Authority was claiming sovereign immunity from suit in the United States. In response Al Sayegh gave the uninformative answer that it "depends upon the context in which the issue arises and the relevant facts and circumstances."(72)

Question 7 asked whether the other majority shareholders of BCCI, including Sheikh Zayed and his sons, would be claiming sovereign immunity. The uninformative answer was "it depends on the context in which the issue arises."(73)

In answer to Question 11, which asked about the circumstances of a loan by the Abu Dhabi Investment Authority to finance the buy-back of BCCI shares by Sheik Khalid bin Mahfouz, who engaged in fraudulent transactions with BCCI, Al Sayegh answered, "I am not aware of the details of the loan. . . I know of no reason why ADIA would be required to disclose its loans to U.S. regulators."(74)

In answer to Question 13, which asked whether any of the Abu Dhabi shareholders placed or deposited assets in ICIC, and if so, for the dates, amounts and purchase of each such placement, Al Sayegh replied that "in excess of $2 billion" was entrusted by Sheikh Zayed and his son, Sheikh Khalifa between 1980 and 1990 which were temporarily deposited in ICIC before being invested. No details were provided, nor any suggestion of how much "in excess of $2 billion" might have been involved.

In answer to Question 14, which asked Al Sayegh to provide detailed information concerning an account maintained by Sheikh Zayed and the ruling family in ICIC, known as Account No. 20071, Al Sayegh replied that "I do not think it is appropriate to provide details of the personal, private affairs of His Highness Sheikh Zayed to the Subcommittee, nor am I privy to them. However, to assist the Subcommittee, I am able to say that funds deposited in Account No. 20071 at ICIC Overseas were Ruling Family funds, to be invested by Abedi and Naqvi pursuant to powers of attorney."(75)

In answer to Question 16, which asked whether any of the majority shareholders had ever taken loans from ICIC, Al Sayegh relied that "I am not aware of any loans by ICIC to the Majority Shareholders."(76) In fact, Price Waterhouse audits of ICIC available to the Majority Shareholders, and obtained by the Subcommittee for the first time in August 1992, demonstrate quite clearly that as of December 31, 1989, ICIC had lent $17.5 million to the Abu Dhabi group.(77)

In answer to Question 18, which asked Al Sayegh to describe the nature and extent of claims by Abu Dhabi against ICIC, Al Sayegh replied that the Ruling Family has "very substantial claims" against ICIC, but "the details of the Majority Shareholders' intentions regarding the claims are subject to legal privilege and cannot be disclosed."(78)

In answer to Question 28, which asked Al Sayegh to provide the Subcommittee with a break-down of the capital paid-in by Abu Dhabi shareholders to BCCI, Al Sayegh replied "I am unaware of the details of amounts paid for shares in particular transactions, except that I am aware that $1.2 billion was injected into BCCI in April 1990 in an effort to save the bank."(79)

In answer to Question 29, which asked Al Sayegh to provide a detailed breakdown of its losses as the biggest victim of BCCI's fraud, including the date, type, location and amount, Al Sayegh replied that the losses included misappropriated funds, equity investments in BCCI, amounts on deposit, and interest, ignoring the Subcommittee's request for any dates on the losses, where and how they occurred, and what amounts were involved in each case.(80)

In answer to Question 34, which asked Al Sayegh whether Al Mazrui, who remains chairman of the Shareholders Group in charge of handling Abu Dhabi's interests pertaining to BCCI, received financial benefits in connection with the purchase of BCCI shares, Al Sayegh replied, "I am not privy to the details of Mr. Mazrui's own private affairs."(81) In fact, Al Mazrui had confessed to receiving these benefits, according to Price Waterhouse's Section 41 report, to members of the Abu Dhabi ruling family in April, 1990.

In answer to Question 42, which asked Al Sayegh who had custody of the $1.2 to $2.8 billion in promissory notes to BCCI from Abu Dhabi, seized by Abu Dhabi authorities through court action after BCCI's closure, Al Sayegh replied, "The Majority Shareholders are not in a position to provide details or court papers on this matter because the matter is sub judice and because of the in camera nature of the proceedings."(82)

In answer to question 44, which asked Al Sayegh to specify the terms it requires to conclude a cooperation agreement with the Justice Department and the New York District Attorney, Al Sayegh replied, "I do not believe it to be appropriate to discuss the details of the cooperation program, other than to say that we believe that the U.S. authorities will be fully satisfied."(83)

In answer to question 48, which asked Al Sayegh to specify the conditions of confinement of BCCI's officers in Abu Dhabi (who are reportedly being held in an Officer's Club under comfortable conditions), Al Sayegh replied, "I do not believe the conditions under which these individuals are held in confinement is an appropriate issue for the Subcommittee to be concerned with."(84)

In answer to questions 58-61, concerning the function of the James Lake and his firm, Robinson Lake, retained by Sheikh Zayed and Abu Dhabi to handle public relations for Abu Dhabi pertaining to BCCI, Al Sayegh replied that questions about what they were doing for Abu Dhabi, how much they were being paid, and who they were communicating with, were not legitimate areas for the Subcommittee's inquiry. Al Sayegh said that he believed these basic questions about its purpose in hiring Lake were "intentionally calculated to embarrass Mr. Lake," and refused to tell the Subcommittee what he had been paid.(85)

A number of the answers to other questions were also less than illuminating.

In summary, these answers, taken together, themselves demonstrate how limited the level of scrutiny Abu Dhabi is willing to tolerate as a result of its involvement with BCCI. Basic questions concerning how much money it put into BCCI, how much money it deposited, loans it may have made in connection with BCCI share purchases and sales, improprieties involving its chief financial officer responsible for BCCI, the status of the BCCI officials held in Abu Dhabi, and even what Abu Dhabi wanted out of its negotiations on cooperation with the Justice Department and New York District Attorney, are central to understanding Abu Dhabi's role in BCCI. Instead, Al Sayegh, representing Abu Dhabi, has taken the position that these matters are, essentially, none of the Subcommittee's business. The answers provided by Al Sayegh highlight how much Abu Dhabi may have to hide.

Al Sayegh's Credibility

The day after Al Sayegh testified before the Subcommittee, Senator Kerry's office received a sworn, unsolicited letter from a constituent, who described himself as a U.S. citizen with personal knowledge of Al Sayegh.

The constituent, a Massachusetts management consultant who had worked in Abu Dhabi, advised the Subcommittee "against uncritical acceptance of Mr. Al Sayegh's statements [because] he made false statements to me in my business dealings with him and I suffered substantial damage by accepting his word as truth."

The constituent, Dr. George B. Bricker, stated that his management consultant company, had entered into contracts with the Abu Dhabi National Oil Company (ADNOC) from 1982 to 1986, during which time Bricker and his staff performed various services for ADNOC.

In mid-1986, Bricker's company, Redirection, was assigned to diagnose organizational problems relating to the ADNOC Finance Directorate, whose newly appointed manager was Al Sayegh. Bricker stated that he worked closely with Al Sayegh's staff and met twice with Al Sayegh on the project, during which Al Sayegh told him that he was satisfied with the Redirection's and Bricker's performance. However, over a period of several weeks, Redirection stopped being paid by Abu Dhabi, causing Bricker to ask Al Sayegh if there was a problem.

According to Bricker, Al Sayegh said there was merely "an insignificant hiccup in the accounts payable procedure" and that Redirection's invoices would soon be paid in full. Bricker kept his staff on the job for months more, without anyone being paid by Abu Dhabi. Eventually, Bricker told the staff to leave Abu Dhabi, at which time Al Sayegh admitted to Bricker that payments to Redirection had been withheld at Al Sayegh's direction since the beginning of the project more than six months earlier, and would not be paid until Redirection performed additional services for new work which had never before been discussed or included in the contract.

Bricker eventually learned that his situation was related to an attempt by Al Sayegh, which was successful, to replace the previous management of ADNOC entirely, with younger managers of Al Sayegh's generation and background. As Bricker had been in place under the earlier management, Al Sayegh was using the technique of not paying Bricker and his company as a way of forcing Bricker out without firing him. As Bricker summarized, "Redirection performed no further projects for ADNOC. Redirection lost an estimated US$100,0000 because of Mr. Al Sayegh's all-too-plausible false statements. Clearly, Redirection had no legal recourse; the U.S. Embassy was no help."(86)

While it is not possible to resolve the merits of the business dispute involving Al Sayegh and the Massachusetts constituent who wrote Senator Kerry, the unsolicited sworn statements made by a U.S. citizen, Dr. Bricker, concerning Al Sayegh's alleged dishonesty in doing business with him, do raise questions about the credibility of Al Sayegh.

BCCI audit reports obtained since Al Sayegh's testimony show the company he was managing, ADNOC, as itself having very substantial deposits at BCCI. These deposits were not held, as one would expect of the Abu Dhabi National Oil Company, in Abu Dhabi, or even in the Middle East, but at the BCCI bank responsible for the greatest portion of BCCI's losses and fraud, BCCI-Grand Cayman, where they amounted to some $229,277,000 as of September 30, 1988.(87)

Finally, the Peat Marwick audit investigation of BCCI's commodities affiliate and partner in money-laundering, Capcom, make reference to apparently improper transactions involving Capcom in the United Arab Emirates and individuals referred to as the Al Sayegh brothers. The Subcommittee has not been able to determine whether the reference applies to the witness.(88)

Abu Dhabi' Lawyers and PR Firms

Like BCCI itself, Abu Dhabi has made a practice of hiring in the United States as its attorneys and public relations assistants firms which are among the most politically well-connected in Washington, D.C.

From 1978 through 1990, Abu Dhabi's interests in Financial General Bankshares and in CCAH/First American were represented by former Defense Secretary Clark Clifford, Robert Altman, and the firm of Clifford & Warnke.

Through much of that period and continuing to the present, Abu Dhabi's other interests in the United States were represented by the Washington firm of Patton, Boggs & Blow. During that period, Patton Boggs has also "served as headquarters for a billion-dollar enterprise called Real Estate Operations, Inc., owned by Sheikh Zayed's Abu Dhabi government," as was described in a lengthy article on Patton Boggs' handling of Abu Dhabi's real estate investments that appeared in the Wall Street Journal May 20, 1992.

According to the Journal, Abu Dhabi's investments in the United States, much of which have been handled by Patton Boggs, total nearly $1 billion. The Journal article then described how these assets were held by Real Estate Operations, Inc., which in turn controlled 22 real estate investment companies, 10 partnerships, three shell corporations, and other entities, which in turn own millions of square feet of commercial and retail property across the United States.(89)

As a result of handling Abu Dhabi's business, Patton Boggs in addition to being attorneys for Abu Dhabi, became, in effect, their business agents, or investment managers in the United States, thus linking the firm to Abu Dhabi in a manner more intimate than a narrower, attorney-client relationship.

Ironically, at BCCI's request, Patton Boggs also handled legal work for a front-man of BCCI, Mohammed Hammoud, pertaining to a real estate investment he made in Virginia that was financed by BCCI, with a back-up letter of credit issued from BCCI's then secretly-held U.S. bank, First American.

Thus, especially for the period from November, 1990, when they became BCCI's principal lawyers in the United States, to July 5, 1991, when BCCI was closed, Patton Boggs inherited, to some extent, the problem of multiple hats previously applicable to Clifford and Altman. While Patton, Boggs partners had no role at the First American bank, apart from the interests of their clients, there was a potential conflict of interest present between the interests of Abu Dhabi as shareholders of BCCI, and the interests of BCCI's creditors and depositors. This conflict always existed, but was only highlighted after BCCI's closure, once the creditor and depositor interest became represented not by Patton Boggs, but by BCCI's liquidators.

At the same time, Abu Dhabi has since BCCI's closure retained a politically-connected public relations consultant, James Lake, and his firm of Robinson-Lake, to carry out public relations efforts on behalf of Abu Dhabi. Lake, who received $200,000 in payments from Abu Dhabi last fall in connection with this work, has simultaneously been performing -- as a volunteer, in an unpaid position -- the job of deputy manager to President Bush's re-election campaign, causing the chairman of the Subcommittee to state on March 18, 1992 that:

I do not believe that Mr. Lake should be sitting in on White House campaign strategy meetings while he is also providing strategy to Sheikh Zayed on how to deal with problems arising out of his ownership of BCCI.(90)

Senator Kerry suggested that Lake resign from representing Abu Dhabi, or from the President's campaign. In response, Lake said that there was no conflict, and he would continue to handle both matters. He also explicitly stated he would have no contact with anyone in the Executive Branch concerning Abu Dhabi matters.

SENATOR KERRY'S VIEW:

Senator Kerry continues to believe that Lake's dual representation represents a disturbing conflict of interest. In the view of the chairman of the Subcommittee, at a time when Abu Dhabi continues to refuse to prevent the Justice Department from obtaining access to documents and witnesses held in Abu Dhabi, Lake's dual role sends the wrong message to Abu Dhabi about how serious U.S. authorities are in investigating and prosecuting anyone who has committed crimes pertaining to BCCI in the United States.

_______________

Notes:

1. Price Waterhouse Report Sec 41 to the Bank of England, June, 1991, Sec. 1.33.

2. See testimony of Al Sayegh, S. Hrg. 102-350 Pt. 5 p. 759.

3. S. Hrg. 102-350 Pt. 5 p. 762.

4. A key issue raised by the September 21, 1992 decision to provide access to some documents is whether the action represents real cooperation, or merely the appearance of cooperation as part of a public relations effort. On September 21, 1992, Robert M. Moregenthau, District Attorney of New York, wrote the Subcommittee stating the following: "I write at the request of Ronald S. Liebman, Esq. of Patton Boggs & Blow, counsel for certain individuals and entities in Abu Dhabi, including members of the Ruling Family. Mr. Liebman has advised me that photocopies of certain documents have been delivered to the Embassy of the United Arab Emirates in Washington, D.C. for inspection by members of the District Attorney's Office. Later today we will begin the process of reviewing these records, and will continue doing so until they have been fully reviewed. Mr. Liebman has further advised me that an Abu Dhabi court order authorizing this review was obtained yesterday. This review will not be deemed an admission or authorized representation by the Abu Dhabi parties. We will be free to use whatever leads are obtained to further our investigation." Abu Dhabi has provided no explanation of why these documents had been withheld from U.S. law enforcement prior to September 21, 1992. Abu Dhabi has also provided no explanation of why it has refused to permit law enforcement to copy these documents, or to review them outside the confines of the Embassy of the United Arab Emirates. Abu Dhabi has not provided the documents to the Subcommittee. Thus, it is impossible to determine which documents have been provided by Abu Dhabi, and which documents have continued to be withheld. It is also not possible to determine what information the BCCI officials held in Abu Dhabi could provide U.S. law enforcement if Abu Dhabi permitted U.S. officials access to them.

5. See generally detailed testimony regarding this issue of Nazir Chinoy, March 18, 1992; Akbar Bilgrami, July 30, 1992; and testimony of Abdur Sakhia October 22, 1991 and Masihur Rahman, August 8, 1991.

6. S. Hrg. 102-350 Pt. 5 p. 757.

7. Deposition of Abdullah Darweish, September 23, 1982, Financiera Avenida S.A. v. Refco, US District Court Northern District of Illinois No. 82-C-1272.

8. Staff interview, August, 1992, Pakistani national familiar with BCCI-Abu Dhabi relationship.

9. Price Waterhouse audit reports to BCCI board of directors, 1987-1989; miscellaneous BCCI loan and financial documents.

10. Deposition, Lasidi v. Financiera Avenida, New York Supreme Court County of New York, 1982.

11. S. Hrg. 102-350 Pt. 3 p. 22.

12. Id.

13. Exhibit I, OCC Report of Joseph Vaez to Robert Bench, February 15, 1978; an accounting of Abu Dhabi's interest in BCCI at this time provided to the Subcommittee on May 13, 1992 contradicts this figure, describing the Abu Dhabi holdings in 1977 as 1.28 percent of BCCI.

14. Prepared Statement of BCCI Majority Shareholders, S. Hrg. 102-350 Pt. 5 p. 747.

15. Shareholding in BCCI Holdings (Luxembourg) S.A., prepared by Abu Dhabi to Subcommittee, reprinted S. Hrg. 102-350 Pt. 5.

16. Answer of Al Sayegh to Question 28 posed by Subcommittee, reprinted in S. Hrg. 102-350 Pt. 5.

17. Price Waterhouse Section 41 Report to the Bank of England, June, 1991.

18. Price Waterhouse audit report documents, BCCI, Loans to Shareholders, Valuation of Shares BCCI Holdings & CCAH at November 30, 1987, and at December 31, 1989, obtained by Subcommittee.

19. Bailey, Federal Reserve Hearing, April 23, 1981, pp. 15-17.

20. Staff interview, Lance, October, 1991.

21. Washington Post, December 18, 1977, "Arab Investors Want Lance to Manage Funds."

22. Al Sayegh, answer to question 25 from Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

23. Interviews, Richard Small and Thomas Baxter, Federal Reserve, April-May, 1991; testimony of Virgil Mattingly, May 14, 1992, S. Hrg. 102-350 Pt. 5.

24. Staff interviews, Akbar Bilgrami, July 13-14, 1992; Bilgrami testimony, July 30, 1992, S. Hrg. 102-350, Pt. 6.

25. Id.

26. Id.

27. Staff interviews, former BCCI employee and Pakistani national, July, 1992.

28. Sami memorandum, January 30, 1978, id.

29. Al Sayegh, answers to question #19 from Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

30. Price Waterhouse Report Sec 41 to the Bank of England, June 1991.

31. Indictment, December 8, 1991, Attorney General of Abu Dhabi Sheikh Zayed v. Darweish.

32. Al Sayegh, sworn answer to Question 13 of Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

33. Al Sayegh, Answers to Question #33 of Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

34. Price Waterhouse Audit Reports, 1983, Hong Kong Deposit and Guaranty and Tetra Finance (HK).

35. Al Sayegh, Answer to Questions #31 and #35 from Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

36. Price Waterhouse Report Section 41 to the Bank of England, June 1991.

37. Id.

38. Staff interviews, Nazir Chinoy, Abdur Sakhia, Akbar Bilgrami, Massihur Rahman. In private, BCCI officials referred to Iqbal's chief role and principal skills to be as a procurer.

39. S. Hrg. 102-350 Pt. 1 p. 481.

40. Section 41 Report to the Bank of England, Price Waterhouse, June, 1991.

41. Memorandum submitted by Price Waterhouse in reply to Questions from the House of Commons Committee on Treasury and Civil Service, February 5, 1991.

42. Memorandum submitted by Price Waterhouse in reply to Questions from the House of Commons Committee on Treasury and Civil Service, February 5, 1991.

43. Memorandum submitted by Price Waterhouse in reply to Questions from the House of Commons Committee on Treasury and Civil Service, February 5, 1991.

44. Id. Price Waterhouse's findings of the Section 41 report are reviewed in some detail in the chapter concerning BCCI's criminality.

45. S. Hrg. 102-350 Pt 4 pp. 747-748.

46. Id.

47. Norton Rose Report to the members of the BCCI SA Creditors' Committee, May 1, 1992, pp. 3-5; reprinted in S. Hrg. 102-350 Pt. 5.

48. Norton Rose report, id p. 5.

49. S. Hrg. 102-379, testimony of Virgil Mattingly, May 23, 1991, pp. 114-121.

50. S. Hrg. 102-350 Pt. 5 p. 750, and staff interviews with Federal Reserve investigator Richard Small.

51. Winer memcom, March meeting with Patton, Boggs, and Blow.

52. Staff interview, August 26, 1992, Masihur Rahman, who was in daily contact with BCCI officials and U.S. and British regulators during the relevant period.

53. Norton Rose Report, id p. 6.

54. See testimony of Al-Sayegh, S. Hrg. 102-350 Pt. 5 pp. 760-763.

55. Norton Rose, id p. 54.

56. Norton Rose, id, pp 54-55.

57. S. Hrg. 102-350 Pt. 5 p. 325.

58. Smouha prepared testimony, S. Hrg. 102-350 Pt. 5 p. 330.

59. See Smouha's testimony, S. Hrg. 102-350 Pt 5 pp. 331-333.

60. S. Hrg. 102-350 Pt. 5 p. 335.

61. Appendix 3, Summary of the Proposed Agreements, Joint Liquidators Report, Bank of Credit and Commerce International, SA March 16, 1992, p. 16.

62. Joint Liquidators Report, March 17, 1992, id., reprinted in S. Hrg. 102-350 Pt. 5.

63. S. Hrg. 102-350 Pt. 5 p. 338.

64. S. Hrg. 102-350 Pt. 5 p. 766; documents regarding Clifford and Altman's representation of Abu Dhabi from 1978 through 1990, S. Hrg. 102-350 Pt. 4 pp. 424, 432, 437-439, 456-459.

65. Al-Sayegh testimony, S. Hrg. 102-350 Pt. 5 pp. 759-770.

66. S. Hrg. 102-350 Pt. 5 pp. 743-746.

67. Extracts, United Arab Emirates Federal No. 6 of 1973, Federal Law No. 10 of 1973, Federal Law No. 3 of 1983, reprinted in S. Hrg. 102-350 Pt. 5.

68. S. Hrg. 102-350 Pt. 5 p. 754.

69. S. Hrg. 102-350 Pt. 5 p. 754.

70. S. Hrg. 102-350 Pt. 5 pp. 756-757.

71. On September 21, 1992, Abu Dhabi began making selected documents available at its Washington embassy for viewing by the Federal Reserve and U.S. law enforcement, on the condition that no copies be made and that none of the information could be used as admissions in court. None of these documents have been made available to the Subcommittee and the value of this information, if any, cannot be evaluated.

72. Sworn statement, Ahmed Al-Sayegh, in response to question 6 of Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

73. Id, question 7.

74. Id., answer to Question 11.

75. Id, answer to Question 14.

76. Id, answer to question 16.

77. Valuation of Shares BCCI Holdings & CCAH at December 31, 1989 and Loans to Shareholders, Subcommittee document.

78. Sworn statement, Ahmed Al-Sayegh, in response to question 18 of Senator Kerry, July 8, 1992, reprinted in S. Hrg. 102-350 Pt. 5.

79. Id, answer to Question 28.

80. Id, response to question 29.

81. Id, answer to question 35.

82. Id, answer to question 42.

83. Id, answer to question 44.

84. Id, answer to question 48.

85. Id., answer to question 58-61.

86. Statement, Dr. George B. Bricker, to Office of Senator John Kerry, May 18, 1992, by Fax.

87. Price Waterhouse Report to the Audit Committee, BCCI Holdings (Luxembourg) SA, 10 November, 1988, Subcommittee document.

88. See S. Hrg. 102-350 Pt. 6, Peat Marwick Report.

89. "Abu Dhabi's Links With A Powerful Law Firm Present Problem For Democrats on BCCI Issue," Wall Street Journal, May 20, 1992, p. A-18.

90. S. Hrg. 102-350 t. 4 . 356. s

[admin]

MOHAMMED HAMMOUD: BCCI'S FLEXIBLE FRONT-MAN

Introduction

As the BCCI scandal has unfolded, Mohammed Hammoud has emerged as a shadowy figure with close ties to a number of powerful American political and government figures.

During the 1980's, Hammoud acted as a front-man or nominee for BCCI, became an owner of BCCI and of CCAH, the holding company for First American, borrowed over $110 million from BCCI, much of which he failed to make interest payments on, and made numerous investments in the United States with funds provided him by BCCI, and in one case, backed up by guarantees from First American.

During the same period, Hammoud, a little known Lebanese merchant, also purchased the shares in First American held by Clark Clifford and Robert Altman; had his U.S. real estate investments managed by the current U.S. Ambassador to Bahrain, Charles W. Hostler; had contact with officials from the State Department concerning the release of U.S. hostages from Beirut and other issues pertaining to Lebanon, and developed a personal and business relationship with Michael Pillsbury, a former assistant Undersecretary of Defense and Senate staff assistant.

After BCCI's indictment in October, 1988 by the U.S. Attorney in Tampa, Hammoud also worked closely with BCCI's criminal defense team in Washington to determine whether it would be possible to "reverse Tampa" by meeting with higher-level federal officials in Washington. In the fall of 1989, Hammoud actually met with high-ranking officials at Treasury and Justice concerning the BCCI case, and had ongoing contact with Senate staffer Pillsbury seeking to assist BCCI in defending itself against its criminal case.(1)

Hammoud's multiple roles in connection with BCCI continued until his sudden death on May 3, 1990, at the very time that investigations of BCCI were intensifying. After his death, press accounts raised questions as to whether his death was real or staged, and law enforcement indictments have described Hammoud's current status as "reportedly dead."(2)

Who is Mohammed Hammoud?

Little is known of Hammoud's background, although Abdur Sakhia, the former general manager for BCCI N.Y., described Hammoud as a merchant who at one time operated a stall in one of Beirut's open-air markets:

My memory goes back about 27 or 28 years when I went first to Beirut. He was a small time money changer.(3)

In interviews with Subcommittee staff, Nazir Chinoy, the BCCI general manager in Paris, remembered Hammoud as:

A short man, not a very impressive personality. . . My impression of Hammoud, to me Hammoud was not rich. Pharoan had physical power from his bearing his confidence. Hammoud was a slimey sort of a chap, not a forceful personality. Would Hammoud understand foreign policy? I do not think so. He was not a worldly man. Pharoan yes. Hammoud no.(4)

In testimony before the Subcommittee in 1991, Massihur Rahman, BCCI's former chief financial officer, described Hammoud as "a medium sized businessman." BCCI's files indicate that Hammoud's wealth grew exponentially, and inexplicably, during the 1980's, at a clip of almost $5 million a year. By 1989 he is listed as owning assets in excess of $35 million.(5) Nevertheless, according to Chinoy, Hammoud did not give "the impression of being an extremely rich man from his clothes and general behavior."(6)

At some point during the 1970's Hammoud became very close to the top management at BCCI. Naqvi had worked in Lebanon and BCCI had branches there, but the Subcommittee has been unable to determine who originally introduced Hammoud to BCCI. Hammoud is described in a 1983 BCCI memorandum as "a very good customer of the BCC Group," who "possesses large means."(7) By the time of his death in 1990, Hammoud was a major shareholder in the bank, owning 2,646,184 shares, according to a February, 1990 report by BCCI's outside auditors, Price Waterhouse.

According to Rahman, "[h]e seemed to be very close to some of our executives. And he has been used obviously for taking loans and doing things."(8) Later in his testimony Rahman characterized Hammoud as the most flexible of BCCI's nominees.

Chinoy echoed the testimony of Rahman, stating that Hammoud had "a very special relationship" with the bank. Chinoy recalled how Hammoud had borrowed about $100,000 from the Paris branch and was not servicing the loan. When Chinoy wrote Hammoud asking that the loan be repaid, Chinoy was rebuked by his superiors in London and told he "should not write abusive letters to good clients who had helped the bank." Chinoy explained that he later wrote the loan off in three separate installments.(9)

The loan to Hammoud by BCCI's Paris branch pales in comparison to the massive loans Hammoud received from BCCI elsewhere. As of April 1990, Hammoud owed over $110 million dollars to BCCI and its affiliate, ICIC, Grand Caymans, As Price Waterhouse concluded in the report, "there remain too many unanswered questions about Mr. Hammoud [including] his connection with delinquent accounts of BCCI." At the time, Price Waterhouse expressed its concern about the lack of evidence at BCCI that Hammoud owned "any of the companies" he claimed to own in connection with BCCI lending. (10)

Hammoud's Real Estate Investments

Hammoud made real estate investments in the United States through a series of companies: Linden Investments, Copperwood, N.V., Marmaris investments, N.V., Eastward, N.V. and Carlson Farms, Ltd. Ambassador Charles Hostler, who advised Hammoud on his US investments, referred to these companies as "holding companies" for the properties.

Documents obtained by the Subcommittee indicate that all of the companies were probably front companies which Hammoud established on behalf of BCCI. For instance in November, 1978, Hammoud wrote to ICIC, BCCI's "bank within a bank":

I have to request you to arrange on my behalf for the incorporation of a company in Cayman Islands with an authorized capital of US$900,000.00 and Issued and Paid-up capital of $US100,000.00. This company to be incorporated with the name and style of "Linden Investments Company Limited" is to have as its principle objects investments in immovable properties in the U.S.A. and other places, either directly or through any of its subsidiaries to be incorporated in such countries where maximum tax benefits would be available for such property investments, and with such other objects as are usable and necessary for such investment companies, including borrowing powers.

You may appoint your own nominee directors for the said Linden Investment Co. Ltd. and transfer to their names such shares as may be necessary according to the legal requirements. The remaining shares may be held by you in your name or in the name of any other company as your nominee.

I hereby authorize you to appoint any agents for the aforesaid purpose and to do, execute and perform or cause to be done, executed and performed all acts, deeds and things that may be required or necessary in a fiduciary capacity for the aforesaid purpose and to give any other authority or writing that you may require or deem necessary for this purpose.(11)

Hammoud's real estate investments include property he purchased from a church in Alexandria, Virginia, an office building in New York, a building in Boston adjacent to Boston Symphony Hall, and a development in the small town of Sherman, Connecticut. All of these investments were financed by BCCI and none of the loans was ever serviced. Carlson Farms, for instance, received a $1 million letter of credit from BCCI secured by only the guarantee of Linden Investments, which apparently held no other properties.(12)

In his Senate testimony, Sakhia described the Hammoud's real estate holdings in the US with which he was familiar. According to Sakhia:

We did a loan to him from BCCI in New York, which we were told from London to give that loan in the first place.

In the second instance, when we had acquired the property and we wanted to develop a property in Washington, he contacted us to make a construction loan-- which we refused to do because we were not equipped to handle constructions loans."(13)

Sakhia testified that he "completely refused to do the second transaction," but that the Central Credit Division in London ordered him to the first transaction, which wound up being "110% of the loan". Sakhia acknowledged that the loan did not make business sense. (14)

After Sakhia refused to do the construction loan, the Central Credit Committee in London told its New York regional manager "[W]hy don't you introduce him to First American, because the property is in Washington. First American is located in Washington and First American is big in real estate loans." First American subsequently issued a $4 million letter of credit to Hammoud.(15)

Senator Kerry was struck by the fact that Hammoud needed an introduction to First American after Hammoud had become a shareholder of First American, having purchased his shares in First American/CCAH from First American's chairman and president, Clark Clifford and Robert Altman. Sakhia testified that he too was baffled by the events:

It's [First American] not like a big corporation with hundreds of shareholders. The handful of shareholders -- [Hammmoud] directly bought the shares from the Chairman and the President. And he wants me to introduce the officers of First American. It didn't make any sense to me.(16)

In 1990, the U.S. General Manager of BCCI, in an effort to avoid the scrutiny of bank regulators, recommended "immediate transfer" of Hammoud's assets "to an off shore unit."

Holdings of CCAH Stock

Hammoud's investment in First American Bank came about as a result of his acquisition of stock throughout the 1980s through BCCI, and in fact, as a nominee for BCCI. In 1986, Hammoud first began acquiring stock at $2,200 a share as BCCI's nominee. By 1990, Hammoud had acquired 6% of the shares of the bank on BCCI's behalf.

In March 1988, Hammoud bought stock from Clifford and Altman, the Chairman and President of First American, for a whopping $6,800 a share -- the highest price ever paid for First American stock. Hammoud's $25 million purchase of First American shares was bankrolled by BCCI, although in testimony before the Subcommittee, Altman stated that:

[M]r. Hammoud was one of the individuals not listed by the Federal Reserve as a nominee in their notice of charges. He was in their category of bona fide shareholder.(17)

Altman added that after Hammoud's death in the spring of 1990, "we had been contacted by Hammoud's estate." According to Altman:

His estate believes that the stock is stock that belonged to Mr. Hammoud and now belongs to his heirs. They certainly take the position that Mr. Hammoud was no nominee. He was a bona fide shareholder. And they had asked that the stock be transferred into the names of the heirs. And we were seeking certain documentation in that regard before the transfer could be lawfully effected.(18)

Altman's representations before the Subcommittee regarding the bona fides of Mohammed Hammoud were recently challenged in the indictment of Clifford and Altman by the Manhattan District Attorney. The indictment charged that:

As part of the business of the corrupt enterprise, assets were purchased with depositors' funds, but were falsely maintained as ostensibly separate from the BCC group. These assets were purchased in the names of, among others ....Mohammed M. Hammoud, a Lebanese businessman who reportedly died in 1990.

Moreover, Masihur Rahman, BCCI's chief financial officer, provided detail on the mechanism that Hammoud employed to mask the sham transactions involving CCAH stock. Rahman testified that Hammoud used two front companies, Mid-Gulf and Rubstone, to purchase the shares. According to Rahman, after Price Waterhouse raised concerns about BCCI and the bank began an internal investigation, Rahman confronted Hammoud: "He [Hammoud] was first denying, but finally it was accepted that both of them belonged to Hammoud."(19) Rahman did not know what the companies did, "except that they had some loans [from BCCI] for CCAH." According to Rahman, the amount loaned to Rubstone to purchase First American shares was around $14 million and the amount loaned to Mid-Gulf to purchase First American shares was $44 million."(20)

The Subcommittee has obtained an undated letter of instruction from Hammoud to the Manager of BCCI, Overseas, Grand Cayman, which support Rahman's testimony. The letter specifically states:

With reference to the loan advanced by you on my recommendation to Mssrs. Rubstone Trading, of amount up to $US 12 million, I hereby authorize you to hold my shares in Credit and Commerce American Holdings N.V., as security to cover the outstanding balance of the loan.(21)

By April 1990, as the auditors scrutinized BCCI and its CCAH loans, Hammoud informed BCCI that he did "not hold any shares" in either Midgulf or Rubstone.(22) Apparently, both Hammoud and BCCI had decided that it was not in their interest to have Hammoud seen as a nominee for BCCI holding CCAH shares. This, of course, was during the period that Price Waterhouse was uncovering massive fraud and deception at BCCI, and just weeks before Hammoud's sudden death.

Altman and Hammoud

Documents obtained by the Subcommittee from BCCI's liquidators show that Robert Altman, who was also BCCI's U.S. attorney, held a power of attorney for Hammoud, giving Altman the right to dispose of Hammoud's stock in CCAH at any time as Hammoud's agent. Altman testified he was unaware that he had such a power of attorney and when shown the document by Senator Kerry, he expressed profound shock:

[T]his gives an authority to sell shares, and that is something that to the best of my recollection, I'd never seen before. I do not know how to explain it. I don't know where it came from, but I don't believe it was ever in our files.(23)

Thus, Altman, who sold his stock to Hammoud for three times what Altman paid for the stock, had the ability through the power of attorney also to buy and sell shares of CCAH to and from Hammoud in any case.

Altman testified that he never met Hammoud. This statement seems odd given that Hammoud was in Washington on a number of occasions, and was ostensibly a major shareholder of First American, on whose behalf Altman was running the bank. On the other hand, there was really no reason for Altman to have met Hammoud if Hammoud was the flexible front man that he has been portrayed to have been. It is entirely possible that Hammoud was not even aware of his holdings in First American: the loans were arranged by BCCI; the purchase and sale may have been arranged by Altman using the power of attorney.

Hammoud and Ambassador Hostler

Hammoud also had contacts with US Ambassador to Bahrain Charles Hostler. As a businessman in Beirut in the 1960's, Hammoud met Hostler when Hostler was a young U.S. Air Force officer, attached to Lebanon, Jordan and Cyprus, and based in Beirut, Lebanon. Hammoud's wife taught Arabic to the young Mr. Hostler, and the Hammouds and Hostler became good friends. (24) Later, Hostler returned to Beirut as the manager of the Douglas Aircraft Company in Lebanon from 1965 to 1967, before accepting a position with McDonnell Douglas in the U.S. As the report to the Foreign Relations Committee on Hostler described his career:

Mr. Hostler served at the United States Department of Commerce as Deputy Assistant Secretary of International Commerce from 1974 to 1976, where he was responsible for establishing and managing the nation's export expansion program. From 1963 to 1969 he worked in numerous capacities for McDonnell Douglas Corporation including Director of International Operations for the Middle East and North Africa. . . and Manager of International Marketing for Missiles and Space.(25)

According to the Wall Street Journal, Ambassador Hostler stated that he has from time to time given financial advice to Hammoud. Hostler told the Subcommittee that he advised Hammoud on three properties: "vacant land" in Sherman Connecticut, an "old building" in Boston, Massachusetts and a "tear-down" in New York City.(26)

Curtis Hagen, a real estate broker, also worked with Hammoud on the three properties referenced by the Ambassador in his affidavit.

Concerning the tear-down in New York City, Hagen told the Subcommittee:

In NYC I engineered a joint venture between BCCI and Skanska with an agreed to land evaluation of 5 million (BCCI purchased it at $1.1 million) In the midst of contract negotiation between the two law firms representing each entity. In the meantime I turned down an offer of 4 million in cash by Paul Milstein, because the tax burden was too severe. However, he eventually built the project, although the chain of title after Hammoud came on the scene with Hostler is unclear to me.(27)

Concerning the "old building" in Boston, Hagen told the Subcommittee:

I arranged a zoning change from a two story Taxpayer to a 17 story and lower condominium residential & commercial building with on-parking premises. This process, as you know, was extremely complex and took 2 and 1/2 years to bring to a point, where only a very routine submission of a detail was needed to finalize. BSO now has ownership. Hostler arranged the sale to BSO for Hammoud, however I do not know what consideration BSO gave to Hammoud/Hostler.(28)

Concerning the "vacant land" in Sherman, Connecticut, Hagen told the Subcommittee:

After 6 tons of papers, maps, demographics, etc. the final subdivision was approved and I negotiated the required road bond.(29)

In short, the vacant land, the old building and the tear down were substantial properties with real value.

In his affidavit to the Subcommittee, Ambassador Hostler stated that "He [Hammoud] considered me expert in real estate matters, since he lived abroad and was then largely unacquainted with US real estate practices."(30) However, Hagen, the New York real estate broker, didn't think Hostler knew much about real estate: "[H]ostler, the real estate typhoon, knew as much about real estate as my Aunt Matilda knew in 1860 about building a space shuttle."(31)

It appears that Hagen did the lion's share of work to make Hammoud's various real estate investments marketable and saleable. The question arises as to what Hostler's role was and what compensation he was received.

According to the Ambassador:

"His inquiries and my advisory activities for him were intermittent and limited. I would estimate that they involved perhaps an average of several hours a month in the period between 1982 and 1988."(32)

Hostler claims that he "received no salary, gifts or other gratuities or compensation from Hammoud, though I was reimbursed for my direct, nominal, actual receipted expenses."(33)

Hagen, however, recalls a meeting at the Pierre Hotel in Hammoud's suite on July 16, 1982 between Hammoud, Hostler, Pisani [an architect] Milne [a Utah real estate developer] and Hagen and his daughter. According to Hagen, "It was either at that meeting or a few days before wherein Hammoud placed both hands on Hostler's shoulders and said: "there will be a Cadillac in your driveway, tomorrow morning."(34)

The Subcommittee has been unable to ascertain whether or not Ambassador Hostler received the Cadillac. However, it is certainly unusual for anyone to provide business services to someone else for several hours a month for six years without receiving any form of compensation for it in return. Hence, Ambassador Hostler's described willingness to work for Hammoud for nothing for this lengthy period raises the question of why Ambassador Hostler did perform these services.

Hammoud and Pillsbury

Michael Pillsbury is a former Senate staffer. He was formerly an Assistant Secretary of Defense. According to the Washington Post, Pillsbury was "a member of the top-secret "208 Committee," the interagency group that oversees Central Intelligence Agency covert operations for the President and meets in the situation room and room 208 of the Old Executive Office Building."

Pillsbury has told Subcommittee staff that he initially met Hammoud in the context of his work in the Senate when a real estate developer, Earl Milne, introduced him in 1981 or 1982. According to Pillsbury, Hammoud was "unusual" because he was a wealthy, Lebanese shi'ite. Pillsbury subsequently developed a personal relationship with Hammoud and over the course of the decade met him "ten to twenty" times in several cities around the world, including Washington, London, Geneva, Beirut, Damascus and "possibly Paris". According to Pillsbury, Hammoud provided him with intelligence related information concerning U.S. hostages held in Lebanon, which Pillsbury then passed on to US government agencies. As a letter to Subcommittee staff from Pillsbury's attorney, former Watergate prosecutor Seymour Glanzer, states:

Mr. Pillsbury has never said that he is "withholding important information" [from the Subcommittee]. What he did say was that he was reticent about disclosing inflrmation that might be needed about Mr. Hammoud's purported assistance to the United States Government. That was because he was alluding to two State Depeartment communications which may be "classified" and which can be obtained from the State Department. Thus, he does not believe he is at liberty to disclose their contents. One of these communications is a cable from the American Ambassador in Beirut in approximately November 1983, and the other is a cable from the American Ambassador in Damascus in approximately April 1989. Therefore, Mr. Pillsbury believes it is appropriate that disclosure be taken up with the State Department.(35)

Following receipt of the letter from Glanzer, Senator Kerry asked the State Department to retrieve the documents described. Unfortunately, the State Department was not able to locate the 1983 cable. It was able to locate the second cable and that cable remains classified. At the time of the second cable, Edward Derejian was U.S. Ambassador to Syria, and since that time has been appointed Assistant Secretary of State for Middle Eastern Affairs. Contemporaneous notes from BCCI's attorneys show that Pillsbury was contending that Hammoud was directly involved in assisting the U.S. on negotiations concerning the release of the U.S. hostages held in Lebanon as of the fall of 1989.(36)

In the early-1980's Pillsbury moved from the Senate to become the assistant undersecretary for Defense. In that position he championed the provision of advanced weapon systems, notably stinger missiles, to anti-communist insurgencies around the world, including Savimbi's UNITA forces in Angola and the Mujahadin in Afghanistan. Pillsbury is known to have made frequent trips to both countries.

The Task Force on Terrorism and Unconventional Warfare -- House Republican Research Committee claims that Hammoud was an arms merchant:

In order to insert large quantities of explosive and related equipment into target countries, the Hizballah established a web of import-export companies in Western Europe as part of its dormant network. Lebanon's leading shi'ite businessmen, including Mohammed Hammoud, who would later become a key financier of BCCI, provided crucial expertise, organizational and financial assistance without which projects could not have been undertaken.

Pillsbury has denied that he ever used Hammoud or BCCI either to arrange or to finance the provision of sophisticated weapons to anti-communist insurgencies.

In fact, Pillsbury has stated that his contact with Hammoud, aside from the information he provided on the US hostages held in Lebanon, was in the context of a book that they were writing together about the Shi'ites of Lebanon.

According to Pillsbury, Hammoud paid him an advance to coauthor a scholarly text about the Shi'ites and Pillsbury had completed some 200 pages of this book by the time of Hammoud's death. Pillsbury told the Subcommittee that he disclosed the book deal to the Senate Ethics Committee. However, Pillsbury refused to disclose the amount he had been paid by Hammoud, and when the payment was made. Pillsbury argued that these facts were irrelevant since he ultimately returned the money, although he refused to specify when that occurred. Pillsbury stated that his expenses had never been paid by either Hammoud or BCCI. However, these statements are contradicted by notes taken by BCCI's lawyers in October, l989 state that Pillsbury travelled to Europe on several occasions on tips paid for by Hammoud, raising in their minds concerns about whether Pillsbury's trips were actually being paid for by BCCI. Both BCCI officials and Pillsbury denied BCCI's involvement in the payments. However, given Hammoud's $110 million debt to BCCI at the time, and his frequent front-man status for BCCI, the distinction between Hammoud's activities and BCCI's activities does not seem to be very clear.(37)

Subcommittee staff have seen a law enforcement document which alleges that after Hammoud's death, Pillsbury travelled to Geneva to identify the body. Pillsbury denies the allegation. Pillsbury may or may not have identified the body, but after Hammoud's alleged death Pillsbury maintained a close relationship with Hammoud's family. The Subcommittee has been provided a document which appears to show that after the death of Hammoud, Pillsbury met in New York with Robert Altman, one of BCCI's lawyers, and with Hammoud's son, to discuss settlement of the elder Hammoud's estate. Pillsbury has told the Subcommittee that he only met Altman only twice -- both times in the context of Senate business.

Hammoud and BCCI's Criminal Defense

In the fall of 1989, Hammoud began to take an active interest in BCCI's legal problems in the United States as a result of its indictment for drug money laundering in Tampa, Florida. He met with Pillsbury on a number of occasions concerning these problems. Pillsbury in turn identified key Treasury and Justice Department officials in Washington who in Pillsbury's view would be key to assisting BCCI if they determined that the sting operation against BCCI were improper. Hammoud met with some, unidentified, officials from both Treasury and Justice, as well as with BCCI's criminal defense team in Washington. Available documentation concerning Hammoud's activities in this period suggests he may have undertaken other steps in connection with assisting BCCI with its criminal defense, but information on this point is, unfortunately, inadequate to determine precisely what.(38)

Hammoud's Death

Hammoud, unfortunately, cannot shed any light on his political or government connections because he is, as prosecutors describe his status, "reportedly dead."(39) He allegedly died in Geneva in 1990 while visiting his doctor and he is buried in Beirut. However, insurance companies have reportedly refused to pay out on the life policy because Hammoud's corpse was found to be several inches shorter than the height recorded at his last medical examination. Several former BCCI officials who have testified before the Subcommittee have testified that they do not believe Hammoud is dead.

Hammoud was reportedly buried in Beirut and his family provided his London lawyers with a video of the funeral which allegedly shows high ranking Syrian intelligence officials in attendance. In its August 10, 1992 edition, Newsweek reports:

Intelligence officials now say that Mohammed Hammoud, an alleged BCCI front man, was taped saying over the telephone, "If anybody knew how dirty the Americans are in this BCCI business, they'd be surprised -- they're dirtier than the Pakistanis." He then said he was about to tell someone about the American role. Eight hours later he was found dead.(40)

Much about Mohammed Hammoud's life, business with BCCI, and alleged death remains a mystery to the Subcommittee. He clearly had very close ties not only to BCCI, but also to several US political and government officials as well as to various intelligence agencies.

_______________

Notes:

1. An account of these meetings is contained in the chapter concerning BCCI's lawyers and their contacts with Hammoud and Michael Pillsbury.

2. See e.g. indictment, People v. Abedi, New York Supreme Court, County of New York, July 29, 1992.

3. S. Hrg. 102-350. pt. 2, p.612. In an interview with staff prior to his testimony Sakhia stated, "I went to Beirut to a seminar at American University in 1960. Hammoud used to have an office, a storefront the size of this sofa. His store was three feet deep and eight feet wide."

4. Staff interview, Nazir Chinoy, March 9, 1992.

5. BCCI memorandum, Central Credit Division, re:Congressional Place Ltd./M M Hammoud. March 30, 1989.

6. S. Hrg. 102-350, Pt.4 p. 374.

7. BCCI memorandum, reprinted in S. Hrg. 102-350, pt.4, p.762.

8. S. Hrg. 102-350. Pt.1, p.534.

9. Id. p.374.

10. See documents at S. Hrg. 102-350, Pt. 1 pp. 356-358.

11. Letter to ICIC from Mohammed Hammoud, November 1, 1978, reprinted in S. Hrg. 102-350, pt. 4. p.740.

12. BCCI Memorandum, reprinted in S. Hrg. 102-350, pt.4, p.762.

13. pt. 2, p.612.

14. Id.

15. Id. Sakhia explained in his interview with staff, "This transaction was done by First American not directly secured by the assets of Hammoud, but by a counter guarantee of First American. BCCI issued the guarantee which was confirmed by First American."

16. Id. p.614. In his interview with staff prior to his testimony Sakhia asked rhetorically, "If he had bought and sold shares from Clifford & Altman, why would he want my introduction? -- Since he didn't put a cent of his own into First American, he didn't feel like he owned it."

17. Id. p.176.

18. Id. p.176

19. pt. 1, p.534.

20. Id. p. 535.

21. Letter to "the Manager" from Mohammad M. Hammoud, reprinted in S. Hrg. 102-350, pt. 4.p 782.

22. Letter to BCCI, London, from i.H. Ansari, dated 4.4.90.

23. S. Hrg. pt.3, p.195.

24. See Hostler Affidavit, S. Hrg. 102-350 Pt. 4 p. 768, Hostler Resume, submitted to Foreign Relations Committee as part of confirmation process.

25. Report for the Committee on Foreign Relations, U.S. Senate, Ambassadorial Nomination for State of Bahrain, Charles Warren Hostler.

26. S. Hrg. 102-350 Pt. 4 pp. 769-771.

27. Letter to Jonathan Winer from Curtis Hagen, February 10, 1992, reprinted in S. Hrg. 102-350, pt. 4, p.765.

28. Id.

29. Id.

30. Id. pt.4., p.770.

31. Id.

32. Affidavit of Ambassador Hostler, reprinted in S. Hrg. 102-350, Pt.4, p.771.

33. Id. p.771.

34. Id. 766.

35. Seymour Glanzer to David S. McKean, July 31, 1992, concerning Michael Pillsbury.

36. Staff interviews with Pillsbury, March-July, 1992; see also attorney notes of interviews with Pillsbury, October, l989, provided to Subcommittee by BCCI attorney Raymond Banoun on September 3, l992.

37. Documentation on this issues is provided in a series of memoranda created by BCCI's criminal defense team and provided to the Subcommittee on September 3, 1992 by former BCCI lawyer Raymond Banoun and by the law firm of Janis, Schuelke and Wechsler on behalf of Lawrence Wechsler.

38. The fullest account of Hammoud's activities on BCCI's behalf in connection with its criminal defense appears in notes taken by BCCI's lawyers in the U.S. and provided to the Subcommittee on September 3, 1992 by Raymond Banoun and Lawrence Wechsler. These documents form the basis for the information set forth concerning this section.

39. People v. Abedi, New York Supreme Court, New York County, July 29, 1992.

40. Newsweek, August 10, 1992.

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BCCI And Georgia Politicians

Introduction

When BCCI began its surreptitious takeover of First American, Jimmy Carter was President of the United States. The point man for that takeover, of course, was the President's close personal friend and former Director of the Office of Management and Budget, T. Bertram Lance.

Lance ultimately was forced to abandon his role in the takeover, but he maintained his contacts with BCCI for another decade. During that time, Lance introduced BCCI, and its president, Agha Hasan Abedi, to former President Carter and to the President's friend and former UN Ambassador, Andrew Young. During the 1980's these three former powerful government officials used, and were used, by BCCI, to varying degrees and for various purposes.

Of the three, Lance was far and away the most visibly involved with BCCI. In 1977, when Lance became Director of the Office of Management and Budget, he had serious financial problems. After resigning later that year amid accusations that he had mismanaged corporate and personal financial matters, Lance went to work for BCCI as a consultant. He appears to have traded on his access to the President for BCCI's ability to bail him out of his crushing debt. After getting millions from BCCI, Lance provided services to the bank for the next decade.

BCCI courted the rich and powerful all over the world and so it was natural that President Carter should be approached with an eye towards using him to give credibility to the bank. The President apparently did not establish a relationship with BCCI or Abedi, until after he left office. However, throughout the 1980's, Abedi used President Carter as a means of gaining stature for himself and for BCCI in a number of third world countries. The President, in return, received millions of dollars for his charities.(1)

Andrew Young is one of the most famous black politicians, not only in this country, but all over the world. A former Congressman, Young is also a past Mayor of Atlanta. Perhaps most significant for BCCI, Young was the first black US Ambassador to the United Nations under President Carter. In that position he often championed Third World causes. BCCI used Young in much the same way as it used Carter -- for introductions and access to government leaders in developing countries. Young, in return received a salary and loans, although his financial relationship never amounted to that of his colleague Lance.

It is no coincidence that at the time the bank closed, BCCI had established its presence in Georgia in many different ways ranging from the ownership of the National Bank of Georgia to the headquarters for BCCI front man Ghaith Pharaon's U.S. corporate headquarters.

Bert Lance

Lance Meets Abedi

Bert Lance, who provided testimony to the Subcommittee on October 23, 1991 about his role in the BCCI affair, told the Subcommittee that he is "mystified" by the "whole developing scandal."(2)

Lance was the Director of the Office of Management and Budget under President Carter from January 20, 1977 until September 21, 1977. He was forced to resign after it was alleged that he engaged in questionable financial dealings at the National Bank of Georgia where he was chairman for two years, and, earlier, at the Calhoun National Bank where he was also chairman.(3)

Lance has stated on many occasions that he first met Agha Hasan Abedi, the President of BCCI, in October, 1977 when he was introduced by a member of the Georgia state assembly, an oil man named Eugene Holley. According to Lance, Holley:

had some conversations with Mr. Abedi about me and whatever few abilities I might have and things of that nature; and that he thought it would be worthwhile if I had occasion to meet Mr. Abedi and discuss with him what his interest might or may not have been in regard to the United States, in regard to investments, in regarding to banking generally, and so on.(4)

Holley was the Chairman of the Georgia state Senate Banking and Finance Committee. According to press reports Holley "had sought aid from Middle Eastern sources for his petroleum and real estate ventures."(5) According to the Washington Post, "Several Georgia banks that lent money for his [Holley's] ventures have suffered grave losses," noting that "NBG, under Lance's direction, was among the lenders."(6)

In September 1977, Lance met with Holley, Abedi and Naqvi at the Waldorf Astoria hotel in New York. Lance testified that Abedi told him:

I am building a bank headquarters in London that has a deep and abiding interest in the problems of health, hunger, economic development, things primarily in the Third World, problems that we are all familiar with and problems that we all want to see resolved in one form or another.(7)

According to Lance, who was in serious financial trouble at the time, "I shared that concern."(8)

Lance told the Subcommittee that he subsequently met with Abedi and told him that "I am not about to get involved in situation whereby the relationships that I establish after having resigned would create any problem of embarrassment, concern, or anything else for the President of the United States."(9) Lance ultimately did introduce Abedi to Carter, which ultimately caused substantial embarrassment and concern for the former President, but this was until 1981 after Carter had left the Presidency.

In October 1977, Lance decided that he should "do due diligence about Mr. Abedi and BCCI" before getting involved with them. To handle this task, he chose Clifford and Altman, who had represented him before the Senate.(10) Lance told the Subcommittee that Clifford "told me . . . Mr. Abedi was a man of integrity and character, that BCCI . . . they were people of integrity and character."(11)

With assurances from Clifford and Altman that BCCI was a reputable institution, Lance began to advise Abedi on gaining a foothold in the United States. He testified to the Subcommittee his advice to Abedi was:

very clear and precise, as I recall, that you need to acquainted, you need to go through the regulatory process in the United States; that, obviously, despite my difficulty sometimes in dealing with them, that I thought it to be the best process in the world; that banks who were regulated in the United States offered their depositors safety; that it was the kind of climate that was appropriate and proper, and that it was they ought to do.(12)

Lance and the Initial Takeover of FGB

In line with this sage advice, in late 1977 Lance led a group of Middle-eastern investors, including Abedi, in an attempt to take over Washington D.C. based Financial General Bankshares. The effort was blocked when the SEC discovered that the investors had secretly acquired a 19% holding in the bank and had to divest it.(13) Lance was forced to sign a consent decree by the SEC.(14)

Lance explained to the Subcommittee that he had recommended the purchase of Financial General to Abedi. He told the Subcommittee that he "happened to know about Financial General because when I was at the National Bank of Georgia, they were owned by Financial General." Lance also testified that he "happened to have an awareness of ...other stockholders in Financial General at that point in time... [who] had [not] been very happy about their investment."(15) Indeed, Lance was accused by the SEC of having been involved in the struggle for control of FGB while he was still director for the office of management and budget.(16)

At the same time that Lance was assisting Abedi in the takeover of Financial General, Ghaith Pharaon, a BCCI front man, offered to buy 60% of the former budget director's stock in the National Bank of Georgia stock for $20 a share, $3 more than Lance had originally paid for it. At the time Lance held 12% of the bank's stock and his sale of some 120,000 shares provided him with a gross gain of approximately $2.4 million. According to press reports, the stock had been trading for about $10.50 to $11.25 before the sale became imminent.(17)

In testimony before the Subcommittee, Lance explained that Abedi told him that he "had an investor who, by the name of Gaith Pharaon, who has acquired banks in the United States previously. . . And he said to that would appear to make a lot of sense." (18) Indeed, it did make sense for Lance, who had previously listed liabilities in excess of $5 million, including a $3.4 million loan form the National bank of Chicago.(19)

At the time the transaction raised concern that Pharaon may have been paying an inflated price in order to help Lance, save President Carter further embarrassment from his association with Lance, and gain influence with the administration. However, Lance stated publicly that "I'm not for sale; I've never been for sale, and that stands on its own."(20) Pharaon also disputed any claims that he was trying to buy influence: "Why should I buy influence? We have many ways of reaching your President through our channels. We have a great deal of influence already."(21)

Lance also testified about Clifford and Altman's role in the Pharaon's purchase of his shares: "Mr. Clifford and Bob Altman represented me at that point in time ...They were very aware of what I was trying to do and were very helpful to me in trying to do that."(22)

In summary, Lance explained:

[T]here were two groups of investors there that Abedi said he was representing. One happened to be the investors that subsequently ended up as the individual shareholders in Financial General, and, Gaith Pharaon, who ended up as the sole investor in the National Bank of Georgia...

And during November and December 1977, it pretty well took place in the broad beginnings of the purchase of Financial General on the one hand and, obviously, the acquisition of the National bank of Georgia on the other.

[T]here were two different entities, is what I'm trying to say to you, that were involved. I guess I was central to both of them. Mr. Clifford and Bob Altman were central to both of them. Mr. Clifford and Bob Altman were central to both of them. And, in fact, Mr. Clifford and Bob Altman represented me in a legal sense.(23)

While Lance took pains to separate the two transactions -- the purchase of his NBG stock and the acquisition of Financial General -- for the Subcommittee, he testified that at a meeting in Atlanta over Thanksgiving weekend in 1977, "there was basic discussion and negotiation about the purchase of NBG. But there was also negotiation -- not "negotiation" as such, but conversation -- about the purchase of Financial General." Pharaon, the purchaser of NBG, was not present, but Abedi, Naqvi, Abdus Sami and Dildar Rizvi, the elite of BCCI, were all present.(24) In fact, Lance never met Pharaon until the night of the closing on the sale of NBG in January, 1978. Nevertheless, he testified that it was his "impression" that "he [Pharaon] was obviously a person who comes across as being in charge of whatever he's doing, and makes decisions and that sort of thing."(25)

Lance Advises BCCI; The Second Takeover Attempt

After the sale of NBG stock to Pharaon and the failed takeover of Financial General, Lance continued as an advisor to Abedi and BCCI. Lance described his role as offering advice on "investments in the United States" and "economic development around the world." For these services Lance was paid by BCCI through ICIC, the "bank within a bank", which Lance understood to be a kind of "commercial finance operation."(26) When asked by Senator Pressler what ICIC paid him, Lance responded that he had been asked the same question recently by the SEC and he had refused to answer and he therefore would not answer the Senator. Lance added that "All of that is matter of public record."(27) The Washington Post reported in March, 1978 that:

The president of an Arab-controlled bank paid off a $3.5 million loan for Bert Lance without even asking Lance to sign a note, an attorney claimed yesterday at a court hearing in the Financial General Bankshares case.

Lance's $3.5 million loan from First National Bank of Chicago was repaid in January by Agha Hasan Abedi, president of Bank of Credit and Commerce international, said Edward McAmis, attorney for Financial General in a civil lawsuit against Lance, Abedi, BCCI and others accused of using illegal methods in seeking control of Financial General.

McAmis said Lance told him in a sworn statement made on Monday that Abedi repaid the loan directly, without any discussion of the interest rate or how and when Lance would repay Abedi. The multi-million loan made with only an oral promise to repay showed Lance's close ties and obligation to Abedi and BCCI, McAmis argued.

Lance's attorney, Robert Altman, accused McAmis of deliberately misconstructing the loan as part of a campaign to smear Lance.

"It wasn't like that at all," Altman said. he said formal loan documents were being drawn up, but had not been completed because of the lawsuit and other complications.

The article continues:

The revelation that Abedi repaid the Chicago loan came as a surprise. It had been reported earlier that Lance had sold his NBG stock for $2.4 million and used the money to pay off some of his debts, including the Chicago loan.

Court records in Georgia showed the Chicago loan was repaid on January 4, the same day lance completed the sale of his NBG stock to Gaith R. Pharaon, a Saudi Arabian financier who has business ties to Abedi. That same day Lance paid back a $443,000 loan to a Tennessee bank, raising questions about how he paid nearly $4 million in debts with $2.4 million in cash.

Yesterdays's assertions suggest Lance got money from two Arab sources in January, when he moved to extricate himself from past debts -- the sale of stock to Pharaon plus the loan from Abedi.(28)

Although no longer personally involved in the takeover of Financial General Bankshares, Lance continued to provide advice on the acquisition of the bank. He testified, for instance, that in 1978, at the suggestion of Abedi, he met separately with two of the potential shareholders, Sheik Kamal Adham and Sheik Zayed, the ruler of the United Arab Emirates. Lance told the Subcommittee that he met Zayed in Lahore, Pakistan in "February or March, 1978."(29) According to a February 12, 1978 story in the Washington Post, "In recent weeks, Lance was in Karachi, Pakistan, and sources say the trip was in connection with his dealings with Abedi."(30) Despite the fact that he no longer worked for the government, Lance made the trip on an official, US diplomatic passport.(31)

A meeting during this period would have followed the memorandum written by Abdus Sami to Mr. Abedi on January 30, 1978 in which Mr. Sami discusses the strategy for the takeover of Financial General Bankshares. Sami expresses the need "to keep individual ownership to below 5 percent" and he states that "we want two other names immediately." The two names who ultimately were submitted as investors were those of Sheik Zayed's son's Khalifa and Mohammad. When Senator Kerry asked Lance if he travelled to Pakistan in order to solicit the use of the names of investors from Sheik Zayed, Lance responded, "That's not my understanding of what actually took place."(32) Lance then told the Subcommittee, "Mr. Sami and I never and a conversation along these lines."(33) The Sami memorandum, however, contains a provocative reference to "our friend" involved in the FGB negotiations.

Lance admitted to the Subcommittee that the reference was to him, but testified:

[T]he acquisition of shares were basically handled by Mr. Sami, and he was the man who was responsible. I was not involved in that.(34)

As a new strategy for acquisition of Financial General Bankshares progressed, Lance told the Subcommittee that he reiterated to Abedi the need to "go through the regulatory process." He further advised:

[t]hat you take an outstanding American citizen who has no blemish in regard to anything in a public sense, and you take the stock that these individual investors are going to own, and then you put that together in some sort of trust and give that trustee irrevocable voting rights about that stock, and you will have taken a major step in dealing with some of the perception problems that you may have about individual investors.(35)

Abedi followed Lance's advice almost to the letter. Clifford and Altman created a shell corporation, in a form of a trust, to hold the FGB stock. Clifford, who became Chairman of First American was essentially a trustee since his associate, Robert Altman, the President of First American, held a power of attorney for virtually every shareholder. And perhaps most importantly, Clifford had the reputation as being "an outstanding American citizen." Clifford helped to alleviate some of the "perception problems" not only in the acquisition stage, but also throughout the 1980's.

Lance Theorizes About the CIA and BCCI

Lance's relationship with Abedi and BCCI was interrupted in May, 1979 when he was indicted in the northern district of Georgia. After a sixteen week trial, he was acquitted.(36) Lance testified, "asically, in all of 1979, I was out of the picture as it related to BCCI, as it related to Financial General, and so on."(37) According to Lance, Clifford, Altman and Abedi decided that he was "too controversial" and that he "would bring down the wrath of the regulators."

Despite the fact that he was no longer involved in the takeover of Financial General, Lance testified "my relationship with Mr. Abedi, from the standpoint of personal relationships, moved forward from that point on."(38) Lance said that he did "continue to have conversations and visits with Mr. Abedi."(39)

Lance described one of those conversation with Mr. Abedi to the Subcommittee. In 1983 Lance and Abedi attended a symposium at Emory University. In a car ride to Abedi's hotel from the University, Abedi, according to Lance, explained how he had been he had been placed on a CIA watch list in 1980 because he was a "Third World liberal." Lance testified that "subsequently, beginning in 1984, I would say, I sensed a change in Mr. Abedi, that he no longer had any concerns about visits to the United States." Lance concluded that in 1984 there was an attempt by the CIA to "co-opt" Abedi, although he could offer no proof.(40)

Lance also believed that the CIA Director Casey may have used wealthy businessman Bruce Rappaport to "spy" on Lance to see what he may have known about Abedi and the Agency's involvement with the bank. According to Lance, Rappaport befriended him for no apparent reason, but "He made it very clear to me that he had a very close and definitive relationship with Mr. Casey; the Director of the CIA." Lance said that Rappaport maintained contact with him for a period of years until the death of Director Casey.(41) Again, Lance offered no proof of his theory, and, in fact, he failed to mention in his testimony that despite his suspicions of Rappaport, he arranged with him to have one of his sons work in the financier's New York bank.

[b]Lance and BCCI During the 1980's

Besides advising Abedi and BCCI, Lance, during the 1980's pursued financial investments with BCCI-related individuals such as P.S. Prasad, an Indian who was BCCI's largest individual borrower in the United States with over $30 million in outstanding loans. At the time of BCCI's collapse in 1991 Prasad fled the country and returned to India.

Lance served on the board of McDowell Industries, a construction company. In 1984, using various holding companies, Prasad bought out McDowell and merged it with Maxpharma, a publicly traded company owned by Prasad which manufactured generic over-the-counter and prescription drug products. The buy out was handled by the investment banking firm of Drexel Burnham Lambert Inc. According to Lance, he personally met Dennis Levine, the investment banker who put the deal together. Levine does not recall having ever met Lance or Prasad. Lance continued to serve on the Board of directors of McDowell until approximately 1986. In 1988, Maxpharma was delisted from the American stock exchange after having multimillion dollar losses for the prior seven years, including a nearly eight million dollar loss in 1988.(42) It is unclear exactly what Lance's role was in Prasad's shuffling of companies, but one source close to the negotiations has alleged that "Lance was released of a multimillion loan he had guaranteed (either personally or through National bank of Georgia) for Maxpharma."(43)

Lance's involvement in another Prasad venture is clearly documented. Dr. Prasad borrowed $450,000 from "a bank" to purchase a small business investment company (SBIC) in 1983 called Falcon Capital Corporation.(44) The purpose of SBICs are to provide financing for venture capitalists, provided or guaranteed by the US Government, with the goal of creating new jobs. On September 15, 1986 Prasad's Falcon Capital made an unsecured loan of $75,000 to Bert Lance at an interest rate of 14 percent per annum for a period of five years. The ostensible purpose of the loan was to set up a consulting business in mergers and acquisitions. According to the SBA Assistant Inspector General for Audit, "[I]n 1988, review did not disclose that T. Bert Lance used the proceeds of the loan in a regular and continuous business operation."(45) Moreover, as of September 30, 1987 principal of $9,738.40 and interest of $8,990.27 were delinquent on the loan. Lance has told the Subcommittee that he eventually paid off the entire loan, but the Subcommittee has been unable to independently verify his claim.

1988 -- Lance emerges again

In June 1988, Forbes Magazine reported that Lance was being considered by BCCI shareholders and management to run the bank in the absence of Aga Hasan Abedi who had suffered a debilitating heart attack. According to Forbes, "An Arab investor group suggested a compromise candidate to run things, a man who could keep the Saudi and Pakistani factions within the bank at bay. That man: Bert Lance."(46)

Also in 1988, Lance was an unofficial advisor to Presidential candidate Jesse Jackson, who Lance also introduced to Abedi. Nazir Chinoy, former branch manager of BCCI Paris, testified that when Jackson stayed in Paris, all of his expenses were paid by BCCI.

Finally, after the indictment in Florida of BCCI and BCCI personnel, Lance reportedly flew to London with former Chairman of the Democratic Party John White to meet with Naqvi and to advise BCCI on the best strategy for fighting the indictment.

The Lance Relationship

The full story of Bert Lance's involvement with BCCI remains to be told. Lance was intimately involved with the bank between late 1977 and his indictment in 1979 during which time he provided advice to BCCI in exchange for being relieved his financial burdens. During the 1980's Lance continued his relationship with BCCI, offering advice and providing important introductions, most notably to former President Carter. While Lance's relationship spanned the decade, there are many gaps in the public record as to exactly what services Lance performed for the bank and what compensation he received. This merits further investigation.

Jimmy Carter

Introduction

Former President Carter has enormous respect and admiration throughout the world, but particularly in the Third World where he focused much of human rights policy while he was President. The President's focus on "Third World" issues, combined with BCCI's need for rapid worldwide expansion led the bank, and its president, Aga Hasan Abedi, to court President Carter after he left office. BCCI, which styled itself as a "Third World", bank successfully exploited the President's reputation and access by providing large amounts of funding to the his charitable organizations. In turn, the President became an unwitting pawn of BCCI, failing to acknowledge, even when it became obvious, that the bank was a criminal institution.

The President and Saudi Front Men

There is nothing to suggest that Jimmy Carter was even aware of BCCI or Aga Hasan Abedi while he was President of the United States. However, the president would have known of at least two important BCCI front men, Kamal Adham and Gaith Pharaon. President Carter undoubtedly met Kamal Adham in the negotiations over the Camp David Accords as Adham, the chief of Saudi intelligence, acted as an important liaison for Anwar Sadat. This is discussed in more detail in the chapter on BCCI's contacts with the CIA and foreign intelligence.

President Carter would have known of Gaith Pharaon because Pharaon bought the National Bank of Georgia where the President's good friend Bert Lance had been chairman and where the President had business loans. According to a 1980 Jack Anderson story, Senator Orrin Hatch, a member of the Senate Judiciary Committee, investigated the Carter loans at NBG. In his story Anderson quotes from a confidential, investigative memorandum to Senator Hatch:

The assumption in financial circles is that Pharaon acted for the Saudi royal family in purchasing the national bank of Georgia. The bank's biggest borrower just happened to be Jimmy Carter. Thus the President of the United States found himself to be deeply in hock to a Saudi Arabian financier with close ties to the Saudi royal family.(47)

The memorandum to Senator Hatch continues:

[T]he bank's confidential files contained embarrassing information about the president's financial affairs. The files revealed that the Carter peanut business wrote $3 million in overdrafts and unprocessed checks to repay peanut commodity loans during the 1975-1977 period.

While Carter was scrounging for money in his 1976 presidential campaign, the business borrowed $1.15 from the bank to buy peanuts, without a single peanut in bonded storage to secure the loan, in violation of the loan agreement. By September 1, 1977 , the business was insolvent to the tune of $410,000.

Of course, the Saudis remained discretely silent. The friendly Pharaon not only kept quiet about Carter's irregularities, but renegotiated the loan to Carter's advantage.

According to a memo in the bank files, the bank renegotiated the repayment terms. This resulted in a savings of $60,000 for the Carter family in 1987. The President owned 62% of the business and therefore was the largest beneficiary.(48)

The memorandum concludes:

The press and public have been conditioned by Watergate to expect a smoking gun -- a taped conversation, a full confession by one of the conspirators or some other dramatic evidence... Perhaps the American people need to be reeducated about scandal.(49)

The Subcommittee has not been able to verify the accuracy of the information supplied by Senator Hatch's investigator.

After the White House: Carter and Abedi

Since leaving the White House and the office of he Presidency in 1980, Jimmy Carter has devoted himself to several charities, including providing assistance to several organizations for fighting disease in the Third World. In this capacity the former President developed a friendship and working relationship with the founder and President of BCCI, Aga Hasan Abedi.

President Carter was introduced to Abedi in 1982 by Bert Lance who brought the banker to Plains, Georgia . Lance remembers, "There was an immediate relationship that developed between the two of them. You could sense it as they talked there in the living room of the Carter residence."(50)

According to Carter, Abedi approached him to undertake charity work on the third world:

The foundation or the bank, I never did know which, had a massive program in the third world called South. They published a monthly magazine that had major conferences in different cities around -- in the developing nations. Mr. Abedi, when he came to see me, said that they were just holding conferences, they were issuing publications, they were doing scholarly work, but they'd never actually planted a seek, or immunized a child or did anything of a specific nature. And he knew that our relationship with the Center for Disease Control let us have access to health care programs, and we were already embarked on those. So his relationship with us was one of "I want to do something practical to help people who are suffering, and we will help you."(51)

During the 1980's Carter and Abedi met over a dozen times and established a very warm, personal relationship. In 1983, for instance, when Carter and former President Ford held a joint symposium on conflict resolution at Emory University, Mr. Abedi was in attendance. (52) When Abedi suffered a heart attack in February 1988, Carter contacted heart specialist Norman Shumway who, at the former President's request, flew to London to examine Abedi, and oversaw a heart transplant operation for the BCCI president. Carter even visited Abedi during his hospitalization and was quoted as calling Mr. Abedi "one of the most unusual men I have met."(53)

Carter's Travels With Abedi

The President travelled several thousand miles together with Abedi on the BCCI corporate jet and they visited at least seven countries together. Abedi has stated publicly that he has been "to every country...All the top politicians and heads of state were my friends, Jimmy Carter, James Callahan, I knew them all."(54) Callahan, the former British Prime Minister, has claimed that Carter introduced him to Abedi in 1981 at a charity dinner for the Cambridge Commonwealth Trust in London.(55)

In October 1986 the Carter Center opened in Atlanta. The center was created to study third world issues among the guests was Abedi, who had contributed over $500,000 to the center.(56) Moreover, Abedi and BCCI donated $8 million Carter's Global 2,000 project, helping to fund programs in Asia and Africa. Abedi was appointed the co-chairman of Global 2,000.

Less than one month after the Carter Center opened, the former President travelled with Abedi to Pakistan and to Bangladesh to sign agreements with government officials starting Global 2,000 health care programs in those countries. According to a Global 2,000 statement at the time, the programs sponsored by Carter focused on control of polio, measles, tetanus and diarrheal diseases.(57) BCCI either had, or was to develop corrupt relationships with several of the countries visited by Carter and Abedi, including Bangladesh and Suriname. In 1986 Carter also travelled to the United Arab Emirates, again accompanied by Abedi, for a three day visit during which time he met Sheik Zayed.(58)

In 1987, they met in Bangkok with the King of Thailand before flying on to Hong Kong and back to China.(59) In Beijing they attended a state dinner with Chinese leader Deng Xiaoping where they shared a toast with Premier Zhao Ziyang. President Carter has acknowledged that his travels with Abedi helped the BCCI president in his business:

[I] don't think there's any doubt that when a former President of the United States goes to a country and has anybody in his entourage, that person has some advantage to be derived.(60)

Indeed, the countries to which President Carter travelled with Abedi became important banking centers for BCCI. In China, for instance, BCCI opened the first foreign branch and reportedly conducted weapons transactions involving the Chinese government.

What the US Government Didn't Tell Carter

By 1986, of course, several US government agencies, including the Central intelligence Agency, the Justice Department and the Treasury were aware of BCCI's criminal connections. The CIA, for instance, knew that BCCI had secretly -- and illegally -- acquired First American Bankshares, Washington D.C.'s largest financial institution. The State Department knew that the terrorist Abu Nidal was using the bank to finance his operations in Europe. And the Customs Agency was working with the US Attorney's office in Tampa in Operation C-Chase, an undercover sting operation designed to expose drug money laundering in South Florida, which ultimately targeted BCCI.

During this entire period, President Carter was never briefed by any agency of the US government concerning BCCI.

This seems all the more extraordinary given that during several of his trips with Abedi the State Department asked the former President to raise particular issues with the governments of those countries.(61) However, the former President has said that neither did he ever ask for a briefing, nor did he ever feel the need to request one. Carter has said that he does not feel either "betrayed or deceived". According to the former President he did not become concerned about his association with the bank until the revelations that BCCI had been General Noriega's banker. At that point, the President stated:

[W]e were quite concerned , but the public news media reports -- I believe including statements from the Justice Department -- was that this was a problem that was apparently confined to the one bank operation in Panama dealing with Noriega. We had no information that it was broader.(62)

In point of fact, the indictment in Tampa charged BCCI with having a "corporate policy" of soliciting narcotics proceeds which clearly suggests that knowledge of BCCI's criminal activity was broader than President Carter has suggested was publicly available.

Carter's Other BCCI-related Benefactors

In 1987 President Carter invited BCCI's most famous Georgia resident, Gaith Pharaon to have lunch at the Carter center. According to published reports, Pharaon brought David Paul, the President of Centrust with him.(63) Although Pharaon never contributed any funds to President Carter's charities, Centrust made a corporate contribution of $100,000, which arrived with a note instructing Carter fundraisers to "credit it to Gaith Pharaon."(64)

In 1991 after the Federal Reserve issued a cease and desist order concerning BCCI's ownership of First American, the President began to disassociate himself from Abedi and the bank. On April 15, 1991 President Carter said:

We have, at the Carter Center, about 20,000 contributors to our programs, and we appreciate very much what BCCI did at the beginning to get this project started. But now, one of our major contributors is Sheik Zayed, in Abu Dhabi.(65)

Sheik Zayed, of course, was a major shareholder in BCCI from its inception and at the time that President Carter made his remarks, actually controlled the bank. According to the Atlanta Constitution, President Carter was aware of this: [W]hen BCCI changed owners and stopped payments on its Global 2,000 commitments, Mr. Carter asked the new owner, the President of the United Arab Emirates, to pay the $2.5 million balance due."(66)

Carter Aide Used BCCI To Defraud Former President

On August 26, 1992, George G. Schira, the first executive director of the Carter Presidential Center, was indicted on charges that he impersonated former President Jimmy Carter and defrauded the center and one of its financial contributors out of $650,000.(67)

In committing this fraud on the former President, Schira used BCCI to receive some $650,000 from a shipping magnate through impersonating President Carter and Prince Bandar Bin Sultan, the Saudi Arabian ambassador to the United States, and calling on the magnate for help.

The funds were first transferred to BCCI in London, and then to BCCI's secretly owned U.S. subsidiary, the First American Bank of Georga, and to BCCI's secretly owned Swiss subsidiary, the Banque de Commerce et Placements.

The Relationship Between Jimmy Carter and BCCI

President Carter was used by BCCI to enhance its credibility around the world and particularly in developing countries. President Carter travelled to a number of these countries with BCCI's president, Abedi, increasing Abedi's status and helping Abedi gain access and entry to political leaders from those countries. At the same time, the former President became beholden to the bank for its generous contributions to his charities. While President Carter did not show sufficient interest in establishing the bona fides of the bank, the CIA, which had substantial negative information on BCCI, failed to provide him with that information. When a President of the United States becomes a private citizen, it is obviously his choice with whom he associates. Nevertheless, former Presidents are afforded physical protection, and should be afforded, to the extent possible, protection of their reputation. As a result of his own lack of diligence in seeking information on BCCI's poor reputation, and the CIA's lack of diligence in telling President Carter what they knew, President Carter became closely associated for a decade with a bank that constituted organized crime. This outcome was not in the interests of the United States.

Andy Young

Introduction

Andrew Young is one of the most prominent Black Americans in the country and has a record of high achievement in public service. However, The Subcommittee finds that Young's relationship with BCCI was inappropriate, particularly during the period that Young served as the Mayor of Atlanta. While he may technically have violated no ethical rules of his office, his financial relationship with BCCI has the appearance of influence-peddling.

Young Meets Abedi

Former UN Ambassador and Mayor of Atlanta Andrew Young represented BCCI as a consultant. Young has said that he learned about BCCI after leaving his position as UN Ambassador in 1979. While he does not recollect who introduced him to Aga Hasan Abedi, BCCI's president, he believes it may have been Gaith Pharaon, the man who purchased Bert Lance's holdings in the National Bank of Georgia.(68)

While he was Mayor, Young made at least four international trips on which he made key introductions for BCCI. According to Young, BCCI officials were occasionally involved during trips that he made with the Atlanta Chamber of Commerce. He has explained that he performed services for the bank or met with officials in Tunisia, Nicaragua, Zimbabwe and several Persian Gulf states.(69)

In recent indictments issued by the Manhattan District Attorney, Robert Morgenthau, Tunisia and Zimbabwe were described as countries where government officials were bribed by BCCI officials. There is no information that Mayor Young had any knowledge of any impropriety committed by BCCI officials in either of these countries.

A Financial Relationship With BCCI

While serving as the Mayor of Atlanta, Young, like Lance, provided services for BCCI in return for financial benefits. Young had a $50,000 annual retainer with the bank, and has claimed that he only became a paid consultant in 1986 after he travelled with former President Carter to Africa on a BCCI jet. Young's fees were paid to his consulting firm, Andrew Young Associates. The relationship between Andrew Young Associates and BCCI lasted for eight years until 1989. During most of that period, the BCCI's loans were booked, and according to BCCI's records, "parked," at its offices in Panama.(70)

According to a loan review document from the National Bank of Georgia, AYA had "initially served as a vehicle for Andrew Young's lecture and occasional consulting fee income," but that following his election as Mayor, the firm "was reorganized to focus primarily on offering consulting services to domestic businesses working to achieve sales to various third world countries."(71) According to the memorandum, AYA relies "largely upon name recognition and third world political contacts."(72)

The document described characterized the company as "small, illiquid, unprofitable, and infinitely leveraged."(73)

According to Stony Cooks, Young's business and political associate, expenses incurred from Mr. Young's travels on behalf of BCCI were used to reduce the balance on the credit line. Cooks has claimed, the "offset" arrangement was worked out between himself and Swaleh Naqvi, the chief operating officer of BCCI without specifying the date of the arrangement.(74)

As of October 10, 1989, the outstanding loan to AYA (Andrew Young Associates) was $197,000 and while interest on the loan had been paid, the principal had not paid down. (75) In a letter from Asif Mujtaba, the Group Vice-President of First American Bank in Georgia to Bande Hasan, BCCI Miami, Mujtaba wrote "This loan matured on October 6, 1986 and I have written to the borrower demanding payment."(76) Cook's assertion following BCCI's global closure that payment of the principal, nearly $200,000, was offset by Young's travel expenses, is difficult to believe. Young would have had to have a large number of trips on BCCI's behalf in order to accumulate $200,000 in expenses, and there is evidence, as discussed below, that when he made trips on behalf of BCCI, he immediately sought cash reimbursement from the bank.

Documents show that Andrew Young Associates received its line of credit from the National Bank of Georgia beginning in 1980 which was transferred to BCCI Panama sometime after June 1985, the year Young was re-elected Mayor of Atlanta. (that same year the National Bank of Georgia donated at least $10,000 to Young's successful candidacy for Mayor of Atlanta in 1985.) (77) There is no explanation for why the loans were transferred. Documents do show that while AYA was paying down interest, Young's brother, Walter Young was not servicing the loan. In 1988, after several years of non-payment BCCI's Tariq Jamil wrote S.M. Shafi: "I understand that this loan is also guaranteed by Mayor Young, and therefore I would submit that the collection should be handled delicately as we would like to preserve the relationship between the BCC group and Mayor Young."(78)

Young's Travels For BCCI

According to published reports, Young travelled extensively on behalf of BCCI. The Subcommittee has obtained documents showing one trip which Young made to Nicaragua. In a May, 1987 memorandum written by S.S. Shafi to Ameer Siddiki, BCCI London, Shafi recounts a meeting with government officials in Managua, Nicaragua that had been arranged by Young:

Our first meeting with the Cabinet Ministers and other important personalities of Nicaragua was arranged by Mr. Andrew Young, Mayor of Atlanta who had travelled there for this purpose. Most of the Cabinet Ministers attended the dinner and after some time we were joined by the President of the Republic, Mr. Daniel Ortega. He explained to us at great length the great recession and losses and the widening of the trade gap in his country. The idea behind was to impress on us that BCCI primary concern being the promotion of economic growth in Third World countries we should arrange for credit lines for their pre-export financing of their coffee, sugar, bananas and other items.(79)

In the same memo Shafi reports that "The Minister [of Foreign Trade] added that a delegation headed by him would visit London to meet Mr. Abedi within a few days through good offices of Mr. Andrew Young."(80)

In September, 1987, Tariq Jamil, BCCI London, who had previously worked at the National Bank of Georgia, wrote to Saheb Shafi, BCC LACRO, requesting that Young be reimbursed for his travel expenses to Nicaragua, noting:

Needless to say, we shall continue to receive patronage and help from the Mayor in any of our endeavors in Central America for developing contacts and business for Latin American Region.(81)

The request for $2,345.17 reimbursement was accompanied by a July 15, 1987 letter from Young's assistant Stony Cooks stating that "[p]resently, Mayor Andrew Young's anticipated dates for his visit to Guatemala are August 12-6, 1987."(82) Cooks has told the press, as noted earlier, that Young's travel expenses were used to pay down his loan. The Subcommittee has been unable to verify that assertion, but finds the account -- that Young's travel expenses on behalf of BCCI amounted to nearly $200,000, and were used to offset the loan -- difficult to believe, especially given the reimbursement request in the case of the Nicaragua trip.

An NBG Loan memorandum also shows that Young proposed a joint venture in the country of Nigeria:

[T]o establish a joint venture agreement between A.I.C. and a Nigerian partner, former Head of State, General O. Obasanjo, is being negotiated. The joint venture company would cooperate in the assembly, manufacture and sale of farm equipment in Nigeria and throughout Africa.

Andrew Young Associates will consult with A.I.C. to provide advice and information about the business environment and business development opportunities in the developing nations.(83)

The significance of the Nigerian proposal is simply that it involves a former head of state of the Nigerian government, which was pervasively involved in receiving corrupt payments from BCCI in the form of bribes, kick-backs, money laundering, and other services specified in the chapter on BCCI's activities in foreign countries.

Other Georgia Contacts

Consistent with its strategy of buying political influence, BCCI used Georgia lawyer and political operative Charlie Jones to court powerful government officials. For example, Jones was hired by Clifford and Warnke to lobby the Georgia state legislature during the takeover of National Bank of Georgia by First American. In order for the takeover to have proceeded, a technicality in the banking law had to be changed. According to Roy Carlson, Jones was paid "the vicinity of $1 million" for successfully lobbying the legislature.(84) NBC reported in February 1991 that members of the legislature had flown to a resort at the expense of BCCI.

Jones also arranged to have Senator Sam Nunn invited to lunch by the Egyptian Ambassador to the United States where Jones introduced the Senator to Gaith Pharaon. Nunn subsequently met with Pharaon on three occasions -- each meeting was arranged by Charlie Jones. There is nothing to suggest, however, that Senator Nunn had any relationship with BCCI or knowledge of Pharaon's ties to the bank.

According to Senator Hatch, Jones also used the offices of Senator Wyche Fowler to set us a meeting between himself, Amir Lohdi, a BCCI employee and aide to Gaith Pharaon, and Danny Wall, the nation's top savings and loan operator. According to a report released by Senator Hatch in 1991, at the time, Centrust was seeking US authority to sell $200 million in bonds to stave off its failure. Senator Fowler has denied that he or anyone in his office played any role in setting up the meeting.(85)

Conclusion

Beginning in the late 1970's BCCI made a concerted effort to court important members of the Carter administration, including the President himself. Bert Lance, for example, appears to have been relieved of substantial debt by the bank. While Mr. Lance's financial dealings have been thoroughly investigated and he has to date been convicted of no crime, the Subcommittee has concluded that from the beginning Lance traded on his time in public office for personal gain. In short, while his dealings with BCCI may not have been criminal, they can only be characterized as corrupt.

Former President Carter demonstrated an astounding lack of curiosity about a man with whom he travelled around the world and who funded his charities. While someone in the US government should have alerted the former President to the criminal nature of BCCI before 1986, President Carter never asked. Moreover, the former President demonstrated some insensitivity to the appearances of impropriety in accepting money from Sheik Zayed, the owner of BCCI, after the 1988 indictment, even though BCCI had been identified as having a corporate policy of soliciting drug money.

Andrew Young did not have as extensive relationship with BCCI as his former colleague Bert Lance, but he seems to have been equally willing to profit by that relationship. While Young may not have broken any criminal laws, he showed poor ethical judgment in performing services for a foreign bank while he was Mayor of Atlanta. Mayor Young's actions could be more easily characterized as business and economic development were it not for the $50,000 he received in consulting fees and the nearly $200,000 his consulting firm borrowed.

What is perhaps most surprising about the actions of former President Carter and former Mayor Young is that they established a relationship with BCCI or Abedi at all given that they knew Bert Lance was intimately involved with the bank and had, in fact, been bailed out by the bank. Lance has a history of showing poor judgment concerning his personal and business finances and his recommendation of BCCI, instead of providing comfort, should have raised red flags.

_______________

Notes:

1. It is important to note that President Carter never personally profited from his relationship with either Abedi or BCCI.

2. S. Hrg. 102-350. Pt.3, p.16.

3. "Saudi to Acquire Lance Stock," by John Berry and Art Harris, The Washington Post, December 21, 1977.

4. S. Hrg. 102-350, pt. 3, p.5.

5. "Arab Investors Want Lance to Manage Funds," by Art Harris and John Berry, The Washington Post, December 18, 1977. p.A1.

6. Id. In 1979 the Justice Department brought a civil suit against Holly and an associate in 1979 claiming that they had sought to bribe an official of Quatar with a $1.5 million cash payment in order to get renewal of oil concessions that were worth millions of dollars. The department also said that Lance was instrumental in arranging the meeting between the businessmen and a State Department official in 1978, after he had left government, that were intended to pave the way for a bribe offer to an official of Qatar. Holly entered a consent order in which he agreed no to bribe officials in the officials. The Associated Press, by James Rubin, April 9, 1979.

7. Id.

8. Id.

9. Id. p.6.

10. Id.

11. Id. p.7

12. Id. p.7

13. "Is Bert Lance Back," By Gretchen Morgenson, Forbes Magazine, june 13, 1988, p.12.

14. Id. p.17.

15. S. Hrg. 102-350. pt.3, p.8.

16. "SEC Charges Lance," by John F. Berry and Jerry Knight, The Washington Post, March 18, 1978, p. A1.

17. Lance Sells Stock, by Michael Doan, Associated Press, December 20, 1977.

18. Id. p. 11.

19. Berry and Harris, Id. p.3.

20. Lance Stock Sale, by Robert Furlow, The Associated Press, December 27, 1977.

21. Id.

22. S. Hrg. 102-350, Pt. 3, p.11.

23. Id. p.12.

24. Id. p.13.

25. Id. p.16.

26. Id. p.15.

27. Id. p.37

28. "$3.5 Million Lance Loan An Issue In Takeover Suit," by Jerry Knight and John F. Berry, The Washington Post, March 23, 1978.

29. Id. p.20.

30. "Lance Tied to Bank's Takeover," By John Berry, The Washington Post, February 12, 1978.

31. By Michael Sniffen, The Associated Press, March 27, 1978.

32. Id. p.28.

33. see Sami memo, Id. p.25.

34. Id. p.28.

35. Id. p.19.

36. Id. p. 33.

37. Id. p.34.

38. Id. p.34.

39. Id.

40. Id. p.40

41. Id. p.43.

42. Memorandum, Application to Strike from Listing and Registration, "In the matter of Maxpharma, February 8, 1989, The American Stock Exchange.

43. Letter from Subcommittee source, August 14, 1991.

44. On April 18, 1984, Presad wrote to Marvin Klapp, the southeast regional chief for the SBA, and thanked him for his assistance. He also wrote:

I should also like to take this opportunity to apologize for any inconvenience caused as a result of Congressman Walter Jones, Sr. calling on our behalf. He may have been over zealous in his attempt to help us since he feels that as a minority owned SBIC we required extra help and guidance.

45. memorandum from Assistant Inspector general for Audit to the Associate Administrator for Finance and Investment, US Small Business Administration, March 8, 1988, p5-6.

46. Morgenson, p.12.

47. "The President's Saudi Windmill," by Jack Anderson, The Washington Post, July 29, 1980.

48. Id.

49. Id.

50. S. Hrg. 102-350, Pt.3, p.38.

51. "Jimmy Carter's Relationship With BCCI," ABC News Nightline, show #2664, August 8, 1991.

52. Id. p.38.

53. Fritz, p.1.

54. Id.

55. "BCCI Adept at Courting the Powerful and Rich," by Stuart Auerbach, The Washington Post, August 7, 1991, p.A1.

56. According to U.S. News and World Report, "Most of the Abedi money -- representing less than 3 percent of the 350 million the nonprofit Carter center has raised since its founding in 1982 -- went for eradication of Guinea worm disease, an intestinal disorder affecting millions in Asia and Africa." se "the Atlanta Connection," by Gloria Borger and Matthew Cooper, August 12, 1991, p.30.

57. "Carter Travels to Sudan to visit Grain Experiments," by Carolyn S. Carlson, the Associated Press, October 26, 1986

58. Carter also travelled to Ghana and Nigeria with Abedi where he attended conferences on eradication of Guinea worm disease. see "Nigeria:New Efforts to Eliminate Guinea Worm Disease," Inter Press Service, March 14, 1988.

59. The Los Angeles Times reported, "On June 21, 1987, former President Jimmy Carter was the star attraction at a ceremony dedicating a rehabilitation center for former prostitutes near Bangkok. By his side was Aga Hasan Abedi..." "How the BCCI Gained Friends in High Places," by Sarah Fritz, the Los Angeles Times, July 28, 1991, p.1.

Ironically, Nazir Chinoy testified that BCCI provided prostitutes to its best customers in the Middle East.

60. Nightline, Id.

61. Fritz, p.1. The article indicates that Abedi was excluded during these meetings.

62. Id.

63. Pharaon acquired 20% of Centrust in 1987.

64. Fritz, p.1.

65. Id.

66. "Carter Donors: Questionable Givers?" by Elizabeth Kurylo, The Atlanta Constitution, April 14, 1991, p.1.

67. Atlanta Constitution, August 26, 1992, "Former Carter Center chief indicted in fraud."

68. "Young Disturbed by Charges Against BCCI," by Elizabeth Kurylo, The Atlanta Constitution, July 20, 1991, p.1.

69. Id.

70. Id.

71. NBG Loan Review Memorandum, Andrew Young Associates, 10/17/83.

72. Id.

73. NBG Loan Review Document, p.2.

74. "Seized Bank Helped Atlanta's Ex-Mayor and Carter Charities," by Ronald Smothers, The New York Times, July 15, 1992, p.1.

75. In a memorandum, dated March 25, 1988, from SM Shafi, BCCI LACRO to Akbar Bilgrami, BCCI Panama, Shafi writes, "We have been advised that Mr. Andrew Young will repay the loan of the company by December 31, 1988."

76. letter to Bande Hasan from Asif Mujtaba, October 10, 1989.

77. Smothers, p.1.

78. letter from Tariq Jamil to S.M. Shafi, February 24, 1988.

79. memorandum from S.M. Shafi to Ameer Siddiki, BCCI London, May 1(3?)m 1987. p.1.

80. Id.

81. letter from Tariq Jamil, BCCI London to S.M. Shafi, BCCI, LACRO, September 18, 1987

82. letter from Stony Cooks to Tariq Jamil, BCCI London, July 15, 1987.

83. National bank of Georgia, Loan Memorandum, Andrew Young Associates Inc., 8/9/84.

84. staff telephone interview with R.P. Carlson, July 10, 1991.

85. "Hatch Adds Partisan Spice to BCCI Stew," by Edward T. Pound, The Wall Street Journal, August 6, 1991, p.A8.

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BCCI's Lawyers and Lobbyists

In hiring lawyers and lobbyists in the United States to help it deal with its problems, BCCI did not think small. BCCI's cadre of professional help in Washington, D.C. alone included, at various times a former Secretary of Defense (Clark Clifford), former Senators and Congressmen (John Culver and Michael Barnes), former federal prosecutors (Raymond Banoun, Lawrence Barcella and Lawrence Wechsler), and former Federal Reserve attorneys (Baldwin Tuttle and Jerry Hawke).

Still other prominent figures were recruited for BCCI's secretly-held American subsidiary, First American, such as former Senator and Democratic presidential candidate Stuart Symington and former Republican Senator from Maryland Charles Mac Mathias, who each sat on First American's board of director.

Other firms consisting of important former officials -- such as Kissinger Associates, then home to former Secretary of State Henry Kissinger, current Under Secretary of State Lawrence Eagleburger and current National Security Advisor Brent Scowcroft -- were recruited by BCCI, but refused to accept BCCI's business following its indictment on drug money laundering charges.

The revolving door between government and the private sector made it possible for BCCI to retain former government officials with intimate knowledge of how the U.S. government operates to aid BCCI's agenda. Ironically, BCCI used these former officials against the agencies they once served as instruments of its violations of U.S. laws and its attempts to slow or stop investigations of its wrongdoing.

Much of the activity of BCCI's lawyers in the United States was normal representation, often extremely aggressive, but within the borders of the kind of work the firms involved did for other clients. At other times, however, lawyers for BCCI participated in decisions to hire private investigators to investigate the private lives of government investigators pursuing BCCI; sought to use "political chits" to shut down Congressional investigations of BCCI; threatened publications considering publishing articles about BCCI with libel suits; and refused to refer BCCI foreign branches to federal law enforcement when BCCI's own employees in the U.S. believed such referrals were legally required because of the degree of the branch's involvement in money laundering.

The most aggressive activity by BCC's lawyers and lobbyists took place at the beginning and at the end of BCCI's

Two periods of activity by BCCI's lawyers in the U.S. illustrate how BCCI accomplished illegal or improper objectives were:

** Assisting BCCI and its nominees in restructuring the takeover attempt of Financial General Bankshares after the initial attempt was stopped by the Securities and Exchanges Commission (SEC), on the ground that BCCI had secretly colluded with other shareholders by purchasing 4.9% of the FGB stock each to evade securities laws requiring the reporting of their purchases at 5% or more. Among the key attorneys involved in the restructuring of the BCCI takeover were Clifford, Altman, and former Federal Reserve lawyer Baldwin Tuttle. (1978-1981)

** Structuring the purchase of National Bank of Georgia by First American from BCCI's nominee, Ghaith Pharoan. (1985-1986)

Response to Senate Joint Defense Agreement

BCCI's Lawyers and Lobbyists

In hiring lawyers and lobbyists 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.

BCCI's cadre of professional help in Washington D.C. included, at various times, a former Secretary of Defense (Clark Clifford), former Senators and Congressmen (John Culver, Mike Barnes), and former federal prosecutors (Larry Wechsler, Raymond Banoun, and Larry Barcella), and former Federal Reserve Attorneys (Baldwin Tuttle, Jerry Hawke, and Michael Bradfield). Their involvement in representing BCCI, following their government employment, illustrates the perils of the revolving door, and the danger of former government officials using the expertise they gained in government at the service of private clients. Often, such former officials have no idea of the real agenda or problems their clients may be hiding. And yet their actions can, and in the case of BCCI, did, substantially impede the ability of government to do its work.

Apart from Clifford and Tuttle, this team was brought in only after BCCI's indictment on drug money laundering charges in October 1988. Since the indictment, at various times, these former officials were used by BCCI to stall investigations, prevent the bank from being closed by regulators, and to stop legislation that would have mandated BCCI's closure.

Some of the questionable tactics employed by BCCI's team of former government officials included:

** Investigating government agents.

** Working outside the normal law enforcement channels to keep the bank open in Florida.

** Lobbying Senators as registered foreign agents in pursuit of their criminal defense work, in order to stop BCCI from being closed.

** Delaying and impeding an authorized U.S. Senate investigation of the bank.

** Refusing to refer BCCI customers and accounts for criminal investigation even after being advised by BCCI's own offiers that the customers and the accounts raised serious questions.

** In the case of Clifford and Altman, using the attorney work product and attorney client privileges as shields to protect their own potential cupability.

Larry Barcella

Larry Barcella is a former Assistant US Attorney who gained national prominence for his successful prosecution of Edwin Wilson, the American convicted of selling secrets to Lybia. Barcella was brought onto the BCCI case shortly after the October 1988 indictment of BCCI in Tampa, Florida. Larry Wechsler, with whom Barcella had practiced law in the US Justice Department recruited him to coordinate the bank's defense.

Although the full extent of Barcella's activities on behalf of BCCI remains unknown, he did engage in the following:

-- In 1988 Barcella tried to persuade his firm's lead partner, former US Senator Paul Laxalt, meet with Swaleh Naqvi, BCCI's CEO, in London, and to engage in lobbying on behalf of the bank on Capitol Hill. The Subcommittee has been unable to determine what, if any, services Senator Laxalt performed on behalf of BCCI.

-- In 1989 and 1990 Barcella joined John Vardaman, a partner at Williams and Conolly and Robert Altman in warning Larry Gurwin, a freelance journalist writing an article about BCCI and First American Bank for Regardie's magazine, that it would be improper to write anything that linked the two institutions. Barcella has called Gurwin's allegations "absurd".(1)

- In early 1990, after BCCI pleaded guilty to money laundering charges in Tampa, Florida, several members of the US Congress criticized the plea bargain as to lenient on the bank. Documents obtained by the Subcommittee show that Barcella met with Senator Dennis Deconcini, one of the critics of the plea bargain, in an effort to persuade him that BCCI was not the corrupt institution that he and others had claimed.

Most recently, of course, Barcella has been hired by the House Foreign Affairs Committee to investigate the "October Surprise", the allegations surrounding a political deal for release of the US hostages held in Iran in 1980. On leave from the Justice Department to assist Barcella in his investigation is Greg Kehoe -- the Justice Department official with whom BCCi lawyers, including Barcella, negotiated the bank's plea agreement in Tampa.

Ray Banoun

Raymond Banoun is also a former federal prosecutor who was brought into the BCCI case by Robert Altman to assist in the bank's defense. At the time Banoun was with the law of Arent Fox; he is currently the head of the white collar criminal defense team in the Washington office of Caldawater, Wickersham and Taft.

Aside from Altman, the lawyer who had the most contact with the Subcommittee concerning BCCI was Banoun. In reviewing the record, the Subcommittee has concluded that Banoun may have acted unethically by willfully misleading it in an attempt to impede the investigation.

Banoun was initially charged by Altman to oversee the production of documents respondent to the series of subpoenas issued by the Subcommittee to BCCI in the summer of 1988. Among the documents under subpoena were all records relating to General Noriega's accounts in the United States. While the Subcommittee did receive some information from BCCI, it was clearly incomplete and Senator Kerry has stated publicly on several occasions that he does not believe the Subcommittee received full cooperation. In response, Banoun has made the following extraordinary comments to the press:

-- Banoun told Newsweek that he fully cooperated with the Subcommittee, but that "lawyers don't go around searching for documents for clients."(2)

-- Banoun told the National Journal that the Subcommittee had been "outlawyered." He added that "We don't allow our clients to get pushed around. This is an adversary system, not a roll-over system." (3)

-- Banoun also complained to the Legal Times that "more and more these days the government [is] wanting information obtained under the attorney-client privilege and attorney work product." Banoun stated,"It's an unfortunate and frightening sign because it erodes very seriously the ability of a lawyer to represent a client." BCCI, of course, waived it attorney client privilege.(4)

Taken together these comments suggest that Banoun's approach to the subpoenas was to advise BCCI to turn over all relevant documents, but to take no steps to ascertain whether, indeed, that had been accomplished.

The Subcommittee is also disturbed by a memo written by Roma Theus, a partner in the Florida law firm of Holland Knight, which states that Altman and Banoun "were doing everything within their power to call in political markers."(5) Banoun has called the author of the memo a misinformed "fruitcake."(6) But Theus, a highly respected lawyer, told the Subcommittee that his information came from private investigator Phillip Manuel, who had worked for Banoun's colleague, Larry Barcella. Manuel told the Subcommittee he had no idea why Theus would write such a thing and that his only information about the Subcommittee's investigation came from "journalists with who he played poker."

In the fall of 1988 Banoun was also charged with reviewing all the accounts for BCCI in Florida to determine whether criminal referrals should be made. The Subcommittee has obtained documents that suggest that despite evidence of criminal activity produced by the manager of one of BCCI Florida offices (one of BCCI's few honest officers) Banoun made no criminal referrals.

Larry Wechsler

Larry Wechsler is a former government prosecutor in the Washington D.C. US Attorney's office who now practices with the Washington D.C. firm of Janis, Shuelke and Wechsler. Wechsler previously represented Albert Hakim in the Iran Contra affair and was brought in by his close friend Robert Altman to put together a legal defense team for BCCI in Florida. Wechsler recruited Barcella and bevy of other top lawyers.

Wechsler has refused to meet with Subcommittee staff, but documents show that he and Banoun lobbied the US Senate on behalf of BCCI.

The Congressmen

Many who serve in Congress come to public service from other professions, frequently the legal profession. So it is natural that once out of office, those with law degrees return to the practice of law.

While former public servants are entitled to pursue careers once they return to private life, all too often they remain in Washington and pursue legal careers that entail lobbying. Again, while there is nothing improper as long as ethical rules are followed, the BCCI case points out how easily it is for former lawmakers to have their reputations, and therefore the reputation of the government they served, tarnished by representation of unsavory clients.

The Subcommittee has no solution to this sticky problem, except to note that those who develop influence within the Congress, need be cautious in the exercise of that influence at all times, but especially when they leave the Congress.

Senator Culver

John Culver, a former US Senator, was another partner at the law firm of Arent Fox who did work on behalf of BCCI. While Culver's involvement was relatively limited, he did contact the Subcommittee in the winter of 1989 in an attempt to gain an advance copy of the Subcommittee's report on narcotics trafficking, which included references to BCCI. He also lobbied the Subcommittee with Banoun, Weschler and Altman, assuring Subccommittee staff that the bank was fully cooperating, and that, save events in Florida, a sound and honorable institution.

Senator Mathias

Senator Mathias became a director of First American holding company after leaving the Senate in 1986. Mathias also became chairman of the board of directors audit committee.

On August 2, 1991, mathias wrote to lark Clifford and urged him and Robert Altman to resign. According to the Wall Street Journal, Mathias told Clifford, "In recent weeks, there has been a worrisome outflow of deposits which continues to this day." He added, "you and Bob are perceived as the link between BCCI ...and First American."(7)

Michael Barnes

Barnes, a former US Congressman from Maryland, is a partner in the Washington D.C. law firm of Arent Fox. In the spring of 1990, Barnes was called in by his colleague Ray Banoun, who was concerned about the impact of a pending article on First American bank by freelance journalist, Larry Gurwin for Regardies Magazine. Barnes called William A. Regardies to complain about the article. Regardies published Gurwin's work anyway.

The Fed Officials

The Federal Reserve is a quasi independent government insitution which has enormous power in setting the economic agenda for the country. Because of its unique status, it is somewhat insulated form direct accountbility to the legislative and executive branches of government. While government ethics laws apply to the Fed in a similar fashion as to other government agencies, the BCCI case suggests the Fed has become too much of a club where former employees are able to lobby current employees on critical banking issues.

Baldwin Tuttle

Balwdin Tuttle served as the deputy general counsel at the Federal Reserve during the mid- 1970's. After leaving the Federal Reserve Tuttle moved to private practice where he became the outside counsel to Clifford and Altman for their BCCI related work. He is currently a resident partner in the Washington D.C. office of Milbank, Tweed, Hadley and McCloy.

Tuttle represented the middle eastern investors along with Clifford and Altman at the 1981 Federal Reserve hearing on the takeover of Financial General Bankshares. That hearing was chaired by Robert E. Manion, now at the law firm of Arnold and Porter. Manion had been one of Tuttle's former subordinates and replaced Tuttle when he left as the Fed's deputy general counsel.

Besides Manion, Tuttle knew Jack Ryan, the director of the division of banking supervision and regulation. Tuttle fielded most of the tough questions at the hearing and it is clear that his representation impressed his former colleagues at the Federal Reserve.

Tuttle also filed the investors application to the Federal Reserve. In that application, he represented that BCCI "neither is it a lender, nor will it be" to First American's Middle-eastern purchasers. That, of course, has been shown to have been completely untrue.

Tuttle provided legal advice to BCCI and the Middle-Eastern investors throughout the 1980's. The Federal Reserve, in its civil complaint against Clifford and Altman, noted Tuttle's involvement in the NBG takeover in 1986. In a "brief and hostile" meeting, Altman castigated Tuttle for questioning the proprietary of the takeover and warned him that he if he ever raised the issue again, he would be fired. Apparently Tuttle heeded Altman's advice, and never made his concerns known to bank regulators.

Jerry Hawke

Jerry Hawke, a former general counsel to the Federal Reserve, is currently a partner with the Washington D.C. law firm of Arnold and Porter where he specializes in banking law.

Hawke was hired by First American Bank to lobby the federal reserve against the creation of a trust for the bank to facilitate its sale. Apparently, the management at First American Bank believed that they and not an independent trustee should handle the sale. As the Washington Post reported, "That means Virgil Mattingly, general counsel at the Fed who is personally handling the trust issue, is being lobbied by the man he once worked for."(8)

Michael Bradfield

Michael Bradfield, a former counsel at the Federal Reserve, is with the law firm of Jones, Day, Reavis and Pogue in their Washington D.C. office. During the 1980's Bradfield responsibilities at the Federal Reserve included monitoring First American bank. In 1989 he became a partner in Jones, Day where he does work for First American pertaining to BCCI's interest in the bank holding company. His firm has also done work for the bank's oversight committee.

_______________

Notes:

1. Clark Clifford and a Legal Armada Gave BCCI a Patina of respectability," by Jill Abramson, the Wall Street Journal, August 1, 1991. Also, BCCI's British solicitors wrote Gurwin about an article he did for the Economist. British solicitors threatened to sue and based their charges on information they had received from the Washington lawyers who had spoken to Gurwin. At this point Gurwin had only spoken to Wechsler and Barcella.

2. "The Influence Game," Newsweek, August 26, 1991, p.20.

3. "BCCI's Washington Web," by Paul Starobin, The National Journal, 9/7/91, p.2131.

4. "Top Lawyers are Subpoenaed in BCCI Probe," by Linda Himelstein, The Legal Times, April 27, 1992, p.1.

5. Memo to the files, Roma Theus, August, 1990.

6. Starobin, p.2131.

7. "Revolving Door between Fed and First American," by Peter Truell, The Wall Street Journal, September 6, 1991, p.A10.

8. "First American: Drop Trustee Idea," by Sharon Walsh, the Washington Post, April 14, 1992, p.D1.

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HILL AND KNOWLTON AND BCCI'S PR CAMPAIGN

Introduction

Two days following its indictment in Tampa in October, 1988 as a result of the Operation C-Chase sting, BCCI did what many businesses in trouble do under such circumstances -- it hired a public relations firm to help it reduce the bad publicity surrounding the indictment. The firm selected by BCCI was, consistent with BCCI's usual strategy, unusually well-connected politically: Hill and Knowlton, home to Republican Robert Gray and Democrat Frank Mankiewicz, and generally considered the most politically prominent public relations firm in Washington.(1) During the following two years, Hill and Knowlton provided various services to BCCI and to its secretly-held affiliate, First American.(2)

On August 1, 1991, former Customs Service Commissioner William von Raab, in testimony before the Subcommittee, criticized the public relations firm, implicating its activities as a factor in BCCI's success in staying open following its indictment, and suggesting that the January, 1990 plea agreement between BCCI and the U.S. Attorney in Tampa was "a tribute to the influence team that was marching up and down the Eastern seaboard helping BCCI keep its neck off the block."(3)

In response to the Von Raab testimony, Hill and Knowlton's Vice Chairman, Frank Mankiewicz, immediately issued the following statement on the PR Newswire, which is set forth in full:

Mr. Von Raab's testimony as to Hill and Knowlton is incredibly irresponsible and totally false. Neither I, nor Robert Gray, nor anyone else from Hill and Knowlton ever contacted, on behalf of BCCI, anyone in the Department of Justice or anywhere else in the Executive Branch, or for that matter, on Capitol Hill.(4)

The import of Hill and Knowlton's release was that whatever it did for BCCI, its work had not involved lobbying.

But Mankiewicz's strong statements concerning what Hill and Knowlton did not do for BCCI failed to explain exactly what Hill and Knowlton did do.

In fact, Hill and Knowlton had represented BCCI at a critical time in its history, following the Tampa drug-money laundering indictment.(5) Moreover, according to statements made by former Hill and Knowlton partners to the press, Hill and Knowlton partners did know BCCI was "sleazy," and at least one partner did leave the firm in part as a result of disagreements over the BCCI account.(6)

Moreover, Hill and Knowlton did have contact with Capitol Hill on behalf of First American, Clark Clifford and Robert Altman, on BCCI related matters, in the period when BCCI still secretly-held First American, and after BCCI's ownership of First American was a matter of public record and established fact.(7)

Finally, Hill and Knowlton did have contact with at least one Congressional staffer, Michael Pillsbury, on behalf of BCCI itself, in January, 1990. At that time, Senate staffer Pillsbury wrote Karna Small at Hill and Knowlton, soliciting information from Hill and Knowlton concerning what it was doing for BCCI, and offering to be of assistance to BCCI in its public relations efforts.

Small's involvement provides further evidence of the fact that Hill and Knowlton assigned politically-connected staff to the BCCI account. Small's previous work had included being assistant press secretary to James Brady under President Reagan, press spokesperson for National Security Advisor Robert McFarlane, and an assistant to the National Security Counsel during the period in which McFarlane and Admiral John Poindexter were in charge of the NSC.(8)

The record before the Subcommittee suggests that the contact between Small at Hill and Knowlton and Capitol Hill was initiated by Pillsbury, rather than Small or Hill and Knowlton. Hence, Mankiewicz's statement was technically correct, if incomplete, on this point.(9)

Hill and Knowlton's activities on behalf of BCCI, First American, Clifford and Altman resulted in Hill and Knowlton making statements that in the end proved to be materially misleading, and attacking individuals who were making accurate, but damaging statements about their clients. While there is no evidence that any Hill and Knowlton partner knew that the information it was disseminating was false, BCCI's use of Hill and Knowlton raises questions about the role of public relations firms in our political system.

When a public relations firm disseminates information, does it have any independent responsibility to the public to make sure that the information disseminated is accurate?

Are there other issues of public policy at stake when a public relations firm that is politically well-connected, on behalf of a client who has been indicted for illegal acts, disseminates materials attacking and discrediting people who are making accurate statements? Is corrective industry or legislative action warranted?

Findings

** Hill and Knowlton partners knew of BCCI's reputation as a "sleazy" bank at the time it accepted the account in October, 1988. Some of this information came from then Commissioner of Customs William von Raab, in response to questions from a friend who was a partner at Hill and Knowlton.

** Hill and Knowlton made contacts with Capitol Hill on behalf of First American, and BCCI's lawyers, Clark Clifford and Robert Altman, on issues pertaining to BCCI. Materials prepared in part by Hill and Knowlton and provided to Capitol Hill were provided to federal bank regulators in the spring of 1990 in an effort to discourage those regulators from crediting allegations in the media that BCCI secretly owned First American.

** In 1988 and 1989, Hill and Knowlton assisted BCCI with an aggressive public relations campaign designed to demonstrate that BCCI was not a criminal enterprise, and to put the best face possible on the Tampa drug money laundering indictments. In so doing, it disseminated materials discrediting persons and publications whose statements were later proved accurate about BCCI's criminality.

** Important information provided by Hill and Knowlton to Capitol Hill and provided by First American to regulators concerning the relationship between BCCI and First American in April, 1990 proved to be incorrect. The misleading material represented the position of BCCI, First American, Clifford and Altman concerning the relationship, and was contrary to facts known by BCCI, Clifford and Altman. There is no evidence that Hill and Knowlton partners knew the information to be inaccurate, or reason to believe that their clients' account was correct.

Retention and Initial Services to BCCI of Hill and Knowlton

On October 10, 1988, BCCI was indicted in Tampa on drug money laundering, sparking an immediate need by BCCI to respond by every means possible. As Abdur Sakhia, one of BCCI's senior officers in the United States, recommended Hill and Knowlton.

I started the Hill and Knowlton connection. The day we were indicted we were inundated by everyone. I said we have to tell our side of the story. I am not capable of telling it. You need to have a PR firm to handle this. To me, BCCI's problems here were like Johnson and Johnson's Tylenol crisis, or the indictment of Drexel for insider trading.(10)

Hill and Knowlton had been purchased by a London advertising and public relations conglomerate, the WPP group and now had offices in London. A British BCCI director, John Hilbery, who lived in London, had contacts there, and BCCI's main offices in London hired the firm, at a rate of $50,000 per month.

At the outset of the retention of Hill and Knowlton by BCCI, some Hill and Knowlton partners in Washington expressed concern about the account.

As former Commissioner Von Raab testified:

I was in my office when a friend of mine from Hill & Knowlton came to me and he said, Willie, he said, BCCI wants to hire Hill & Knowlton and they want me to work on it.

And he said, what should I do? And I said, don't work on it, it is a sleazy operation. Well, the result was, Bob Gray and Frank Mankiewicz worked on it. My friend left Hill & Knowlton.(11)

Before the month of October was over, Hill and Knowlton had deployed a team of six of its public relations professionals in New York, Tampa, and Washington, D.C., as well as 16 additional Hill and Knowlton staff in ten other countries. The firm's initial work included such standard public relations tasks as handling BCCI's press strategy, developing various BCCI officials as press spokesmen, creating a public relations history of BCCI and a public relations position paper to be used to rebut the Florida indictments, and developing a recommended advertising campaign for BCCI in major newspapers around the world.(12)

Hill and Knowlton documents found by the Subcommittee at BCCI's document repository in Florida describe this work in some detail.

A document evidently generated by Hill and Knowlton in London in October, 1988, entitled, "BCCI Worldwide Action Program," carried recommendations for generating positive press for BCCI through interviews between BCCI officials trained by Hill and Knowlton on what to say with influential journalists such as Lou Dobbs at CNN, Louis Rukeyser at PBS, and James Stewart of the Wall Street Journal.

A second Hill and Knowlton document dated October 27, 1988, described as "Background on the Tampa Indictments And BCC Position on Compliance," described the approach to be taken by BCCI officers in these interviews:

Management of BCCI was surprised and shocked to learn in news reports that the bank and nine of its employees had been indicted in Tampa, Florida on charges of laundering drug money. The bank had no warning that it or any of its people were under investigation, nor is its management aware that any employee anywhere had violated long-standing bank policies to do business in a manner fully consistent with the laws and regulations of every jurisdiction in which it operates.

The specific facts of the charges are not known to BCCI at this time; the bank has, however, reaffirmed its commitment to legal integrity and pledged to cooperate with all legal authorities in the resolution of these troubling developments. BCC has taken the further step of launching an extensive internal review under the direction of a special committee of outside directors to review the allegations.(13)

Senior BCCI officials to whom the document was being distributed knew at the time that many of these statements were inaccurate. Even mid-level BCCI officials knew that some of these statements were inaccurate. For example, according to BCCI officers such as Amjad Awan and Akbar Bilgrami, both convicted of money laundering, BCCI had never, even on paper, created a package of "long-standing bank policies" against committing any kind of criminal act, let again directed against laundering money.(14)

Creating an anti money-laundering policy after the fact was one of the urgent tasks management was about to engage in as part of BCCI's damage control operation. BCCI official Akbar Bilgrami was in this period told to write a memorandum concerning a meeting which he had not attended in which BCCI had supposedly reiterated its policies against money laundering with BCCI's banking staff in Miami. According to Bilgrami, he declined the request to write the memorandum for two reasons. First, its substance was misleading. Second, he felt ridiculous trying to write an account of an event at which he was not even present.(15) Bilgrami made clear his understanding that the notion that BCCI had an anti-money laundering policy in place prior to his indictment was absurd.(16)

The backgrounder on BCCI prepared by Hill and Knowlton at the time for use with the press stressed BCCI's total institutional commitment to conservative and ethical practices:

BCC draws upon Eastern traditions of trust, confidentiality, hospitality and cordiality in business dealings. The bank has an unusually egalitarian management structure with many functional, as opposed to ceremonial, titles for managers . . .It stresses conservativism, prudence and liquidity in its deposit taking and lending activities. . . Although it has never publicized the fact, BCC is a major participating in recognized charitable and philanthropic programs around the world . . . The BCC Group as a matter of corporate policy adheres strictly to the rules and regulations of all countries in which it does business . . . Financial transactions of the bank are subject to four levels of review by regional auditors, by central auditors, external auditors (Price Waterhouse is the bank's outside audit firm) and by the auditors of various state banking authorities.(17)

The truth, of course, was at the time the words were written, BCCI's top officials had engaged in massive fraud for over a decade and was billions of dollars in the hole, and had survived, to date, through phony bookkeeping designed to hide practices that were neither conservative nor prudent. The material created by Hill and Knowlton was thus unrelated to the facts, and merely an articulated form of what BCCI wanted the world to believe.

On October 21, 1988, Hill and Knowlton released a press statement on BCCI's behalf stating that "BCCI has never knowingly violated the laws of any country," and "would not countenance any such violation or activity." At that time, BCCI had been cited for regulatory violations in numerous countries around the world, despite its practice -- well-known within BCCI -- of bribing public officials around the world in an effort to limit the number of citations for such violations.(18)

In November and December, 1988, Hill and Knowlton coordinated briefings of BCCI employees on how to handle themselves as press representatives, including "media training" classes, and a seminar by BCCI's lawyers to BCCI employees to discuss the implications of the Tampa indictments for the bank and for unindicted bank officials.

On December 8, 1988, Hill and Knowlton registered with the Justice Department as a foreign agent for BCCI in preparation for engaging in lobbying efforts on behalf of BCCI in Washington.

In December, 1988, the Subcommittee deposed a former BCCI official, Aziz Rehman, who testified under oath that BCCI had engaged in wrongdoing beyond the actions for which BCCI was indicted in Tampa. According to Rehman these included maintaining a "Nassau" branch of BCCI in Miami at a time that the bank did not have an office in Nassau, and which it was using to assist clients in tax evasion. According to Rehman, customers were able to make deposits in the Nassau branch in Miami which earned interest "outside" the United States, were not reported by BCCI to the IRS, and thus permitting the customer to evade paying taxes. Rehman's statements were later supported by two other BCCI officers, Akbar Bilgrami and Amjad Awan, in statements to the Subcommittee, as well as by BCCI records stored in Miami.

In a press release from Hill and Knowlton in New York, BCCI defended itself by attacking Rehman and calling his charges, which were accurate, wild lies. The December 22, 1988 press release, issued on Hill and Knowlton New York letterhead, with two Hill and Knowlton account executives listed as press contacts stated:

The allegations made about the Bank of Credit and Commerce International S.A. by Mr. Aziz Rehman before hearings of the U.S. Senate Subcommittee on Terrorism, Narcotics and International Communications [sic] in October, 1988 [sic] have absolutely no basis in fact.

Mr. Rehman was fired from BCCI in 1984. Whether this influenced his sworn Senate testimony in any way we do not know. At no time has BCCI operated any "fictitious" branches in the Bahamas or elsewhere. Nor has the Bank chartered aircraft to transport cash illegally.

Mr. Rehman's statements are fantastic and erroneous interpretations of routine and legitimate banking transactions.(19)

The activities described by Rehman were neither routine nor legitimate; his statements neither fantastic nor erroneous. Rehman's statements were even possibly verifiable at the time they were made. Numerous BCCI employees in Miami knew that Rehman was telling the truth, and that BCCI had maintained its Nassau books in Miami at a desk labelled "Nassau" opposite a desk that handled Miami's transactions. As BCCI officials interviewed by the Subcommittee acknowledged, the Nassau account of BCCI was for years nothing more than a separate set of books kept in BCCI's Miami office and labelled "Nassau."(20)

As these officials later told the Subcommittee in confirming Rehman's account, the Nassau branch of BCCI in Miami was used by BCCI clients for the purpose of shielding assets from U.S. taxation. The Nassau branch was established in Miami at a time when BCCI had no operation in Nassau -- even a post office box. Officers at the "Nassau" branch of BCCI sat across the table at BCCI's office in Miami from the "Miami" branch of BCCI in Miami, so that customers of BCCI could "shift" funds from the on-shore branch of BCCI to the off-shore branch. Moreover, since BCCI, as a foreign bank outside of the Federal Deposit Insurance Corporation (FDIC) system, could not accept deposits from U.S. citizens in the United States, its "Nassau" branch was used to allow U.S. citizens to make deposits "offshore."(21)

There is no indication in BCCI records that any independent fact-checking was done by the firm. Apart from blind acceptance of whatever BCCI told them, Hill and Knowlton also had no reason to believe that Rehman's statements were either true or false. The public relations firm did nothing more, and nothing less, then peddle BCCI's position without regard to the damage to the reputation of the person its client hired it to disparage.

Attacking The Press

In May, 1990, Regardie's Magazine published a cover story concerning the relationship between BCCI and First American by financial journalist Larry Gurwin. The story was entitled, "Who Really Owns First American Bank?" It provided detailed information concerning that issue, suggesting that one very possible answer was BCCI. The article also contained a comprehensive and detailed history of BCCI's takeover of Financial General Bankshares, BCCI's previous run-ins with regulators and law enforcement, the role played in First American and in BCCI by Clark Clifford and Robert Altman, and questions concerning BCCI's shareholders. The Gurwin article in Regardie's made available in public significant material concerning these issues not previously known. As a consequence, it has been justifiably credited by many as substantially advancing knowledge of BCCI's activities in the United States, and helping prompt the investigative work that led to the unravelling of BCCI's ownership of First American.

When the Regardie's article appeared, on behalf of "First American," Hill and Knowlton created a "Fact Sheet" on the article which consisted of an attack on the story, the magazine itself, and the reporter who wrote it. The "Fact Sheet" was not released generally to the press, but to specific persons who might have a special interest in whether the article was true -- people like the chairman of the Subcommittee, Senator Kerry, and the Comptroller of the Currency, Robert L. Clarke, each of whom received a seven page fact sheet rebutting the allegations in Regardies in late April, 1990. The "Fact Sheet" was provided to Senator Kerry by Mankiewicz, in his capacity as Vice Chairman of Hill and Knowlton.

The Hill and Knowlton "Fact Sheet" began with the following assessment of the Regardie's article:

The May 1990 issue of Regardie's magazine carries a cover story on First American Bankshares which is full of inaccuracies and outright falsehoods, utilizing a sensationalist approach to yesterday's news. It has been published with the clear intent of denigrating and injuring the company, its officers, and directors, and its shareholders. With glaring bias and distortion, Regardie's fails to report fairly the story of First American. . .(22)

According to the Hill and Knowlton release, the Regardie's article consisted of a:

rehash of stale allegations and charges . . . rejected by the Federal Reserve and other regulators . . . seeks to prove First American may somehow be controlled by the Bank of Credit and Commerce International (BCCI).(23)

Hill and Knowlton then made the following representations of fact concerning the relationship between BCCI and First American, which proved to be untrue:

** BCCI's management is not involved in any respect in the policy or affairs of First American, a point that is easily checked.

** BCCI has never owned any stock in First American.

** First American is not controlled by BCCI in any sense and all dealings between the two institutions (which have actually been quite limited) have been proper and on an arms-length basis.(24)

Again, Hill and Knowlton had no particular knowledge of the true state of affairs. It acted merely as a conduit for the position of its clients. That position, however, was misleading and false.

Hill and Knowlton then made the following representations of fact concerning the use of First American by General Manuel Noriega:

First American has never had any banking relationship of any kind with Manuel Noriega, nor has it ever knowingly handled any funds of Manuel Noriega . . . Nor is there any indication in First American's bank documents [that] any deposit contained funds belonging to Manuel Noriega.(25)

In fact, dozens of documents at First American's offices in Washington showed, quite clearly, the handling of Noriega assets by First American through the bank account maintained by BCCI at First American in Washington. Thus, Hill and Knowlton's client, First American, or its officers, were again providing untrue information to the PR firm on this point, which the firm in turn was disseminating on First American's behalf.

The "Fact Sheet" distributed by Hill and Knowlton made similarly erroneous statements concerning the relationship between Clifford and Altman and BCCI.(26)

Once again, there is no evidence to demonstrate that Hill and Knowlton had conducted any independent investigation of the facts that they were distributing.

To the contrary, their presentation was identical with the position that was being taken then and to this day, by BCCI, Clifford and Altman concerning these issues. Untrue statements by BCCI, Clifford and Altman concerning these issues are among the central matters on which each has been indicted by law enforcement and cited by regulators.

Once again, Hill and Knowlton acted merely as a conduit for the version of events being promoted by their clients. Once again, the materials it disseminated contained numerous statements that proved to be false. Once again, its attacks -- this time on investigative reporter Larry Gurwin and on Regardie's magazine by Hill and Knowlton in its capacity as public relations firm for First American, Clifford and Altman -- served to discredit people who were telling the truth.

In May, 1991, Hill and Knowlton disseminated another memorandum pertaining to First American and BCCI. This memorandum was written in response to a May 5, 1991 article in the Washington Post concerning Clifford and Altman's purchase of stock in First American through secret lending from BCCI.

A cover page to the Memorandum written by Frank Mankiewicz stated the following:

I would like to stress a few points:

- The fundamental contention of the Washington Post story of May 5, indeed its lead sentence - is untrue, and worse, never supported in the article. The Post says regulators were told "that BCCI would have no financial relationship with First American and its senior management." No such statement was ever made. In fact, First American was free to have financial dealings with BCCI on an arms-length basis - as it did with many banks - and audits have confirmed that no impropriety occurred. As to financial dealings with senior management, I have no idea what representation or discussion the Post is talking about.

- These investments were not secretive ownership; rather, the Directors had full knowledge of both the purchases, and approved them. They were also encouraged by shareholders, and the ownership was timely reported to regulators, as required.

- The loan from BCCI was made with the advice of New York counsel . . . none, then or now, believes the loan contravened any commitment to the Federal Reserve . . .(27)

Mankiewicz then enclosed a memorandum, on Hill and Knowlton stationery, which further stated that "there was no reason at the time of these transactions for any one to consider the role played by BCCI [in lending funds to Clifford and Altman] to be remarkable or inappropriate."(28)

The positions taken, identical to those taken by Clifford and Altman, were at best, gross simplifications and distortions of the truth, as the public record at the time, available to Hill and Knowlton, demonstrated. Specific representations had indeed been made to the Office of the Comptroller of the Currency that BCCI would not be involved in any aspect of financing First American's ownership either at the time of the FGB takeover, or later. These representations were part of the record on which the Federal Reserve agreed to permit the takeover of First American by the group linked with BCCI. While Clifford and Altman's ownership of BCCI stock had been disclosed to and approved by First American directors, their loans from BCCI had not. While Clifford and Altman's ownership of BCCI stock had been disclosed to regulators, their loans from BCCI had not. Clifford and Altman's personal attorneys may not have believed the loans contravened any commitment to the Federal Reserve. But that has not been the position of the regulators themselves. Indeed, the Federal Reserve has formally charged Clifford and Altman with conflict of interest, breach of fiduciary duty, and other violations of their statutory responsibilities in connection with these very transactions. In fact, the Federal Reserve has viewed these transactions to be sufficiently improper to justify banning Clifford and Altman from banking for life.(29)

Again, there is no evidence to demonstrate that Hill and Knowlton had conducted any independent investigation of the facts that they were distributing. The firm acted as a conduit for a position, which contained numerous statements that proved to be misleading at best.

Should Hill and Knowlton Have Known Better?

According to press accounts, some Hill and Knowlton executives from the beginning raised ethical questions concerning the firm's representation of BCCI and refused to work on the account -- suggesting that sufficient information had always been available to Hill and Knowlton to reject the account on the ground that BCCI had in fact engaged in sleazy practices, and that if Hill and Knowlton accepted BCCI's account, it might end up tarnished.(30)

According to an August 17, 1991 account in the National Journal, in October, 1988, Lawrence J. Brady, an ex-senior vice president in Hill and Knowlton's Washington office and two other Hill and Knowlton executives had told Mankiewicz in a conversation involving all four officials that BCCI was, to use Brady's word, a "sleazy" bank, after Brady discussed the possible representation with Von Raab. The National Journal article quoted another former Hill and Knowlton official as saying "the smell test was used, and [BCCI] did not seem to pass the muster."(31)

Regardless of such concerns, Hill and Knowlton kept the account for 18 months, and represented BCCI's secretly-held U.S. subsidiary, First American, another 15 months beyond that, until Clifford and Altman's resignation in August 1991.

What is the responsibility, if any, of a public relations firm to ensure that it does not assist clients in misleading the public, the Congress, or the Executive Branch, through the dissemination of false information?

The baseline standard is one defined by the Code of Professional Standards of the Public Relations Society of America, which states that "a member shall adhere to the highest standards of accuracy and truth" and "shall not knowingly disseminate false or misleading information."

In the case of Hill and Knowlton, BCCI, and First American, there is no evidence that Hill and Knowlton executives actually knew that the specific information they were disseminating was false. But there were obvious warning signs present from the beginning that served as cautions to some Hill and Knowlton partners, who did not want the firm to keep the account because of these warnings. These warnings initially consisted of a lengthy number of press accounts detailing BCCI's past bad behavior; the various filings made with regulators by various parties in connection with the FGB litigation; the Operation C-Chase drug money laundering indictment in Tampa itself. In December, 1988, they also included the Aziz Rehman deposition before the Subcommittee; the information provided Hill and Knowlton executives who refused to work on the account by Customs Commissioner Von Raab and others. By 1990, they included serious allegations being raised by the press in 1990.

Conclusion

Hill and Knowlton's representation of BCCI was not an unusual event. Institutions charged with wrongdoing hire public relations help all the time to ensure that their side of the story is told.

The result in the case of BCCI was that Hill and Knowlton ended up providing information to the Congress and to the press and public that was not merely misleading or distorted, but actually false. Hill and Knowlton assisted in discrediting people who were providing accurate information about the underlying situation, including a former BCCI officer, an investigative journalist and his publisher. Given Hill and Knowlton's close ties to both political parties, and its influence in Washington, this was especially unfortunate. Hill and Knowlton did not violate any laws. It may not have violated any of the standards of the public relations industry. But its actions raise questions concerning an apparent conflict in this case between the role played by Hill and Knowlton as BCCI's public relations firm, and the public interest.

As former Commissioner Von Raab testified concerning this issue:

So, it should not happen . . . [but] it happens all the time. It should not happen and maybe the BCCI case will be the example that will cause someone to change this influence peddling culture, to try to ask some reasonable questions of the integrity of the people that they are going to be representing.(32)

The public relations industry needs to consider whether additional internal standards may be appropriate to discourage the kind of representation provided BCCI by Hill and Knowlton. Such standards, could, at a minimum, require firms to conduct due diligence before agreeing to represent a client on any matter, backed up by the possibility of some form of sanction for gross violations of the standard.

SENATOR BROWN'S VIEW:

Clearly, Hill and Knowlton's representation of BCCI during the Chairman's investigaiton increased the pressure to cease the Subcommittee's efforts to make public the bank's nefarious methods. As the report itself concedes, no laws were violated. No ethical standards were breached. Neither my office nor my staff were approached or lobbied by Hill and Knowlton on this subject, nor felt that Hill and Knowlton went beyond their ethical mandate as they presented BCCI's "side of the story" to the public. The experience of Senator Kerry and his staff was quite different. Our comments in this section are especially critical of Hill and Knowlton, and should be evaluated in light of these facts.

_______________

Notes:

1. See lengthy descriptions of Hill and Knowlton's political contacts in The Power House, Robert Keith Gray and the Selling of Access and Influence in Washington, Susan B. Trento, St. Martin's Press, 1992. The book also contains interviews with former Hill and Knowlton executives concerning the discussions within Hill and Knowlton about the BCCI account.

2. Subcommittee documents on Hill and Knowlton stationery obtained from BCCI New York and BCCI Miami; letters and memoranda from Frank Mankiewicz to Senator Kerry on behalf of First American; See Hill and Knowlton's "BCCI Worldwide Action Program" memorandum, October, 1988.

3. S. Hrg. 102-350 PT. 1 p. 51.

4. Hill and Knowlton press release to PR Newswire, August 1, 1991, "To National and Business Editors."

5. Documents on Hill and Knowlton stationery concerning representation of BCCI, October-December, 1988; BCCI internal memoranda concerning Hill and Knowlton, October, 1988-January, 1990; BCCI lawyers notes produced by Raymond Banoun to Subcommittee on September 3, 1992 concerning Hill and Knowlton; correspondence, Michael Pillsbury to Hill and Knowlton, January, 1990.

6. See chapter on BCCI in The Power House, Trento, id.

7. See letter and memorandum from Frank Mankiewicz to Senator John Kerry, May 6, 1991.

8. Numerous press accounts chronicle Small's career. See e.g. UPI, October 15, 1985, Washington Post, November 5, 1985, and some 165 other citations in Nexis database prior to 1991.

9. Letter, Michael Pillsbury, on Senate stationery, to Karna Small, Hill and Knowlton, January 11, 1990, regarding Hill and Knowlton's media strategy for BCCI.

10. Staff interview, Abdur Sakhia, October 7, 1991.

11. Id. p. 52.

12. Neither Frank Mankiewicz nor Robert Gray were among the team of Hill and Knowlton professionals hired by BCCI in this period, nor do any documents in the possession of the Subcommittee show them to have worked on BCCI matters at all. Mankiewicz, however, along with others at Hill and Knowlton, did provide assistance to First American on the charges that it was secretly owned by BCCI, after the handling of the Hill and Knowlton retention by BCCI in the U.S. was switched from BCCI-London to Clifford and Altman in the spring of 1989.

13. Draft Appendix A to White Paper, October 27, 1988, Hill and Knowlton.

14. Staff interviews, July, 1992, Amjad Awan and Akbar Bilgrami. BCCI Miami documents provide ample evidence for the proposition that money laundering at BCCI was systematic, as do the various indictments of BCCI by federal and local U.S. law enforcement. See indictment, U.S. v. Awan, BCCI et al, Middle District of Florida, 1988, 88-330-Cr.-T-13(B), "BCCI . . . would and did formulate and implement a corporate strategy for increasing BCCI's deposits by encouraging placements of funds from whatever sources, specifically including "flight capital," "black market capital," and the proceeds of drug sales, in conscious disregard of the currency regulations, tax laws and anti-drug laws of the United States and of other nations. Paragraph 7.

15. Staff interview, Bilgrami, July 20-29, 1992.

16. Bilgrami, staff interviews, July 20-28, 1992.

17. October 26, 1988, Hill and Knowlton, "Background: The Bank of Credit and Commerce."

18. Among the foreign countries which had cited BCCI for various infractions prior to Hill and Knowlton's representation of BCCI were France, Kenya, Nigeria, and Sudan, as reported in press accounts available to Hill and Knowlton on the Lexis database. See Reuters, November 11, 1987. As BCCI officer Abdur Sakhia testified before the Subcommittee, "BCCI officers were indicted and jailed in other countries, like Sudan, Kenya, India, and in each case there was a terror in the bank that, you know, this has happened, that has happened. And somehow then some deal would be struck. People would be freed, BCCI would start doing business all over again." S. Hrg. 102-350 Pt. 2.

19. News Release, Hill and Knowlton, For: Bank of Credit and Commerce International, December 22, 1988.

20. Staff interviews, Amjad Awan and Akbar Bilgrami, July, 1992.

21. Staff interviews, Akbar Bilgrami, July 20-28, 1992; see also staff interviews with Nazir Chinoy, March 9, 1992.

22. "FACT SHEET," Re: Regardie's Article, provided to Senator John Kerry on April 30, 1990 by Hill and Knowlton.

23. Id.

24. Id.

25. Id.

26. Id.

27. Memorandum, From Frank Mankiewicz, Hill and Knowlton, May 6, 1991.

28. Id.

29. Board of Governors of the Federal Reserve, Summary of Charges, In the matter of Clifford, July 29, 1992.

30. A lengthy treatment of this question is contained in The Power House by Susan Trento, id. The book describes meetings about BCCI by Hill and Knowlton executives who wanted the firm to reject the account as a consequence of its poor reputation, but were rebuffed by firm management.

31. National Journal, August 17, 1991, "BCCI Passed PR Firm's Smell Test."

32. S. Hrg. 102-350 Pt. 1 p. 52.

[admin]

Ed Rogers and Kamal Adham

Introduction

In the view of the Subcommittee, the real story of Ed Rogers' involvement in the BCCI scandal has yet to be fully revealed. Rogers, a former White House Political Director, left his position at the White House in early August 1991 to start the political consulting firm of Rogers and Barbour in Washington D.C. By the end of August Rogers, who had only briefly practiced law, was offered a $600,000 contract with Kamal Adham.

Rogers was deposed by the Subcommittee in March 1992. His account of how he received the contract with Adham, who he consulted before accepting Adham as a client, and his relationship to Adham after withdrawing from the contract, are all called into question by his telephone logs, documents provided to the Subcommittee and interviews conducted by the Subcommittee.

Initial Contacts

Rogers described to the Subcommittee the events leading up to his representation of Kamal Adham. According to Rogers, in mid-August after he left the White House, a friend of his, the General Manager at the Grand Hotel, Samir Darwisch, called him to tell him that "his friend Moussa Raphael was in town looking for lawyers and asked me if I would please come by the hotel and meet him."(1) Rogers stated that he knew Darwish from "being around the hotel and events at the hotel."(2) Rogers said while at the White House he went to the hotel "once every couple of weeks." He also explained that the Hotel's owner, Joe Yazbek, had been to the White House, to discuss "events in Lebanon" with then White House Chief of Staff, John Sununu. At some point Rogers learned that Moussa Raphael was the lawyer for the Mr. Yazbek's business interests.

Rogers says that when Darwish first called him he did not mention the name Kamal Adham, but Rogers was nonetheless sufficiently interested by Darwish's invitation that he met with Raphael that same night at the Grand Hotel. According to Rogers, Raphael "provided a general overview of what was doing here on behalf of the sheik, in order to organize the sheik's legal affairs." The general overview included "the problems that were relevant to the sheik, or First American, BCCI," and, testified Rogers, at some point Raphael "must have" identified Plato Cacheris as the criminal defense lawyer for Adham.(3) In his testimony Rogers did not indicate whether Raphael discussed the Sheik's financial affairs in the United States.

After meeting with Raphael, Rogers discussed the possibility of representing Adham with his partner, former political director of the Reagan White House, Haley Barbour. They decided, however, that before accepting the account, Rogers should get more information on Adham.

Rogers has provided at least three different accounts of whom he consulted before accepting the Adham account. In his letter to White House Counsel Boyden Gray on October 28, Rogers stated, "Prior to agreeing to represent Mr. Adham, I made inquiries about him among former government officials and people in the private sector who have had dealings in Saudi Arabia. Invariably those who knew or knew of Mr. Adham said he was a man of stature and prestige in the region and that he had the respect of Americans who had dealt with him in the past."(4)

On December 18, 1991, Rogers was contacted by Subcommittee staff concerning prospective testimony to the Subcommittee. During the conversation, Rogers indicated that he "checked out Adham with a guy who does business in the Middle East, checked him out with a widely respected former government official, and finally talked to two other former government officials." Rogers claimed that each of these contacts urged him to take the account, noting that with his experience he would not be getting offers from non-controversial entities like "Quaker Oats."(5)

In his deposition with the Subcommittee, Rogers indicated that he only contacted Sam Bamieh, a businessman and Sandra Charles, a mid-level former NSC and Defense Department staffer. Rogers explained the discrepancies in the following way: "Perhaps as I prepared that [his letter to Boyden Gray] I used those two people as plural, but I don't have any recollection of talking to other people."(6)

Sam Bamieh

Although there is some difference of opinion between Rogers and White House Counsel Boyden Gray as to exactly when in early August Rogers left the White House, Rogers' office phone logs at Rogers and Barbour indicate that on August 5th, he placed a phone call to Mr. Sam Bamieh at Intertrade Group in San Mateo, California. According to Mr. Gray, Rogers officially left the White House on August 6, the day after phone records show Rogers called Bamieh.

Sam Bamieh is someone whom Rogers has indicated that he spoke with concerning the advisability of taking on the Adham account. Bamieh is a well known Palestinian-American businessman with strong ties to the Republican party and to various individuals in the Middle East, including the Saudi Royal family. According to press reports, in the late 1970's Bamieh financed the trip of Ruth Carter Stapleton, President Carter's sister, to the Middle East. During the 1980's Bamieh testified on several occasions before the US Congress on issues related to the Middle East.(7)

According to Rogers he met Bamieh during the 1988 campaign because "he was a friend of Lee Atwater's who I worked for."(8) Rogers told subcommittee staff that while he was at the White House he spoke on the telephone to Bamieh on a regular basis, indicating "There was no pattern to it, but monthly."(9)

However, shortly after he left the White House, Rogers was in frequent contact in with Bamieh placing calls to him on August 5,13,14,15,16,26,28 and attending a party at his house in San Mateo, California on August 27 which Bamieh hosted for Adnan Khashoggi.

Rogers could not explain his frequent contact with Bamieh, other than to say that he and Bamieh were friends and "It would not be unusual for him to call."(10) Rogers did not say why he was calling Bamieh on such a regular basis. According to Bamieh, who was interviewed on the telephone by staff on two separate occasions, he wanted Rogers to come to work for him. But in his deposition, Rogers stated that he could not recall discussing possible representation of Bamieh and said that neither was he "soliciting business."

Rogers meeting with Khashoggi at a party hosted by Bamieh is of particular interest to the Subcommittee because of Khashoggi's ties in the Middle East, including reported business dealings with Adham, and his role in BCCI. Khashoggi had accounts with BCCI in France and used those accounts to move millions of dollars for financing US arms sales to Iran.

The Subcommittee learned of the Bamieh party for Khashoggi from Bamieh: Mr Rogers did not offer this information at his pre-deposition interview by Subcommittee staff. When asked under oath, Rogers told the Subcommittee that at Bamieh's party he only engaged in "social chit-chat" with Khashoggi and did not discuss Adham.(11) He described his conversation as "just a few polite moments -- a couple of minutes at the most."(12) Rogers testified that "there were several other people" at the party.(13) In fact, besides Rogers and his wife, Bamieh invited only a dozen people to meet Khashoggi.(14) Bamieh also contradicted Rogers when he told Subcommittee staff that Rogers did discuss Adham with Khashoggi. Moreover, Bamieh claims that when Rogers first called him to discuss Adham, Bamieh told him that representing Adham "would be a political mistake", but he promised to find out more about the Sheik. When asked with whom he checked, Bamieh said "Khashoggi."(15)

Sandra Charles

The other person with whom Rogers claims to have discussed Kamal Adham was Sandra Charles, a former staffer on the National Security Council who left the White House at approximately the same time Rogers did in order to work for the International Planning and Analysis Center, a consulting firm headed by Frank Carlucci, the former Deputy Director of the CIA and Secretary of Defense. Like Bamieh, Charles had a background in the Middle East.(16)

Charles checked her calendars and told the Subcommittee that she first talked to Rogers on August 26 when he indicated that he was being considered as one of a team of advisors to Sheik Kamal Adham. She told Subcommittee staff that Rogers identified Adham to her as a "former chief of Saudi intelligence."(17) (Rogers cannot remember from whom or when he learned that Adham was a former chief of Saudi intelligence) Charles told Rogers that she didn't know much about Adham, but that she would try to gather information and report back to him. According to Charles, she then called "a Saudi diplomatic source at the embassy" who confirmed that Adham was a former head of Saudi intelligence, that he was related by marriage to the former king, and that he was a wealthy businessman. (18) Her source also told her that Adham had a very close relationship to Sadat and that he was man of great status in the Middle East.(19)

According to Rogers, he later asked Charles to set up a meeting for him with Frank Carlucci to discuss whether or not Mr. Carlucci's firm could act as "financial advisors" to Sheik Adham. The meeting took place on October 7, 1991 and, according to Rogers, Carlucci told him "[w]e don't manage finances. We don't manage people's money. We do things on a deal-by-deal basis."(20) That, testified Rogers, was the extent of the meeting.

Rogers' Trips To the Middle East

Rogers did not ultimately decide to accept the Adham account until he and Haley Barbour actually met with Adham. On August 31, the two political operatives flew to Jeddah where, according to Rogers, they had three days of meetings with the Sheik's legal and financial advisors. Although he had dinner with Adham one evening, Rogers implied to the Subcommittee that the trip was all work: he never discussed his friend Sam Bamieh or his acquaintance Adnan Khashoggi with the Sheik. According to Rogers, near the end of their three day stay, Adham made him an offer. In his deposition, Rogers explained why he believes he was hired:

Mr. Pilcher. [Office of Senator Brown] When you go to talk to somebody ....How do you sell yourself. What is it that you say about your firm that is interesting?

Mr. Rogers. That we are two lawyers. I am of counsel to a 120 person firm that provides a broad array of experience.

Mr. Pilcher. What do you consider your personal specialty? When you say broad array of experience, what expertise in particular do you have?

Mr. Rogers. Managing other people's affairs. Managing other people's problems, managing other people's business.

Mr. Pilcher. My mother-in-law is like that, but what do you mean exactly by it?

Mr. Rogers. When people present me with a problem, I like to think that they can turn their back on it. They can tell me what the problem is and they'll know that I'll know how to go about my business to organize their affairs and do things on their behalf.

Mr. Pilcher. When this particular case was brought to you, what specific problem did you see that you thought you might be able to solve?

Mr. Rogers. An organizational problem. A large business concern that needed a lot of different kinds of representation.

Mr. Pilcher. Meaning BCCI?

Mr. Rogers. Meaning Sheik Adham, not BCCI.

Rogers' counsel in the deposition explained to Subcommittee staff that "[i]t's hard for him to say what he was doing since it had a very short life."(21) Nevertheless, the Subcommittee finds it odd that Mr. Rogers who represented Sheik Adham for over two months and met with him and his advisors for several days at a time in the Middle East, could be so vague about his duties.

After Rogers returned to the United States, he wrote Sheik Adham thanking him for the opportunity to join his legal team. One week later he received a $136,000 down payment on his $600,000 contract. And ten days later he registered with the Justice Department as a foreign agent, indicating that his work on behalf of Adham might "border on political." In his deposition, Rogers acknowledged that his representation of Sheik Adham related to "the Sheik's problems with the Feds."(22) Moreover, Rogers provided the Subcommittee with copies of letters written by Cacheris concerning the investigations being conducted by the US Federal Reserve and the Manhattan District Attorney's Office.(23) Rogers received these letters only days before flying to Cairo to meet with the Sheik. These events appear to contradict other Rogers testimony that his agreement with Sheik Adham specified that "matters regarding criminal investigations didn't come to me for any type of management participation."(24)

Rogers had two more meetings with the Adham legal and financial team. At the end of September he flew to Cairo, stopping over in London at the Four Seasons --Inn on the Park, where BCCI regularly hosted important clients. b would not discuss with the Subcommittee the substance of any of his meetings in Cairo with Adham or his "legal or financial advisors" citing attorney-client privilege.

Rogers flew to Cairo with Plato Cacheris, the prominent Washington criminal defense attorney for Sheik Adham. By this time, of course, both the Justice Department and the Manhattan District Attorney had communicated with Adham their concern over his involvement with BCCI, particularly as it related to the Sheik's "holdings" in First American Bank. With no background in business, in criminal law, or in any facet of the law for that matter, the 33 year old Rogers must have accompanied Cacheris for one reason only: his political skills and access.

Rogers returned to the Middle East one more time to meet with the Sheik in mid-October in Jeddah. On this trip, Rogers met briefly on two occasions with David Eisenberg of the Justice Department. According to Rogers, "[h]e [Eisenberg] came into the room to meet with the Sheik. I walked out and we shook hands."(25) Rogers testified that he met Eisenberg the next morning in a "virtual identical encounter."(26) Robert Mueller, the Assistant Attorney General, provided a similar account of events several months earlier in testimony before the Subcommittee.(27)

Rogers Resigns Account -- The White House Investigates

On October 23, the story of Rogers's representation of Adham was reported in the press. Two days later, President Bush, in a press conference, said that he didn't know what Ed Rogers "is selling," and that "he didn't know anything about the man."(28) From the President's comments it was unclear whether or not he was referring to Rogers or Adham, but, in fact, he appears to know both men reasonably well. In his deposition, Rogers testified that he sat in on meetings with the President "on numerous occasions."(29) In an interview with the Middle East News Network, Kamal Adham, who was head of Saudi intelligence during the same years that President Bush headed the CIA, stated:

[t]here was a period of overlap, but whatever the case it is not possible for a President to say that. The next day, nobody mentioned the White House spokesman came out and said that the President knows Mr. Adham and he did not like what was written in the papers..."(30)
Shortly thereafter Rogers reportedly resigned the Adham account, writing to Boyden Gray:

I registered [with the Justice Department] out of an abundance of caution. The ethics atmosphere at the Bush White House was to go the extra mile to assure that no one could ever say any ethics requirement was violated or avoided. I followed this philosophy and registered, as I did not want anyone to say that I should have registered but did not do so. Unfortunately, going beyond the requirements of the law has resulted in an embarrassing spate of stories for my client, the Administration and me.(31)

Responding to Congressman's Charles Schumer's call for an investigation of the matter, Counsel Gray purported to mount an inquiry. However, Gray never met with Rogers. Instead, two of Grays's assistants, with whom Rogers was "friendly" called him on the telephone two times each to discuss the matter.(32) According to Rogers, the conversations lasted ten to fifteen minutes each. On November 1, 1991, Gray wrote Congressman Schumer that "Mr. Rogers was not responsible for and did not participate in any matters concerning to BCCI at the White House."(33)

The question, however, is not only whether Rogers had access to information on BCCI at the White House, but whether or not he began the process of negotiating his contract with Adham while he was at the White House. On this point, Rogers provided conflicting and confusing testimony:

Mr. McKean. [staff of Senator John Kerry] He [Moussa Raphael] was here in March. Did you meet with him then?

Mr. Rogers. Mr. Raphael?

Mr. McKean. Yes.

Mr. Rogers. Yes.

Mr. McKean. You met with in March of 1991?

Mr. Rogers. Oh, no, I'm sorry. I thought you meant -- this is March now.

Mr. McKean. Right.

Mr. Rogers. No, I thought you meant -- I have met with him since this whole thing blew up.(34)

Later in the deposition Rogers also denied having met with Raphael in March, 1992 and after the deposition his counsel wrote the Subcommittee indicating that "Mr. Rogers did not meet with Mr. Raphael in March 1991 or in March 1992."(35) Hotel records indicate that Raphael stayed at the Grand Hotel in March 1991, but not in March 1992. It seems plausible that Rogers could have met Raphael in March 1991: Rogers told the Subcommittee that he gave his notice to the White House in January and Adham needed help as the Federal Reserve Board had just issued a cease and desist order to First American concerning its status vis a vis BCCI. The most logical time for Adham to have sought political influence and access was March 1991.(36)

Continued Contacts

Rogers ostensibly resigned the Adham account in October, although he will not reveal whether or not he returned his retainer to Sheik Adham. Rogers' counsel has told the Subcommittee that Rogers' fees are a confidential matter.(37)

During the month of November 1991 Rogers continued to work on the Adham account in so far as he provided assistance to other lawyers for Adham who assumed his responsibilities. He also continued to meet with Moussa Raphael. According to Rogers:

"I met with him to finalize and hand over matters we were working on, specifically on the trust, then I met with him one more time subsequently to that, just -- I dropped by the Grand Hotel to say hello. He asked me to. He was worried about me."(38)

Subsequent to Rogers' deposition, his lawyer wrote the Subcommittee that the last time his client met with Mr. Raphael was in December 1991, or January of this year. However, as recently as April, the Subcommittee has learned that Raphael was calling Rogers' office.(39)

Conclusion

Ed Rogers is not a major player in the BCCI scandal, but his involvement with Sheik Adham is illustrative of how the bank tried to buy influence in order to ameliorate its problems. Rogers is neither an experienced businessman nor a prominent lawyer: rather, he is political operative who achieved significant political influence and access by the age of 33, and who sought to "cash in" on those political skills. The story he provided to the Subcommittee of how he came to represent one the most important figures in the BCCI scandal is shallow and unconvincing, but the greater failing and more worrisome aspect in the Rogers affair may be that of the White House inquiry. The columnist William Saffire predicted in November 1991 that the Boyden Gray, charged by the President to investigate the Rogers affair, would "pass along the denials and the White House whitewash will continue."(40) There is nothing in the record that suggests Mr. Saffire's assessment was inaccurate.

_______________

Notes:

1. S. Hrg. 102-350 Pt.4, p.935. Subcommittee staff met with Darwish and talked to him on the telephone. His account of how Moussa Raphael met Rogers is essentially the same as Rogers' account. According to Darwish, Raphael asked the hotel executive if he knew any good lawyers," and Darwish recommended Rogers. Despite the similarity of accounts, the Subcommittee is skeptical of his story: Rogers had virtually no legal experience and Moussa Raphael was well acquainted with Adham's criminal lawyer, Plato Cacheris, who presumedly had better contacts in Washington's legal establishment than the general manager of the Grand Hotel.

2. Rogers told the Subcommittee that there Republican political events at the Grand Hotel. Darwish told the Subcommittee that he knew Senate Majority leader George Mitchell well (Senator Mitchell is of Lebanese extraction), but that he did not know and, in fact, had never even met Governor Sununu (also of Lebanese extraction).

3. Id. p.935.

4. Letter to C. Boyden Gray, Counsel to the President, from Ed Rogers, October 28, 1991.

5. Memo to Files, From Jonathan M Winer, Conversation with Ed Rogers, December 18, 1991.

6. S. Hrg. 102-350, pt. 5,p.944.

7. According to press reports, in 1987, Bamieh told the House Foreign Affairs Subcommittee on Africa the following:

-- In November 1981, prince Fahd, who later became the king, told Bamieh that he was pleased Congress had agreed to sell AWACS surveillance planes to the kingdom. In exchange for AWACS, Fahd said, "We will help you guys fight anti-communist movements," according to Bamieh.

--In 1983 [Prince] Bandar asked Bamieh if he would go into business with Richard V. Secord and Albert Hakim to bid on a security project at a Saudi airport. Secord and Hakim were key figures in the plan to channel money from the sale of US weapons to Iran to the Contra rebels fighting Nicaragua's leftist government. The business relationship was never cemented because the three never got the contract.

-- In 1983, Saudi officials asked Bamieh to funnel money to Morocco for the training of UNITA guerrillas. The Saudis said former CIA Director William Casey was aware of the plan, Bamieh said.

-- In February 1984, Bandar approached Bamieh in Cannes, France, asking him to set up an offshore company that would supply goods and services to anti-communist movements and oil to South Africa. Bandar said he declined, even though Bandar said, "Don't worry about the legalities" because Casey was discussing the matter with King Fahd.

Another newspaper article reported on Bamieh's statements about the Iran Contra affair:

An American businessman with extensive ties to Saudi Arabia's royal family contends King Fahd was the chief financier of Iran's secret US weapons purchases in 1985 and 1986.

Sam Bamieh, a naturalized American citizen, said in an interview with United Press International Tuesday that Fahd was hoping to gain favor with Ayatollah Ruhollah Khomeini to ward off possible threats to Saudi security.

Investigators of the Iran-Contra scandal have concluded Iran paid about $30 million for the arms, at prices double or triple the Pentagon's cost, and about $3.5 million of the profits were diverted to the Nicaraguan Contra rebels.

The reason they paid those high prices was because the money wasn't theirs," he said of the Iranians.

Bamieh, of San Mateo, California, said he based his assertion that Fahd paid for the arms on statements made to him by confidants of Fahd and international arms dealer Adnan Khashoggi and on dealings made in his presence by Khashoggi.

Khashoggi, a Saudi Arabian who investigators have found played a significant role in financing the early US arms shipments to Iran, was serving as Fahd's emissary in the deals, Bamieh said.

Finally, Bamieh is quoted in the press on the CIA's involvement in an assassination attempt of a high ranking Lebanese official:

Top secret CIA reports in 1985, conflicting with author Bob Woodward's recent assertions, said Syria masterminded an assassination attempt against a radical Moslem leader without agency cooperation, U.S. intelligence officials say.

But California businessman Sam Bamieh, who describes himself as a former close friend of Saudi King Fahd, said he has evidence of reports of Syria's involvement were part of a Saudi cover story and that Woodward's report in his new book is largely correct.

Woodward, an assistant managing editor at the Washington Post, described the unsuccessful attempt to kill Hezbolah leader Sheik Fadahllah, whose organization bombed several American facilities in Lebanon in his book, "Veil: The Secret Wars of the CIA in 1981-1987."

8. S. Hrg. 102-350, pt. 5. p.937.

9. Id. p.938.

10. Id. p.941.

11. Id. p.939.

12. Id. p.945.

13. Id. p.939.

14. Invitation list. 8/27/91. Provided by Sam Bamieh.

15. telephone interview with Mr. Bamieh, 2/10/92. Bamieh also told staff that he had met Adham on two occasions: once in 1975 for about ten minutes and then again in December, 1991. According to Bamieh he was staying at the Hilton in Cairo when Adham called and asked for a meeting. According to Bamieh, Adham "wanted to get things off his chest."

16. According to a recent article in the New York Times:

The Bush Administration today confirmed reports that Saudi Arabia engaged in unauthorized transfers of American made military equipment to Iraq, Syria and Bangladesh.

Administration officials said, however, that they had brought these unauthorized transfers to the attention of both Saudi Arabia and the Congress, as required by law, and had been told by the Saudis that the shipments were "inadvertent."

Sandra Charles, the former director of Middle East and South Asia affairs at the Defense Department in 1986, said she recalled that the Saudis had gone out of their way to alert Washington about the inadvertent. Other officials, though, say it was American military officials in Saudi Arabia who first detected the transfer.

"It was a small number," Miss Charles said. "It was not considered significant. The bombs were in a warehouse with equipment for other countries."

She said she not recall whether Washington pressed Riyadh to get the bombs back, adding, "It just didn't seem very consequential at the time.

17. telephone conversation with Sandra Charles, 2/10/92.

18. Id.

19. telephone conversation with Sandra Charles, 1/29/9.

20. S. Hrg. 102-250, pt. 5. p.943.

21. Id. p.950.

22. Id. p.942. When asked if he was discussing his representation of Sheik Adham with Mr. Bamieh, Rogers replied, "Never, I wouldn't have discussed any matters relating to the Sheik's problems with the Feds."

23. See letter to John Moscow, Deputy Chief Investigations, New York Country District Attorney's Office, from Plato Cacheris, September 25, 1991 and letter to J. Virgil Mattingly, General Counsel, Federal Reserve from Plato Cacheris, September 26, 1991.

24. S. Hrg. 102-250. pt. 5. p. 950.

25. Id. p.943.

26. Id.

27. S. Hrg. 102-350. pt.3. p.800.

28. Transcript, White House Press Conference, President Bush, 10/25/91.

29. S. Hrg. 102-350. pt. 5. p.933.

30. "A Victim of Operation Overkill by West, Says Adham." Middle East News Network, 1/18/92.

31. Letter to C. Boyden Gray, Counsel to the President, from Ed Rogers, October 28, 1991.

32. Id. p.946.

33. Letter to Congressman Charles Schumer from C. Boyden Gray, Counsel to the President, November 1, 1991.

34. Id. p. 941.

35. Id. p.931.

36. William Safire, columnist for the New York Times, speculated that the relationship arose in another context:

This same Sununu toady helped organize the meeting on May 23 that founded the Arab American Council, an oil backed elite lobbying group scorns broader-based Arab-American organizations. Mr. Sununu and the Syrian Ambassador were stars of the gathering; out of Lebanese contacts made there or later, I presume, came Mr. Roger's huge contact.

See "BCCI and Sununu", by William Safire, The New York Times, November 28, 1991, p.25.

It is worth noting that Sam Bamieh is a member of the Arab-American Council and that Mr. Bamieh acknowledges contacts with Mr. Sununu when Sununu was Chief of Staff at the White House and afterwards.

37. Staff conversation with Jonathan Schiller, 8/20/92.

38. Id. p. 941.

39. Phone records of Moussa Raphael at The Grand Hotel, subpoenaed by the Subcommittee.

40. Safire, p.25.

[admin]

BCCI AND KISSINGER ASSOCIATES

Introduction

Beginning in the fall of 1986, and continuing through early 1989, BCCI initiated a series of contacts with perhaps the most politically prominent international and business consulting firm in the United States -- Kissinger Associates.

At the time, Kissinger Associates had five partners: former Secretary of State Henry Kissinger, former Assistant and current National Security Advisor Brent Scowcroft, former Under Secretary and current Acting Secretary of State Lawrence Eagleburger, international economist Alan Stoga, and investment bank T. Jefferson Cunningham III.

Ultimately both Stoga and a retired Brazilian Ambassador working as a consultant to Kissinger Associates, Sergio Correa da Costa, seriously explored finding ways to link BCCI's global network of banks with the services being offered by Kissinger Associates. Discussions between representatives of BCCI and representatives of Kissinger Associates took place over an 18 month period concerning the possibility of merging the capabilities of BCCI and Kissinger Associates on various, mostly unspecified, projects. Following BCCI's indictment, discussions continued as to whether Kissinger Associates could help BCCI respond to the ramifications of that indictment. These discussions ended in early 1989 at Henry Kissinger's personal insistence.

During the discussions, Stoga provided advice to BCCI on a possible public relations campaign. At their conclusion, Kissinger Associates referred BCCI to one its own directors, former Assistant Secretary of State William Rogers, and his firm, Arnold & Porter, who already represented Kissinger Associates on its own legal work. Rogers and Arnold & Porter in turn agreed to provide BCCI with legal services arising out of its indictment, although few services were provided as a consequence of the opposition of Clark Clifford and Robert Altman to the firm's involvement.

Although discussions concerning a broader relationship were cut short by the indictment, the BCCI-Kissinger Associates correspondence reveals much about BCCI's approach to seeking political influence in the United States. The correspondence also highlights BCCI's focus on doing business with, and ability, given its $23 billion in reported assets and 73 countries of operation, to attract interest from, some of the most politically well-connected people in the United States.

Genesis of Interest in BCCI-Kissinger Relationship

And Position Of Kissinger Associates Concerning BCCI

In late July, 1991, the Subcommittee received documents from BCCI's liquidators describing BCCI's use of a retired Brazilian Ambassador, Sergio da Costa, as a front-man for its purchase of a bank in Brazil while da Costa was also working -- according to the BCCI documents -- as a partner in Kissinger Associates.

In September, 1991, staff was advised by press that there were a number of documents at BCCI's document depositories concerning its relationship with Kissinger Associates. Staff were provided some of these documents by reporters, and found others in subsequent reviews of BCCI documents at its former offices in New York. These documents, on both Kissinger Associates and BCCI stationery, discussed in general terms the services Kissinger Associates might perform for BCCI, and were dated both before and after BCCI's indictment on drug money laundering charges in Tampa. Accordingly, they raised the question of whether Kissinger Associates had ever been retained by BCCI.

In November, 1991, the Committee on Foreign Relations authorized a subpoena for all documents to Kissinger Associates and related entities, for all documents pertaining to BCCI, and for its client lists.

In response, Kissinger Associates promised to cooperate with the Subcommittee investigation and to provide all documents pertaining to BCCI, under an agreement that the subpoena not be served. Kissinger Associates refused, however, to provide the client list, arguing that the list was beyond the parameters of the investigation into BCCI by the Subcommittee, and advising the Subcommittee that if it pursued the list, Kissinger Associates would litigate the matter, if necessary, through an extensive appellate process to the Supreme Court.

In providing several dozen documents material to the Subcommittee investigation on January 30, 1992, Kissinger Associates, represented by its attorney, former Presidential counsel Lloyd Cutler, made the following representations:

At the outset, it should be made clear that Kissinger Associates, Kent Associates, and China Joint Ventures (collectively referred to hereinafter as "Kissinger Associates") have never represented or provided any services for BCCI, ICIC, or any BCCI shareholder. Neither BCCI or ICIC nor any person known to be a BCCI shareholder has ever been a client of Kissinger Associates.

The only substantive contact between Kissinger Associates and BCCI occurred in late 1988-early 1989, when [BCCI officer] Abol Helmy met several times with Alan Stoga of Kissinger Associates to discuss a possible consulting arrangement for BCCI . . . In December, 1988, Mr. Stoga advised Mr. Helmy that Kissinger Associates was not interested in a consulting relationship with BCCI. At Mr. Helmy's request, Mr. Stoga met with Mr. Helmy again in January, 1989, at which time in response to a further inquiry from Mr. Helmy he again advised Mr. Helmy that Kissinger Associates did not want to proceed with a relationship. In February 1989, in response to Mr. Helmy's request for a recommendation for Washington-based legal counsel, Mr. Stoga recommended Arnold & Porter. Mr. Stoga has had a number of other meetings with Mr. Helmy since February, 1989, but these meetings have been of a purely social nature.(1)

While this account of the relationship is not untrue, it does fail to characterize the full extent of the contacts between BCCI and Kissinger Associates and the series of meetings and contacts between representatives of the two organizations. In fact, both Stoga, as a partner of Kissinger Associates, as well as its consultant, da Costa, worked over an extended period to bring the two organizations together, and such a relationship could well have developed but for BCCI's drug money laundering indictment. The following account, while not necessarily complete, is intended to provide a fuller picture of the contacts between BCCI and Kissinger Associates, of BCCI's goals and intentions in soliciting the relationship with Kissinger Associates, and of the assistance, albeit limited, provided to BCCI by Kissinger Associates in BCCI's time of trouble.

Background: BCCI and Ambassador Sergio da Costa

In the fall of 1986, Sergio da Costa, the most senior member of the Brazilian diplomatic corps and a close associate of then Brazilian president Jose Sarney, decided to retire at the age of 67 after four decades of serving Brazil as its Ambassador to such significant postings as England, Canada, the United Nations, and the United States. Da Costa was anxious to enter the private sector, and ultimately accepted offers from three organizations. Da Costa would move to Paris and set up an office there as a consultant to an international law firm, Coudert Brothers. He would simultaneously also work for BCCI, on a monthly retainer. And he would become a consultant to Kissinger Associates, for a third monthly retainer.

At the time, BCCI already knew Ambassador da Costa well. Months earlier, he had provided BCCI with advice on selecting possible front-men for BCCI's intended acquisition of a bank in Brazil. Under Brazilian law, foreign banks were not permitted to own a majority interest in any Brazilian bank. Accordingly, BCCI had decided to buy a Brazilian bank, purchase a minority interest in the bank openly, and hold additional shares to guarantee BCCI's control of the bank through cooperating Brazilian nominees, in what was essentially a conspiracy to circumvent Brazilian banking laws.

Da Costa was extremely politically well-connected in Brazil. He had been brought to BCCI by BCCI shareholder and front-man Ghaith Pharaon, who in late April, 1986 had met with Da Costa in Miami to seek Da Costa's help in responding to the problems posed for BCCI in circumventing the Brazilian bank laws. A telex from Miami branch manager Abdur Sakhia to BCCI-London on May 6, 1986 described the meeting having ended positively for BCCI:

Ambassador Da Costa has promised Dr. Pharaon to assist the Bank in any way he can and he also had asked Mr. Ferreira [a prominent Brazilian businessman close to President Sarney] to use his association with the President of the Republic to assist BCC.(2)

By September of 1986, da Costa had agreed to himself become a front-man for BCCI in Brazil. In return, BCCI agreed to pay him $150,000 a year, with no further responsibilities beyond being a front-man and using his influence to help BCCI with Brazilian authorities in Brasilia, the capital city.

Under the terms of the arrangement, da Costa agreed to be a director and shareholder, secretly acting as BCCI's nominee, of the bank BCCI was purchasing in Brazil, in a transaction structured by BCCI officer Abol Helmy, who later himself had a series of contacts with Kissinger Associates.

Helmy drafted a memorandum, "Strictly Private and Confidential," regarding "Brazil," on September 2, 1986, under which da Costa and a second prominent Brazilian would each own 50 percent of a Brazilian company that would buy 12,622,500 voting ordinary shares in BCCI Brazil, pledge those shares to BCCI, give BCCI the right to vote its shares, and give BCCI the right to buy those shares. Da Costa would agree to serve on the three man board of directors as BCCI's front-man, to guarantee BCCI control of the bank. He would 'pay' $1,233,580 for his 'share' of BCCI Brazil's stock, and BCCI would reimburse him that amount in New York. The internal BCCI memorandum drafted by Helmy makes explicit the fact that these arrangements were designed to deceive Brazilian authorities:

It must be emphasized that the Brazilian economy and bureaucracy are highly sophisticated. As such any payments made by Brazilians must have the appropriate ORIGINATION OF FUNDS. That is, the Brazilian 'investors' must have the necessary net worth for Brazilian taxation authorities' purposes to support any investments made. . .

Messrs. Da Costa and Leoni to ensure that the transaction is fully acceptable to the Central Bank and to ensure that there are no adverse public consequences will be purchasing their shares in cash. . .

Both Ambassador Da Costa and Mr. Leoni are reluctant to take loans from any bank to finance the transaction for Central Bank and public image purposes . . . I have negotiated, subject to BCC management approval, an interest free loan to the individuals concerned . . . to enable them to complete the transaction.(3) (emphasis in original)

The memorandum demonstrated that BCCI would provide da Costa with $2,467,160 for the purchase of his stock in BCCI Brazil, every penny the stock would cost. In a staff interview, Helmy acknowledged that da Costa was not at risk and that the transaction was a standard nominee arrangement by which BCCI circumvented local laws and that this approached had been used a numerous of times previously by BCCI. Helmy also said it was BCCI's understanding that da Costa would take care of arrangements with Brazil's central bank and other Brazilian officials to make sure that they acquiesced in the transaction as structured.(4) Thus, in essence, Helmy at BCCI and da Costa, while still Brazil's Ambassador to the United States, had with other BCCI officials and other prominent Brazilians, created a plan by which they would together make possible BCCI's purchase of a bank in Brazil to circumvent Brazilian law.

BCCI officials were ecstatic at da Costa's participation in their plan for Brazil, and his agreement to be a Senior Advisor to BCCI. On October 28, 1986, while da Costa was still Brazil's Ambassador to the United States, the head of BCCI's Miami office, S. M. Shafi, sent him a congratulatory telex at the Embassy:

congratulations from myself and my colleagues on your joing [sic] our Brazilian project. We welcome you to the fold BCC family. I am very certain your experience, qualifications and contacts not only in Brazil but also internationally will go a long way in turning our subsidiary in Brazil into one of the most successful units of BCCI.(5)

Da Costa signed a three-year consultancy agreement with BCCI on November 3, 1986, under which he committed to acting as "Director of [BCCI's] investment bank in Brazil," and a front-man for BCCI there.(6) Da Costa then followed through in participating in the plan developed by Helmy under which BCCI would secretly purchase a majority interest in BCCI Brazil through nominees. He received his 'loans,' from BCCI, and purchased his 'stock' in the Brazilian bank. BCCI duly reported its loans to him on its books in Panama, characterized as "International Loans," as if they were normal loans that BCCI anticipated would be repaid. By April 30, 1988, da Costa's 'loans,' from BCCI amounted to $1,563,723.85. In fact, da Costa did not pay interest or principal on the loans, which were shams to mask BCCI's ownership of the 'da Costa' shares of the bank.

Among themselves, BCCI officials were also pleased about another aspect of being connected to da Costa. As he entered his agreement with BCCI to circumvent Brazilian banking laws, he had told them that he was also joining Kissinger Associates. A BCCI telex that circulated in New York and London in early December, 1986 described da Costa's principal work to now be as a partner in Kissinger Associates, with BCCI understanding the Coudert Brothers work, by comparison, as merely a consultancy.

Da Costa and Kissinger Associates

In September, 1986, while da Costa was negotiating the terms of his consultancy with BCCI, he also reached out to determine if he could reach a similar relationship with Henry Kissinger. In early September, he sent Kissinger a copy of a biography he had written, "Every Inch a King," concerning Brazilian emperor Dom Pedro I.

In November, 1986, da Costa and Kissinger concluded their discussions concerning the services da Costa would provide Kissinger Associates. Letters between da Costa and Kissinger, dated November 3, 1986, set forth the terms of their agreement, under which da Costa would be paid $40,000 a year as a consultant to Kissinger Associates, plus a 10 percent to 20 percent fee for putting together transactions for Kissinger Associates. The letters show that Kissinger sought an agreement from da Costa that he would work only for Kissinger Associates and for Coudert Brothers, and that da Costa told Kissinger in return that he would also be working for BCCI, as he and Kissinger had previously discussed. As da Costa wrote Kissinger:

From our brief conversation, I gathered that you had in mind, basically, the Brazilian "market", i.e. you would expect me to channel through Kissinger Associates whatever Brazil-related project is secured by me. . . What concerns me is the case of companies that have already indicated their firm intention of retaining my services as consultant under a permanent retainer agreement soon after November 1st . . . There is particularly the case of B.C.C.I., mentioned to you when we first discussed our association. They not only wish to retain me as a permanent consultant, but insist that I become member of the Board and shareholder of their Brazilian operation, obviously seeking to benefit from my standing in the country. . . In short, since we are both acting in good faith and are reasonable men, I cannot even visualize a possibility of discomfort in our business relationship. I am convinced that a simple reflection in a side letter like this would be far better than any attempt at spelling out a paragraph on the exact meaning of "exclusivity."(7)

Kissinger accepted da Costa's simultaneous involvement in acting as a consultant to Kissinger Associates and BCCI, and da Costa signed up for a two-year commitment.

On December 8, 1986, da Costa received the first of a series of payments of $12,500 a month from BCCI Grand Caymans to his account at BCCI's agency in New York for his consultancy to BCCI. In the same period, he received the first of a series of payments from Kissinger Associates of $10,000 a quarter.

Beginning in early 1987, da Costa began to act as a business agent for Kissinger Associates in Brazil on projects involving purchases of companies, plants, or assets in Brazil by foreign companies. During 1987, he made several trips to Brazil on behalf of Kissinger Associates, and attended in the summer of 1987 what he described in a letter to Kissinger Associates as "that amusing luncheon with the BNL crowd," referring to a meeting with people involved in the Banco Nationale del Lavaro, an Italian bank from whom Kissinger was a consultant, and which has recently been under investigation by the House Committee on Banking, Finance and Urban Affairs for its role in the illegal arming of Iraq using U.S. commodity credits.(8)

Da Costa, Kissinger and Ghaith Pharaon

On September 20, 1987, da Costa wrote Kissinger to invite him to a party hosted by BCCI front-man Ghaith Pharaon, suggesting that Kissinger might want to obtain Pharaon as a client for Kissinger Associates:

I was asked to convey an invitation of Dr. Gaith Pharaon to a dinner at his plantation at Richmond Hill, Georgia, Saturday October 31st.

Although with residences in Paris and in Saudi Arabia, his real "home" seems to be the River Oaks Plantation, which once belonged to Henry Ford. His main local asset was the National Bank of Georgia, which he recently agreed to sell to First American Bankshare Inc of Washington DC for some $230 million. I believe that the latter bank is owned by the main shareholders of BCCI, of which Pharaon was or still is a shareholder . . .

As [Pharaon] admires you intensely and has a wide range of business interests in the US, I have thought of him for some time as a potential client. Hence my acquiescence to forward the invitation.(9)

In October, 1987, while da Costa was seeking to put together an acquisition of a plant in Brazil involving the New York firm of Kohlberg Kravis Roberts & Co., ("KKR") on behalf of Kissinger Associates, he wrote Lawrence Eagleburger and Alan Stoga, again referencing his invitation to Kissinger to attend the Pharaon dinner with da Costa.(10) However, Kissinger declined the invitation.

Da Costa Introduces BCCI to Kissinger Associates

On May 28, 1987, da Costa decided to introduce BCCI acquisitions officer Abol Helmy, who had crafted BCCI's purchase of the bank in Brazil, and da Costa's participation as a BCCI front man, to Kissinger Associates partner Alan Stoga. A chronology provided the Subcommittee by Kissinger Associates' attorneys, and apparently prepared by Stoga in November, 1991, describes the meeting as follows:

Da Costa introduces Abol Helmy to Stoga without any specific purpose. Helmy is described as responsible for BCCI's acquisitions in Latin America.(11)

According to the Stoga chronology, on June 10, 1987, Stoga met Helmy again to discuss the possibility of a relationship between Kissinger Associates and BCCI. According to the Stoga chronology, no specifics of the relationship were discussed.(12)

On August 26, 1987, Pakistan's former Ambassador to the United States, Sultan M. Khan, who now worked at BCCI's representative office in Washington, D.C., wrote Kissinger, on BCCI stationery, to invite Kissinger to attend a dinner he and BCCI were hosting, honoring the leader of the Chinese delegation to the annual International Monetary Fund dinner. Although Khan had worked closely with Kissinger when he was U.S. Secretary of State and Khan was Pakistan's foreign minister, Kissinger declined the invitation.(13)

The Stoga chronology shows no further meetings between Stoga and Helmy until September, 1988. However, Helmy told Subcommittee staff that he had a series of meetings in this period with Stoga regarding possible links between BCCI and Kissinger Associates. Moreover, a November 2, 1988 letter on Kissinger Associates letterhead from Stoga to da Costa states, "I have been in regular contact with Abol Helmy for more than two years and, during that time, we have discussed the possibility of a consulting relationship [by Kissinger Associates for BCCI] several times."(14)

Helmy and Stoga's Attempts to Develop

Business Between Kissinger Associates and BCCI

Helmy viewed his meetings with Stoga as a means to engage in business development for BCCI, and believed that Stoga also believed that it could be to both of their benefits within their respective organizations to provide one another with business.(15)

This process moved forward slowly, and it was not until October 7, 1988 that Stoga sent Helmy and BCCI written material from Kissinger Associates describing the nature of their business and the possible benefits to both organizations of a relationship. As Stoga wrote Helmy:

I enjoyed lunch yesterday and, even more, your suggestion that BCCI might be interested in developing a relationship with Kissinger Associates.

As you suggested, I am enclosing a brief explanation of our firm and biographical sketches of our principals. I am not sure the former really does us justice, but I am reluctant to be more specific, at least on paper, about the kinds of consulting projects we undertake for clients. . .

I agree that a next step should be for me to meet your [BCCI's] management in London or in New York.(16)

The materials enclosed by Helmy, and retrieved later by Subcommittee staff at BCCI's offices in New York, consisted of a six paragraph summary of Kissinger Associates approach to its business, and a two page biographical summary of its partners' credentials. According to the summary:

Kissinger Associates' purpose is to utilize the diverse backgrounds, experiences, contacts, and relationships of its senior personnel to assist client companies in sorting through and coming to terms with the increasingly complicated international environment. . . The firm does not provide detailed written materials to clients, in large part to assure the confidentiality and the frankness of communications.(17) (emphasis in original)

Less than one week later, BCCI was indicted in Tampa, prompting an immediate memorandum from Helmy to Swaleh Naqvi, then BCCI's chief:

Further to our recent conversation in London, I met with Mr. Alan Stoga who is one of the 3 partners of Kissinger Associates, Inc. Subsequently, the developments in the United States took place. Judging by the high level of adverse publicity that is being generated by the media, it is imperative that a firm response be made.

I received a call today from Mr. Stoga who informed me that Dr. Kissinger recommends that a public relations offensive be made by us and in that context has suggested using Burson-Marstellar, a highly reputable public relations firm that successfully dealt with 1st Chicago crises last year. Kissinger Associates, Inc. have indicated that they shall be happy to use their personal contacts with the firm and make the necessary recommendations. I shall, of course, not proceed in any way without explicit instructions from you.(18)

The next day, Helmy sent another memorandum to Naqvi, enclosing the materials he had received from Stoga concerning Kissinger Associates and advising Naqvi that he would meet with Stoga on October 14. Helmy and Naqvi then discussed the overture to Kissinger Associates by telephone, evidently to discuss the qualms that Kissinger Associates might have to working with BCCI now that it had been indicted. Following Helmy and Stoga's next meeting, Helmy reported back to BCCI London as follows:

I just met with Mr. Alan Stoga, Dr. Kissinger's partner, and discussed the relevant matters as per our phone conversation of yesterday.

I emphasized to Mr. Stoga that our conversations in getting our two respective organizations together have been going on for over a year and hence, have not been generated as result of the present circumstances.

I feel that a relationship could be established in the near future depending on how fast the present publicity ends.

I shall keep you duly informed of my next meeting with Dr. Kissinger himself which should be sometime next week.(19)

The correspondence makes clear Helmy's desire to secure this important relationship for BCCI as a means of helping BCCI reduce its current problems in the United States, and as a means for Helmy himself to increase his power within the BCCI organization.

While Helmy pursued the relationship from his office at BCCI New York, da Costa in the meantime also tried to push a relationship forward. Kissinger Associates had decided to end his consultancy in September as a consequence of his not having developed enough business in Brazil to justify his $40,000 a year stipend, and sent da Costa a letter to that effect which he evidently did not receive. In the meantime, Helmy had contacted da Costa to seek da Costa's assistance in reassuring Kissinger Associates that BCCI was truly an ethical institution.

On October 25, 1988, da Costa wrote Eagleburger and Stoga to remind them that the discussions to link the two organizations went back many months and were not prompted by the indictments:

On two or three different occasions last year and early this year, I suggested to BCCI to seek the assistance of K.A. [Kissinger Associates] to obtain their assessments worldwide and particularly regarding the Untied States. The suggestion was well received and matter virtually cleared six months ago. However, the situation created by the serious heart condition which stroke [sic] BCCI's president and founding father delayed the implementation until September 29th when I was asked to a meeting in London.

During the meeting, a few questions were put to me as to the type of work that KA did normally for their clients and the Deputy Chairman [Naqvi] indicated that instructions would be promptly sent to Mr. Abol Helmy in new York to approach KA and negotiate a contract.

That was Thursday September 29th. Thirteen days later, October 12th., the blow of the accusation for money-laundering, of which the bank expects to be entirely cleared, having offered the fullest cooperation with the investigators.

Mr. Abol Helmy has already contacted Alan Stoga last week and asked me to refer to the early conversations held at the bank about my recommendation, not to appear that he is seeking support in a moment of distress. . .

Perhaps you could start talking to Mr. Helmy in the clear understanding that a contract would be signed only after you had the opportunity to ascertain - to your satisfaction - that the procedures adopted by the bank to defend itself from the allegations are adequate enough.(20)

In response, Stoga wrote da Costa November 2, 1988. The letter from Stoga to da Costa was not to advise him that Kissinger Associates was sufficiently concerned about BCCI's drug money laundering indictments to preclude a relationship. The letter instead politely advised da Costa that as far as Stoga was concerned, the prospective relationship was Stoga's, not da Costa's, and that da Costa was not welcome to participate in further discussions between BCCI and Kissinger Associates. As Stoga wrote da Costa:

Thank you for your fax regarding BCC. After your kind introduction, I have been in regular contact with Abol Helmy for more than two years and, during that time, we have discussed the possibility of a consulting relationship several times. Abol raised this issue again in September saying that he was urging Mr. Naqvi to consider hiring us. Helmy did not mention your involvement during any of these discussions and said he, too, was surprised by your fax.

I am not sure how we will proceed with respect to BCC, but I will remain directly in contact with Abol.(21)

Da Costa acknowledged Stoga's position and had no further involvement with Kissinger Associates until December, when he wrote to remind the firm that he had not received his quarterly stipend, and was told that his consultancy was at an end, other than on a case-by-case basis should da Costa generate transactions for Kissinger Associates. Da Costa replied with a fax transmission to Kissinger, thanking him for being welcomed to Kissinger Associates "at that precise moment when I was leaving a life-long protected life to explore on my own the other side of the fence," and promising to do his best to generate more business in Brazil on a case-by-case basis in the future.(22)

Kissinger Associates Says No to BCCI, Provides Legal Referral

Kissinger Associates determined to take its time in considering the risks and benefits of any relationship with BCCI, with Kissinger himself apparently taking the view throughout that the relationship was not worth having, while Stoga sought to continue to explore it.

The chronology provided the Subcommittee by Kissinger Associates states that Stoga telephoned Helmy in December to advise him that Kissinger Associates would not be interested in any relationship with BCCI, but that Helmy requested another meeting with Stoga "after holidays to discuss."(23)

BCCI files tell a different story. According to a December 19, 1988 memorandum from Helmy to Naqvi, he continued to be in communication with Stoga about the proposed relationship, and continued to anticipate that they would work something out despite the drug money laundering indictment:

I am in communication with Mr. Alan Stoga, Partner of Kissinger Associates, Inc. Their response was they are interested in principal but would like to wait a bit longer. I will be meeting Mr. Stoga in the first week of January, 1989 and will be discussing the issue further. It would be of interest for you to know that Mr. Scowcroft is now the National Security Advisor Designate in the Bush Administration and another Partner of Kissinger Associates is being tapped for Assistant Secretary of State in the Bush Administration. I shall keep you informed of my next meeting. You may agree that this association with Kissinger Associates, Inc. needs time to be cultivated. I am working in that direction.(24)

Evidence of what Helmy was referring to is a proposal which Kissinger Associates found in its files from Helmy to Stoga, dated January 9, 1989.

The proposal refers to a California bank known by Stoga to be available for a price of $76 million, a price which he estimated was less than 10 times the bank's expected earnings. The bank was for sale, and if Kissinger Associates could find a buyer, there was an opportunity for everyone to make money. Helmy provided Stoga with a 17 page outline for the proposal transaction, and asked him to consider it.

The proposal revealed that the bank involved was the Independence Bank of Encino, held by BCCI shareholder and front-man Ghaith Pharaon.

There is no record that Helmy advised Stoga or Kissinger Associates of what he also knew about Independence Bank -- that the bank was secretly owned by BCCI, in arrangements similar to the nominee arrangements Helmy had personally crafted for da Costa in Brazil. Helmy himself may not have known Independence Bank's other secret -- that at the time, it was already in the deep financial trouble that three years later lead to a $150 million bailout of Independence Bank, with funds lent by the U.S. Treasury, of the Bank Insurance Fund.

At about this time, in January, 1989, according to the Stoga chronology, Stoga again met with Helmy to repeat that Kissinger Associates would not proceed with a relationship with BCCI. The Stoga chronology states that Helmy said he understood that the time was not right and he hoped if circumstances changed, the firm would reconsider.

The Stoga chronology is again contradicted by BCCI files. A memorandum written January 11, 1989 from Helmy to Naqvi, found in BCCI's Kissinger Associate files in New York, presents an entirely different picture of the relationship at this stage:

I had a lunch meeting with the gentleman in January 5, 1989 and a follow up telephone conversation on January 10, 1989. It was established that it is in our interest for both parties to continue with the conversations. As such, the door for an eventual relationship remains open.

They were far more knowledgeable of the details of our situation during this meeting and made certain "unofficial" general recommendations which I shall convey to you at our next meeting. I am meeting my contacts senior partner by the end of January with a view of discussing our overall worldwide activities.(25)

In staff interviews, Helmy later confirmed that the memorandum referred to Stoga and to the "senior partner" to an intended meeting with Kissinger.

There are four possible explanations of the difference between Helmy's understanding and the Kissinger Associates chronology.

First, Helmy could have been wilfully misleading his superiors at BCCI about the relationship, although it is hard to understand why he would do this, persistently, for months, unless he had in fact received some encouragement from Stoga. Moreover, Stoga had in fact continued to meet month after month with Helmy.

Second, Helmy could have misunderstood what Stoga was telling him. Again, this would fail to explain why Stoga continued meeting with him to discuss these matters.

Third, Stoga could himself have been trying to keep the door open, despite instructions from Kissinger to the contrary. There is some evidence for this from the various memoranda, including Stoga's later representations as to what happened. It would be plausible that Stoga as the most junior member of the partnership would at the time have had a greater need than Kissinger himself to take advantage of BCCI's 73 nation financial network and reported $23 billion in assets to generate new business.

Finally, Kissinger Associates as an organization might at the time have been seeking to keep its options open concerning a possible relationship with BCCI, and rewritten history once BCCI had become notorious. The documents provided do not either preclude such a possibility, or prove it.

It is impossible to make a definitive judgment on this issue because of the remarkable absence of any contemporaneous documents concerning Kissinger Associates' rejection of the relationship with BCCI, at least among the documents provided the Subcommittee by Kissinger Associates. While Kissinger Associates did provide the Subcommittee with Stoga's November, 1991 reconstruction of what took place, for better or worse, the only contemporaneous documents available to the Subcommittee concerning this issue were those created by Helmy while he was at BCCI.

However, there is no evidence from any source that Helmy ever met with Kissinger, as Helmy had implied he would do in two of his memoranda to Naqvi. Moreover, there is no evidence that Stoga took any action to follow up on Helmy's business suggestions.

It is not contested, however, that Kissinger Associates did make "certain 'unofficial' general recommendations" to BCCI, just as Helmy's January 11, 1989 memorandum stated.

The Stoga chronology shows that Stoga did stay in contact with Helmy through January, 1989. The chronology states that Helmy asked to meet with Stoga, and did so on January 25, 1989, when Helmy told Stoga that he was now in charge of the Tampa legal case, and would appreciate Stoga recommending new lawyers for BCCI in Washington.

As Helmy later explained, he, among others at BCCI, felt that Clark Clifford and Robert Altman had their own agenda and own problems, and were not ideally situated to manage the overall handling of the Tampa case. He had received authority to try to go around Clifford and Altman, and was using the best contacts he had to develop an alternative.(26)

According to the Stoga chronology, Stoga reported the request for assistance to Kissinger, and after consulting with Kissinger, told Helmy he could recommend William Rogers and a team of lawyers at Arnold and Porter, which Kissinger Associates had long used to handle legal matters pertaining to the firm and its principals. According to the Stoga chronology, this was "without reference to HAK," that is, Henry Kissinger. At the time, Rogers was also on the Board of Directors of Kissinger Associates.(27)

Referral to William Rogers and Arnold and Porter

BCCI's records in New York first alerted the Subcommittee to the possibility that BCCI had been represented by Arnold & Porter and former Assistant Secretary of State William D. Rogers. An undated document maintained in the Kissinger Associates file at BCCI listed as BCCI's team of representatives:

FIRM: ARNOLD & PORTER

1. Mr. William D. Rogers

(Formerly Assistant Secretary of State)

2. Mr. Jerry Hawke

(Formerly General Counsel Federal Reserve Board)

3. Mr. Irv Nathan

(Formerly Deputy Attorney General of the US)

FIRM: Kissinger Associates

1. Dr. Henry Kissinger

2. General Scowcroft

(Presently: National Security Counsel Chief)

3. Mr Eagleburger

(Presently: Assistant Secretary of State (Designate)

4. Mr. Alan Stoga(28)

The listing of the present and former government titles of the "team" BCCI was seeking to assemble gives a clue as to BCCI's intentions. Consistent with BCCI's historic approach to responding to its problems, it was seeking to retain people as close to the heart of the U.S. government as it could find to fix its problems, and in its view, this appropriately included people who worked for the Justice Department, State Department, and Federal Reserve.

In fact, while Kissinger Associates did not perform any services for BCCI apart from its referral of Arnold & Porter, Arnold & Porter did agree to represent BCCI, although that representation never developed into any substantial activity on the part of the firm. According to BCCI officers Abol Helmy and Abdur Sakhia, the principal reason the representation did not ultimately take hold was that Clifford and Altman did not want BCCI to develop any independent representation in Washington, and squelched the Arnold & Porter representation. As Sakhia recollected, in the period after BCCI's indictment:

We had a longish meeting about Kissinger representing us. I came in late in the meeting, and the upshot of it was they referred him to William Rogers. Then Rogers met with Naqvi and Abedi, but Clifford did not want Rogers involved.(29)

As Rogers described the representation:

Our relationship with BCCI consisted of about 10 meetings and telephone calls with BCCI people, one meeting with Messrs. Clifford and Altman and related office work. The purpose of the discussions was to explore legal services that Arnold & Porter might render BCCI. We geared up to provide services with background reading and the like. But we did not communicate on behalf of BCCI with any public official in connection with any BCCI matter, either orally or in writing. We made no appearances on behalf of BCCI in any judicial proceedings or in any administrative matter. We did not lobby on behalf of BCCI. And we did not communicate with any Senator, Representative or Hill staff.(30)

In all, four Arnold & Porter partners worked on BCCI matters between June 12, 1989, the date Arnold & Porter agreed to "provide legal advice from time to time to BCCI and its affiliates as and when requested to do so by BCCI," and January, 1990, including the three referred to in the BCCI memorandum concerning Arnold & Porter and Kissinger Associates. The firm did about $16,000 in legal work for BCCI in all, a fraction compared with the $20 million BCCI paid the various attorneys whose services were managed on BCCI's behalf by Clifford and Altman.(31)

Further Contacts Between Stoga and Helmy

During the spring of 1989, Abol Helmy, frustrated in his attempts to wrest control of BCCI's legal strategy in the U.S. from Clifford and Altman, and BCCI's unwillingness to take advantage of the Arnold & Porter representation he had arranged, decided to leave BCCI and form his own company, Equicap.

During this period, Helmy had several meetings with Stoga which the Kissinger Associates chronology characterized as "social." Helmy also provided Stoga with copies of detailed proposals he was working on for a Brazilian investment fund, which appears to be a suggestion to Stoga that Stoga help him solicit possible investors for the fund.

Response to Press and Congressional Inquiries

In November 1991, after BCCI's global closure, Kissinger Associates began to receive queries from the press concerning its contacts with BCCI. In response to those queries, Kissinger asked Stoga to reconstruct his contacts with BCCI. Stoga reviewed the documents concerning BCCI contained at Kissinger Associates files that were later provided the Subcommittee, and prepared a memorandum to Kissinger on November 11, 1991 that described the contacts as follows:

The most titillating passage in Helmy's memos claim I passed along a recommendation from you about a public relations offensive involving Burson Marstellar which we would help facilitate. Another memo implies that he met you. And another says that we had been discussing a client relationship for over a year.

To the best of my collection, I did not talk to Helmy about Burson (which had not been a client for almost two years at that point), in particular, or about public relations in general. The only "advice" I do recall giving is telling him in an aside that, based on what I read in the papers, BCCI would be lucky to survive as a bank in the U.S. unless there was a thorough house cleaning. And, of course, when Helmy in February, 1989, asked for the name of a good lawyer, we referred him to Bill [Rogers].

With regard to meeting you, as you know, there is no reference on your calendars, you have no recollection, and da Costa says it did not happen. Additionally, I asked Helmy (with whom I developed a social relationship after he left BCCI) and he says he did not meet with you.

Finally, I remember that Helmy said when he approached us in September, 1988 that after meeting me a year earlier he had begun thinking about proposing a relationship. He was concerned that we would think his 1988 overture was a product of the indictment, but insisted that it was not. At the same time da Costa -- whose contract had not been renewed -- sent us a memo which said he had been having conversations with BCCI about a relationship with us for some time. If so, he did not tell us about them until the moment it looked like a contract might be in the offing. Then da Costa tried to prove he would deserve a fee.(32)

Stoga offers no explanation in the memorandum to Kissinger as to how Helmy could have set forth the supposed recommendation to BCCI of Burson Marstellar from Stoga and Kissinger himself if Stoga had said nothing concerning the firm. But it seems less than likely that Helmy would as a matter of sheer coincidence fabricate the supposed recommendation by Stoga and Kissinger of a firm who had indeed been a client. An alternative theory might be simply that Stoga did make the recommendation, represented it as Kissinger's, and failed to recollect it three years later. A third possibility is that Stoga chose not to remember the recommendation, or whether it actually came from Kissinger himself, given its "titillating" quality.

Helmy was by his own account distraught to find out that his overtures to Stoga and Kissinger Associates were about to become public. As he later told Subcommittee staff, he had sought to nurture his relationship with Stoga before while he was at BCCI and since he had left, considered him a personal friend, and feared the exposure would damage a relationship of some personal importance to Helmy. Helmy understood that exposure of the BCCI-Kissinger Associates letters could potentially injure Stoga's standing with Kissinger himself, and wished to help Stoga out of a situation which Helmy felt Helmy had created. Accordingly, after talking with Stoga, Helmy drafted a letter, dated November 13, 1991, to describe his current view of what had taken place.

In the letter, Helmy wrote Stoga as follows:

Obviously both you and I are distressed by the recent articles in The Boston Globe and the New York Times which discuss my 1988 recommendation to BCC that I retain the services of Kissinger Associates after BCCI was indicted in Tampa, Florida.

I am, of course, surprised that a recommendation that BCCI retain the services of an organization enjoying the fine reputation held by Kissinger Associates warrants publicity, but I suppose that in the current milieu this kind of thing makes the news too. . .

On the merits, while we were discussing the possibility of BCCI's retention of Kissinger Associates, the fact is that you never told me or led me to believe that Dr. Kissinger himself actually made any recommendation. Only my enthusiasm to encourage Mr. Naqvi and BCC inadvertently resulted in my memorandum suggesting otherwise. Also, as you told The New York Times, and to the best of my knowledge, Kissinger Associates was never actually retained by BCCI in any kind of professional, advisory, or any other relationship. . .

Since no good deed goes unpunished, my efforts to assist BCCI in gaining the valuable services of Kissinger Associates, seem, now, to have caused both Kissinger Associates and myself a degree of harm for which I apologize to you and your organization.(33)

Thus, Helmy sought to make clear that Henry Kissinger himself had never to Helmy's knowledge been involved in his attempts to link the two organizations. His letter did not refer to the one thing that definitely happened during the course of his discussions with Stoga -- the initially successful referral of BCCI to William D. Rogers and Arnold & Porter.

Conclusion

The solicitation by BCCI of a relationship with Kissinger Associates was largely based on personal contacts. It began with overtures by Ambassador da Costa, a man Kissinger knew was simultaneously a consultant to Kissinger Associates and to BCCI. The solicitation then developed through the burgeoning personal relationship between BCCI officer Helmy and Kissinger Associates partner Stoga.

Although Henry Kissinger was never himself especially interested in this potential client, BCCI become aggressively interested in Kissinger Associates because of its political connections, at a time when BCCI was struggling for survival.

Following the Tampa indictments, Kissinger himself recognized the potential risk to the reputation of his firm should it perform services for BCCI, and by December or January instructed Stoga to advise BCCI that no relationship was possible. Unable to respond to Helmy's overtures directly, Stoga, with Kissinger's participation, eventually agreed to pass BCCI on to William Rogers at Arnold & Porter as a means of helping Helmy and BCCI, while protecting Kissinger Associates.

The result was that through the Kissinger Associates connection, BCCI retained lawyers who had previously represented the Justice Department, State Department, and Federal Reserve, agencies of some relevance to BCCI's predicament. That relationship failed to develop not because of any lack of willingness by Arnold & Porter or Helmy at BCCI, but as the direct result of Clifford and Altman's need to maintain control over BCCI's affairs in the United States.

This story highlights once again BCCI's consistent strategy of responding to problems through reaching out to prominent political figures and retired government officials in hopes that it could use political influence to solve its problems. The failure of this strategy was a reflection of BCCI's own naivete about how to do business in the United States, the care which Kissinger himself took to protect his own reputation in dealing with clients, and Clifford and Altman's role of primacy in BCCI's U.S. affairs. BCCI's ability to get its foot in the door at such politically well-connected institutions, does, however, raise questions about the general vulnerability of such politically well-connected firms to providing services that advance the secret agendas of other clients who may be less notorious than, but equally noxious as, BCCI.

_______________

Notes:

1. Letter, Lloyd N. Cutler to Senator Kerry, January 30, 1992.

2. Memorandum/telex, Sakhia to Siddiki, May 6, 1986, Senate document.

3. BCCI internal memorandum, Helmy to Ameer Saddiki, September 2, 1986, Senate document 000653.

4. Staff interview, Abol Helmy, January 12, 1992.

5. Telex, Shafi to da Costa, October 28, 1986, BCCI Senate Document 000645.

6. BCCI Luxembourg Letter of Appointment, Ameer H. Siddiki to Ambassador Correa da Costa, October 28, 1986, Senate document.

7. Letter, November 3, 1987, da Costa to Kissinger.

8. Letter, Sergio Correa da Costa to Chris Vicks, Kissinger Associates, August 13, 1987.

9. Letter, Da Costa to Kissinger, September 20, 1987.

10. Da Costa Memorandum to L. Eagleburger and A. Stoga Re: Kohlberg Kravis Robert & Co -- KKR; October 6, 1987.

11. BCCI Chronology, January 30, 1992, provided to Subcommittee by attorneys for Kissinger Associates.

12. Id.

13. Letter, Khan to Kissinger, August 26, 1987.

14. Letter, Stoga to da Costa, November 2, 1988.

15. Helmy staff interview, January 12, 1992.

16. Letter, Stoga to Helmy, October 7, 1988.

17. Attachment, KISSINGER ASSOCIATES, INC., to Stoga letter to Helmy, October 7, 1988.

18. Letter, BCCI New York, from Abol Fazl Helmy to Swaleh Naqvi, October 12, 1988.

19. Memorandum, BCCI New York, Helmy to Naqvi, October 14, 1988.

20. Memorandum, Sergio Correa da Costa, to Kissinger Associates, October 25, 1988, Ref. BCCI as client of KA, Attention: Mr. L. Eagleburger, Mr. Alan Stoga.

21. Letter, Stoga to da Costa, November 2, 1988.

22. Letters, Cunningham to da Costa, December 12, 1988; da Costa to Kissinger, December 13, 1988.

23. BCCI Chronology, provided to Subcommittee by Kissinger Associates.

24. Letter, BCCI New York, Helmy to Naqvi, December 19, 1991.

25. Memorandum, BCCI New York, Helmy to Naqvi, January 11, 1989.

26. Helmy staff interview, January 12, 1992.

27. BCCI Chronology provided by Kissinger Associates to Subcommittee.

28. BCCI Document in Kissinger Associates file, BCCI New York.

29. Staff interview, Abdur Sakhia, October, 1991.

30. Letter, Rogers to Winer, March 3, 1992.

31. Id and attachments.

32. Stoga to Kissinger, November 11, 1991, RE: BCCI.

33. Letter, Abol F. Helmy to Alan Stoga, November 13, 1991.

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Part 1 of 2

CAPCOM

Introduction

In the entire BCCI affair, perhaps no entity is more mysterious and yet more central to BCCI's collapse and criminality than Capcom, a London and Chicago based commodities futures firm which operated between 1984 and 1988. Capcom is vital to understanding BCCI because BCCI's top management and most important Saudi shareholders were involved with the firm. Moreover, Capcom moved huge amounts of money -- billions of dollars -- which passed through the future's markets in a largely anonymous fashion.

Capcom was created by the former head of BCCI's Treasury Department, Ziauddin Ali Akbar, who capitalized it with funds from BCCI and BCCI customers. The company was staffed, primarily, by former BCCI bankers, many of whom had worked with Akbar in Oman and few of whom had any experience in the commodities markets. The major investors in the company were almost exclusively Saudi and were largely controlled by Sheik AR Khalil, the chief of Saudi intelligence. Additionally, the company employed many of the same practices as BCCI, especially the use of nominees and front companies to disguise ownership and the movement of money. Four Americans, Larry Romrell, Robert Magness, Kerry Fox and Robert Powell -- none of whom had any experience or expertise in the commodities markets -- played important and varied roles as frontmen.

While the Subcommittee has been able to piece together the history of Capcom and can point to many unusual and even criminal acts committed by the firm, it still has not been able to determine satisfactorily the reason Capcom was created and the purposes it served for the various parties connected to the BCCI scandal. It appears from the available evidence that Akbar, BCCI, and the Saudis all may have pursued different goals through Capcom, including:

-- misappropriation of BCCI assets for personal enrichment.

-- laundering billions of dollars from the Middle East to the US and other parts of the world.

-- siphoning off assets from BCCI to create a safe haven for them outside of the official BCCI empire.

Conditions At BCCI Which Spawned Capcom

By early 1985, BCCI was on the verge of financial collapse as the result of losses in the commodities markets executed by the head of the bank's Treasury Department, Mr. Z.A. Akbar.(1) Akbar, a young Pakistani and protege of Swaleh Naqvi, the bank's Chief Executive Officer, had been plucked from his job at National Bank of Oman in 1981 to manage BCCI's investments from its headquarters in London. Despite the fact that Akbar had no apparent experience in the commodities, foreign exchange or securities markets, by 1984 he was managing over $5.5 billion at BCCI Treasury.(2)

As Akbar invested heavily in the futures' markets, losses at BCCI treasury began to mount. According to Masihur Rahman, BCCI's former chief financial officer, Akbar made highly unusual investments based on unsound assumptions:

He [Akbar] was taking positions on silver and 20 year bonds, suggesting that 20 year bonds would be 7% or 6.8%, and things like that,, which anybody who understands treasury knows how deeply discounted it would be if you project that sort of thing for 20 years. And he was taking those sorts of positions for a premium.(3)

As the losses increased to staggering levels, Akbar created a maze of artificial accounting. According to a 1991 Price Waterhouse report, Akbar split the department's functions into normal Treasury activities and 'Number Two' account activities" . . . outside the scope of external audit . . . in the name of private clients but for [BCCI]. . ."(4) The report explained that the "Number Two" accounts derived from :

"misappropriation of external funds deposited under trust with [BCCI] to be managed on behalf of a few prominent people who are also shareholders of Holdings, and maintaining a pool of funds in the private named accounts of A. R. Khalil which were used freely by Z. Akbar to fund adjustments. . ."(5)

In other words, Akbar inflated BCCI Treasury profits through the use of unrecorded deposits in the accounts of important BCCI "customers", such as Khalil.

By 1985, Akbar's treasury department had accumulated losses approaching $1 billion, leading to a near collapse of the bank.(6) Akbar and, presumably Naqvi, recognized that the off-balance sheet accounting in the "Number Two" accounts could no longer adequately hide the massive losses. Accordingly, "out-of-book" or unrecorded deposits were moved "out-of-bank" to a new financial entity -- Capcom Financial Services, Ltd.

At Capcom, Akbar and Naqvi reasoned, the phony BCCI accounts could be further disguised and placed beyond the reach of bank auditors. In short, Capcom afforded BCCI a wider scope of options for the manipulation of accounts, the continuation of frauds and, perhaps, a last ditch attempt at fiscal recovery.

Creation of Capcom 1984-1985

On April 26, 1984 Akbar registered an obscure company named Hourcharm, Ltd, at his home address in London. On May 22, 1984, Hourcharm was renamed Capital Commodity Dealers, Ltd., and then in July, Capcom Financial Services. Capcom was funded with a capital of 1 million which during the first year was augmented to 10,00,000 pounds and then increased to 25,000,000 pounds (approximately $37,000,000).

Capcom commenced trading in London on September 17, 1984. According to the June 22, 1991 Price Waterhouse Report to the Bank of England, "Capcom ... rapidly became one of the most significant of the brokers used by Treasury [BCCI]."(7) Indeed, within the first year customer accounts bulged to over 100,000,000 (approximately $160,000,000), inordinately large sums for a fledgling commodities brokerage company.(8) According to Masihur Rahman, "Capcom was given an official credit line" by BCCI.(9)

A 1991 documentary on BCCI, produced in London, featured Jehangir Masud, a former employee of the Abu Dhabi Investment Authority, and Shahid Suleri, a former BCCI employee, commenting on the connections between Capcom and BCCI. Masud claimed, "the [BCCI] Treasury put huge volumes of business through generating large brokerage fees for Capcom." Suleri recounted that Capcom allocated profits to their own account, losses to BCCI, using BCCI funds as margin deposits.(10) In testimony to the Subcommittee, Rahman concurred, noting that "many of the transactions that the bank was doing [were] being routed through Capcom, who obviously was scaling out the differentials ....and passing on the heavy losses and things to the bank."(11)

Capcom Operations

Capcom operated as a broker in the London and Chicago commodities markets. Commodities markets should be distinguished from the stock markets, which are more or less "cash markets" designed for "direct investment." As author Martin Mayer has explained, "you own what you buy and your success is a function of the success of the company in which you have purchased shares."(12) According to Mayer, futures markets, in contrast to cash markets, do not offer the investor the "commodity that underlies the activity." Mayer has written that futures investors:

"trade contracts to purchase or sell that commodity on a future date. The contract is inescapable. Those who purchase must stand ready to receive the commodity at a specified delivery point at this price on a specified date (or to buy an offsetting obligation from someone who has a contract to deliver to that point on that date, thus permitting the "clearing corporation" that serves the exchange to extinguish both contracts.) Those who sell futures contracts must stand ready to deliver the commodity to the delivery point for this price on the specified date (or buy in someone else's contract to accept delivery.) As a result future's markets are not situations where everyone can win.(13)

The commodities markets in the U.K. and the U.S. are not restricted, regulated or supervised as stringently as the banking industry or the securities markets.(14)

Moreover, the commodities markets can sustain almost limitless volume, a necessary prerequisite for crime on the scale of that contemplated by BCCI since fraudulent transactions may be hidden in a multitude of legitimate ones. In a letter to the directors, the Chairman of Capcom, Larry Romrell, reported that 165 million in trading during the first four months of operation, and profits of 883,393. That trend continued until 1988 leading Akbar to boast to agent Mazur: "We have contracted 165,000 contracts totalling $53 billion with Drexel Burnham," and later, "we have done over $90 billion total in 1988."(15)

While the number of contracts and dollar volume seems unbelievable, a commodities company can artificially create massive volume by many small or no-risk trading methods. Indeed, the volume generated by Capcom helped it to generate respectability and acceptance with reputable banks and brokers.(16) For example, listed under "Auditors and Advisers" in Capcom's 1987 Annual Report were the following major international banks: Manufacturers Hanover Trust Company, London, National Westminster Bank Plc, Manufacturers Hanover Trust Company, New York, Deutsche Westminster Bank, A.G., and National Westminster Bank, plc. Elsewhere, Capcom noted its ties to Dean Witter Reynolds, American Express Bank, Refco, Prudential Bache Trading Corp., and Sumitomo Trust and Banking, Ltd.(17) Like BCCI, Capcom attempted to buy legitimacy to assist its rapid expansion.

Capcom's expansion took it to the United States where it opened Capcom Futures in late 1984.(18) Mohammed Saghir, born in the same town in India as Abedi, and a former cohort of Akbar's at the National Bank of Oman, was brought in to run the Chicago operations. The American Board of Directors mirrored that of London with Larry Romrell serving as the Chairman.

In testimony before the Subcommittee, Wendy Gramm, the Chairperson of the Commodities Futures Trading Association (CFTC) described the relationship between Capcom US and Capcom UK:

Capcom UK and Capcom US were intertwined. Both companies had common directors and shareholders. Capcom UK owned 82% of Capcom US from May 1985 until June 30, 1987.

BCCI Pulls Out

In July, 1985 the BCCI accounts were ostensibly withdrawn from Capcom, apparently on the advice of the firm's auditors who counseled that the bank should not be engaged in the kind of speculation intrinsic to the commodities markets.(19) With all visible BCCI accounts closed, Chairman Larry Romrell observed in Capcom's annual report: "The cessation of BCCI business obviously had an impact upon our volume."(20)

However, according to the 1991 Price Waterhouse report, at the same time that BCCI withdrew from Capcom an amount of $68 million was paid by BCCI Treasury to Brenchase, Ltd, a subsidiary of Capcom, controlled by Akbar, raising the question of whether or not BCCI had really withdrawn from the firm.(21) Moreover, the Price Waterhouse report notes that, "...despite an apparent cessation of trading links with Capcom ...two payments of $50 million were made to Capcom in March, 1986 out of external funds for which no liability for repayment was recorded."(22) These and other comparable payments clearly suggest that Naqvi and Akbar continued to use Capcom to shield BCCI funds and perhaps to move money.

Moreover, as late as 1989 the client list for Capcom Futures, the US subsidiary of London-based Capcom Financial Services, consists of several apparent BCCI accounts in the names of BCCI employees controlled by Z.A. Akbar.

It is not clear why Naqvi and Akbar chose to maintain the public facade of a split between Capcom and BCCI. One possible explanation is that Naqvi and Akbar profited from BCCI losses both at BCCI treasury and later at Capcom. When Senator Kerry asked Mr. Rahman if Mr. Naqvi had profited from the BCCI losses, the former BCCI manager responded, "since only two, three people are involved ...somebody has profited a lot."(23)

Akbar and Capcom

In 1986, after the discovery of BCCI losses on cotton trading, Akbar left the BCCI Treasury to join Capcom. According to Masihur Rahman, Akbar "was released" from BCCI, taking "his company car and other benefits."(24)

Upon moving to Capcom, Akbar formed Financial Advisory Services (FAS), an introducing broker, or marketing arm for Capcom. FAS was owned by Akbar's Panamanian-registered, Liechtenstein operated nominee company, ZASK Trading and Investments, Ltd.

Akbar did not immediately become a Director of Capcom, sitting instead in the FAS offices which adjoined Capcom. Akbar explained to Mazur his reasons for not joining Capcom's Board of Directors:

when I left the bank, BCCI people, they said 'Mr. Akbar, for, for at least a couple of years you don't go and sit in the office...it doesn't look nice that you leave the bank...and establish your own company'... they said 'please keep away'...(25)

But it was Akbar, nevertheless, who directed operations at Capcom. With the freedom of singular control over a vast pool of BCCI's "out-of-book", "Number Two" Treasury funds deposited at Capcom, Akbar manipulated to enrich himself. The Subcommittee has concluded that with Akbar at the helm, Capcom engaged in blackmail, bogus loans, "bucket shop" trading, use of nominee frontmen, artificial mirror-image trades, co-mingling of funds, money-laundering, theft, skimming of accounts, and kickbacks to insiders.

For example, Akbar arranged for kickbacks to Peniel Investments, a Liechtenstein-based, Panamanian-registered company that he owned. This arrangement, and others, specified commissions that he paid to himself of between $5.00 and $12.00 per contract on business he had introduced to Capcom, specifying "BCCI Overseas" as a qualifying account. In the months during which BCCI lost $430 million at Capcom, Akbar paid himself a total kickback of 4,671,579.86 (approximately $7,000,000).(26) It is not clear whether Naqvi and anyone else at BCCI knew about or participated in these kickback schemes.

Capcom and Money Laundering

There is evidence that Capcom engaged in money laundering for a variety of clients both in the United States and in London. For example, some 50 transactions were identified in the Futures, Inc. accounts with insufficient or no supporting documentation regarding the source or disposition of funds. These transactions totalled more than $125,000,000.(27)

In testimony to the Subcommittee, Customs agent Robert Mazur testified how Akbar used "mirror-image" trading to launder huge sums of money. Mirror image trading involves buying contracts for one account while selling an equal number from another account. Since both accounts are controlled by the same individual any profit or loss is effectively netted. According to Mazur, Akbar explained that because these "mirror image" transactions can be lost among many millions of dollars worth of legitimate transactions "it would take forever for anyone to ever find it."(28)

Using mirror-image trading, Akbar bilked the BCCI Treasury accounts and laundered money for one of Capcom's most notorious clients, General Manuel Antonio Noriega.(29) Although complex, the series of transactions involving Noriega, BCCI and Capcom provide an illustration of textbook money laundering.

Capcom, BCCI and Noriega

From 1982 through 1986 Noriega opened accounts with BCCI for the "placement of secret funds of the [Panama] National Guard -- money which Noriega was using for his personal use and that of his family."(30) Despite the fact that the accounts were "no correspondence" accounts in countries with strict bank secrecy laws, Noriega was not completely free from risk in his use of the public funds because the accounts were opened in his name and with his signature.(31)

As of 1986, Noriega had placed approximately $23 million in BCCI accounts in Luxembourg and London. In July of that year, BCCI and Noriega began to shuffle these funds. On 26 July 1986, two Noriega accounts containing $8.1 million and $3 million were transferred from BCCI, Luxembourg, to the account of the Banco Nacionale de Panama at the Union Bank of Switzerland in Zurich(32) in the name of a company called [sic] "Finlay International."(33)

On this same day, other Noriega accounts at BCCI totalling $11.8 million were transferred into the accounts of Banco Nacionale de Panama at Deutsche Sudamerikanische Bank in Hamburg, Germany, also in the name of [sic] "Finlay International."(34) Thus, in a complicated set of transactions, the entire sum of Noriega's BCCI accounts was transferred to banks other than BCCI, held in accounts not opened by Noriega, and held in the name of an entity other than Noriega.

The transfers became even more convoluted over the next two years. On 8 September 1988, the entire $23 million was transferred to the Banco Nacionale de Panama account at the Middle Eastern Bank in London in the name of [sic] "Findlays."(35) This transfer served to consolidate the funds in a single account. Despite the fact that the funds were nominally held in the account of the Banco Nacionale de Panama, the accounts themselves had been opened by Noriega (who personally signed the account opening documents) and remained in his control.(36)

On 13 September 1988, the Chief of the Private and Investment Banking Division of the Nacionale Banco de Panama instructed Middle East Bank to transfer the money from its account to the account of [sic] "Finleys International Ltd."(37) This transfer thus served to remove Banco Nacionale de Panama from the transaction altogether.

From 15 September 1988 through 19 September 1988, Finley instructed Middle East Bank to disburse almost the entire balance which had been amassed in Finley's account. The letters from Finley were signed by Capcom's President, Z.A. Akbar.(38) Three of these payments totalling $20.5 million were made to Capcom and credited to the GESS and GOOD Capcom customer accounts.(39)

Another $2.6 million was paid to a coded account at the Trade Development Bank in Geneva, Switzerland.

The transfers between Finley and Capcom effectively laundered the funds originally deposited in BCCI by Noriega. The transactions constituted "mirror image" trading; in effect, the same person -- Akbar -- stood on both sides of the transaction. Akbar was the managing director of Capcom and almost certainly possessed the controlling interest in the majority of the company's shares.(40) He also was the chairman and director of Finley. Moreover, he possessed a Power of Attorney for the GESS account and his brother was a director of the company behind the GESS account.(41)

In the entire set of transfers between Capcom, Finley, and the Capcom Accounts, the funds were under Akbar's control and subject to his direction. In order to disguise the transactions, Akbar continually sought to inject other parties into the scenario and to portray the transfers as legitimate business transactions between non-identical parties.(42) However, the documents indicate that Akbar moved funds from a bank account under his control to a company of which he was the managing director and then into Capcom customer accounts under his control.(43) What appeared to be transactions between different entities were merely transfers of funds between nominally different accounts under the control of the same individual. Akbar used Capcom and its accounts to conceal the source of the funds and "transform" them into facially legitimate business capital, brokerage fees, and bank account deposits.

Capcom and Shakarchi

Capcom may also have laundered money in the so-called "Lebanese connection" case. According to the Peat, Marwick report, on February 10th, 1988, Capcom received a telex from Ahmed Tawfik giving instructions to make a payment of $150,000 to Shakarchi Trading. Shakarchi trading was a Zurich-based currency trading firm, principally involved in gold bullion trading. Reportedly, a number of wealthy Egyptians had accounts with the firm which was owned by Mohammed Shakarchi.

In February, 1989 Shakarchi was linked by U.S. and Swiss investigators to two Lebanese brothers, Jean and Barkev Magharian, who admitted that some of the two billion swiss francs they channeled into Swiss banks and trading houses between 1985 and 1988 derived from drug transactions. The Magharian brothers told investigators that $36 million the couriers brought to them in Switzerland from Los Angeles came from cocaine profits.

The case gained notoriety when Swiss Minister of Justice was forced to resign in January 1989 after admitting that she told her husband, who worked for Shakarchi, that the firm was about to be implicated in Switzerland's biggest financial scandal.

Capcom and AMBROS

Yet another suspicious relationship maintained by Capcom was with a German trading company, Ambros Holdings. Approximately 44% of the Capcom U.S. client base consisted of West German individual and corporate accounts controlled by a handful of Western German companies such as "A and G management", SFS GmbH management" and "Ralf Ltd." For example, Metzler SFS controlled 37 of the accounts, or 39% of the total. The most important of the German clients was Ambros holdings which accounted for 50% to 70% of Capcom Future's gross commissions and revenues in the period September/October 1988. According to Capcom's records, the ledger balance was $40 million.

Ambros was a Panama registered company with offices in both Germany and Liechtenstein. The company's President and Secretary was Richard Sax, who traded for Ambros through Capcom Futures, and elsewhere in Chicago, under the alias of Richard Wagner.

Ambros declared bankruptcy in Germany in 1991. German prosecutors have been investigating the collapse of the firm which may have lost as much DM 500m in the commodity futures markets. According to press reports, German investigators believe that Ambros operated as a giant Ponzi scheme.(44)

Majority Shareholder of Kamal Adham and A.R. Khalil

The June, 1991 Price Waterhouse Report noted the overlap of shareholders between BCCI and Capcom: "[Capcom's]...initial shareholders were dominated by major shareholders of [BCCI]."(45) A.R. Khalil, Minister of Communications for Saudi Arabia and Deputy Chief of Intelligence -- and a major BCCI shareholder -- was the dominant shareholder and director of Capcom from its foundation until its termination. Besides Khalil, the "Saudi Group", included, Kamal Adham, Khalil's former boss and the lead investor in the FGB takeover; J.J. Uddin, who acted as a substitute for Khalil; El Sayed E. El Jawhary, an associate of Adham and Khalil; and Robert E. Powell, an American with long-standing ties to Adham and Khalil.

Although little is known about Mr. Khalil, the Subcommittee has learned that in 1976 he became Director General of Ministry of Communications of Saudi Arabia . The Subcommittee has also obtained a brief description of Khalil's background which he provided to officials of the Federal Reserve on April 23, 1981 in connection with the proposed acquisition of Financial General Bankshares:

My career has been devoted to business and I presently hold interests in real estate, mechanical and electrical maintenance projects, and commodities. In addition, I have been involved in some business ventures with American and British manufacturers for the installation of electronic and computer equipment in Saudi Arabia.(46)

In a document entitled "A Brief Resume of the Company and Its Directors, Capital Commodities Dealers, Ltd.", Khalil is identified as a prominent Saudi Businessman, involved in real estate and construction, mainly in Saudi Arabia, U.A.E. and Oman. He is also listed as the owner or director of the following companies: Arabian Electronic Project Establishment, Global Chemical and Maintenance Systems (where Robert E. Powell was CEO), and Rockwell International, USA (where Kerry Fox worked). The resume estimated Khalil's net worth to be "US $300,000,000."

It is noteworthy that during the same years that the Chief of Saudi Intelligence, Kamal Adham, is entering the American banking industry through the purchase of First American, his successor in Saudi intelligence, Mr. Khalil, is quietly purchasing three houses in the United States with the assistance of Americans Kerry Fox and Larry Romrell -- key players in Capcom.

U.S. Connection: Romrell, Magness and Fox

The investor relationships in Capcom represent the culmination of a long relationship between members of Saudi intelligence and important figures in the US communications industry. The record establishes the relationship between Khalil and the Americans, Romrell, Magness, and Fox had its genesis in the communications industry prior to the creation of Capcom.(47) First, Kerry Fox had a long relationship with Khalil through his work in the electronics business for Martin Marietta and Rockwell International with the Saudi government dating five to ten years prior to the creation of Capcom.

Second, Romrell and Magness proposed numerous ventures in communications to BCCI and Khalil in the three years prior to the formation of Capcom, 1982-1985. The proposals included the installation of state-of-the-art electronics and communications in the Saudi military command center. In October, 1982 Romrell expressed interest to Akbar in "working with the bank [BCCI] and managing any interests they may have in our area."

US Investments Proposed By Romrell/Magness

Larry Romrell has told the Subcommittee that he met Khalil in 1981. The timing of the meeting appears to have been just subsequent to Khalil's appearance at the Federal Reserve in Washington D.C. in connection with the takeover of Financial General Bankshares.(48)

After entering into a real estate venture with Khalil, Romrell moved quickly to solidify his relationship with Akbar, BCCI and Khalil. The Subcommittee has compiled a log of business proposals by Romrell for BCCI. (see Appendix I) Mr. Romrell explained the various propositions in a response to written questions from the Subcommittee:

Mr. Akbar had indicated to me that his clients or BCCI -- I always had difficulty distinguishing between Mr. Akbar's actions on behalf of his Mid-East investment client and his actions on behalf of BCCi -- might be interested in investing in the United States, principally in "bricks and mortar" office buildings. I suggested some possible investments to Mr. Akbar. I never sought or received any compensation from BCCI or Mr. Akbar for managing properties or anything else.(49)

While there is insufficient evidence to determine whether or not any of these proposals were consummated between the parties, the heavy traffic of proposals in 1983 to 1985 raises many serious questions about Romrell's and Magness' involvement with BCCI. Moreover, documents suggest that during this period BCCI credit was an important vehicle for Mr. Romrell and Mr. Magness in their personal affairs.

BCCI and TCI

Documents provided to the Subcommittee also indicate that BCCI may have been a shareholder in TCI, the largest cable company in the United States.(50) All TCI shareholders were issued WTCI stock when the latter was spun-off from TCI as a separate company. The WTCI stock was then listed independently and was publicly traded on its own. In a letter to Akbar, Romrell wrote:

"I am enclosing an Information Statement which has just become available this morning covering the distribution to the TCI shareholders of all the outstanding shares of WTCI...the stock will be distributed by today by mail along with the enclosed Information Statement to all TCI shareholders...there is a possibility that the WTCI stock price will sell for a price upwards from $8.00. I still intend to buy for our accounts at the best possible price somewhere between $2 to $4.50. If you have any comments or require any additional information, please give me a call."(51)

Six months later, Romrell wrote Akbar about an apparent agreement:

"I understand the WTCI stock will officially start trading at opening of business tomorrow, March 20. I want to confirm my understanding that I have established pursuant to my conversation with you a $100,000 credit line with which to purchase stock and, in addition, that you have authorized me to purchase stock in your behalf up to a $100,000 limit. The combined credit line would then be $200,000, except that I would reduce my credit line within 30 days from $100,000 to $85,000. If this is not your understanding or does not meet with your approval, please contact me immediately.(52)

Romrell has told the Subcommittee that, in fact, there was no agreement and no combined credit line. He acknowledged that the wording of the letter "did not sound good".(53)

Perhaps the most provocative document suggests that Romrell was seeking a $200 million credit line from BCCI for TCI:

"...the TCI finance group that they are interested in obtaining a loan facility...I asked Bob Magness...he asked me to determine whether there would be any interest ion the part of BCCI...I believe the credit facility that TCI is looking for is around $200,000,000...as a separate matter, WTCI will soon be looking for approximately $50,000,000 to construct a new microwave route...there may be an opportunity to put this deal together with BCCI if you are interested."(54)

According to TCI's lawyers, the company has never had any relationship of any kind with BCCI:

[There is] no evidence that the TCI or the Related companies had any business dealings with Capcom, BCCI, or any currently identified related entity or person... (55)

Romrell, Magness and Capcom

During the period that Romrell is passing on WTCI information to Akbar, he is also contemplating an investment in Capcom: "Magness and I have discussed your proposal to invest in a U.S. brokerage firm in Chicago or New York and to participate in the ownership and operation to the mutual benefit of BCCI and ourselves."(56) To entice the participation of Romrell and Magness in Capcom, Akbar represented to the Americans that the firm would earn a minimum of $4 million per year, and potentially as much as $10 to $15 million.(57)

Despite the fact that neither of them had any experience or expertise in the futures markets, Magness and Romrell agreed to become directors on May 27, 1984.(58) They also decided to make a financial investment in the firm. Magness, in a notarized statement dated May 12, 1992, explained to the Subcommittee:

"...I agreed to buy a 1 percent interest for approximately $15,000."(59)

"I was not offered anything for my investment beyond the [above stated 1 percent] interest in Capcom. Nor was I offered anything as an inducement to become a member of Capcom's board of directors."(60)

However, Magness and Romrell also purchased a stake in Capcom with funds provided by BCCI. In a "Note for file" written November 9, 1984, Romrell scribbled:

"Bob and I" funded our share capital and loan stock as follows: "We agreed to fund $14,744(61)

and borrow $75,000 each from BCCI London...Balance of current amount due was funded from our Credit Lines at BCCI, London."(62)

The Subcommittee has obtained documents which appear to show that, in fact there were other loans beyond those provided by BCCI. Magness and Romrell executed no-risk loans to purchase Capcom stock in a September 17, 1984 agreement with a Panamanian company secretly owned by Akbar, managed in Liechtenstein by a Dr. Franz Pucher. The company was named "Peniel Investments, Inc."(63) Akbar provided Romrell and Magness with subordinated Loan Stock in the amounts of 330,000 (approximately $450,000) for Romrell and 69,300 (approximately $90,000) for Magness.(64) A very unusual aspect of the loans is that they were self-liquidating: funds paid into Romrell's and Magness' loan accounts from profits in their "managed investment" accounts would be used to pay down the loan principal. (65) In other words, these loans resembled the standard issue BCCI no-risk loans provided to those who acted as nominees for the bank.

Another set of documents dating some months later shows additional loans to Magness and Romrell from Paten Holdings, Inc., a different Panamanian company, operated out of Geneva by Mme. Cecile Ringenberg, and again, secretly owned by Akbar. (66)

Romrell has told the Subcommittee that "at the time I understood Paten Holdings to be a Swiss bank."(67)

On May 23, 1985, the Capcom directors used Paten Holdings to increase the capital base in Capcom from L10,000,000 to L25,000,000. By increasing the capital base of the firm, Romrell's and Magness' overall holdings were also increased. Romrell, who had placed only $15,000 of his own money into the firm, found himself with holdings valued in excess of $2 million.(68)

The Loan Agreement, dated June 17, 1985, between Paten Holdings, Inc. and Romrell and Magness provides both men with 169,500 (approx. $250,000). The terms require payment no later than June 17, 1987. The collateral for the loans was the shares secured by an attached memorandum of deposit and dividends and interest were to be retained in order to reduce the outstanding balance of the loans. As Romrell explained: "...with regard to Paten Holdings, Inc...we had originally planned to reduce that loan with dividends from Capcom."(69)

Indeed two years later, in July 1987, Romrell proposed a 30 percent dividend in a letter to Khalil, Adham, and Jawhary.(70) However, upset from the events surrounding the CBOT investigation, the Saudi Group refused to allow the dividends. In order to accommodate the Americans, Akbar arranged for Romrell and Magness to enter into replacement loan agreements with Paten Holdings, Inc. The new loans were for an increased amount, 221,157.93 (approx. $330,000) and were secured by the Capcom shares. (71)

The year-end 1987 audit of Capcom in London by Arthur Anderson raised the issue of disclosure of the Paten and Peniel loans:

"All transactions with related or associated parties have, where material and appropriate for the presentation of a true and fair view...There are no agreements whereby the directors could receive benefit from dealing transactions either directly or indirectly through agency agreements...In respect of the agency agreements between Capcom Financial Services, Ltd and the following companies: a) Peniel Investments, Ltd, and b) Paten Holdings, Inc. ...In addition, we confirm that the agreements were entered into at arms length and that no director or shareholder has an interest in either agent company. The company and its subsidiaries have at no time during the period entered into any arrangement, transaction or agreement to provide credit facilities (including loans, quasi-loans, credit transactions, mutually beneficial arrangements or guarantees or security for liabilities for any directors, shadow directors, officers or their connected persons (except as permitted by the Companies Act 1985 and as disclosed in the accounts.)(72)

The Paten and Peniel loan documents show this statement by the auditors to be completely false. Either the auditors colluded with Capcom management, or more likely, they were misled as to Paten and Peniel by the management of Capcom.

Ultimately, Romrell tried to sever his connection to Paten. According to Cecile Ringenberg, an emergency meeting was called in London by Sheik Khalil. At that meeting, control of Paten passed from Romrell to Akbar. Romrell has indicated to the Subcommittee that he has never met Cecile Ringenberg, although a xerox of her calling card was provided by him to the Subcommittee.(73)

Capcom Nominees

The Subcommittee has uncovered documents which show that Romrell and Magness clearly understood that they were acting as nominees on behalf of Capcom. In a 1987 letter to Khalil, Romrell wrote:

"it was my understanding that the majority shareholders were not willing to sign these guarantees ...As far as I personally am concerned, except for my paid-up stock and notes, I have acted as nominee for one or more of the original shareholders."(74)

Five days later, Romrell reiterated this point in another letter:

"...It was my understanding at that time the majority shareholders representing yourself, Sheikh Kamal, and Mr. Jawhary...but it was the only one [plan] we could see that would retain the original shareholders through voting trusts and nominees and meet the needs of the Chicago Board of Trade. It was understood by the reorganized shareholders that they were nominees for the original shareholders. Thus, the actual beneficial ownership did not change."(75)

The reason for using American nominees by Capcom was clearly stated by Akbar in his taped conversation with undercover U.S. Customs agent Robert Mazur: "...it's better if we use some other people as our nominees, instead of showing [Capcom] as BCC subsidiary"(76) This is the identical strategy to that pursued by BCCI in its acquisition of First American Bank in Washington D.C.

Robert Powell

Robert Powell, a California businessman with interests in the Middle East, was also a director of Capcom, and, he claims, unbeknownst to him, a nominee for the company. Powell, like so many others involved in the BCCI affair, claims to feel "deceived, duped, humiliated ...etc...etc."(77)

Powell has a background in infrastructure and aircraft maintenance for the U.S. military, having provided "contract services to the United States Air Force, Military Airlift command, for the operation and maintenance of United States Air Force facilities located at Wake-Island, Mid Pacific."(78) Despite his close relationship to the U.S. military during the Vietnam War, Powell claims to have no background in, or affiliation with, military intelligence. Rather, he told Subcommittee staff that he simply follows the military "where they go."

According to Powell, in 1968 he was contacted by an assistant to Sheik Kamal Adham named Mamoud Arabe who met with him in Washington D.C. and subsequently set up meetings for him with Adham, then chief of Saudi Intelligence, and A.R. Khalil, the Deputy Chief of Saudi Intelligence, in New York. According to Powell, he believed that Adham and Khalil were simply "advisor(s)" to the King of Saudi Arabia and that during their meeting they only discussed "differences between Democratic and Residential candidates [with] a little bit of talk about the company and the services we offer."(79) Nevertheless, at some point thereafter, Powell settled in Saudi Arabia where he became the managing director for Global Chemical and Maintenance Systems, a company owned by A.R. Khalil. When Global Chemical opened an office in Oman in 1976 Powell met Z.A. Akbar who was then working at the National Bank of Oman, which was partially owned by BCCI. The next year Powell established a banking relationship for Global Chemical with BCCI, and while he lists BCCI as Global's bank in its annual report, he claims under oath that "no Global entity or myself borrowed any money from BCCI."(80)

Powell became involved with Capcom in 1984 at the suggestion of Akbar.(81) According to Powell he invested 80,000 Pounds Sterling in Capcom, money which was financed, although as of June 21, 1992, Powell was uncertain the nature or source of the financing.(82) Powell told the Subcommittee that he believed his initial investment represented the extent of his holdings. In July, 1992, however, prompted by questions from the Subcommittee, Powell contacted Capcom in London which advised him that by July 1985 he had accumulated 3,500,000 shares of stock -- 15% of the firm's holdings. Most of that stock was transferred from his account in 1987 but as of July 1992 he still owned 250,000 shares of stock. According to Powell, "When or how I became the owner of a 250,000 shares is not explained by the record nor do I have any knowledge about the activities that created this apparent paper increase." Powell wrote the Subcommittee "[I]t is obvious that the company can do anything it pleases with its shares without informing the affected parties. Is not hindsight beautiful?"(83)

Powell's account of Akbar's deception and of his relationship with BCCI, however, require further investigation. By his own admission, Powell met with Akbar "once or twice a year" in London to review Capcom and his stock holdings.(84) Moreover, he acknowledges having met Abedi on at least one occasion and Naqvi on at least a half dozen occasions.(85) These meetings with BCCI's top management strike the Subcommittee as strange given Powell's claim that he had such a limited relationship with BCCI as an institution.

Kerry Fox

As mentioned earlier, the genesis of Capcom's links to the U.S. lies in the relationship between Kerry Fox and A.R. Khalil. Fox had been Vice-President and General Manager of communications and electronics at Martin Marietta and President of two of Rockwell International's major divisions when he met A.R. Khalil while doing business with the Saudi government.(86)

Correspondence between Fox and Khalil suggests that they maintained a close relationship: "A.R. Khalil was and is a good friend of mine."(87) According to Fox, "I had known Sheikh Khalil for several years prior to that through business relationships with the Saudi government...(prior to 1982.)"(88) Moreover, Fox and Khalil owned neighboring homes in Texas and in Florida.(89)

During the early 1980's Fox went to work for U.S. Telephone Communications, which by 1982, had experienced "phenomenal growth and revenues of $90 million annually." In 1985 Fox founded his own company in the telecommunications industry -- American Telecommunications Inc. He also invested in a number of real estate projects with his partner, Larry E. Romrell.(90)

In an affidavit, Fox described his relationship with Akbar who "at that time... was personally handling many of Sheikh Khalil's world-wide financial transactions."(91) According to Fox, "I worked closely with Mr. Akbar both as managing director of the Capital Fund, but more importantly for me when he served as a Director of American Telecommunications Corporation."(92) Fox described Akbar's role with ATC: "I worked closely with him by telephone to assist our company through some very difficult start-up and financial problems. Mr. Akbar provided badly needed financial resources to the company, first as equity and later as debt, which was instrumental to the company's survival."(93) Indeed, Capcom and related entities purchased in excess of 350,000 shares of ATC stock, over 100,000 ATC warrants and loaned the company hundreds of thousands of dollars. In the affidavit, Fox defended Akbar as: "absolutely honest, trustworthy, and very honorable. He is a man of the highest integrity, having a strict code of high morals and business ethics."(94)

After Akbar was indicted for money laundering by the US Attorney's office in Tampa Florida, he resigned from the board of ATC. Akbar was replaced by Larry Romrell on the board, even though Romrell told the Subcommittee that "by the late 1980's he and Fox had a personal falling-out."(95)

This background raises questions about Fox, who along with Romrell acted on behalf of Khalil in 1981 and 1982 to purchase three residences in the U.S. and manage them. The Subcommittee has learned that the three properties located in New Smyrna Beach, Florida; Dallas, Texas; and Vail, Colorado were each financed by BCCI and managed by Akbar.(96) Second, while Fox and Romrell "used the houses from time to time", the property deals may have been used to financially benefit the two Americans who at the time were salaried employees. (97)

The Subcommittee invited Fox to testify on these matters at its July 30, 1992 hearing, but Fox, though his attorneys, invoked his fifth amendment privilege not to incriminate himself.(98)

The Capital Fund

Kerry Fox, although not a director of Capcom, was a director of The Capital Fund, an open-ended public investment fund launched by Capcom. The stated purpose of the FUND was investment in stocks, bonds, metals, options, and commodities. Control of the FUND resided in the "Manager", Capital Management Services, which had its operating base in Muttra, Oman. The original Directors were Paten Holdings and Zask Trading and Investment, Ltd, Akbar's secretly held Panamanian companies operated out of Liechtenstein. These entities were replaced as directors by Kerry Fox in October, 1985, indicating that Akbar had complete confidence in his ability to control Fox.(99)

By January 1, 1986 the initial L10,000,000 share capital had been fully subscribed, making it appear that the general public had invested in the Capital Fund.(100) In fact, however, Akbar controlled almost everything behind the FUND, including Zask Investment, Paten Holdings, his brother and Dr. Franz Pucher, the Liechtenstein lawyer. Akbar secretly contributed $8,145,000 (81 percent) of the $10,000,000 deposited in the FUND with the remaining 19 percent coming from BCCI/Capcom insiders, including Kamal Adham and Mr. E. El Jawhary.

The first year of investments by the Capital Fund resulted in an impressive profit, $2,278,708, and, in fact, the FUND produced profits in every other year until its termination in 1988. However, Ian Watt of Peat Marwick McLintock, characterized the profits as "artificial" and explained that through "matched" and "back to back" transactions, money from at least 17 accounts was transferred into Fund, totalling an estimated $3,334,480.(101) Watt concluded that the FUND played a significant role in Capcom's operations: "In all, save a number of insignificant cases, the client account in which profit was created was FUND."(102)

The Capital Fund continued to increase and prosper until Akbar's indictment for drug money-laundering on October 10, 1988. After the indictments, Kerry Fox met A.J. Puri in December, 1988 at the Dallas-Ft. Worth airport and was advised that the Capital Fund would be wound up.(103) However, it was not until September 18, 1990 that Capital Management Services ceased trading and was liquidated.(104)

The 1987 Chicago Investigation

In early 1987 the Chicago Board of Trade (CBOT) clearing corporation imposed a requirement that the owner of 5% or more of a clearing member guarantee the house obligations of such member. Accordingly, in June, 1987 the ownership of Capcom UK in Capcom US was reduced from 82% to 4%. The individuals who purchased Capcom UK shares in Capcom-U.S. did so with a loan from Capcom UK. One month later, in July 1987, Capcom US loaned Capcom UK nearly $3 million. That loan was never serviced and the Subcommittee has concluded that Capcom was involved in nothing more than a shell game to restructure its US operations.

At the same time that the restructuring was taking place, an investigation of Capcom had been undertaken by the CBOT to determine the identities of the individuals and entities which had an ownership interest in Capcom. In response to the investigation, A.R. Khalil wrote to Capcom's chairman, Larry Romrell, demanding that all the directors be fully advised of the true owners of Zask Investment and Trading, Akbar's company, which had surreptitiously increased its ownership in various Capcom entities. Ironically, Khalil ask that Romrell keep "my advisor, Mr. Z. Akbar, fully informed."

The issue was resolved when the secretly held Akbar-controlled interests in Capcom declined and the Saudi Group re-established its majority position using relatives and associates of Adham and Khalil on the Boards to escape the disclosure requirements of the US regulators. For instance, Mr. Wadia Sayed Khalil acquired a 39 percent ownership, and Mr. Robert E. Powell a 1 percent ownership, which combined with others in the "Saudi Group" totals 52 percent.(105)

In its investigation of Capcom the CBOT also disclosed that Capcom had engaged in numerous serious violations. Stephen Early, General Counsel to the CBOT testified before the Subcommittee:

[O]ne of the violations was that Capcom London was acting as a principal rather than an agent in transactions entered into on behalf of its customers. Now in essence, what that means, if I can put it in simplest terms, is that Capcom London was selling to its customers out of its inventory of positions of contracts traded at the board of trade....It is illegal in the United States...What we require is that the customer gets is the trade that was transacted in the public auction on the floor of the exchange and nothing else.(106)

Early concluded that "a trading practice such as this ...may be a means to further cloud what you have already encountered as the disarray of records, which is typical of Capcom and BCCI." Capcom settled with the CBOT and agreed to "cease and desist" from further violations and to pay a $124,000 fine.(107)

Early also testified that at the time "[W]e had no direct evidence of money laundering on behalf of Capcom."(108) However, during the same period, undercover Customs agent Robert Mazur was learning from BCCI insiders that Capcom was, in fact, being used to launder money. Mazur's undercover tapes formed the basis for the October, 1988 indictment of the trading firm.

Akbar Blackmails BCCI

In the summer of 1988, just months before the indictment in Tampa, Akbar contacted the Special Counsel to the Foreign Relations Committee, Jack Blum, and during a luncheon meeting in New York, claimed that he could lay out in detail the criminality of BCCI. Akbar boasts were real: according to the 1991 Price Waterhouse Report, "...Akbar took certain documents with him when he left [BCCI]. In 1988 he used this information to blackmail [BCCI], which paid $32 million to prevent him disclosing the true nature of the activities of Treasury..."(109) Akbar may have been using his meeting Blum to threaten BCCI. In testimony to the Subcommittee, Blum characterized his meeting with Akbar as "a $30 million lunch."(110)

The alleged bribes from BCCI to Akbar were paid into the TWOY account at Capcom. According to the Ian Watt audit, "TWOY and TWOY2 are both controlled by Akbar's brother, Mr. R. Akbar. The beneficial owners are not known..."(111) But Watt notes, "Akbar possessed a power of attorney over both TWOY accounts."(112)

In a secretly taped conversation Akbar explained to agent Bob Mazur the use of coded accounts to disguise ownership. Akbar used the example of TWOY, which he described as his account, and explained that "TWOY" was a translation, presumably from his native language, of the word "who":

"But if somebody asks, who's that person. Number two, it means who? For my account and Tawoy. It is called Tawoye. Tawoy. My account is Tawoye. Tawoye means who. No one asks who's Tawoye. We are not supposed to. (113)

The auditors noted the booking of a $31 million loss in the TWOY account in March 1987 from Standard and Poors Index futures trades.(114) In short, Akbar may have used the Twoy account to launder money that he had extorted from BCCI.

The 1988 Indictment

Capcom Financial Services, Ltd., the British parent company of the Chicago-based Capcom Futures, Inc., was indicted by a grand jury in Tampa, Florida on October 10, 1988.(115) S.Z.A. Akbar and BCCI were also named in the indictment.

The indictment charged that Capcom had participated in a conspiracy to launder money and to violate federal narcotics laws.(116) The indictment specifically charged that Capcom had used its bank and customer accounts to launder drug money for the Medellin cartel and other Latin American sources.(117)

Just as BCCI mounted a full scale public relations assault following the October 1988 indictment, so it appears did those with ties to Capcom contemplate a similar campaign. In his January office diary, Romrell noted "talked to Magness about CNN report and Capcom... waiting to know the source of the misinformation."(118) TCI, which Magness is chairman of, owns 20% of CNN. During the same period, Romrell also scribbled in his diary "Ramsey Clark/Lyndon Johnson/ Atty Gen is talking to people in Wash D.C. ... Drug charges may be lifted against Capcom."(119)

But the charges were not dropped and, in fact, a second, superseding indictment against BCCI was issued in 1989.(120) This second indictment added 14 additional defendants but it neither deleted Akbar or Capcom as defendants nor did it alter the legal claims made against them.(121)

Akbar was arrested in the UK where he had also been indicted. He was found guilty and sentenced to 18 months in prison. After his release, he fled to Paris where he was again arrested. Akbar is currently awaiting extradition to the United States. While Capcom Financial Services, Ltd., the UK parent, has been indicted, Capcom Futures, the U.S. subsidiary, has never been indicted.

The day after Akbar and Capcom were indicted in the U.S. for drug money-laundering, a memorandum was written by Romrell and John Parry, which revealed that Romrell had working knowledge of some of the "sensitive" accounts at Capcom, and that a joint agreement existed between Romrell and Capcom to make investments:

"On Tuesday 11th October 1986 it was decided by mutual agreement between John Parry and Larry Romrell that it would be in the best interests of the company to liquidate the open positions in the account GESS (General Securities). This decision was taken in light of the sensitive nature of the account pertaining at the time...

"It was decided to close the account slowly over a matter of days, if necessary, so as to preclude any market comment concerning unnatural activity at Capcom.

For all of the above reasons it was also decided to liquidate any open positions in the accounts of Little and Large."(122)