The BCCI Affair A Report to the Committee on Foreign Relations United States Senate by Senator John Kerry and Senator Hank Brown December 1992 102d Congress 2d Session Senate Print 102-140 Excerpts from: Chapter 4 On December 18, 1991, in an agreement with the Justice Department and New York District Attorney, BCCI's liquidators pled guilty to having engaged in a criminal conspiracy through financial fraud, and thereby constituting a Racketeering Influenced and Corrupt Organization (RICO), whose entire assets, legitimate and illegitimate, were subject to confiscation by the government. Specific crimes admitted to by BCCI's liquidators in the agreement included: ** Seeking deposits of drug proceeds and laundering drug money ** Seeking deposits from persons attempt to evade U.S. income taxes ** Using "straws" and nominees to acquire control of U.S. financial institutions ** Lying to regulators and falsifying regulatory documents ** Creating false bank records and engaging in sham transactions to deceive regulators.(7) Thus, the criminality at BCCI was not, as has sometimes been suggested, a side-effect of the bank's enormous growth during the 1970's, an unintended consequence of overly rapid expansion, but inherent in the bank's philosophy of asset expansion from the beginning, and pervasive to its closure. While U.S. law enforcement was not able to legally establish BCCI as organized crime until December, 1991, the scope of BCCI's criminality had been clear to both prosecutors and BCCI's defense team at least a year earlier. As BCCI's own private investigators, hired by the bank after its indictment in Tampa for money laundering in October, 1988, told BCCI officials in 1990: It is [the government's] view that BCC is a full service bank in the worse sense of the phrase. [Prosecutors] believe that it is official bank policy to actively seek out and market high net-worth individuals, and to gain from them large and frequent deposits, preferably in cash. They see such marketing efforts as being done at best without regard for the source of the customer's cash, ant at worst with tacit acceptance or even actual knowledge that in many cases the customer's money is derived from illegal enterprises, most notably narcotics. . . In the eyes of some prosecutors and investigators, the Bank's "services" are not limited merely to accepting the proceeds of illegal activities. They believe that BCC[I] officers and employees, with express upper management approval, also actively assist and even advise their customers on the most effective methods of hiding their money and evading taxes. Money, for example, is seen to be hidden or "laundered" by the constant, carefully controlled transfer of funds from one account to another within BCC and its world-wide branches or between BCC and other banks related to BCC, thus making the money almost impossible for U.S. law enforcement to trace. (8) As an officer of BCCI Canada wrote to law enforcement just three days after the closure of BCCI worldwide, even those inside BCCI were often appalled by its practices. We have read with a sense of relief that finally somebody had the guts to investigate into the affairs in the Bank . . . BCCI s.a., BCCI Overseas and BCC Canada have been for years conducting false accounting practices, concealment of losses (more so to avoid displeasing the Arab Owners) and making irregular loans.(9) The letter went on to describe the knowledge of principal officers of BCCI, including its chief executive officer in the Americas, knowledge of money laundering, drug trafficking, loans created in "bogus" names, and advances of funds to non-existent companies in London, Luxembourg, Cyprus, Malta, the Channel Islands, and other locations. The writer begged investigators prosecute "the big crooks in London and Abu Dhabi."(10)
Money Laundering >From the time of BCCI's indictment on drug money laundering charges in Tampa, Florida in October, 1988, there was little doubt to anyone looking at the facts that BCCI had been used to launder drug money. The Customs agents working on the "C-Chase" case against BCCI, moved millions of dollars in U.S. currency, representing the proceeds of cocaine sales through BCCI Panama, BCCI Luxembourg, and LOANS Switzerland as a result of the knowing participation of several BCCI officials.(37) As Robert Mazur, the Customs agent in Tampa who selected BCCI as the target of the Customs money laundering sting testified, BCCI bank executives volunteered methods to enhance and improve his techniques for money laundering, and shortly before the sting ended the operation, offered to introduce Mazur to other potential "cash" customers for money laundering services from Bogota, Colombia.(38) Attorneys for BCCI and the bank itself contended that the Tampa case represented an accident involving a small number of bank officers. Indeed, when BCCI itself pled guilty to money laundering in January, 1990, the bank continued to take the position that this guilty plea only constituted an admission that a few of its employees had engaged in the activity, and that its guilty plea was based solely on a theory of corporate responsibility, "respondeat superior." As BCCI's attorneys argued to federal prosecutors and Senate staff prior to the bank's January 1990 plea agreement, it was inevitable that a bank operating in so many countries would be used by drug traffickers. This was partially true, as the Deputy Assistant Secretary of State for International Narcotics Matters acknowledged: Setting aside those instances where BCCI managers knowingly promoted money laundering, BCCI seemed attracted to traffickers for the same reasons that other banks have been found attractive. First, traffickers seek international banks that are sophisticated in wire transfers, that have branches in those parts of the world where they operate, and which permit quick retrieval of funds. Second, traffickers seek banks in those countries where national banking laws afford maximum secrecy to depositors, permit nominee accounts, and do not provide for close monitoring of cross border transactions of currency movements.(39) Given BCCI's size and dispersion, money laundering at BCCI would have been inevitable under any circumstances. Given BCCI's never ending quest for assets and its management's attitude towards laws, it was ubiquitous. As Akbar Bilgrami explained, Abedi was constantly telling BCCI employees that the only thing that mattered was the generation of assets. When Bilgrami was in Colombia in the mid-1980's, a period when Colombia had already developed the reputation as the center for cocaine smuggling and drug money, Abedi told him that he needed to increase BCCI's activity in Colombia to $1 billion in local currency in deposits, and $1 billion in U.S. denominated deposits -- funds which obviously could only be generated, directly or indirectly, from the drug trade.(40) BCCI's December, 1991 plea agreement with U.S. law enforcement outlines the systematic nature of the money laundering as follows: 40. The BCCI Defendants and their affiliates . . . would and did formulate and implement a corporate strategy for increasing BCCI's deposits by encouraging placements of funds from 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; 41. In furtherance of the BCCI Group's corporate strategy to pursue deposits in disregard of United States and foreign law, the BCCI Defendants . . . would knowingly offer a full range of services to drug importers, suppliers and money launderers; 42. Co-conspirators would and did conduct . . . financial transactions with narcotics drug proceeds including the wire transfer of said proceeds from places in the United States to and through other places outside the United States, with the intent to conceal and disguise the nature, location, source and ownership of these drug proceeds.(41) The criminal information entered into by the liquidators outlined how BCCI laundered money, detailing its use of certificates of deposits held at foreign branches to offset cash deposits made in the U.S.; its technique of crediting "counter-balancing loan proceeds" to foreign corporate bank accounts designated by drug traffickers; and BCCI's use of false names, codes, and counter-surveillance techniques against law enforcement, among other money-laundering techniques. Knowledge of the bank's money laundering activity was not limited to a few high-level officials at the bank, as former BCCI chief financial officer Massihur Rahman contended.(42) As Abdur Sakhia, formerly BCCI's chief officer in the United States testified, it been obvious within BCCI as of 1983 that the bank had adopted a conscious policy of soliciting drug funds when it decided to purchase a bank in Colombia. It was obvious to Sakhia and other BCCI officers then that BCCI's motivation for obtaining the Colombia bank was its recognition that enormous amounts of U.S. currency were being generated as a result of narcotics trafficking, and that Colombia could become an extremely profitable operation for BCCI. Training of Cartel Death Squads In April 1989, a network of Israeli arms traffickers, operating out of Miami, made a shipment of 500 Israeli manufactured machine guns through the Caribbean island of Antigua for the use of members of the Medellin cartel. Later, one of these weapons was used in the assassination of Colombian presidential candidate Luis Carlos Galan, and several other of the weapons were found in the possession of cartel kingpin Jose Gonzalo Rodriguez Gacha after his death in a gunfight with Colombian drug agents. The principals in the arms trafficking included Yair Klein, who had previously been identified in Colombian drug enforcement documents as involved in training paramilitary squads for the cocaine cartel in Medellin; Pinchas Shahar, an Israeli intelligence operative, and Maurice Sarfati, an Israeli "businessman" operating out of Miami and Paris. The scandal broke after a broadcast by NBC News on August 21, 1989 about Klein's activities, and a Colombian judge charged Klein with having engaged in criminal conspiracy in training the private armies for the cartel. In the months that followed, the scandal extended to Antigua as well, an island with no substantial military force and no need for the 500 machine guns its foreign minister ordered from Israeli military industries. Subsequent investigations of the affair, including one by the Government of Antigua conducted by a Washington attorney, Lawrence Barcella, left many questions unanswered. However, it became clear that the Antigua project had been outgrowth of the establishment of a "melon farm" by Sarfati in Antigua in 1983, financed by the United States government through a $2 million loan from the Overseas Private Investment Corporation (OPIC), in part on the basis of financial references for the principals provided OPIC by BCCI. Before providing the $2 million to Mr. Sarfati for his melon farm, OPIC requested financial references. Sarfati provided references from his principal bank, BCCI Miami. In a letter from its Miami office, BCCI advised OPIC on June 14, 1983 that Sarfati, "who is one of our valued customers" had a number of major accounts with BCCI.(71) Ultimately, OPIC lost its entire investment in the melon farm and concluded that it had been defrauded by Sarfati. After filing suit against Sarfati, OPIC sold its remaining interest in the melon farm, at a loss of 50 cent on the dollar, to an Israeli businessman, Bruce Rappaport, and an entity owned by him called the Swiss American Bank. Rappaport, a confidante of former CIA director William Casey, was in this period also in frequent contact with BCCI's original U.S. contact, Bert Lance. Coincidentally, one of BCCI's principal board members, Alfred Hartmann, who was also chairman of BCCI's secretly-owned Swiss affiliate BCP, also sat on the board of another of Rappaport's banks.(72) In 1990, when the Subcommittee sought records pertaining to Mr. Sarfati from BCCI, it was advised by lawyers for BCCI that the Sarfati accounts at BCCI were "missing." Additional investigative work later located most of the accounts pertaining to one of Sarfati's partners in the Antigua venture, Haim Polani, but the accounts of Sarfati and his businesses remained lost. BCCI Latin American and Caribbean Region (LACRO) documents now maintained at the Federal Reserve in Miami document millions in BCCI loans to various Sarfati businesses. *** Excerpts from: Chapter 18 HILL AND KNOWLTON AND BCCI'S PR CAMPAIGN The Hill and Knowlton "Fact Sheet" began with the following assessment of the Regardie's article: 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. *** Excerpts from: Chapter 21 CAPCOM 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. On August 15, 1989, the CME Clearing House Finance Subcommittee reviewed the staff report of the activities of Capcom Futures from January, 1986 through May, 1989 and concluded that there was a reasonable basis to charge Capcom U.S. with the following violations: "Act of bad faith" (commingling customer funds with house funds); Permitting the Misuse of facilities; Detrimental Act; Uncommercial conduct; Accepting new trades when account undermargined; Transfers of positions with no change in ownership; notification of reduction in capital in excess of 20%; and non-compliance with financial requirements. The CME found that trading at Capcom was often done on the basis of oral instructions received from customers which were then confirmed in writing. In some instances, according to the CME, "the files showed no confirmations." Moreover, the CME's internal investigation found that: There were several transfers of funds from unaffiliated Capcom-U.S. customer accounts into the Ixora account, an account owned and controlled by Z.A. Akbar. According to the CME, no written authorizations were obtained prior to the transfer of the funds. According to the CME, Akbar, the owner of the Ixora account, told the firm "he intended to use the account for trading and the firm anticipated significant trading volume."(125) The Ixora account actively traded from December, 1986 until May, 1987. From November, 1987 through October, 1988, there were twelve receipts into the account totaling $9.84 million and twenty-five disbursements totaling $9.82 million. CFTC Chairperson Gramm testified that IXORA was also "involved in a complicated $2 million transaction involving Finley International, Ltd. and Capcom UK."(126) Finley, as noted earlier, was the account used to launder General Noriega's money. Certain of the trades in the Ixora account were clearly BCCI-related. For instance, a confirmation letter, dated April 27, 1987 is addressed to Mustafa Kamal c/o Bande Hasan. Mr. Hasan was an employee of BCCI in Miami. Moreover, CFTC Chairperson Gramm told the Subcommittee that: Information developed in our inquiry with respect to the Ixora account at Capcom US, however, indicated that certain disbursements were made to persons apparently unrelated to the purported account owners, including Akbar Bilgrami, who may be the same Akbar Bilgrami identified as the Director of Latin American Overseas by the October 1988 indictment.(127) The Subcommittee has obtained documents which show that Romrell is the individual named on the IXORA account at First National Bank of Chicago. Moreover, Ixora account statements and bank statements were sent to him at his Western Telecommunications offices. CFTC Chairperson Gramm testified to the Subcommittee that "In February of 1988 S.Z.A. Akbar instructed that a cash disbursement of $100,000 be made the IXORA account ... to Mr. Romrell's account." (128) Concerning the IXORA account, Romrell told the Subcommittee: [I] learned from the Subcommittee that Ixora also had an account at Capcom, but I have no knowledge of that account. Ixora was a Cayman Islands corporation that was owned by Mr. Akbar. Mr. Akbar asked me to find the name of a Cayman Islands lawyer to handle this matter....To my knowledge, Ixora never conducted any business whatsoever.(129) According to Chairperson Gramm, investigators were unable to learn anything more about the IXORA account because "Mr. Saghir exercised his fifth amendment rights with respect to all questions concerning this account when his investigative testimony was taken by the CFTC.(130) The CME also found that there were multiple transfers of funds between Mohammed Zaheer, the brother of Capcom Futures' President, M. Saghir and two unaffiliated customer accounts. On October 29 1987 there were six receipts in the Zaheer account totaling $4.84 million and the next day there were two disbursements totaling $4.80 million. The CME noted that "from the period December 31, 1986 through May 31, 1989, the ledger balance of the account was usually less than $150,000." These transfers are particularly suspect because an investigative firm retained by the CME discovered that Mr. Zaheer worked in a service station in Karachi, Pakistan and his position at this service station is described as "not very high."(131) After reviewing the Saghir/Zaheer transactions, Gerald Beyer, Vice President for the CME, told the Subcommittee that "On a person level, when I was involved in this investigation, I was certain that it involved drug money and laundering of money. ---
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