An exclusive look at how the agency penetrated the outlaw bank to spy on drug lords and terrorists
As bank busts go, the mushrooming scandal over the Bank of Credit and Commerce International may be the great-granddaddy of them all. The collapse of BCCI, in what is said to be a multinational fraud of historic dimensions, allegedly involved bribery, corruption, money laundering, gunrunning, drug smuggling, terrorism and upwards of $5 billion in lost or stolen assets in more than 70 different countries. It has now set off a search for scapegoats in Washington, where it is widely believed the U.S. government was slow to pick up the scent. Jack Blum, a former U.S. Senate investigator who has played a key role in bringing the BCCI mess to the American public's eye, last week summed up Washington's "overall distaste" for the BCCI case in graphic terms. The scandal, Blum said, was obvious to many government officials but never mentioned-something like "a cesspool overflowing on the front lawn."
And the CIA was in the middle of it. From a variety of sources both inside and outside the agency, NEWSWEEK has established a pattern of CIA involvement with BCCI that is more extensive, and more troubling to some, than the bland official statements that have been issued so far. Although agency officials insist the CIA's relationship with the bank was entirely proper and legal, there is little question that it had what one source called "intimate knowledge" of BCCI's alleged dealings with terrorists, drug dealers and corrupt government officials all over the world. BCCI was "aggressively" targeted as a gold mine of intelligence on a wide variety of illicit activities, according to CIA Deputy Director Richard Kerr-and that, according to NEWSWEEK sources, almost certainly means the CIA's Directorate of Operations had its own informants working inside the bank. The CIA kept funds at various BCCI branch offices, and it allegedly used BCCI's home office in Pakistan as a conduit for some of the $2 billion in secret U.S. aid to mujahedin rebels fighting Soviet forces in Afghanistan. A large chunk of that covert funding, Blum testified, was allegedly stolen by corrupt Pakistani officials using BCCI accounts.
The BCCI collapse is now rattling tellers' cages from Hong Kong to London, and its spinoff political scandals are likely to shake at least some Third World governments. In New York, Manhattan District Attorney Robert Morgenthau last week upstaged the U.S. Justice Department by indicting BCCI and two of its top executives, founder Agha Hasan Abedi and CEO Swaleh Naqvi, on charges of fraud, larceny, bribery and money laundering. Morgenthau called the BCCI case "the largest bank fraud in world financial history." In Washington, Sen. John Kerry of Massachusetts (page 21) held subcommittee hearings featuring Jack Blum and William von Raab, the outspoken former head of the U.S. Customs Service. Both accused the Reagan and Bush administrations of dropping the ball on BCCI, and von Raab said there had been a "general softening of resolve [among] senior U.S. officials" because of ."incredible pounding" from Beltway influence peddlers working for the bank.
What the CIA knew, and when it knew it, were pivotal issues. Kerry cited a 1986 agency memo, five pages long and stamped SECRET, summarizing the agency's knowledge of BCCI's activities-including the clandestine acquisition of First American Bankshares of Washington, D.C. In -fact, NEWSWEEK'S sources say, the 1986 memo was followed by a much more detailed, 30 page report in 1989. Both were prepared by the CIA's Directorate of Operations, an obvious indication that the agency was actively involved in penetrating BCCI for intelligence-gathering purposes. Calling BCCI a "radical Third World bank," the CIA memos alleged that BCCI was involved in money laundering, "narco-financing," gunrunning and holding large sums of money for terrorist groups. The memos also alleged that BCCI had established a so-called black operation. This bank-within-a-bank consisted of secret ,'managers' accounts" used to enable favored clients to move money without attracting the attention of international banking authorities.
One obvious question was whether the CIA was in any way involved with BCCI's alleged wrongdoing. Like other agency officials, Deputy Director Kerr last week insisted that the CIA's involvement with the bank "is absolutely legal, does not involve any illegality on the part of BCCI working with us ... and has been very effective in terms of our performance against the bank itself as a target." Other intelligence sources told NEWSWEEK that the BCCI connection had proved invaluable in helping U.S. and allied intelligence agencies track terrorists worldwide. Information from BCCI sources led authorities in Europe to freeze bank accounts maintained by terrorist groups and shut down front companies that financed their activities, these sources said. "The opportunity to collect intelligence far outweighed [the risk of] any dealings with unsavory characters," one U.S. intelligence official said. "When you're pursuing scoundrels, you can't be a boy scout."
The implicit message was: trust us. But the allegations against BCCI were so extensive and so unsettling that it was hard to take such reassurances entirely at face value. As Blum put it, BCCI served as a sort of "Federal Express service" for weapons, drugs, gold and currency for smugglers all over the world. He testified that BCCI helped to finance and ship Scud missiles from North Korea to Syria and Chinese Silkworm missiles to unidentified countries in the Middle East. A State Department terrorism expert, Peter Burleigh, testified that information developed by U.S. intelligence showed that the Abu Nidal organization had used a BCCI branch in Europe and a front company in Warsaw to trade in weapons.
Press accounts also speculated about the possibility of a BCCI connection to the Irancontra affair. Richard Secord, the retired Air Force major general who was Oliver North's principal associate in Iran-contra, flatly denied that he or North used BCCI although it was true, Secord told NEwsWEEK, that the "enterprise" got one or two cheeks drawn on a BCCI account from Manucher Ghorbanifar, an Iranian arms dealer who played middleman during the Reagan administration's covert attempts to negotiate the release of U.S. hostages in Lebanon with the Iranian government.
Then there was the question of how much the CIA knew about the theft of U.S. aid to the mujahedin and heroin smuggling through Pakistan. According to some press accounts, the CIA knew that corrupt Pakistani officials allegedly used the bank to launder drug money. According to Blum's testimony: "People who are very close to the mujahedin have said that many of the Pakistani military officials ... were stealing our foreign-assistance money and using this bank both to hide the money they stole, to hide and market American weapons ... that they stole and to market and manage the funds that came from the selling of heroin that was apparently engineered by one of the mujahedin groups." Blum said the allegation that the CIA knew about this purported corruption was an "unresolved" issue-and CIA Director William Webster has now ordered a full review of the agency's role in BCCI.
But the hot issue in Washington last week was whether the CIA had done all it could to alert the rest of the U.S. government to the bank's alleged violations of U.S. law. Kerr insisted that the CIA "regularly put out since the early '80s the whole set of reporting to the government describing those activities." But von Raab, whose Customs Service led an investigation of BCCI, received the 1986 report only in the fall of 1988, and he said it "didn't pro particularly useful as an i tool." He also said that Customs, which is a part of the Treasury Department, did not regularly receive these CIA reports.
The Treasury Department, the Federal Reserve Board and the Justice Department, meanwhile, all played hot potato with the question of the CIA memo. The Federal Reserve Board, which approved the acquisition of First American in 1982 on the basis of what may have been misleading information about its Arab purchasers, says it never got the memo and seemed exempt from immediate blame. The Justice Department, which prosecuted officials at a BCCI branch in Tampa, Fla., for money laundering in 1990, huffily maintained that it was now pursuing all the available leads to BCCI's alleged behind-the-scenes ownership of First American. And Treasury officials said the department got a single memo only in 1988, when von Raab asked the CIA for any information it had on BCCI. As von Raab testified last week, he got the memo after calling Robert Gates, then deputy director of the CIA and now George Bush's nominee to replace William Webster. Gates, he said, quipped that BCCI was known within the agency as "the Bank of Crooks and Criminals International."
Other congressional sources suggested a different explanation-one that pointed back to the CIA. By this theory, the CIA was well aware it had scored a major intelligence coup by penetrating BCCI and was reluctant to disrupt the flow of information on terrorism and other forms of international thuggery. Its memos through channels conveyed a sense of BCCI's unsavory character-but may also have sent an implicit "hands off " message as well. "I don't think the CIA was involved in the BCCI collapse," a Senate source said. "It penetrated the place and was aware of [the BCCI frauds]. That's what the CIA is supposed to do-gather intelligence. Where the CIA was derelict was in valuing this intelligence over the dangers of the mounting frauds. It could have blown the whistle, but it didn't."
The contributing factor, as Blum and von Raab insisted in their testimony last week, was that responsible officials in the Reagan and Bush administrations were repeatedly assured by a claque of highpowered Beltway lobbyists that BCCI was on the up and up. Chief among those lobbyists was Clark Clifford, chairman of First American and one of the ranking patriarchs of the Democratic Party. Clifford and his law partner Robert Altman, also First American's president, made millions advising BCCI on a variety of legal issues-but they maintain they were duped, like everyone else, about the true nature of BCCI's activities. Last week Blum testified that Amjad Awan, the BCCI official who was convicted in the Tampa money-laundering case, was allegedly advised by Altman to leave the country to avoid a Senate subpoena. "It didn't happen," said Washington attorney Carl Rauh, who is representing both Altman and Clifford. "Neither Mr. Clifford nor Mr. Altman ever suggested in any way that anyone leave the country to avoid testifying on anything."
With every new revelation, it becomes more evident that the BCCI scandal isn't about to go away. It has already cast a cloud over Clifford's elder-statesman status, and raises more questions for the Senate Intelligence Committee in considering Robert Gates's nomination as director of Central Intelligence. Most of all, last week it seemed to resurrect many of the old questions about the CIA-and whether the pursuit of vital secrets can lead governments to look the other way.
Pakistani financier Agha Hasan Abedi established the Bank of Credit and Commerce International in Luxembourg in 1972. His stated goal: to create the first multinational bank for the Third World. Operating in a shroud of mystery and with little regulatory supervision, BCCI managed to accumulate $20 billion in assets spread over 73 countries. In the late 70's, BCCI's reach began to extend into the U.S., culminating in the secret acquisition of Financial General Bankshares of Washington in 1982. Six years later a federal grand jury in Florida charged BCCI with laundering drug money. Weakened by a Ponzi-like pile of fraudulent loans, BCCI turned to Abu Dhabi's Sheik Zaid bin Sultan al-Nahyan, who invested $1 billion and took majority control last year.
A New York grand jury has indicted BCCI, alleging a $5 billion scheme to bilk depositors, launder money and bribe Peruvian bankers.
The Federal Reserve Board charges that BCCI used front men to buy several U.S. banks.
Investigators say that BCCI built an "influence peddling" network of prominent people in Washington, like former defense secretary Clark Clifford.
The Justice Department is investigating allegations of BCCI fraud in D.C., Miami, Atlanta and Tampa, Fla. Attorney General Richard Thornburgh has come under fire for the probe's slow start.
The Bank of England seized the bank on July 5, charging that BCCI had concealed massive losses and had made millions of dollars in fraudulent loans to cronies and fictitious individuals.
Investigators say BCCI was the personal banker for Panama's Manuel Noriega and assisted terrorist Abu Nidal in buying arms.
Ghaith Pharaon, allegedly a BCCI front man in the U.S., is under suspicion for his apparent close ties to top Argentine officials.
What was BCCI's ultimate aim in trying to penetrate the U.S. banking system?
Did the CIA and No. 2 man Robert Gates subtly head off investigations into BCCI?
Did the CIA know that Pakistani officials allegedly used BCCI to steal millions in U.S. aid for Afghan rebels?
Did European banking regulators drag their feet on BCCI?
What happened to $43 million in BCCI loans to Guatemala?
Did ex-Peruvian president Alan Garcia use BCCI to allegedly loot $55 million from the country?