What Did They Know--And When?

Last week the widening scandal at Bank of Credit and Commerce International (BCCI) erupted into a worldwide brawl. Angry demonstrations broke out in downtown Hong Kong as depositors learned they might never again see their savings. In the West--where reputations as well as money were at stake--there was genteel name-calling. British Prime Minister John Major and Labor's Neil Kinnock attacked each other on the floor of the House of Commons. The Manhattan district attorney's office accused the Justice Department of impeding its investigation. A former BCCI executive pointed a finger at a pillar of the Washington establishment: Clark Clifford, past adviser to Democratic presidents and current chairman of Washington-based First American Bankshares, a holding company secretly controlled by BCCI. The ex-BCCI official, who spoke only on condition of anonymity, told NEWSWEEK that Clifford and his law partner Robert Altman advised BCCI as its counsel to conceal its acquisitions of U.S. banks like First American. Said the former BCCI executive: "Bank officers like myself thought we should acquire banks openly in the States and put our sign over the door. Clifford advised [BCCI founder Aga Hassan] Abedi to stay low-profile and keep these dealings secret--and that is what happened." Robert Bennett, attorney to Clifford and Altman, described the assertions as "totally false, absolutely," adding that "Clifford and Altman at no time ever advised BCCI, Abedi or anybody to keep anything secret."

It went without saying that the former BCCI executive had reasons for diverting attention from himself He has been talking under subpoena to investigators for Manhattan D.A. Robert Morgenthau and the U.S. attorney's office in Washington. Still, the fact that a figure as eminent as the 84-year-old Clifford could have even an unknowing relationship with BCCI--or its shenanigans--showed just how far the stains might spread.

The accusation was only the latest in the wake of BCCI's seizure by the Bank of England on July 5. Once a $20 billion operation in 73 countries, and the bank of choice for drug dealers and arms smugglers as well as more naive depositors, BCCI is the subject of investigations that range from reported payoffs to former governments in Peru and Guatemala to alleged financing of the terrorist activities of Abu Nidal. (The Sunday Times of London reported over the weekend that Abu Nidal earned $100 million in profits over 10 years through arms deals financed by BCCI.) Last week the Bank of England emphasized the U.S. connection, confirming BCCI's controlling interest in First American and accusing the rogue bank of using First American to finance fraud around the globe. Those revelations only intensified criticism of Attorney General Richard Thornburgh. The Justice Department had known for three years of a possible secret link between BCCI and First American but has so far issued but one subpoena. Was Justice dragging its feet? And if so, why? Speculation about Justice's alleged inaction ran the gamut from conspiracy to sheer incompetence. Between the extremes lay other theories: the department's curious reluctance to act; its over-credulousness when dealing with powerful Washington lobbyists, and petty turf disputes that tied up investigations.

Critics in the conspiratorial camp didn't yet have much of a case. Their grounds for suspicion: recent suggestions by the media that the Central Intelligence Agency used BCCI as a front for covert operations coupled with speculation that the CIA ordered a cover-up. No way, says Robert Mueller, head of the Justice Department's criminal division: "Not by private lobbyists, not by the White House, not by the CIA. "Thornburgh also defended his record to The New York Times, saying his department "brought the first and so far the only prosecution of BCCI"--resulting in the convictions last year of five BCCI executives in Tampa, Fla., for laundering drug money. CIA spokesman Mark Mansfield said the agency has ordered an internal review of its involvement with BCCI.

Massachusetts Sen. John Kerry--not usually considered a patsy for the Justice Department--doesn't buy the collusion theory either. "I have never used the word cover-up, and I don't today allege a coverup," says Kerry, whose subcommittee on terrorism, narcotics and international operations has spearheaded investigations into BCCI's American connections since 1988. He says his chief frustration is the Justice Department's apparent lethargy. "I know as a matter of fact that evidence that should have been followed up wasn't, witnesses that should have been talked to weren't, events that should have been exhaustively analyzed weren't," Kerry complains.

Why, for instance, did the Justice Department seem to ignore information available three years ago that linked BCCI to First American? During the 1988 sting operation in Florida, a customs agent posing as a money launderer tape-recorded a conversation with Amjad Awan, chief of BCCI's Latin American division who dealt with accounts held by Panama's Manuel Noriega. Awan warned of the bank's inability to stand up to scrutiny--even with the legal capabilities of Clifford, whom he called "sort of the godfather of the Democratic Party." Awan went on: "We own a bank based in Washington called First American bank ... bought out by BCCI eight years ago ... BCCI was acting as adviser to [the shareholders] but the truth of the matter is that the bank belongs to BCCI." The Justice Department simply sat on the information, contends Jack Blum, who worked as special counsel on Kerry's subcommittee for two years. Criminal-division chief Mueller denies this. "Every credible allegation is being pursued," he says. "It is my belief we took appropriate steps." Critics charge that didn't include sufficient manpower assigned to the case. But the Justice Department has recently increased its staffing.

The Justice Department's most sweeping action to date involved the Tampa plea bargain that resulted in a record $15 million fine for the bank. But even here critics believe that the Justice Department caved in too easily, settling for a relatively small fine and not prosecuting the top ranks of BCCI management. BCCI's lawyers "pulled the wool over their eyes," claims William von Raab, the former U.S. Customs Service commissioner who oversaw the Tampa sting that led to the indictments. Says Kerry, "They plea-bargained in reverse. They let off the upper people and shut off the rest of the investigation." Mueller retorts: "You can always go back and Monday-morning-quarterback, but we're the only ones with points on the board."

Clifford's involvement with BCCI in Washington goes back at least 14 years. In 1981, after four years of efforts, he persuaded the Federal Reserve Board to approve a takeover of Financial General Bankshares, First American's predecessor. Clifford insisted that BCCI wasn't involved at all with the new Arab investors. The lone dissenter, Sidney Bailey, commissioner of financial institutions in Virginia, recalls how Clifford's reassurance about BCCI "was received with considerable respect. He was accorded attention for his comments and views, accorded credibility." Clifford had even trundled down to Richmond where he tried--unsuccessfully--to persuade Bailey to vote for the takeover. In an interview earlier this year after news broke of BCCI's involvement in First American, Clifford said: "If I have been deceived, then I am more embarrassed than I have ever been in my whole life."

Clifford wasn't the only weapon deployed by BCCI. The bank has spent some $200 million in legal fees over the past decade, according to a congressional aide--and it's often money well spent. Last year, after Kerry criticized the Justice Department's plea-bargain agreement with BCCI, Altman and two other lawyers convinced Utah Sen. Orrin Hatch that the bank was being hounded unfairly because it was Arab owned. On the floor of the Senate, Hatch delivered an impassioned defense of the plea bargain and commended "the senior management, directors and shareholders of BCCI for the responsible way the company has responded to the charges of these proceedings." Hatch stands by his words today. "They wouldn't have lied to me," he says. "They're high-quality, good attorneys," adding that Altman "has been a friend for a long time." (But Hatch also says that given what he now knows, he would not make the same speech.)

Justice has also created its own troubles by getting embroiled in mysterious wranglings with state regulators. After the BCCI guilty plea in Tampa, Gerald Lewis, the Florida state comptroller of the department of banking and finance, decided to put BCCI out of business there by letting its license expire. One month before the scheduled expiration, Lewis received a letter from Charles Saphos, then chief of the Justice Department's narcotic and dangerous-drug section, which appeared to ask him to back off. "We are ... requesting that BCCI be permitted to operate in your jurisdiction," Saphos wrote. Lewis was understandably puzzled, and requested a meeting with the department. Saphos wrote back days later, saying he had been misunderstood: "The Department of Justice is not requesting that you permit BCCI to be licensed. The Department of Justice takes no position in that regard." However, a Florida regulator told NEWSWEEK that BCCI lawyers had been alerted to the letter stating that Justice did indeed want the bank kept open.

In coming months, Justice may have no choice but to get tougher, as independent investigations continue to shake out new names. A rumored list of U.S. politicians with alleged BCCI connections is rattling Washington. But the real showdown will come in September, when the House Banking Committee begins hearings on BCCI's ties to First American. The star witness: Clark Clifford, who will be making the ultimate representation of his 50-year career.