BCCI THE BIG PICTURE New capitalism: bank fraud, drug trade, espionage By George Winslow In its October 23 issue, "In These Times" began a two-part series on the broader economic and social issues of the BCCI affair. Author George Winslow argued that the real scandal was not a lone wayward bank, but a world financial system out of control. Winslow examined how, during the past two decades, multinational corporations rose to global economic dominance. He then documented the way in which operations like BCCI use "offshore havens" to do these corporations banking. Such havens--located in places like Panama, Hong Kong and the Bahamas--free corporations from the taxes, oversight and laws of their home countries. They also help Third-World leaders loot their own nations, thus increasing those countries debts and putting further strain on the shaky U.S. economy. No matter what happens in the ongoing BCCI investigation, Winslow concluded, the offshore financial system that spawned the bank still operates outside of the control of any real government authority. "BCCI will happen again," he wrote. In the following story, Winslow examines how larger economic issues shed new light on BCCI's more notorious operations-- the bank's ties to the CIA, drug dealers, sleazy S&Ls and influence peddlers. EVEN IN MIAMI, WHERE EXCESS HAS BECOME a fine art, David Paul, the chairman of CenTrust Savings Bank, stood out from the pack. Paul, who raised lots of money for top Democratic Party politicians, used bank funds to buy a $13000000 Rubens that he hung in his opulent estate and insisted that his $7000000 yacht be built with 14 carat gold nails. But by the late '80s, Paul was in trouble. CenTrust, like many other S&Ls, had suffered huge losses by speculating in securities and junk bonds. For years he had hidden the losses with accounting tricks that were legalized by Congress and the Reagan administration. But, as the public began howling about fraud in the S&L industry, bank regulators ordered Paul to make the losses public, a move that threatened to ruin his bank. To buy time, Paul used his political clout to arrange meetings with top regulators in the Reagan administration. At the meetings, Paul introduced Ghaith Pharaon, a wealthy Saudi financier who had already bought 25% of CenTrust. Paul implied that Pharaon and his wealthy Saudi friends planned to save the bank. Impressed with this display of wealth, regulators let CenTrust stay in business. CenTrust lost more money and Paul kept throwing lavish parties--at one $122000 affair he flew six famous chefs first class from the United States to France. When bank regulators finally shut down CenTrust in 1990, taxpayers got stuck with a bill for $2000000000. The CenTrust fiasco took place in Florida and Washington--half- way around the world from Abu Dhabi, where a number of Bank of Credit and Commerce International (BCCI) executives are now under house arrest. But the CenTrust affair illustrates how the sun never sets on the new world of bank fraud. Ghaith Pharaon--the wealthy Saudi financier who was supposed to save CenTrust--was simply one of the front men that BCCI used to secretly buy and loot at least four American banks. THE PRICE WE PAY: The "New York Times" recently assured its readers that many of BCCI's crimes would have little effect on Americans. "[The] money laundering and other corruption at BCCI occurred largely overseas. ... The criminals and most, if not all, of the victims of BCCI's scams were foreigners," the "Times" wrote. But that is not at all the case--and in this article, "In These Times" will examine how and why. Many of BCCI's alleged crimes, such as its involvement in the S&L scandal, were conceived in the United States--and most of the bank's foreign criminal activity would not have been possible without the complicity of American business and government. Today, it would be hard to find an American who hasn't been victimized by BCCI. Taxpayers have spent billions of dollars, and may have to spend billions more, to bail out banks looted by BCCI and its clients. Financial services provided by BCCI and other banks helped international drug traffickers bring tens of billions of dollars worth of illegal narcotics into the United States. Arms transactions financed or administered by BCCI accelerated a Mideastern arms race that helped trigger the U.S.-Iraqi war. And BCCI was not the only major financial institution to profit from bank fraud, arms deals and drug smuggling. These problems--and the financial system that nourishes them--will continue. SECRET INVASION: Only five years after being founded in the Third World, BCCI began its invasion of America. In 1977, several of BCCI's largest shareholders launched a hostile bid for the largest bank in Washington, D.C., Financial General Bankshares (now called First American Bankshares). There were problems from the start. A number of the investors were simply BCCI front men, many of them with long histories of involvement in corporate bribery scandals. A Securities and Exchange Commission (SEC) investigation into the deal uncovered a wide range of illegal securities transactions. Normally these violations would have disqualified potential investors from handling billions of dollars in federally insured deposits. But BCCI's high-powered legal team, headed by Clark Clifford--a former secretary of defense and adviser to four presidents--convinced the Federal Reserve Board to approve the deal on the condition that BCCI would not control the bank. It was a condition BCCI ignored from the start. Over the next decade, BCCI also used Ghaith Pharaon as a frontman to secretly acquire a minority stake in CenTrust, as well as controlling interests in the National Bank of Georgia and the Independence Bank of Encino, Calif. As with its secret purchase of First American Bankshares, BCCI shifted money through a bewildering array of offshore havens to convince regulators that the banks were being bought by wealthy Arabs with lots of cash. In fact, the real owner was BCCI. Then, BCCI used the same system of offshore finance to loot the banks. For example, soon after BCCI lost over $849000000 speculating in U.S. Treasury bonds, BCCI executives had First American Bankshares (FAB) pay $220000000 for Ghaith Pharaon's shares in National Georgia Bank. According to the "Wall Street Journal," FAB paid between $20000000 to $60000000 more than any other bank was willing to pay. The deal had the effect of transferring $220000000 from a very solvent bank, FAB, to Pharaon and BCCI at a time when the latter two were in deep financial trouble. Today, the effects of BCCI's involvement are plain. FAB, once a solvent, well-capitalized commercial bank, is in dire financial straits. Recently regulators gave FAB, which lost $182000000 in 1990, a rating of "four." Five means the banks is broke and should be shut down: one is an excellent rating. The $11000000000 bank, which now has $469000000 worth of bad loans, could easily cost U.S. taxpayers billions of dollars if it collapses. NEW RULES: More importantly, the FAB fiasco illustrates how the new world of international finance has affected the American banking industry. The increasingly unregulated international financial system of the '70s and American financial system as well. This deregulation dramatically changed the structure of American finance (see "In These Times," Oct. 2). For the first time since the Depression, banks were allowed to expand their operations into the insurance and securities markets. Savings-and-loan associations were permitted to make speculative investments in the commercial real-estate market--a practice that ruined many S&Ls. Large corporations, which had once raised most of their short-term debt from commercial banks, now turned to foreign banks and Wall Street firms. Securities firms such as Merrill Lynch offered certificates of deposit--encroaching on a traditional market of banks--and channeled tens of billions of dollars into shady S&Ls. Finance companies--especially subsidiaries of large auto makers-- stepped onto another traditional turf of the banking industry the auto-loan market. Sears and other retailers. which were once content to sell power tools and lawn chairs, began peddling credit cards and stocks. These changes not only increased competition among financial institutions, but also reduced profits and led to increasingly speculative investments. Deregulation led to a decade of financial fraud and mismanagement. Like BCCI, some S&L owners used secret bank accounts in offshore havens to hide their ownership or to embezzle millions of dollars. Federal authorities made it easier for investors to buy banks, allowing many shady financiers to move into the industry. Many of these financiers, such as Charles Keating and David Paul, set up elaborate business and political ties with BCCI's clients, advisers and shareholders. These ties show that BCCI was not simply a foreign problem--and that the S&L scandal goes far beyond U.S. borders. In the '80s, high-flying institutions like BCCI and CenTrust became magnets for con artists of all kinds. BCCI AND THE S&L SCANDAL: For example, Charles Keating and his thrift, Lincoln Savings and Loan, invested millions of dollars in Trendinvest, an offshore company that speculated in foreign currencies. According to the "Wall Street Journal," Lincoln suffered "large losses" from trades made at Trendinvest and "lawyers representing investors ... defrauded by Mr. Keating . . . accuse him of shifting money overseas through such mechanisms as foreign exchange losses." A BCCI executive, Alfred Hartmann, served on Trendinvest's board of directors and advised Keating on the foreign-exchange transactions. In 1989, Lincoln Savings and Loan filed for bankruptcy--a move that cost taxpayers over $2500000000. Another notorious S&L con artist is Herman Beebe. Beebe had a history of bank fraud as well as alleged business ties to the Mafia--which would normally have prevented him from buying a bank. But in the '80s world of deregulated banking, Beebe was able to secretly buy and loot at least 100 S&Ls. Beebe's exploits are documented in the book, "Inside Job: The Looting of America's Savings and Loans," by Stephen Pizzo, Mary Fricker and Paul Muolo. According to the authors, one of Beebe's closest business associates, Ben Barnes, set up partnership with John Connally, the former governor of Texas. The partnership borrowed money from at least 17 S&Ls. But the partnership failed to pay back many of the loans, due to the real-estate crash. Connally, a one-time US. treasury secretary, was forced into bankruptcy. In the late '70s, Connally owned a Texas bank with BCCI front man Pharaon, according to Stephen Fay's book, "Beyond Greed: The Hunt Family's Bold Attempt to Corner the Silver Market." Connally introduced the bin Mafouze family, BCCI's second-largest shareholder, to the Hunt brothers, the infamous oil barons who lost their $10000000000 fortune trying to illegally manipulate the world's silver market. The bin Mafouze family and Pharaon invested in the Hunt scam and suffered huge losses. Through Pharaon and CenTrust, the BCCI connection also leads back to the biggest con artists of the S&L scandal--Michael Milken and his firm, Drexel Burnham Lambert. The Federal Deposit Insurance Corporation (FDIC) has charged that Milken, Drexel, CenTrust's Paul and BCCI rigged a sale of $150000000 worth of junk bonds to make it appear as if CenTrust had raised more capital than it actually had. More importantly, a $6800000000 suit filed by the FDIC alleges that Milken, Drexel, Keating and Paul set up a network of junk- bond buyers at CenTrust and other S&Ls who "wilfully, deliberately and systematically plundered certain S&Ls." This network used "illegal and manipulative secretive trading activities" to trade bonds back and forth to each other, creating "an illusion of an efficient, growing and liquid market for junk bonds." In other words, the FDIC believes that the network created a bogus market for junk bonds that artificially inflated the prices for these bonds. When the market finally collapsed, many S&Ls such as CenTrust, went broke, costing taxpayers at least $6 billion. HOOKED ON DRUG MONEY: Financial crime, however, wasn't the only toxic byproduct of global financial deregulation. The authors of "Inside Job" have noted that organized crime groups produced tens of billions of dollars worth of revenue each year. These criminal organizations needed financial institutions to launder their profits: "Thrift deregulation fulfilled ... those needs nicely. ... Not only had the rules been drastically eased, but the cops [thrift examiners] were no longer much of a threat, their ranks having been gutted after state and federal deregulation." Financial pressures also forced many banks to turn a blind eye toward money laundering. Faced with declining profits, bad Third-World debts and increased competition, banks needed new deposits and customers. Handling drug money had been illegal in the United States since the Bank Secrecy Act of 1970. But, in practice, the rewards often exceeded the penalties. Between 1970 and 1985, only two thrifts were fined for money laundering. And a federal crackdown on money laundering in the mid-'80s produced only $21000000 worth of fines against 44 banks--a small portion of the $50000000000 to $100 billion worth of drug money laundered through American banks each year. BCCI was one of the banks that capitalized on this booming industry. Like many other financially troubled institutions, drug-cartel deposits helped BCCI hide its losses and keep growing. Naturally, BCCI executives worked very hard to keep their customers happy. Panamanian dictator Manuel Noriega, for example, received millions of dollars in kickbacks from the Medellin drug cartel. When Noriega set up a $25000000 account with BCCI, bank executives issued him credit cards for his wife and mistress. They booked him into posh New York City hotels and they took him on shopping sprees at the city's largest department stores where Noriega ran up as much as $100000 worth of credit-card bills. Noriega is believed to have laundered at least $90000000 through BCCI. In other cases, BCCI actually helped drug dealers set up sophisticated laundering systems. For example, when a U.S. undercover agent, Robert Musella, began depositing money from the Medellin cartel at BCCI, the bank sent Musella to Europe for a kind of seminar in laundering. Then, BCCI set up a Byzantine system of offshore corporations and banks that Musella used to launder $16000000 in drug money. Here, BCCI's skill at manipulating the deregulated U.S. banking industry played a key role. At least some of the drug money that Musella was laundering for the Medellin cartel made its way through First American and other banks secretly controlled by BCCI, according to House Banking Committee investigators. BCCI taught Musella so much about the secret world of money laundering that government investigators were able to indict 85 people and launch investigations into the activities of 41 major banks, including Bank of America. BCCI eventually paid a $15000000 fine, only a small part of the profits it made from laundering over $1000000000 worth of drug money for the Medellin cartel in the '80s. But while the mainstream media has focused on BCCI as a full- service bank for drug dealers, media reports have paid very little attention to money laundering by other major banks. For example, Bank of America was hit with a $47500000 fine for money laundering in 1986. It was the largest money-laundering fine until the BCCI case. Yet two years later, the financially troubled Bank of America was still laundering money. In 1989, U.S. investigators cracked an operation that used jewelry stores, BCCI and many other banks to launder over $12 billion in cocaine profits for the Medellin cartel. Major banks that accepted cash deposits from the drug-money-laundering organization included Bank of America ($32000000), Republic National Bank ($185000000), American Express Bank ($11000000), Citibank ($63000000), and Extebank ($138000000). (BCCI, which received a $13000000 wire transfer from the Bank of New York, was a relatively minor player in this scheme.) DRUGS, GUNS AND IDEOLOGY: BCCI's money-laundering activities also have a political context that has been largely ignored by the mainstream media. Over the last decade, the Reagan and Bush administrations have attempted to portray the war against drugs as a Cold War crusade. By attacking "narco-terrorists," Reagan attempted to link Latin American revolutionaries and Latin American drug traffickers--thus justifying, for example, U.S. military intervention in Nicaragua. Likewise, Bush recently sent military advisers to Peru to fight left-wing guerrillas involved in the drug trade. But, in fact, billionaires who run the drug cartels are hardly left-wing rebels. They are a lot like most wealthy Third-World elites who use terror and illegal arms deals to maintain their power. In 1989, for example, Colombian officials raided the farm of Gonzalo Rodriquez Gacha, one of the founders and a top leader of the Medellin drug cartel. Here they found hundreds of assault rifles that had been imported from the Israel Military Industries, the state-owned arms manufacturers. They also found a bizarre home video. It showed members of the cartel at a paramilitary training camp attacking a mock village and firing their guns into homes. The men were screaming "Communist guerrillas, we want to drink your blood"--hardly a slogan that Marxist revolutionaries would use. The weapons, Colombian officials soon discovered, had been used to assassinate a number of union leaders attempting to organize workers at large farms owned by the cartel. The paramilitary camp--backed by the Colombian military and financed by the cartel--trained Colombian death squads. The camp had been set up by Israeli arms dealers and former military officers. One officer, Lt. Col. Amatzia Shuali had trained military officers in Guatemala and Nicaraguan Contra rebels in Honduras. At the camp, members of the cartel learned how to make bombs that had been used to blow up a Colombian airliner with 117 passengers. This horrifying affair has been virtually ignored by the American media and it has not been covered in any of the articles on BCCI. Yet "In These Times" has learned that U.S. government investigators are probing allegations that BCCI had ties to several of the people who set up the camps. BCCI had a large number of branches in Colombia that were used by the cartels, and druglord Gacha was a BCCI customer. More importantly, the case illustrates how Cold War politics have corrupted the war on drugs. In Colombia, this policy had disastrous effects. After the discovery of one cocaine lab, U.S. officials claimed the drug trade was being run by the guerrillas. The charge was later proven false. In fact, the Colombian military was aligned with the drug dealers. One of the front companies used to set up the death-squad camps was actually owned by the Colombian minister of defense. As a result, millions of dollars in U.S. aid, earmarked for the war on drugs, was actually going to fight the guerrillas. OFFSHORE A-BOMB INDUSTRY: Guns for the drug cartels represented only a small part of BCCI's arms supermarket. BCCI was involved in the sale of guns to the Contras and the CIA-backed Afghan rebels. Gun dealers hired by the National Security Council's Oliver North used the bank to illegally sell tow missiles to Iran during the Iran-contra affair. And the banks provided financial services for Silkworm missiles sold to Saudi Arabia, Scud-B missiles bought by Syria, weapons purchased by the Abu Nidal terrorist group, Mirage Jets acquired by India and helicopters sold to Guatemala. Some of the most terrifying deals apparently involved atomic bombs. Sen. Alan Cranston (D-CA), has alleged that BCCI was involved in programs by Argentina, Libya, Pakistan and Iraq to build atomic bombs. In addition, former Senate investigator Jack Blum says that Munther Bilbeisi, an arms dealer "whose brother was a [BCCI] branch bank manager" and a "major" BCCI customer, was involved "in an effort to sell enriched uranium from South Africa to the Middle East." In each case, arms dealers obtained export licenses under the pretext of shipping arms to a given country. But the arms would never arrive at their official destination. Instead using a system of dummy corporations and secret bank accounts at unregulated offshore havens, the dealers were able to illegally ship the materials to their real destination. So far, the "Washington Post" has been the only major paper to explain that the "global banking system ... makes it relatively easy to finance cross-borders smuggling of sensitive nuclear technology." This is partly because "international banks ... are under no obligation to check whether the materials being transported are legal." BCCI AND THE CIA: More importantly, very few media reports have put BCCI's arms sales in a larger context of American foreign policy and covert operations. The congressional Iran-Contra committee noted that then-CIA director William Casey "wanted to establish an offshore entity capable of conducting operations in furtherance of U.S. foreign policy that was `stand-alone'--financially independent of appropriated funds, and, in turn, congressional oversight." Like the transnational corporations that created the offshore financial world to avoid government control, the CIA was able to use BCCI and the offshore financial system to set up its own unregulated, private, foreign-policy apparatus. In this way, it could ignore Congress, which had outlawed aid to the White House- backed Nicarguan Contra rebels, and public opinion, which was opposed to U.S. military intervention in the region. Countries that agreed to cooperate with this "secret government"--including Panama, Israel, Saudi Arabia and other Gulf states--received billions in U.S. aid and arms during the '80s. Arms dealers and banks like BCCI profited from the deals by charging huge fees and by receiving official protection for some of their illegal operations, such as drug smuggling. BCCI's history, structure and expertise made it a perfect vehicle for the secret government's covert operations. Set up as an offshore bank, BCCI operated out of unregulated financial havens where covert operations could be easily hidden. Like many other corrupt Third-World elites, BCCI's shareholders also had a long history of ties to Western arms dealers and intelligence agencies. Panama's Manuel Noriega was an important figure in the secret scheme to illegally fund the Contras. Jose Blandon, a former Noriega aide, claims that the CIA advised Noriega to use BCCI as his bank. Various published sources say that the CIA was depositing as much as $200000 a year in Noriega's account at BCCI. Noriega, in turn, helped Oliver North set up dummy corporations and secret bank accounts that were used to finance the Contras. Israel also played a key role. Israel shipped Noriega more than $500000000 worth of arms during the '80s, supplied the Contras with guns and helped sell weapons to Iran in the Iran-Contra affair. BCCI is known to have worked with Israeli officials on several arms deals during this period. The bank also provided financing for a number of arms shipments to Iran in the Iran- Contra affair. Another country that acted as a CIA proxy in Iran-Contra was Saudi Arabia, which gave the Contras at least $22000000 . The Saudis also provided CIA-supported rebels fighting the Soviet-backed Afghan government with about half of their funds. BCCI's longstanding ties to Pakistan's military and to the Saudi royal family made the bank a logical choice to funnel CIA aid in Afghanistan. Recently, Pakistan's finance minister, Sartaj Aziz, told the "Financial Times" that BCCI was used by the CIA to direct arms and money to the Afghanistan rebels. The official also said that U.S. intelligence agencies had set up a slush fund for Pakistani military leaders who helped the Afghan resistance. During the same interview, the finance minister claimed drug traffickers in the region had used BCCI to launder profits from sales of heroin. Furthermore, it's clear that the Afghan rebels sold drugs to buy arms. ("We i must grow and sell opium to fight our holy war," a rebel commander once told the "New York Times.") And the CIA may have been involved. "In These Times" has learned that government investigators are probing allegations that one CIA official supervised the BCCI-financed shipment of drugs and arms through Pakistan. BANKING ON WAR: But getting rid of BCCI won't hinder those government officials who, like William Casey and Oliver North, are determined to undermine American democracy. It's important to remember that the CIA has used banks like BCCI for decades. During the '60s, '70s and '80s, for example, the CIA laundered money for coups and covert operations through the Castle Bank in the Bahamas, the World Finance Corporation in Florida and the Nugan Hand Bank of Australia. Like BCCI, these banks had ties to organized crime figures, drug dealers and spies. Like BCCI, they all had links to American banking and S&L scandals. And like BCCI, fraud and speculative investments by top executives forced all three banks out of business. More recently, the CIA had ties with 22 failed thrifts that loaned money to people involved in "gun running, drug smuggling, money laundering and covert aid to the Nicaraguan Contras," according to the "Houston Post." Over time, the booming CIA-backed arms trade has produced big profits for arms dealers and banks like BCCI. But these black- market sales have also touched off a terrifying arms race in the Third World. Consider, for example, the role that BCCI and many other banks played in a secret operation to build up Saddam Hussein's military might. Last summer, a joint investigation by ABC's "Nightline" and the "Financial Times" concluded that "Robert Gates was deeply involved as deputy director of the CIA in a major covert operation that funneled weapons and technology to Iraq. ... The CIA's covert shipments put into Saddam Hussein's hand some of the most dangerous battlefield weapons in the world." To carry out these shipments, Gates--now the CIA director- designate--allegedly met with Carlos Cardoen, the head of Industrias Cardoen. This Chilean company, which was the largest private supplier of weapons to Iraq, shipped more than $500000000 worth of weapons to Iraq in the '80s (see "In These Times," April 17 and Oct. 9). Industrias Cardoen is licensed to build and ship high-tech artillery guns created by arms dealer Gerald Bull and ArmsCor, an arms manufacturer owned by the South African government. In 1990, Gerald Bull was assassinated, allegedly by Israeli agents because he was working with Saddam Hussein to build a "supergun" capable of firing nuclear and chemical weapons. Bull, an expert on advanced artillery, had a long history of illegal arms sales. In the late '70s, a congressional staff report found that Bull had conspired with CIA agents to break the U.S. arms embargo against South Africa by shipping technology that allowed ArmsCor to develop sophisticated artillery guns. In 1990, the Inter Press news service reported that over 200 of these guns had been sold by Cardoen and ArmsCor to Iraq. At least 50 to 70 had been sold to the United Arab Emirates, which is headed by BCCI's largest shareholder. BCCI enters this affair in two ways. In August, Britain's "Independent" newspaper alleged that BCCI had helped Bull's company, Space Research, smuggle propellant for Hussein's supergun from Belgium to Iraq. The story, largely ignored in the United States, also reported that "a former deputy prime minister [Andre Cools] of Belgium was killed days after being given BCCI bank statements alleging bribes were paid to beat the arms embargo" to Iraq. BCCI also loaned at least $72000000 to the Atlanta branch of the Banca Nazionale del Lavoro (BNL)--Italy's largest bank. This BNL branch loaned Iraq over $4000000000 between 1985 and 1989 and provided financial services that allowed Hussein to illegally buy hundreds of millions of dollars worth of arms and military supplies. The BNL branch didn't have enough money to take on such large loans, so it illegally financed them by borrowing money from banks like BCCI. The House Banking Committee says that Bull's Space Research Corporation was one of the companies that received illegal financing from BNL for Iraq's weapons program. Such deals helped keep Hussein in power and dramatically increased the political tensions throughout the Mideast. Confident that the arms would keep flowing, Hussein invaded Iran in 1980 and Kuwait a decade later--conflicts that cost more than a million lives. But in providing financial services to Saddam Hussein, BCCI was not alone. In the BNL affair, for example, Bank of America transferred $72000000 between BCCI and BNL. J.P. Morgan, a major New York bank, acted as a clearing agent for BNL in the loans to Iraq. And many large European corporations provided the technology and weapons. A WHITEWASH? Fraud at BCCI burst into the headlines when bank regulators around the world shut down the bank this past July. But like the S&L scandal--which wasn't discovered by the mainstream media until hundreds of billions of dollars had been lost--warning bells at BCCI had been going off for well over a decade. As early as the late '70s, British and American regulators were so worried about the bank's operations that they denied BCCI key regulatory licenses to expand its operations. Yet BCCI marched on, illegally buying American banks and stealing deposits to cover its huge losses. Meanwhile, the Reagan and Bush administrations actively obstructed a congressional investigation of the scandal. A Senate subcommittee chaired by Sen. John Kerry (D-MA) has been investigating BCCI for several years. From the start, the subcommittee encountered resistance from the administration. For example, the Justice Department ordered key witnesses not to cooperate with Kerry. The department also refused to produce documents subpoenaed by the subcommittee. But these machinations are only part of a much larger political scandal--the growing political power of financial institutions over every aspect of the American political system. Over the past decade, securities firms, major banks, insurance companies and other financial institutions have given more money to Congress than any other industry. For example, the Center for Responsive Politics estimates that in the 1988 election, political action committees (PACs) for the finance, insurance and real-estate industries gave over $27000000 to congressional candidates. That's about 26% of all business PAC contributions. Common Cause estimates that between 1983 and 1988, the S&L industry gave $11600000 to Congress and party committees. Despite a decade of financial scandals, this well-oiled lobbying machine has defeated every major attempt to enact tough new U.S. regulations over the financial system. In BCCI's case, the result has been a better cover-up than anything Oliver North ever concocted. Washington's inaction has allowed BCCI to continue exploiting an obsolete U.S. regulatory system that was set up in the Some reforms may yet come out of the BCCI scandal--but Congress and the White House show little interest in fundamental change. In fact, the mood in Washington is for more deregulation, not less. Sometime this year or next year, Congress is likely to pass White House-sanctioned legislation that will further deregulate the banking and financial industry (see "In These Times," Oct. 2). This legislation, which gives banks new freedom to buy insurance companies and set up shop on Wall Street, is designed to help American banks compete in the international financial system. But by reducing government control, the legislation would simply give multinational corporations more power over the world's economy. Bringing these corporations under control won't be easy. Congress could pass laws putting banks out of business if they launder criminal money, and it could impose tough economic sanctions on offshore havens that refuse to cooperate with U.S. regulations and investigations. But tough U.S. laws might simply convince financial institutions to move their operations overseas, putting many Americans out of work and making it harder to finance this country's chronic government deficits. It took a group of regulators from five major capitalist companies to shut down BCCI this past summer. It will take many countries, acting together, to bring the system that created BCCI under control. Given the current political climate, that is unlikely. George Winslow is a New York City freelance writer who regularly covers white-collar crime and international finance. -- daveus rattus yer friendly neighborhood ratman KOYAANISQATSI ko.yan.nis.qatsi (from the Hopi Language) n. 1. crazy life. 2. life in turmoil. 3. life out of balance. 4. life disintegrating. 5. a state of life that calls for another way of living.