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Article 1577 of misc.activism.progressive:
From: dave@ratmandu.corp.sgi.com (dave "who can do? ratmandu!" ratcliffe)
Newsgroups: misc.activism.progressive
Subject: will BCCI happen again? bank on it. (part 1 of 2)
Message-ID: <1991Nov23.064309.14321@pencil.cs.missouri.edu>
Date: 23 Nov 91 06:43:09 GMT
Sender: rich@pencil.cs.missouri.edu (Rich Winkel)
Followup-To: alt.activism.d
Organization: PACH
Lines: 586
Approved: map@pencil.cs.missouri.edu
The following is part one of a two-part series on BCCI
that recently appeared in "In These Times".
Reprinted with permission of "In These Times."
During World War II the United States had emerged as the globe's
dominant economic and military power. In 1944, the Bretton Woods
agreement established a system of fixed exchange rates based on
the dollar ....
By 1971, however, U.S. corporations had lost their competitive
edge to Japan and the U.S. military had wasted hundreds of
billions of dollars in Vietnam. Nixon's decision to devalue the
dollar and effectively end the Bretton Woods agreement on fixed
exchange rates simply recognized the inevitable--the United States
no longer ruled the world ....
By the start of the '90s, BCCI and other banks that operated out
of the offshore financial havens played key roles in the new
economic order dominated by multinational corporations. As the
United States learned when it was forced to end fixed exchange
rates, the new global economic system was too powerful for any one
government to control. For BCCI, as well as for international
criminal elements, this was a dream come true.
from the October 23-29, 1991 issue of "IN THESE TIMES":
----------------------------------------------------------------------
BCCI THE BIG PICTURE
A system out of control, not just one bank
By George Winslow
This is the first story in a two-part "In These Times" investigation
into the broader economic implication of the BCCI affair.
IN THE EARLY `80S, PAKISTANI IMMIGRANT AZIZ Rehman was overjoyed
to find a job in one of the world's fastest growing banks, the
Bank of Credit and Commerce International (BCCI). The pay was
good and the perks were even better. His employer gave him a
lavish expense account to entertain foreign diplomats--and he got
to meet people like Jeb Bush, the U.S. vice president's son.
But Rehman soon discovered that international finance had a less
glamorous side. Often, he had to lug heavy suitcases filled with
cash through the sweltering Miami heat. During the day, he
worried about being robbed; at night, he wondered about the
bank's strange way of doing business. Bank executives told Rehman
the bags of cash were from a BCCI branch in the Bahamas. But
Rehman knew they were lying. The branch office didn't exist.
Years later, it s clear that BCCI has misplaced a lot more than
a bank office. On July 5 1991, bank regulators from several
nations shut down BCCI, charging that top executives had lost or
stolen as much as $15 billion worth of deposits.
Since then, the BCCI affair has exploded into the biggest
financial scandal of the `90s. A barrage of press reports have
detailed BCCI's involvement with drug dealers, CIA operators,
corrupt dictators and sleazy arms dealers. Even CIA officials
have been quoted as calling BCCI "the Bank of Crooks and Criminals
International."
Unfortunately, the mainstream media has largely ignored a much
bigger scandal--a revolution in the global economy that has
produced many banks just like BCCI. This revolution has caused a
terrifying cycle of poverty, drug addiction and financial fraud
around the world. Like the toxic waste given off by a chemical
factory, BCCI is simply a noxious byproduct of a global economy
based on profits and high finance, not human needs.
HUMBLE BEGINNINGS: The economic context of the BCCI scandal
begins with socialism and ends with the creation of a kind of
capitalist utopia.
In 1972, BCCI's founder, Agha Hasan Abedi, was under house
arrest in Pakistan. A socialist government had nationalized
Abedi's United Bank and was investigating allegations of fraud at
the institution. But as police guarded his house, Abedi was
already meeting with some of his powerful friends, plotting the
creation of a new bank, BCCI.
This bank, Abedi liked to say, would be the world's first
"genuinely global bank." Bank of America--then the world's
largest bank--was trying to expand its international division.
The huge U.S. bank was the first investor to jump on board. Bank
of America put up only $2.5 million to acquire a 25 percent stake
in BCCI, but its involvement helped Abedi get investment capital
from powerful Third-World leaders and financiers. One early
investor was Sheik Zayed Bin Sultan al-Nahyan, ruler of oil-rich
Abu Dhabi. Other major investors would eventually include Kamal
Adham, former chief of Saudi Arabia's intelligence service; the
bin Mahfouz family, which also controls Saudi Arabia's largest
bank; and other rulers from the United Arab Emirates.
BCCI went into operation with only $10 million in capital, but
Abedi's timing was perfect. Over the next 18 years, BCCI would
grow by leaps and bounds. By no coincidence, so would the
international financial system. In 1970, only about $60 billion
moved through the international financial system each day. Today
more than $2 trillion worth of stocks bonds and currencies cross
national borders--a 3,200 percent increase. BCCI took full
advantage of this growth. By early 1990, it had grown into a $21
billion bank with 425 branches in over 75 countries that served
1.2 million customers.
UNCLE SAM'S FALL: A dramatic period of political and economic
disorder produced the global economic revolution that allowed BCCI
to thrive. One year before BCCI was founded, President Richard
Nixon announced that the United States would devalue the dollar,
effectively ending the American government's control over the
international financial system.
During World War II the United States had emerged as the globe's
dominant economic and military power. In 1944, the Bretton Woods
agreement established a system of fixed exchange rates based on
the dollar. By making the dollar the equivalent of gold in world
trade, U.S. economic policies became the world's economic
policies. Washington could print dollars to finance the Marshall
Plan in Europe and other programs designed to open up markets to
American corporations. And it could mint money to build up
America's military establishment--which, in turn, protected U.S.
investments in other countries. It was a "free world based on the
dollar and backed by the atomic bomb," according to Richard Barnet
and Ronald Muller, authors of "The Global Reach: The Power of
Multinational Corporations."
By 1971, however, U.S. corporations had lost their competitive
edge to Japan and the U.S. military had wasted hundreds of
billions of dollars in Vietnam. Nixon's decision to devalue the
dollar and effectively end the Bretton Woods agreement on fixed
exchange rates simply recognized the inevitable--the United States
no longer ruled the world.
A NEW KING: Assuming the U.S. government's throne, huge
multinational corporations had become the world's new imperial
power. American foreign investments jumped from $29.1 billion in
1955 to $120 billion in 1970 and $373 billion in 1989. Foreign
investments by every country in the world grew nearly tenfold from
$112.3 billion in 1967 to $1,023 billion in 1987.
U.S. banks also expanded their international operations to
provide financial services to their blue-chip clients. In 1965,
only 20 U.S. banks with 112 branches had set up shop overseas. By
1988, 132 American banks had 849 foreign branches, holding a total
of more than $275 billion in assets.
BCCI was quick to establish a relationship with many of the U.S.
banks that had expanded overseas in the '70s. A confidential
internal BCCI study, obtained by "In These Times," illustrates
just how many U.S. banks had close financial relationships with
BCCI. The 1985 study notes that for all of 1984, BCCI transferred
foreign currencies worth $37.5 billion through American banks.
Most of these foreign currency transfers, $19 billion, involved
five major American banks: Bank of America, Security Pacific,
American Express Bank Ltd., the Bank of New York and First
Chicago.
The BCCI study also shows that on an average working day in
1984, BCCI conducted 1,434 transactions involving $2.7 billion
with the five banks. Most of those transactions (700 in all,
worth $1.7 billion) involved Bank of America--even though Bank of
America had sold its stake in BCCI in 1980.
CAPITALIST UTOPIAS: The rapid growth of the global economy also
produced dramatic changes in the very structure of the
international economic system. Massive military expenditures from
Vietnam--along with increased imports--caused billions of dollars
to flow out of the United States. In the '60s, banks began
loaning these dollars--called "Eurodollars" because they were
often held in European banks--to corporations, thus creating the
world's first unregulated, international financial market. In
1963, only about $148 million worth of bonds or loans were issued
in the Eurodollar market. By 1988 over $721 billion worth of
securities and loans were made in the market.
Most Eurodollar trading occurs in what are known as offshore
havens. Typically these havens--located in places like Panama,
Hong Kong and the Bahamas--operate as a kind of capitalist utopia
for transnational corporations. Strict bank-secrecy laws protect
depositors from the prying eyes of tax collectors or foreign
investigators. Lax local regulations allow foreign banks to carry
on many activities--such as selling stocks and bonds--that may be
illegal or tightly regulated in their home countries. More
importantly, taxes are virtually non-existent.
Today, offshore havens manage over $5 trillion worth of assets-
-nearly the size of the U.S. gross national product for 1990. But
before the rise of the Eurodollar market, many of these havens
didn't exist or played only a minor role in international finance.
The Cayman Islands, for example, didn't set up shop as an offshore
center until the mid-'60s. But by 1990, the Caribbean nation was
home to over 500 banks from all over the world--including 46 of
the 50 largest--holding over $250 billion in assets.
BCCI was one of the banks that most profited from the rise of
offshore finance. It capitalized by setting up its headquarters
in Luxembourg, an offshore haven, and by establishing subsidiaries
in dozens of other havens. By 1990, for example, its Cayman
Islands subsidiary held over $7.5 billion worth of assets.
By the start of the '90s, BCCI and other banks that operated out
of the offshore financial havens played key roles in the new
economic order dominated by multinational corporations. As the
United States learned when it was forced to end fixed exchange
rates, the new global economic system was too powerful for any one
government to control. For BCCI, as well as for international
criminal elements, this was a dream come true.
PEEKABOO FINANCE: From the start, BCCI understood the beauty of
offshore finance. Operating out of regulation-free havens, BCCI
was able to embark on what international investigators have called
"the most complex deception in banking history." To hide the fact
that BCCI "may never have been profitable in its entire history,"
BCCI's auditors say that top executives used the offshore system
to set up "a massive and complex web of fictitious transactions."
Over a 15-year period, BCCI shuffled nearly $15 billion through
over 750 accounts. For example, after losing an astonishing $849
million speculating in U.S. Treasury bonds between 1979 and 1986,
BCCI executives simply parked the losses in its Cayman Islands
subsidiary, where bank regulators wouldn't find them. Then it
illegally shuffled new deposits through various havens to make it
look as if hundreds of millions of dollars worth of loans to BCCI
executives and large shareholders were being repaid. In fact,
they weren't. As Rep. Charles Schumer (D-NY) recently stated,
"BCCI fell between the international cracks."
These cracks are beginning to look more and more like canyons.
Law-enforcement experts say that offshore banks provide essential
financial services for many of the world's most profitable crimes,
including the drug business (in which $300 billion is laundered
worldwide each year, according to the State Department), tax fraud
(which, according to the Internal Revenue Service, totals $100
billion a year in the United States alone) and securities fraud
(which adds up to $10 billion annually in the United States,
according to a recent private study). Offshore banking also aids
the Mafia (which launders over $70 billion annually, according to
the FBI) and black-market arms traffickers. (Offshore bank
accounts were used in the Iran-contra affair, illegal arms sales
to Iraq and several recent illegal sales of technology used to
make nuclear bombs.) Furthermore, Sen. John Kerry (D-MA)
contends that "billions" looted from U.S. savings-and-loans ended
up in secret offshore accounts. Such accounts were also used by
the perpetrators of Watergate, as well as the recent scandals at
the Department of Housing and Urban Development and at the
Pentagon.
As a full-service bank, BCCI diversified into almost all of
these criminal activities. But before exploring its role as a
"Bank of Crooks and Criminals International," it's worth
remembering that some of BCCI's largest crimes were quite legal--
at least in the context of the lawless offshore financial system.
A FREE LUNCH: Consider, for example, taxes. While Aziz Rehman
was carrying large bags of cash around Miami for BCCI, he noticed
that many of the bank's clients weren't interested in drugs or
arms or weird CIA plots. They simply wanted to avoid taxes. In
one case--uncovered by the U.S. Senate Subcommittee on Terrorism,
Narcotics and International Operations, which is headed by Sen.
Kerry--Modern Health Care had BCCI wire $20 million into an
account in the Caribbean.
"They got interest over there, and they never showed that
interest into the United States [for tax purposes]," Rehman
remembers. "That's why people deposit outside the United States.
But BCCI is by no means the only bank that has been involved in
tax fraud. Using offshore havens to avoid the IRS has become
standard operating procedure for many financial institutions. In
the mid-'70s, for example, while New York City was going broke and
drastically cutting social services, city officials charged that
Citibank had used offshore havens to avoid over $30 million in
taxes. In this case, Citibank created a series of fictitious
transactions that made it look as if its subsidiaries in America
and Europe were losing money. Then, the profits were recorded in
subsidiaries located in offshore havens. (A Reagan appointee to
the Securities and Exchange Commission eventually dropped charges
against the bank, explaining that he did "not subscribe to the
theory that a company that violates tax and exchange-control
regulations is a bad corporation.")
Foreign corporations have also used the offshore system to avoid
paying U.S. taxes. For example, the IRS claims that foreign
multinational corporations operating in the United States avoided
between $13 billion and $30 billion worth of U.S. taxes in the
'80s.
The issue of tax fraud in the BCCI scandal has been virtually
ignored by the mainstream media, but it has had a horrifying
effect on the quality of life in America. Over time, the ability
of banks like BCCI to help corporations avoid taxes, has left a
big hole in local, state and federal budgets.
In 1950, when offshore finance and multinational production
didn't play a very important role in the world's economy, U.S.
corporations paid 26 percent of all state, local and federal
taxes. But by 1990, their share had dropped to only 8 percent.
Of course, offshore banking wasn't the only reason for this
decline--but it certainly helped. If U.S. corporations still paid
26 percent of all taxes, they would have paid an extra $329
billion in 1990 alone. This number is worth remembering when
people talk about BCCI as simply a case of bank fraud, far removed
from problems like poverty, bad schools or potholes.
------------------------------------------------------------------
| `Bank of Crooks and Criminals International' had |
| links to U.S. intelligence and Third World tyrants |
| |
| It's no wonder the Bank of Credit and Commerce |
| International (BCCI) is enmeshed in one of the |
| biggest financial scandals of the 20th century. A |
| list of BCCI's shareholders reads like a who's who of |
| corrupt Third-World elites. Most of them have a long |
| history of involvement in major arms deals or |
| corporate bribery scams. In addition, several key |
| BCCI insiders have extensive ties to Western |
| intelligence agencies. |
| These same figures helped loot the bank, receiving |
| hundreds of millions of dollars worth of loans that |
| were never repaid. |
| One major shareholder and a front man for BCCI's |
| illegal purchases of various American banks-- |
| including First American Bankshares in Washington, |
| D.C.--was Sheikh Kamal Adham, the brother-in-law of |
| the late Saudi King Faisal. During the `60s and |
| `70s, Kamal ran the Saudi equivalent of the FBI and |
| CIA. And like many members of the Saudi ruling |
| family, he often demanded commissions (a polite way |
| of saying bribe) from multinational corporations |
| operating around the mideast. |
| In the `50s and `60s, Kamal accepted kickbacks from |
| the Japanese in return for cheap oil. He also took |
| commissions for arms deals set up for Northrup and |
| two other U.S. arms dealers. In the '70s, according |
| to the "Wall Street Journal," he was paid "many |
| millions of dollars in commission" by Boeing to |
| persuade the Egyptians to buy its planes. |
| Besides his extensive ties to the U.S. arms |
| industry, Kamal maintained close ties to Western |
| intelligence agencies. In 1977, the "Washington |
| Post" described Kamal as the CIA's "liason man" in |
| the region and noted that Kamal had hired former CIA |
| station chief Raymond Close as an adviser. In the |
| late `60s, Kamal acted as the CIA's intermediary to |
| funnel payments to Anwar Sadat while Sadat was vice |
| president of Egypt. According to Larry Gurwin's 1990 |
| article in the business magazine "Regardie's," Kamal |
| channeled hundreds of millions of dollars to Egypt |
| after Sadat took power. These funds convinced Sadat |
| to expel Soviet military advisers in 1973 and to |
| establish a closer relationship with the United |
| States. |
| In Kamal's years as the head of Saudi intelligence, |
| he was responsible for a number of human rights |
| abuses, including torture and executions of political |
| opponents. Internal BCCI documents show that Kamal |
| received over $313 million in loans from BCCI, most |
| of which have not been repaid. |
| Other one-time BCCI shareholders with close |
| connections to the CIA and the Western arms industry |
| include Iran's now-ousted ruling family. Shah |
| Mohammed Reza Pahlevi, whose family held stock in |
| BCCI as late as 1978, was installed in power in 1953 |
| by a CIA-backed coup against Mohammed Mossadeq, who |
| had nationalized American oil companies. In the |
| `70s, before he was overthrown, the Shah purchased |
| billions of dollars worth of arms from American |
| companies. |
| Kuwaiti businessman Faisal Saud al Fulajj was a |
| small BCCI shareholder. According to the "Wall |
| Street Journal," he accepted over $300,000 in bribes |
| from Boeing while he was head of the Kuwait Airlines. |
| Fulajj was also one of seven men who received $47 |
| million in bribes to illegally act as a frontman for |
| BCCI's illegal and secret purchases of various |
| American banks, including First American. |
| Mohammed Irvani was another frontman with ties to |
| Western intelligence. He set up a consulting firm |
| with former CIA director Richard Helms in 1977. |
| Ali Mohammed Shorafa was a small BCCI shareholder |
| and yet another frontman in the First American |
| affair. According to columnist Jack Anderson and |
| "Regardie's" magazine, Shorafa financed a company |
| that received an exclusive contract to ship U.S. arms |
| to Egypt right after the Camp David accords. |
| Internal BCCI documents show that BCCI gave Fulajj at |
| least $113 million in loans and Shorafa $123 million |
| in loans. |
| Agha Hasan Abedi, BCCI's founder, kept close ties |
| to Pakistani military and intelligence officials. |
| Abedi hired a number of bank officials with links to |
| the Pakistani military or intelligence services. The |
| "Financial Times" of London has reported that the CIA |
| used BCCI to funnel payments to the Pakistani |
| military. Recently, the "Wall Street Journal |
| reported that one top Pakistani official who refused |
| to extradite Abedi to the United States to face |
| charges of fraud and larceny, "had received (from |
| BCCI) a monthly stipend, free travel, a home loan and |
| an expensive automobile." |
| Abedi was so close to Pakistani Dictator Zia al- |
| Haq, that Zia rushed to Abedi's bedside when the |
| banker had a heart attack. Zia's term in office |
| produced massive human rights violations and |
| continual allegations that top Kaistani officials |
| were involved in the lucrative heroin trade. Zia |
| overthrew the democratically elected government of |
| Zulfikav Ali Bhutto and executed Bhutto. |
| The U.S. government rewarded Zia's support for the |
| Afghan rebels with $2.1 billion worth of U.S. Agency |
| for International Development grants and hundreds of |
| millions of dollars in military aid. |
| The bin Mahfouz family--which owns Saudi Arabia's |
| largest bank--sold its 20 percent stake in BCCI in |
| 1990. The family also has a long history of |
| corruption and financial fraud. In the late `70s, |
| for example, the family teamed up with the Hunt |
| brothers, infamous Texas oil barons, in an illegal |
| attempt to manipulate the price of silver by |
| cornering the world silver market. The operation |
| nearly touched off a worldwide financial panic before |
| it was halted by U.S. regulators. More recently, the |
| bin Mahfouz family used BCCI as a private piggy bank, |
| receiving over $176 million in unsecured loans from |
| the bank. |
| Sheikh Zayed bin Sultan al-Nahyan, the ruler of Abu |
| Dhabi and head of the United Arab Emirates us BCCI's |
| largest shareholder. He rose to power in 1966 when |
| the British encouraged him to overthrow his brother, |
| Sheikh Shakbut, who provoked widespread unrest by |
| refusing to spend his oil revenues on various |
| development schemes. (Shakbut once justified his |
| policies by saying the oil companies needed the money |
| more than the citizens of his country did.) |
| Sheik Zayed proved to be the more enlightened |
| ruler, spending billions to establish a social |
| welfare state for the citizens of Abu Dhabi. But he |
| still treats Abu Dhabi's oil revenues (about $1 |
| billion a month) as personal income, using it to |
| build lavish mansions around the world. As a staunch |
| U.S. ally, he has spent billions on U.S. and European |
| arms. President Bush recently asked Congress to |
| approve another $648 million U.S. arms deal as a |
| reward for Sheik Zayed's staunch support for the U.S. |
| during the Iraq war. |
------------------------------------------------------------------
LOOTING THE THIRD WORLD: During the '80s, Americans weren't the
only ones faced with cuts in social services and declining
standards of living. Between 1980 and 1985, average incomes in
Latin America fell by 9 percent. Some heavily indebted countries
like Argentina (where incomes dropped 17.7 percent) and Bolivia
(down 29.4 percent) fared even worse.
But, as the average Latin American suffered, wealthy elites used
banks like BCCI to take hundreds of billions of dollars out of
their homelands. Court documents and Senate hearings show that
Panama's Manuel Noriega, Iraq's Saddam Hussein, the Philippines'
Ferdinand Marcos, Haiti's Jean-Claude Duvalier and other dictators
used BCCI to steal billions of dollars from native countries. The
BCCI affair illustrates how large multinational corporations have
established close financial and political ties with corrupt
Third-World elites, who used Western arms sales, political
repression and the CIA to maintain their power (see accompanying
story in box).
But in going after the capital-flight business, BCCI wasn't
doing anything out of the ordinary. Estimates of how much money
has been moved out of Third-World countries vary, but all of them
are alarming. Morgan Guarantee Trust, a U.S. financial
institution, estimates that local elites transferred over $200
billion out of the Third-World into the Western financial system
between 1975 and 1985. Other researchers have produced estimates
as high as $660 billion--equal to about half of all outstanding
Third-World debts. Morgan Guarantee notes that the ten most-
heavily indebted Latin American countries borrowed $375 billion
between 1975 and 1985. During that time, an amount equal to about
half of that borrowed money was siphoned out of these countries by
capital flight. Venezuela, for example borrowed $36 billion, but
had $41 billion leave the country.
BCCI'S PALS IN HIGH PLACES: Such huge debts have left many
Third-World countries dependent on the International Monetary
Fund, the World Bank, the U.S. government and various other
international development bodies. But these bodies have promoted
Third-World development strategies that stress foreign
investment--thus increasing the power of multinational
corporations. BCCI was one of the primary beneficiaries of such
policies.
The IMF, the World Bank and the U.S. government have supported a
number of projects to establish offshore havens. BCCI's most
notorious money-laundering operation occurred in Panama, where one
BCCI official says he acted as Manuel Noriega's "personal banker."
This, of course, wouldn't have been possible if a U.S. Agency for
International Development official hadn't helped Panama set up an
offshore haven in 1970.
BCCI also had large operations in virtually every Caribbean
offshore haven--and it established close ties to many Caribbean
governments. Internal BCCI documents show that the bank received
large deposits from virtually every central bank in the Caribbean
and from the Caribbean Development Bank (CDB), a regional lending
institution that is heavily funded by the United States. The CDB
has provided many loans to Caribbean countries who wanted to set
up tax-free industrial havens for multinational corporations.
But ties between BCCI and development agencies went far beyond
general policy discussions and the creation of offshore havens.
The "Wall Street Journal" noted recently that "[t]he U.S.
government was one of BCCI's biggest customers in Cameroon, with
$10 million in U.S. Agency for International Development accounts.
That is equal to about 5 percent of BCCI Cameroon's published
assets."
More importantly, "In These Times" has learned that the IMF
contacted officials at central banks in Brazil, Argentina and
Uruguay about BCCI's expansion into Latin America. The IMF also
gave BCCI advice on how the bank could expand its operations in
Bolivia, Chile, Peru, Colombia, Ecuador, Mexico and Venezuela.
The IMF further suggested that BCCI might get deposits from
central banks in Latin America if it established correspondent
bank relationships with these banks. (Correspondent banks provide
various financial services for each other, such as taking deposits
and wire transfers.) After it followed that advice, BCCI
eventually established banking relationships with central banks in
at least 30 countries around the world. Because of BCCI's
financial troubles, many of these banks may lose a large share of
the money they deposited with BCCI. One former World Bank and IMF
official has already been indicted by Peruvian officials for his
role in having Peru's central bank reserves deposited at BCCI.
BCCI put together other deals that involved the World Bank and
the IMF. According to "Time" magazine, BCCI intervened in a
dispute between the IMF and Jamaica over the country's inability
to pay its mounting debts. BCCI brokered a deal with the-lMF in
which BCCI agreed to provide a new $48 million loan to Jamaica.
Soon thereafter, Jamaica's central bank agreed to make large
deposits with BCCI.
One BCCI employee, Amjad Awan, also told Kerry subcommittee
investigators that the World Bank suggested BCCI provide a loan to
Bolivia. After BCCI provided the loan, which was guaranteed by
the World Bank, Bolivia's central bank began depositing money in
BCCI.
IN THE RED: Ironically, as the IMF and the World Bank were using
BCCI to help solve the debt crisis in several countries, BCCI was
engaging in a number of illegal transactions that actually
increased the debt various Third-World countries were paying.
Jack Blum, a former counsel for the Kerry subcommittee, claims
that BCCI became very active in "the business of brokering Third-
World debt." Many of these debts, which were in arrears, were
nearly worthless or were being sold by banks for about 20 cents on
the dollar to outside investors. Blum says that these investors
would contact BCCI, which would intervene with a Third-World
government. Under a scheme promoted by the IMF, the World Bank
and the United States, many governments would agree to pay back
all of the debt (not just the 20 percent that the investor had
paid for it), if the debt-purchaser would invest the money in the
debtor country or use the money to buy a company the country's
government was trying to sell.
But according to Blum, many investors made huge profits while
investing very little in Third-World nations. An example of such
a transaction can be found in Argentina. In the late '80s, BCCI
bought Argentinian debt for an unknown discount, then had the
Argentinian government redeem it at full value. It's unclear how
much BCCI paid for the Argentinian debt, which currently sells for
79 cents on the dollar. Assuming BCCI bought the debt at the
current rate (which is a very conservative guess), the bank would
have paid only $30 million for $38 million of debt, producing a
quick $8 million profit.
To hold up the bank's end of the deal, BCCI frontman Ghaith
Pharoan then agreed to invest $38 million in a hotel and farm in
Argentina. But according to the "New York Times," Pharoan only
invested about $10 million. Assuming, conservatively, BCCI made
an $8 million windfall on the deal, the bank, in effect, purchased
a $10 million hotel for $2 million. Argentina, on the other hand,
spent $38 million to redeem its debt and received only $2 million
in new investment money.
Jack Blum laid out BCCI's illegal Third-World debt operations in
an August 1991 testimony before the Kerry committee. The debt
scam, Blum pointed out, "is a very major business. I think it
runs to billions of dollars."
Yet, like many of the other multibillion-dollar economic scams
covered by this article, Blum's testimony attracted virtually no
press attention. Once again, the mainstream media's lack of
interest in larger economic issues led it to ignore a scandal that
has impoverished many Third-World countries.
BCCI is not the first scandal of its kind. In the early `80s,
the Vatican bank scandal produced widespread calls for a tougher
system of international bank regulations. But nothing was done.
As prosecutors sift through the wreakage of the BCCI affair,
banks like BCCI continue to use offshore havens to help
multinational corporations avoid taxes, and to aid corrupt Third-
World leaders in looting their countries. The international
financial system still operates outside the control of any real
government authority. BCCI will happen again.
George Winslow is a New York City freelance writer who regularly
covers white-collar crime and international finance.
In Part II, "In These Times" shows 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.
--
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.
Article 1633 of misc.activism.progressive:
From: dave@ratmandu.corp.sgi.com (dave "who can do? ratmandu!" ratcliffe)
Newsgroups: misc.activism.progressive
Subject: will BCCI happen again? bank on it. (part 2 of 2)
Message-ID: <1991Dec5.000939.15744@pencil.cs.missouri.edu>
Date: 5 Dec 91 00:09:39 GMT
Sender: rich@pencil.cs.missouri.edu (Rich Winkel)
Followup-To: alt.activism.d
Organization: PACH
Lines: 613
Approved: map@pencil.cs.missouri.edu
The following is part two of a two-part series on BCCI.
Reprinted with permission of "In These Times."
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.
from the October 30-November 5, 1991 issue of "IN THESE TIMES":
----------------------------------------------------------------------
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 $13 million Rubens that he hung in his
opulent estate and insisted that his $7 million 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 percent 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 $122,000 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 $2 billion.
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 $849 million
speculating in U.S. Treasury bonds, BCCI executives had First
American Bankshares (FAB) pay $220 million for Ghaith Pharaon's
shares in National Georgia Bank. According to the "Wall Street
Journal," FAB paid between $20 million to $60 million more than
any other bank was willing to pay. The deal had the effect of
transferring $220 million 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 $182 million in
1990, a rating of "four." Five means the banks is broke and
should be shut down: one is an excellent rating. The $11 billion
bank, which now has $469 million 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 $2.5 billion.
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 $10 billion 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 $150 million worth of
junk bonds to make it appear as if CenTrust had raised more
capital than it actually had.
More importantly, a $6.8 billion 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 $21 million worth of
fines against 44 banks--a small portion of the $50 billion 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 $25 million 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 $100,000 worth of credit-card bills.
Noriega is believed to have laundered at least $90 million 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 $16 million 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 $15
million fine, only a small part of the profits it made from
laundering over $1 billion 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 $4.75 million 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 ($32 million), Republic
National Bank ($185 million), American Express Bank ($11 million),
Citibank ($63 million), and Extebank ($138 million). (BCCI, which
received a $13 million 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 $200,000 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
$500 million 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 $22
million.
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 $500
million 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 $72 million to the Atlanta branch of
the Banca Nazionale del Lavoro (BNL)--Italy's largest bank. This
BNL branch loaned Iraq over $4 billion 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 $72 million 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 $27
million to congressional candidates. That's about 26 percent of
all business PAC contributions. Common Cause estimates that
between 1983 and 1988, the S&L industry gave $11.6 million 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.

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