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) 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 3200 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 $1023 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 1434 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 $300000 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 IMF 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) 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 $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 $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 $100000 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 $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 $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.