The following is part one of a two-part series on BCCI that recently appeared in +quot;In
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.
E-Mail Fredric L. Rice / The Skeptic Tank