Bob Morgenthau was destined to speed up everything
from the day Jack Blum walked into his office. The initial going,
however, was slow and sometimes frustrating. Unraveling a fraud as
byzantine, sophisti cated, and long-standing as that executed by
officials at the Bank of Credit and Commerce presented an enormous
challenge to his office. From the outset, Morgenthau's vision of the
bank was shaped by Jack Blum's description of it as a gigantic Ponzi
scheme.
Over the years, a Ponzi scheme has come to describe
any swindle in which the original investors are paid off with money that
comes from new groups of investors. The phrase originated, however, in a
specific scheme in Boston that began in 1919. That was the year that
Charles Ponzi, an Italian immigrant and convicted forger, formed
Securities Exchange Company and promised customers a fifty percent
return on their investment in forty-five days, double their money in six
months.
Ponzi said he bought International Postal Reply
coupons, a type of international postage, in countries with low exchange
rates. He then claimed to sell the coupons in countries with high
exchange rates, collecting the difference as his profit. He started with
15 customers and $870 and, within six months, had lured nearly 20,000
investors and $10 million into the scheme. The new funds were used to
pay lavish returns to earlier investors and thus persuade more people to
give Ponzi money. Ponzi was a hero in Boston, cheered wherever he went.
In 1920, however, a Boston newspaper disclosed that
Ponzi had never bought the coupons. Instead, he had used the money to
finance his own high living and pay off investors. By the time the hoax
was uncovered, the money was gone. Ponzi served three years in a federal
prison and eventually died a pauper in Brazil.
In the case of BCC I, the original investors were the
Arab backers who bought the first shares in the bank. They were paid off
with loans that they never had to pay back. The funds for the loans came
from the deposits of customers in Third World nations and rich countries
alike. Later, the deposits were used to provide loans to nominee
shareholders as the bank acquired hidden interests in American banks and
to cover the huge expenses of the bank's global expansion. When the bank
sustained massive trading losses in 1985 and its portfolio of loans
soured, more deposits were needed to paper over larger and larger holes
in the balance sheet and maintain the appearance of a profitable
institution.
The peril of a Ponzi scheme for its operators is that
a single tear in the fabric of respectability can bring down the entire
operation. It was desperation to retain the appearance of profitability
that drove the bank to push its employees to gather more and more
deposits.
Sketching the broad outlines of this scheme was far
easier than uncovering the details essential to making a criminal case
out of it. The bank, after all, had been constructed to avoid exactly
the type of scrutiny that would reveal the underlying artifice. And Agha
Hasan Abedi and his crew of executives were far craftier than Charles
Ponzi.
Approaching his seventieth birthday in the spring of
1989, Robert M. Morgenthau was the dean of American district attorneys.
He was the direct successor to such legends as the racket-busting Thomas
Dewey and the upright Frank Hogan. Morgenthau's office walls reflected
three generations of distinguished public service. A plaque from the
American-Armenian Society expressed gratitude for the role of his
grandfather, Henry Morgenthau, Sr., in exposing the Armenian massa cres
of 1915, a task that cost him his position as U.S. ambassador to the
Ottoman Empire. There was an autographed 1928 photograph of Frank lin
Delano Roosevelt, then governor of New York, who had hired Henry
Morgenthau, Jr., as his secretary of the U.S. Treasury Department when
he became president. Next to it hung an autographed draft of an Irving
Berlin ditty advertising war bonds. On an adjoining panel hung a series
of photos commemorating Morgenthau's own service aboard the de stroyer
USS Harry Bauer in World War II.
As district attorney for New York County, Morgenthau
was committed to the war on drugs. His office prosecuted thousands of
drug cases every year. The courts were flooded with pushers and
traffickers and users. Morgenthau had long known that the solution to
the drug problem included attacking the flow of money out of the
country. His office had drawn up the original draft of the federal Bank
Secrecy Act of 1970, which required the currency transaction reports
that formed the basis for the first money-laundering cases. Pursuing
numerous white-collar crimes, Morgenthau had gone after Swiss bank
accounts and tried to pierce secrecy laws in offshore havens worldwide.
Crime in the suites is as important as crime in the streets, he was
found of saying.
So Morgenthau had indeed been predisposed to accept
the challenge of the complicated case when Jack Blum walked through his
door. And the pattern of the BCCI investigation quickly assumed the
shape of countless other white-collar cases in his office.
"Every investigation goes through three
phases," Morgenthau ex plained one day in his office. "In the
first phase, you have allegations and suspicion. You look at the case
and try to understand its merits. Then, you say, 'Hey, I know there is a
case here. Can I prove it?' In the third phase, you're trying to prove
it."
Morgenthau knew a bit about BCCI before Blum arrived.
He had read the thick green report prepared by Kerry's subcommittee a
few months earlier and remembered being struck by Amj ad Awan's
deposition about the bank, but there was little more with which to work.
After that first meeting with Jack Blum, John Moscow summed up the case
this way:
"We have one sentence to go on. Here's a dirty
bank and the Feds won't touch it."
John Moscow, a Harvard Law School graduate and
lifelong prosecutor in his mid-forties, sat in an office a floor below
that of his boss. If Morgenthau's digs were far from palatial, Moscow's
were positively spartan. He shared half of a duplex with another
attorney. The reception desk was unoccupied due to unending budget woes.
There was a coffee machine and several cracked communal mugs. His
bookshelf was dominated by volumes of the New York Penal Code. On any
given day his desk was littered with documents related to dozens of
cases at various stages of investigation. Occasionally peeking from
under a stack would be a copy of The New York Times, where
Moscow's father, Warren, had been a well-known political reporter.
Looming outside his window was the Family Court
Building, where every day he could watch the procession of broken
families that was yet another legacy of the cocaine problem enveloping
the city's poor neighborhoods. In the last five years, the number of
child abuse cases in Family Court had almost quintupled to 29,000
annually. Officials attributed almost all of this terrible increase to
drug use among parents.
Over the years, Moscow had developed a reputation as a
no-nonsense, independent-minded prosecutor. He had the appearance and
some say the demeanor of a veteran prize fighter, with a square jaw,
Roman nose, and powerful chest.
Moscow first made his name in the middle 1970s with
his tenacious prosecution of a case against what was known as the
Washington Square Park Eleven. The case, a favorite of the tabloid
press, involved a group of teenagers who went on a gay-bashing rampage.
Over the years, Moscow's black hair had turned salt
and pepper as he moved to the prestigious financial fraud division and
rose through the ranks, honing his skills against the corruption on Wall
Street. He was a crusader, and his style occasionally led to clashes,
even with those arguably on the same side. A former federal prosecutor
who had worked alongside Moscow on a couple of big cases referred to his
style as "combat prosecution." Anything that got in the way of
Moscow's charge was knocked aside or buried.
Right from the start, the BCCI investigation had some
pluses. Morgen thau had learned that British authorities were sponsoring
a conference on money laundering in early July 1989 at Cambridge. BCCI
was on the printed agenda. So he sent Moscow and two other lawyers from
the office to see if they could get a jump on the investigation. When
they arrived, however, Moscow was told that BCCI had been removed from
the conference schedule after protests from the bank itself. In fact,
BCCI had sent lawyers of its own to the meetings to make sure it would
not get back on the agenda. The incident aroused Moscow's curiosity even
more. The BCCI lawyers could not stop the people at the conference from
talking informally about the mysterious bank and the fallout from its
indictment the previous year in Tampa.
The problem of jurisdiction had been solved early in
the investigation, as far as Morgenthau and Moscow were concerned. The
taped conversa tion in which Amj ad Awan described BCCI's ownership of
First Ameri can Bankshares to Bob Mazur was mentioned in court documents
filed along with the indictment in Tampa. First American Bank of New
York had forty-three branches in the state. Said Morgenthau, "You
can stand on the steps of the Capitol Building in Albany and see two
branches of First American down the street." This meant that First
American filed annual financial statements with the New York State
Banking Depart ment, which also regulated its operations in the state.
Court documents in the Tampa case also indicated that some of the money
laundered through C-Chase had passed through First American in New York.
The district attorney's investigators also were
gathering public infor mation about the structure of the bank. They
quickly discovered that it was a weird one. First American Bankshares
was the holding company for banks in six states and the District of
Columbia. In turn, First American was owned by Credit and Commerce
American Holdings. Between them were two additional holding companies.
To Morgenthau, these layers of legal entities gave him the feeling that
someone was trying to hide something. He also was struck by the use of
the words credit and commerce.
As Morgenthau was learning about BCCI, he went to a
friend who was a professor at the Yale University School of Business and
Public Administration and an expert on banking and insurance. When the
prosecutor described the structure of BCCI and First American, the
professor asked, "Why don't you talk to the Federal Reserve?"
Following up the suggestion, Morgenthau's
investigators got copies of the April 1981 hearing on the application of
CCAH to acquire Financial General Bankshares, the predecessor to First
American. They also learned about the 1975 efforts of Agha Abedi and
BCCI to acquire Chelsea National Bank in New York and the 1982 state
hearings on the CCAH acquisition of Financial General. The records of
these hearings provided more details for the investigation, but it was
still slow going.
Similar attempts to obtain bank documents from the
Bank of England, such as audits of BCCI by Price Waterhouse, were
unsuccessful. The British regulators said that they were bound by their
own bank secrecy laws, which prohibited disclosure of such material.
Likewise, the Price Waterhouse affiliate in Britain, Price Waterhouse
U.K., said it was not permitted under British law to disclose audit
results without authoriza tion from the Bank of England.
Price Waterhouse Luxembourg had certified the audit of
BCCI's financial statement filed with the State of New York for its
agency office in New York City. Morgenthau suspected the statements were
not accurate. When his office asked the auditors for the records
supporting the profit and loss calculations, it was told that they were
maintained by Price Waterhouse U.K. and the records were thus
unavailable.
It was just as Sidney Bailey had feared. Back in 1981,
the Virginia banking commissioner had opposed the sale of Financial
General to the Arab investors because it would be beyond the reach of
regulators. The bank's financial statements were certified by auditors
who were also beyond the reach of American law enforcement. There was no
way for authorities in the United States to determine the accuracy of
the audit reports. And no way for Bob Morgenthau and John Moscow to
examine them for evidence of the widespread fraud that they suspected
was there.
In another day, Clark Clifford and Bob Morgenthau
might have been friends. They might have been seated on the same dias at
some big Democratic fund-raiser, two esteemed white-haired lawyers
whispering and nodding. But this time they were on opposite sides.
The indictment of the Bank of Credit and Commerce
International and its officers in Tampa had taken Clifford by surprise.
All of his efforts had been concentrated on heading off the Senate
investigation, which could embarrass the bank and damage its reputation,
if not worse. Whether or not BCCI had done anything wrong in its
handling of the Noriega business, Clifford was well aware of the
tendency for congres sional hearings to turn into public floggings for
the benefit of television cameras.
The criminal charges brought a new urgency to his work
on behalf of the bank, and he and Altman quickly organized the best team
of defense lawyers that the bank's millions could buy. They hired
lawyers not only for the bank itself, but also for the individual bank
employees charged in the scheme.
Altman had the best contacts among the city's
white-collar defense bar. Many of the top lawyers were his age, in their
early forties. While he had spent his career earning millions at
Clifford's side, they had risen through the ranks in the U.S. attorney's
office in Washington or New York and then embarked on careers in private
practice.
None of them had attained Altman's exalted status. He
and his actress-wife Lynda Carter were stars in a town that thirsts for
glitter. Not long after their marriage in 1984, Washington Post
columnist Chuck Conconi referred to them as "that couple seen
everywhere around town." At their $3.5 million, 20,000-square-foot
mansion in the exclu sive suburb of Potomac, Maryland, white-gloved
servants attended to guests at dinner parties where the entertainment
crowd mixed with power brokers from Washington's political and legal
circles.
On less formal occasions, Altman and his lawyer pals
gathered around the television at the house to watch the Washington
Redskins when they were playing a game out of town. The regulars
included Larry Wechsler, a former federal prosecutor who had joined a
big Washington law firm, and Larry Barcella, who had left the federal
prosecutor's office after his highly publicized prosecution of Edwin
Wilson, the renegade spy.
Wechsler and Barcella became the nucleus of the
defense, represent ing the bank along with another Altman friend and top
lawyer, Ray Banoun. John Hume, who spent fifteen years as a federal
prosecutor in Washington, was hired to represent Amjad Awan. Peter
Romatowski, who had worked on the prosecution of insider-trader Dennis
Levine in New York and put Wall Street Journal reporter R. Foster Winans
in jail for his role in a widely publicized insider-trading scheme, was
hired as Nazir Chinoy's lawyer.
For Clifford and Altman, protecting the bank was a
professional responsibility and a personal one. More was at stake than
simply defending another client. BCCI had funneled millions of dollars
in legal fees to the firm of Clifford & Warnke over the years, as
much as $4 million one year. From their positions as chairman and
president of First American, Clifford and Altman sat atop a significant
power center in Washington. The advantages had been most evident to them
just a few months earlier, when the two lawyers had reaped enormous
profits from an unusual deal involving BCCI and stock in First
American's holding company.
It was a deal with the usual BCCI trademarks. The bank
had loaned $18 million to the two lawyers in July 1986 so they could buy
8,168 shares of stock in Credit and Commerce American Holdings, the
parent company of First American Bankshares. None of the lawyers' money
was at risk and the sole collateral for the loan was the stock itself.
They paid $2,204 a share, an insider's price and less than half the cost
to another investor a few days earlier. Clifford and Altman received
warrants that carried the low price and had been provided for them by
another shareholder, the Mashriq Corporation. The Federal Reserve later
identi fied Mashriq as a front for the BCCI management.
Four days after Clifford and Altman bought their
block, a group of companies controlled by the Mahfouz banking family of
Saudi Arabia paid $6,000 a share. The Mahfouz family was injecting $150
million into the bank to cover for the trading losses discovered earlier
by Price Waterhouse. As part of its agreement, the family acquired stock
in both BCCI and CCAH with the understanding that BCCI would buy back
the stock at the same price at any time.
Eighteen months later, Clifford and Altman had sold
sixty percent of their CCAH stock at the highest price it ever
commanded, $6,800 a share. The buyer was another corporate entity
identified by the Federal Reserve as a BCCI front. They paid off their
entire BCCI loan from the proceeds and pocketed a total profit between
them of $9.8 million. They also retained debt-free ownership of the
remaining forty percent of the original stock block. Along with their
executive roles at First American, both men also were on the four-member
board of CCAH, which approved the stock purchases and the pricing. For
its role, BCCI received $4.2 million in fees and interest.
The deal was unusual in many ways. First, banks rarely
make loans equal to 100 percent of the collateral; they like to keep a
safety margin, similar to requiring a homeowner to make a down payment.
Second, there was no risk to Clifford and Altman; all they stood to lose
was the stock itself, not any of their own money. That meant the bank
took all the risk. Third, the Federal Reserve Board had been promised at
the 1981 hearing and in documents related to the acquisition of First
American by CCAH that there was and would be no financial relationship
between CCAH and BCCI. While the loan for the stock purchases was not a
direct relationship between BCCI and CCAH, using the stock as collateral
put BCCI in a position to acquire an interest if Clifford and Altman
defaulted.
The entire transaction was a private one. Because the
shares of BCCI and CCAH were held privately, the stocks did not trade on
any public exchange. When word of the loans surfaced eventually in 1991,
Clifford and Altman would defend them as legal and proper. A spokesman
for the two men would say that the transactions were conducted at arm's
length, the Federal Reserve was notified, and the CCAH board approved
the deal.
In the weeks following the Tampa indictment, the
defense lawyers got their first look at the government's case against
BCCI and the individual defendants. There were two general reactions.
Jay Hogan, one of Miami's toughest and most colorful
defense lawyers, was hired to represent Aftab Hussain. When Hogan came
up to Tampa for a meeting with his colleagues on the defense team, he
expressed his surprise: "You know, I got the call and I thought,
'Great, this is going to be a big huge case with high visibility.' It
has high visibility all right. But when I read the indictment and saw
$32 million, I couldn't believe it. This is the smallest
money-laundering case I've been involved in in years."
There was general agreement among the lawyers that
this case was not about money laundering per se. It was not even about
going after major drug dealers, since even Rudy Armbrecht was not a
major figure in the trafficking world and Gonzalo Mora, Jr., was a small
fry. This case was about going after a major international bank. And
that provided the basis for the second general reaction.
John Hume is low-key and analytical, not given to
outbursts in court or outside of court. After examining the evidence and
listening to some of the taped conversations between Bob Mazur and his
client, Amjad Awan, Hume had a blunt reaction.
"Unless we're at Our Lady of Lourdes, we are only
going through the motions with a trial," Hume told Awan candidly.
"It will take a miracle to win this one."
The defendants' own words on the conversations picked
up by the James Bond briefcase would be compelling evidence against
them. Each of the defendants had a clear understanding that the man they
knew as Bob Musella derived his money from clients who were drug
dealers. Many times the jury would hear the agent's masterful Lee
lacocca analogy.
There was another problem, too. It is an unpleasant
subject, but one that the defense lawyers had to address at the outset.
BCCI was a shadowy bank run by Pakistanis and financed by Arabs. Its
clients in this case were Colombian drug dealers and their money
launderers. The bankers on trial were Pakistani and Muslim. Plus, there
was a very real chance that evidence would be introduced linking the
bank to Manuel Noriega, a big-time bogeyman to the American public.
Winning a case against strong government evidence,
particularly taped conversations, demands that a jury be given some
reason to want to acquit the defendants, some justification, however
flimsy or emotion al, for overlooking the hard facts. The odds as well
as the evidence seemed stacked against these defendants.
"Here you had an Arab-owned, Paki-run bank with
no overt constitu ency to take their side," explained Barcella in
analyzing the strategic problem posed by the racial and religious
overtones. "When we were discussing going to trial, I explained to
the bank officials the difficulty of taking their case to a jury in
Tampa. You were going to have a bunch of little dark men with funny
accents facing a bunch of old people."
So, naturally, the talk turned early to the
possibility of a plea bargain. Cutting a deal with the government for
the bank meant paying a fine, since a corporation cannot be put in
prison. Many reputable banks had paid fines and continued to operate. A
plea bargain for BCCI would be a business proposition, a negotiation
like so many others: How much money will it cost?
Cutting a deal for the bankers was a dicier
proposition. Obviously, they could go to prison. Indeed, it seemed
certain that many if not all of them would do some time. The key
question would be how much. Maybe three years. Maybe five. John Hume,
Jay Hogan, and the other lawyers for the individual defendants felt
initially that they could get away with fairly light terms. The money
involved was small by most standards. None of the bankers had taken a
bribe for handling the transactions. None had a previous record. The
money-laundering statute was a fairly new law that many bankers did not
understand fully. They had not even handled any cash. They were part of
a corporate culture that encouraged aggressive banking.
"The BCCI bankers had a more European
attitude," explained Peter Romatowski, whose client Nazir Chinoy
was fighting extradition from London to Tampa. "There is a lot of
winking and nodding and looking the other way on flight capital, whether
it is evading currency restric tions or even criminal problems. The
prevailing attitude is, 'Where the money comes from is none of my
business.' The European view, shared by the bankers at BCCI, was that we
are authoritarian, puritanical, and too eager to stick our nose in other
people's business."
But this strategy for leniency ran smack into the
prosecutorial locomotive of Mark Jackowski. The tough-minded lead
prosecutor and his partner, Mike Rubinstein, had a much different view
of what had transpired in Operation C-Chase. Jackowski signaled early
that he was not interested in a slap on the wrist for the bank or the
bankers. Partly this stemmed from the strength of the government's case.
Mostly, however, it grew out of his personal conviction that money
laundering is an integral element of drug trafficking and deserves
equivalent punish ment. That was one of the reasons that the first count
of the indictment accused all of the defendants of conspiring to
distribute cocaine, which carried a twenty-year sentence.
"My view is that these guys are bankers who
traffic in narcotics proceeds," Jackowski told Hume and the others
late in 1988. "My personal view is that they are no different than
dopers themselves. There is absolutely no way that these guys are going
to plead to five years."
At the outset, Jackowski insisted on guilty pleas to
the overall drug conspiracy charge in the indictment. It was a count
that carried a maximum prison term of twenty years. The judge could
impose less, but that would probably require statements from the
government that the defendants had cooperated and provided significant
information about crimes by other people. The defense attorneys viewed
Jackowski as unreasonable, unwilling to negotiate a fair deal, but it
was a clear-cut case of might makes right. They had to deal with him if
they wanted a plea bargain.
Jackowski's intention was to go up the ladder within
BCCI. He also was looking for help on the two Noriega cases still
pending in Tampa and Miami. He believed that Awan in particular could
provide invaluable assistance in those prosecutions, but even the most
extensive coopera tion was not going to translate into five years for
him.
There was another hitch. The policy of the U.S.
attorney's office in Tampa on plea bargains was firm: No deals would be
cut without a written statement from the defendant outlining the
information that he or she would provide in cooperation with the
government. These statements, called proffers, were crucial to any deal.
But the defense attorneys refused to provide them, maintaining that
their clients were innocent and therefore knew of no wrongdoing that
they could describe to the government.
Nonetheless, plea negotiations occurred at regular
intervals. Some times they were downright acrimonious. Often, Bob Mazur
sat in on the sessions, but he said little. Usually the meetings were
confusing to the defense lawyers.
"What do you want from us?" Hume would ask.
"What do you think my guy knows?"
"He knows," Jackowski or Rubinstein would
reply and then demand a proffer.
Although the talks would continue right up to the
trial and even after it started, it became apparent early that the
chances of a plea bargain for the individual clients were slim, so the
defense was crafting a joint strategy against the charges.
A central element of this strategy was to challenge
the government's
Winning a case against strong government evidence,
particularly taped conversations, demands that a jury be given some
reason to want to acquit the defendants, some justification, however
flimsy or emotion al, for overlooking the hard facts. The odds as well
as the evidence seemed stacked against these defendants.
"Here you had an Arab-owned, Paki-run bank with
no overt constitu ency to take their side," explained Barcella in
analyzing the strategic problem posed by the racial and religious
overtones. "When we were discussing going to trial, I explained to
the bank officials the difficulty of taking their case to a jury in
Tampa. You were going to have a bunch of little dark men with funny
accents facing a bunch of old people."
So, naturally, the talk turned early to the
possibility of a plea bargain. Cutting a deal with the government for
the bank meant paying a fine, since a corporation cannot be put in
prison. Many reputable banks had paid fines and continued to operate. A
plea bargain for BCCI would be a business proposition, a negotiation
like so many others: How much money will it cost?
Cutting a deal for the bankers was a dicier
proposition. Obviously, they could go to prison. Indeed, it seemed
certain that many if not all of them would do some time. The key
question would be how much. Maybe three years. Maybe five. John Hume,
Jay Hogan, and the other lawyers for the individual defendants felt
initially that they could get away with fairly light terms. The money
involved was small by most standards. None of the bankers had taken a
bribe for handling the transactions. None had a previous record. The
money-laundering statute was a fairly new law that many bankers did not
understand fully. They had not even handled any cash. They were part of
a corporate culture that encouraged aggressive banking.
"The BCCI bankers had a more European
attitude," explained Peter Romatowski, whose client Nazir Chinoy
was fighting extradition from London to Tampa. "There is a lot of
winking and nodding and looking the other way on flight capital, whether
it is evading currency restric tions or even criminal problems. The
prevailing attitude is, 'Where the money comes from is none of my
business.' The European view, shared by the bankers at BCCI, was that we
are authoritarian, puritanical, and too eager to stick our nose in other
people's business."
But this strategy for leniency ran smack into the
prosecutorial locomotive of Mark Jackowski. The tough-minded lead
prosecutor and his partner, Mike Rubinstein, had a much different view
of what had transpired in Operation C-Chase. Jackowski signaled early
that he was not interested in a slap on the wrist for the bank or the
bankers. Partly this stemmed from the strength of the government's case.
Mostly, however, it grew out of his personal conviction that money
laundering is case, accuse Mazur and the government of misconduct in
targeting BCC I, of selective prosecution. It was a risky move, one that
was debated extensively among the defense lawyers in late 1988. If the
judge agreed that there had been misconduct, he could take the highly
unusual step of throwing out the case. It was a long shot. And merely
leveling the accusation was sure to anger the prosecutors, for it
impugned their ethics and integrity. That would make any future plea
negotiations tougher.
In January 1989, the defense filed a motion seeking
dismissal of the indictment on grounds of outrageous government
misconduct. The motion, prepared by Akbar Bilgrami's attorney, Bennie
Lazzara of Tampa, accused the government of manufacturing a criminal
enterprise to ensnare the bank and its employees. These were people,
said the motion, who otherwise would not have committed any crimes. They
were targeted unfairly by the government.
"The question arises why the defendants were
singled out and whether it was because BCCI is largely owned and
operated by foreigners-Arabs and Pakistanis-who are not particularly
popular or influential in this country," said the motion.
"This question raises the distinct issue of selective
prosecution."
Similar allegations had been made in other sting
operations, most notably by former United States Senator Harrison
Williams (D.-NJ) after he was caught up in the Abscam investigation and
convicted of taking bribes from FBI agents posing as Arab sheiks. But
the trial judge and appeals courts had rejected Williams's charge and,
in fact, the rules regulating government conduct in undercover
operations remained vague.
The accusations by Lazzara and the other defense
attorneys angered the prosecutors and the agents, as expected. The
government's immedi ate response was to suggest that the judge wait
until all of the evidence was in at the end of the government's case and
then evaluate the allegation. But what the prosecutors really did was
decide to play a little rougher.
On May 4, 1989, the federal grand jury in Tampa
returned a new indictment of BCCI and the same individuals. Such a
document is called a superseding indictment, and it generally followed
the same lines as the original charges. New, however, were far broader
charges about the bank's activities in laundering drug money and general
allegations that what had occurred during C-Chase was an example of
overall corporate policy. The previous laundering activity in Panama for
convicted drug smuggler Steven Kalish was a central allegation; it
rebutted the defense claim that the bank was not predisposed to money
laundering.
Far from being lured into illegality by government
agents, accused the superseding indictment, BCCI and its officers
followed "a corporate strategy for increasing BCCI's deposits by
encouraging placement of funds from whatever sources, specifically
including 'flight capital,' 'black market capital,' and the proceeds of
drug sales, in conscious disregard of the currency regulations, tax
laws, and anti-drug laws of the United States and other nations.
"It was also part of the conspiracy, and in the
furtherance of BCCI's corporate strategy to pursue deposits from any and
all sources in disregard of United States and foreign law, that BCC I. .
. did knowingly offer a full range of services to co-conspirator drug
importers, suppliers, and money launderers."
This broader language set the stage for introducing
evidence at trial of similar crimes committed by the bank and its
employees beyond those uncovered directly during Operation C-Chase. The
accusation was that the bank itself was corrupt. The trial could turn
into a full-blown expose, provided the judge would allow the evidence to
be presented to the jury.
Because the indictment accused the defendants of a
drug conspiracy, they stood a real chance of spending the long pretrial
months in prison. Drug crimes allow federal prosecutors to bypass normal
bail procedures. The concept of bail is that a suspect puts up enough
cash to ensure that he or she will appear for trial. With drug lords,
however, money is so plentiful that courts have allowed suspects to be
held without bail under preventive detention. This is most often used
with foreigners who are deemed likely to flee to a country from which
they cannot be extradited. Defense lawyers argue that such measures are
extreme and unconstitu tional, the result of overzealousness in the
guise of fighting the war on drugs.
In the case of the individuals indicted, the
government sought preven tive detention on the grounds that the bankers
and Colombians were likely to flee. However, U.S. District Judge William
Terrell Hodges, the Tampa judge in charge of the case, agreed to an
unusual provision for the bankers. Rather than jail, each would get his
own apartment in a condominium complex outside Tampa. Each would wear an
unremova ble electronic bracelet that would allow federal agents to
monitor their location constantly. Off-duty Tampa policemen would be
hired to guard the bankers twenty-four hours a day. The bank, of course,
would pay for this special treatment.
There were some, such as Jack Blum, who viewed the
arrangement as coddling, an effort by the bank to shield the individual
defendants from the reality of prison life and make them less likely to
accept a government plea bargain that would require them to implicate
higher- ups in BCCI. A more reasonable interpretation seems to be that
these were not hardened criminals and there was little reason to subject
them to prison life for the months and months it would take to get ready
for trial.
The fate of the bank officers from Miami made a deep
impression on Abdur Sakhia, who for a while had been their supervisor.
From time to time, he had warned about the way things were heading, even
threaten mg to resign after Akbar A. Bilgrami's coup in expanding into
Colom bia. He flew to London in early 1989 to try to escape the
impending disaster.
"If a government takes over in Panama that's
friendly to the U.S.," he told senior executives, "the entire
BCCI office will go to jail." But headquarters wasn't impressed.
"The United States isn't the rest of the world," the officers
replied. They did, however, give Sakhia an escape from his North
American duties. "Would you like a transfer to London?" they
asked. "Thank God!" he replied, and leaped at the relocation,
even though it meant leaving his ailing wife alone with their
fourteen-year- old son.
Why didn't he just leave the bank? he later mused. His
lawyers advised him to hang on, he answered himself. Not only would he
lose his medical benefits and legal coverage if he left, he would become
an immediate target of prosecutors, as the most senior officer to bail
out of BCCI. Besides, warnings were coming from Swaleh Naqvi's office
that the bank could easily implicate him in wrongdoing, if it wanted to.
Sakhia stayed on and found ways later to appease the prosecutors.
Another former bank employee also made his peace with
the prosecu tors. Daniel Gonzalez, the Panama branch's emissary to the
Medellin cartel and handler of some of its dirtiest accounts, had
dropped from sight after he had been forced to resign in 1985. Unknown
to the bank, he had been located by the C-Chase investigators and
brought to Tampa. As the government prepared for trial, Gonzalez put his
lurid story on paper. He wrote a book in Spanish called The Kings of
Money Laundering that later appeared in Panama with no
identification of the publisher. Many in Panama thought the U.S.
government was behind it, in part because of Gonzalez's flattering
description of Customs agent Kathy Ertz in a bikini. Even without a
publishing house to plug it, the book became a runaway best-seller.
Response to the indictment of BCCI and its officers
had been fast, if not particularly effective, at the Federal Reserve
Board in Washington.
BCCI had a handful of agency offices in the United
States that took no domestic deposits but did business for international
clients. These offices were in New York City, Los Angeles, Tampa, Miami,
and Boca Raton, Florida. They were supervised and regulated by state
authorities. With help from state banking authorities, the Fed examined
the limited books and operations of those offices. At the New York and
Boca Raton offices, examiners discovered cash deposits in excess of
$10,000 that had not been reported to the IRS as required under federal
law. The cash came from foreign nationals, the only people who could
make deposits at an agency office, and appeared to represent new money-laundenng
activi ties by the bank. In October and November of 1988, the details
were passed on by banking authorities to the Justice Department and the
IRS for possible criminal action. The Fed never heard back.
The examinations also revealed that internal controls
and lending practices at the agency offices were poor. The Federal
Reserve, as the main regulator of U.S. branches and agencies of foreign
banks, began preparing a civil order requiring BCCI to clean up its
operations and enforce compliance with the cash-reporting requirements
of U.S. law.
The first the Federal Reserve Board heard of Amjad
Awan's claims that BCCI controlled First American and other U.S. banks
was on December 27, 1988, when IRS agent David Burns, who was part of
the C-Chase team, telephoned William Ryback, a supervisor at the Federal
Reserve in Washington. Burns had talked with Ryback several times since
August about various BCCI matters. This time, the IRS agent was looking
for a copy of the transcript from the April 1981 hearing on the
acquisition of First American.
During the conversation, Burns explained that a BCCI
employee had claimed in taped conversations that BCCI controlled First
American and a bank in Georgia. Burns offered to provide the Fed with
five or six witnesses who could testify about BCCI's secret ownership of
First American Bank. While Burns couched the offer as what he called a
"hypothetical instance," he felt certain that he conveyed to
Ryback that he could produce the witnesses.
The bank regulator's response was disappointing. He
told Burns that he would need documents to corroborate any testimony
before the Fed could take action. Burns did not understand why the
evidence he had offered, which might have been sufficient for charges in
a criminal case, was of so little interest to the Federal Reserve.
Slightly more than a month later, Burns and his IRS
supervisor, Maurice Dettmer, flew to Washington to pay a visit to Ryback.
It was February 1, 1989. The chief mission of the IRS agents was to
gather additional background material on BCCI for the criminal case in
Tampa. Again Burns mentioned briefly to Ryback the possibility of
witnesses who would link BCCI and First American. Again, the regulator
was uninterested.
After the Tampa indictments the previous October, the
Federal Reserve had opened a special inquiry into the possible
relationship between BCCI and First American. At the time, First
American had an to prison life for the months and months it would take
to get ready for trial.
The fate of the bank officers from Miami made a deep
impression on Abdur Sakhia, who for a while had been their supervisor.
From time to time, he had warned about the way things were heading, even
threaten mg to resign after Akbar A. Bilgrami's coup in expanding into
Colom bia. He flew to London in early 1989 to try to escape the
impending disaster.
"If a government takes over in Panama that's
friendly to the U.S.," he told senior executives, "the entire
BCCI office will go to jail." But headquarters wasn't impressed.
"The United States isn't the rest of the world," the officers
replied. They did, however, give Sakhia an escape from his North
American duties. "Would you like a transfer to London?" they
asked. "Thank God!" he replied, and leaped at the relocation,
even though it meant leaving his ailing wife alone with their
fourteen-year- old son.
Why didn't he just leave the bank? he later mused. His
lawyers advised him to hang on, he answered himsel£ Not only would he
lose his medical benefits and legal coverage if he left, he would become
an immediate target of prosecutors, as the most senior officer to bail
out of BCCI. Besides, warnings were coming from Swaleh Naqvi's office
that the bank could easily implicate him in wrongdoing, if it wanted to.
Sakhia stayed on and found ways later to appease the prosecutors.
application pending to acquire a small bank in
Pensacola, Florida, which had been foreclosed by its Georgia subsidiary.
The inquiry was con ducted under the auspices of that application by the
Federal Reserve Bank of Richmond, Virginia, which had jurisdiction over
First American Bankshares, but it was only cursory. Each of First
American's subsidiary banks was asked to report on any transactions with
BC CI, and the CCAH management was asked whether any relationship
existed with BCCI.
In its report to the Fed board in Washington on
February 8, 1989, the Richmond bank said it had found no evidence of
irregular or significant contacts between First American and BCCI. The
auditors found that the common ownership between CCAH and BCCI had
increased. This was principally a recognition that the Mahfouz family
now owned thirty percent of CCAH and about twenty percent of BCCI.
However, repeating the promise they had made in 1981, Clark Clifford and
Robert Altman assured the Fed that BCCI exercised no control or
influence over CCAH.
So a week later, ignoring the leads provided by David
Burns, the Federal Reserve approved First American's acquisition of the
Bank of Escambia in Pensacola. In a letter to Altman announcing the
approval, the Fed said that "a recent inspection and investigation
by the Federal Reserve System indicate that applicants have adhered to
their original commitments to the board" that BCCI was not involved
in First American's operations. There was no indication in the record
that Ryback had ever talked to Burns and Dettmer.
Concerns remained at the Fed. Officials were
frustrated with their inability to pierce the regulatory secrecy that
concealed BCCI's true operations. By-the-book bank examiners insisted on
documentary evidence of the links to First American, not rumors and
allegations. And no documents were available.
It was not until late in 1989 that the facade of
secrecy erected in front of the Bank of Credit and Commerce
International began to crack. Even then, the truth was still a long way
off.
At the time, BCCI was regulated in a most unusual
fashion. The long-standing concerns of the Bank of England and other
jurisdictions over the lack of a single regulator for the bank had led
to a novel step in 1988. Officials of Britain, Switzerland, Luxembourg,
and Spain had formed an informal college of regulators to try to monitor
the affairs of BCCI. Later, the group was expanded to include the Cayman
Islands.
The concerns of the regulators were heightened by the
bank's indict ment in Tampa in late 1988. By the middle of 1989, the
anxiety had deepened as the bank continued to provide only partial
financial information to the regulators. So that fall, the college of
regulators had insisted that Price Waterhouse conduct an immediate audit
of BCCI's Luxembourg and Cayman Islands operations and that the bank
provide the results to the regulators. Reluctantly, the bank had
capitulated.
This agreement might not have been made if Agha Hasan
Abedi had still been in control. He had never wavered in his devotion to
secrecy, but with Abedi sidelined by serious illness, Swaleh Naqvi still
in tenuous command, and the Tampa case about to go to trial, the bank
had agreed to provide the regulators with a first-ever look at the
worldwide financial operations of the Bank of Credit and Commerce
International.
Price Waterhouse had first examined the bank as a
whole in 1987, after Ernst & Whinney quit in anger over the near
collapse of the bank from the trading losses. Since then, Price
Waterhouse had given the bank an unqualified report each year. But all
that changed with the audit demanded by the regulators.
Dated November 17, 1989, the audit said that the bank
had performed reasonably well over the past nine months in light of the
repercussions from the American criminal charges. Some business had been
lost, but the bank also had attracted new business. Senior management
had told the auditors that they anticipated a year-end profit of $220
million to $240 million. Price Waterhouse thought the estimate was high,
but agreed that the bank appeared headed for another profitable year.
The major problem at the bank seemed to be its
concentration of huge loans to a handful of customers. The risk in such
a concentration was that the collapse of one customer could ripple
through an institution and topple the entire structure.
The largest concentration that Price Waterhouse found
was $856 million in loans to the shareholders of Credit and Commerce
American Holdings, the parent company of First American Bankshares. From
the audit, it was apparent that Price Waterhouse had raised a similar
alarm about the concentration the previous year. Since then, however,
the audit found that loans to CCAH had increased by $113 million.
It was this concentrated lending that was the basis
for questions about the loans. There was no evidence in the report that
BCCI actually controlled the CCAH shares. The side agreements were not
shared with the auditors. Indeed, the auditors raised similar questions
about the high concentration of loans to other clients, such as the
Gokal brothers and their shipping companies and Ghaith Pharaon.
Still, when the college of regulators went over the
audit, one of the regulators knew that the CCAH loans would be of
interest to the Federal Reserve Board in Washington. The regulator knew
that the board had been investigating ties between First American and
BCCI for nearly a decade.
Bank secrecy laws in Britain and Luxembourg prohibited
the regula tor from passing on a copy of the audit or even describing
its contents to outsiders, but in December 1989, the regulator contacted
William Taylor, the chief of bank supervision at the Federal Reserve.
Taylor was told that an audit had uncovered extensive loans from BCCI to
Kamal Adham and other CCAH shareholders. The audit did not indicate
whether there were any links between the loans and control of CCAH
stock, but Taylor was told that more information might show up in later
audits.
The Federal Reserve immediately wrote a letter to
Robert Altman asking for information on any loans that BCCI or its
affiliates had made to the shareholders of CCAH. The response came from
Swaleh Naqvi, who assured the Federal Reserve that BCCI had not financed
the First American acquisition and that the loans to CCAH shareholders
were unrelated to that transaction. Kamal Adham sent a personal
assurance that his CCAH shares had not been financed by BCCI. Indeed,
Adham maintained steadfastly that he, and he alone, was the owner of
about thirteen percent of the shares in First American's parent company.
Later, through his Washington lawyer and in communications with the
Federal Reserve, he denied that he was a nominee of any sort for BCCI.
The Kerry subcommittee was not faring much better than
the Fed in trying to get the full story on BCCI. Attempts to schedule
public hearings on the bank were stalled. By the Justice Department. By
the Senate. By the failure of BCCI's lawyers to provide key documents.
After Blum's departure, the BCCI investigation had
fallen primarily on the shoulders of two young lawyers on Kerry's
personal staff, David McKean and Jonathan Winer. In weeks of
negotiations with BCCI's lawyers, chiefly Ray Banoun by this point, the
staffers had been unable to obtain internal bank records related to the
Noriega account and other overseas activities by the bank. In their
defense, the bank's lawyers were concerned first with complying with
similar demands from the prosecu tors in Tampa. At one point, Banoun
referred the request for records to the Tampa prosecutors and Kerry's
subcommittee was told that its access would have to wait until after the
trial. Banoun and Robert Altman also continued to maintain that they
were relying on Amj ad Awan's assertion that there were no Noriega
records in the bank's files.
John Kerry was finding little support within the
Senate. Congress as an institution does not move easily into arenas of
great controversy. Usually it is forced to confront a scandal by the
press, with daily page-one stories and network broadcasts goading
publicity seekers and prodding well meaning legislators to hold
hearings.
"There was no appreciation in this institution
for the tentacles of BCCI and not a lot of appetite for upsetting the
apple carts," Kerry lamented later. "There is a role of
accountability and oversight that Congress must play in these
situations. But sometimes it is easier to avoid it."
- In early 1990, Kerry joined the Senate Banking
Committee and immediately tried to interest its chairman, Senator
Donald Riegle of Michigan, in funding a full-scale investigation of
BCCI under the banking panel's jurisdiction. The idea was to examine
whether BCCI violated U.S. banking laws in purchasing other
institutions and whether the Federal Reserve had regulated the bank
properly. The requested budget for the year-long investigation was
$135,000. However, the Senate Banking Committee, like Foreign
Relations, is more of a lapdog than a watchdog, and Riegle's attention
was riveted understandably on his own political survival. He was one
of five senators under scrutiny for helping Charles Keating stave off
regulators who had tried to shut down his California savings and loan.