Corruption: The Brave Ones Begin to Sing

By John Greenwald

The slender former executive of the Bank of Credit & Commerce International clearly feared for his life. Speaking before a Senate subcommittee last week, Masihur Rahman told how a fellow B.C.C.I. official had threatened to shoot him if he exposed the rampant fraud and corruption at the heart of the bank. According to Rahman, the colleague warned him, "I've personally killed people in my life, and I'd use the same gun on you."

Undaunted, Rahman sent his American wife Ellen and their two children to the U.S. for safety. "My wife and children were suffering greatly. They were being terrorized by this situation," he testified. Rahman then fled London just days before he testified. As his wife sat behind him, the former chief financial officer declared last week that B.C.C.I. had been essentially broke since 1985. He went on to accuse the accounting firm Price Waterhouse of tolerating phony bookkeeping that made the bank look solvent -- a charge the auditor denies. Among the losses covered up were hundreds of millions of dollars in dubious loans in 1985-86 to the Gokal family of Pakistan, which owned a shipping company. "It was kept an incredible secret; not more than four or five people knew what had happened," Rahman said.

Rahman's charges were far from the only ones leveled last week against B.C.C.I., which was shut down in July in most of the 69 countries where it operated. From Abu Dhabi to Zimbabwe, the repercussions of the bank scandal gathered force amid a new surge of allegations, investigations and financial distress. The depth and breadth of the mess prompted fresh questions about what government regulators should have done to prevent B.C.C.I. from growing into the largest corporate criminal enterprise in history. The major developments:

NUKES FOR PAKISTAN? Even as it served as a cash conduit for terrorists, money launderers and gunrunners, B.C.C.I. may have financed the illicit development of nuclear weapons programs. The U.S. last week pressed efforts to extradite Inam ul-Haq, a retired Pakistani brigadier, on charges that he masterminded an abortive 1987 plot to smuggle to Pakistan an American speciality steel used to enrich weapons-grade uranium. B.C.C.I reportedly provided credit for the deal. But Pakistan, home of B.C.C.I. founder Agha Hasan Abedi, denied -- as it has in the past -- that it seeks to develop nuclear arms, and said the government had no connection with Inam, who was arrested by German authorities in Frankfurt last month on an international warrant put out by the U.S.

FINANCIAL FALLOUT. Already burned once by the B.C.C.I. shutdown, panicky crowds in Hong Kong rushed to withdraw their cash last week from local Citibank branches. The two-day run was triggered by unfounded reports that Citibank was insolvent. Last month Hong Kong's overdue seizure of the local subsidiary of B.C.C.I. froze $1.4 billion in accounts held by 40,000 hapless depositors. The colony's residents were still so shaken by the shutdown that on Friday they staged a second run, on the British-based Standard Chartered Bank after rumors that it had lost either its banking license or its stock- exchange listing.

Hong Kong's nervous depositors were hardly alone. The shutdown also froze some $400 million of deposits belonging to Beijing-controlled companies, giving China a bitter taste of the risks of capitalism. In Egypt the government fired the board of the country's B.C.C.I. affiliate and sought to recover $400 million in frozen assets. In Nigeria officials said they would provide $16 million to cover now worthless letters of credit from B.C.C.I. The shutdown even torpedoed shipping around the world. The Wall Street Journal reported that $85 million worth of freight sat stranded on some 1,000 ships because the purchasers could not use credit that B.C.C.I. had provided.

PROBES APLENTY. Just five days before he formally announced his resignation in order to run for the Senate, Attorney General Dick Thornburgh declared that the Justice Department will issue "far-reaching indictments" within "the next month or six weeks." Stung by charges that Justice was moving too slowly against B.C.C.I., the department seems to be trying to catch up to the fraud, bribery and grand-larceny allegations brought by a New York State grand jury in late July. But some disgruntled law-enforcement sources told TIME that major federal indictments were unlikely anytime soon because Justice probes in Washington and other cities were still months -- if not years -- from completion.

Nonetheless, the department clearly felt pressured to prove it has not been napping. Justice took a step in that direction last week when a federal grand jury in Miami indicted Munther Bilbeisi, a Jordanian coffee dealer who banked at B.C.C.I., on charges that he smuggled Guatemalan coffee into the U.S. to avoid income taxes on profits from the sale of the beans.

In Peru the Senate began looking into charges that former President Alan Garcia Perez looted government funds by siphoning them through B.C.C.I. accounts in Panama. Returning from a month-long vacation in Europe, Garcia hotly denied the accusations. At the same time, officials in Chile and Argentina scrutinized the financial affairs of Ghaith Pharaon, a Saudi tycoon and B.C.C.I. front man who is building Hyatt hotels in both countries.

Even as those probes got under way, investigators in Colombia and Luxembourg examined dealings between Jose Gonzalo Rodriguez Gacha, a leader of the Medellin cocaine cartel who died in a 1989 shootout with police, and a Colombian shadow bank that B.C.C.I. used to launder drug money. Among other things, the probers want to know why Colombian prosecutors slapped B.C.C.I. with a token $10,000 fine after discovering that the shadow bank took in a whopping $45 million in foreign currency in just six months in 1986 -- six times the amount B.C.C.I.'s Colombia branch reported for the entire year. The branch split apart from B.C.C.I. last week when it was acquired by Isaac Gilinsky, a Colombian food and textile magnate who said he would reorganize the branch and reopen it under the name Banco Andino.

POLITICAL SHAME AND BLAME. With so many accusations being tossed around, politicians sought to distance themselves from the scandal and hold rival parties to account. Senator Orrin Hatch, a Utah Republican, issued an obviously partisan report that tried to deflect blame for the B.C.C.I. mess from the Bush and Reagan Administrations. Hatch said financier David Paul and the ubiquitous Pharaon had assiduously cultivated major figures in the Democratic Party. Paul, a big political contributor, ran CenTrust Savings, which collapsed in Miami last year at a cost to taxpayers of as much as $2 billion. Among the Democrats he courted: Joseph Biden of Delaware and John Kerry of Massachusetts, the chairman of the B.C.C.I. hearing last week. Both met with Paul in 1989 at a time when he was negotiating with federal regulators over terms of an agreement to recapitalize the foundering S&L.

Paul succeeded in keeping CenTrust afloat, thanks partly to funds from Pharaon, who allegedly acted on behalf of B.C.C.I. While Hatch stopped short of charging the Democrats with wrongdoing, the report hinted that Paul may have used his Democratic connections to help keep CenTrust in business. Ironically, Hatch had strongly endorsed a 1990 plea bargain in Tampa that allowed B.C.C.I. to forfeit $15 million in profits to settle money-laundering charges. Hatch went so far as to praise B.C.C.I. for its cooperation.

In another maneuver, Democratic Representative Edward Markey of Massachusetts said he would return a $1,000 campaign contribution from Robert Altman, president of Washington's First American Bankshares, which B.C.C.I. secretly acquired in the early 1980s. Altman and former Defense Secretary Clark Clifford, chairman of First American, have denied knowing B.C.C.I. had taken control of their bank. Clifford and Altman gave donations last year to several other legislators, usually in $1,000 amounts, but so far they have seen fit to keep the money. As the scandal deepens, however, any connection with B.C.C.I. money could become hazardous to one's political health.

With reporting by S.C. Gwynne/Washington with other bureaus