Scandals: Gilt by Association

By JONATHAN BEATY and S.C. GWYNNE

Banks need banks, just as companies and ordinary people do. But what institution would do serious business with the Bank of Credit & Commerce International, the rogue financier of crooks, drug lords and con men? As investigators probe the debris of the vast scandal, the name that most persistently comes up is Bank of America, one of the top five in the U.S. The bank, which co-founded B.C.C.I. in 1972, takes pains to emphasize that it sold off its stake in the Middle Eastern institution in 1980. But ties between the two were far more extensive and long lasting than Bank of America has publicly described. Now the San Francisco-based bank concedes that during the 1980s, it handled some $1.3 billion a day of B.C.C.I. money. It held B.C.C.I. deposits at Bank of America branches around the world and maintained two accounts at B.C.C.I.'s Miami office even after B.C.C.I. pleaded guilty to money laundering in 1990.

The two institutions had a symbiotic relationship, according to sources inside B.C.C.I. The corrupt organization used Bank of America as an important resource in a global Ponzi scheme to collect deposits, funneling most of its cash in the U.S. into Bank of America accounts. At the same time, the flow of deposits helped prop up the struggling California bank during its hard times in the mid-1980s. "The B.C.C.I. headquarters money always flowed through Bank of America," says a former B.C.C.I. executive.

The two organizations had a strong human link as well, grounded in the friendship between B.C.C.I. founder Agha Hasan Abedi and Bank of America's A.W. (Tom) Clausen, who was chairman during 1970-81 and 1986-90. When regulators seized B.C.C.I. offices around the world last July, three of the seven directors on its board were former high-ranking Bank of America executives. On that same day, the California bank disclosed that it still had $177.4 million of B.C.C.I.'s money in its accounts.

Bank of America says it made plans to sever relations with B.C.C.I. in 1988. | "We decided to withdraw from this business with B.C.C.I. over a three-year period," says Bank of America spokesman Jim Mitchell. "Between 1989 and 1991, the dollar volume of our B.C.C.I. item-clearing business was reduced by almost two-thirds." Bank of America, insists Mitchell, had no knowledge of any illegal activity by B.C.C.I.

Yet committees in the House and Senate want to know why Bank of America kept doing business with B.C.C.I. in the face of considerable evidence of wrongdoing. "They continued a relationship with B.C.C.I. even after they became aware that B.C.C.I. was indicted in 1988 for money laundering," said California Republican Frank Riggs at a House Banking Committee hearing.

In the hope of gaining entree to Middle Eastern business, Bank of America backed the founding of B.C.C.I. by providing Abedi with $612,000 in seed money and the prestige of the then largest bank in the world. In exchange, the San Francisco bank got 25% of B.C.C.I.'s stock, seats on the bank's board of directors, and access to Abedi's extraordinary connections in the gulf states. By early 1974, Bank of America had boosted its ownership stake to 45%.

Previously undisclosed audits show that Bank of America provided a $2.5 million loan in 1976 to start up a B.C.C.I. subsidiary in the Cayman Islands known as International Credit & Investment Co. Overseas. According to Federal Reserve documents, I.C.I.C. Overseas was the vehicle that held most of B.C.C.I.'s loans to privileged insiders, as well as its secret and illegal holdings in First American Bank in Washington.

As their holdings increased, however, Bank of America officers became nervous about the relationship. In a 1976 memo, a Bank of America officer said "many in the Bank of America feel B.C.C.I. officers withhold information from B. of A. personnel." Among other bothersome items: B.C.C.I.'s habit of doling out what a Bank of America officer described as "special patronage" to "leading political figures in the Middle East." But when Bank of America sold off its stock in B.C.C.I. to I.C.I.C. in 1980, the California bank loaned money to the Cayman Islands outfit to finance the deal. Those loans ultimately enabled Bank of America to earn $32 million on its total B.C.C.I. investment of $5 million.

Among other questions, investigators want to explore whether Bank of America wittingly helped B.C.C.I. with any of its money laundering. No evidence yet suggests that Bank of America did so, but the California bank was fined a then record $4.7 million in 1986 for 17,000 separate acts of money laundering that were unrelated to B.C.C.I.

Bank of America's problems include a civil racketeering lawsuit claiming that the bank "actively and knowingly assisted" B.C.C.I.'s takeover of First American and National Bank of Georgia. In Washington, Congressman Riggs has demanded release of internal documents from Bank of America, and his committee will hear bank officials testify on ties to B.C.C.I. The question: Given what you knew about the bank, what made you keep on doing business with it?

CHART: NOT AVAILABLE

CREDIT: NO CREDIT

CAPTION: THE TIES THAT BOUND