The investigation of BCCI has accelerated in recent weeks, its taint spreading to include indictments of powerful Washington lawyers and probes of leading officials in Saudi Arabia, one of America's closest allies.
But why should the scandal over the Bank of Credit and Commerce International bother the average American?For one thing, prosecuting BCCI criminals is a key element in the war on drugs, prosecutors say. Closing the outlaw bank makes an important statement about the safety of the money in your local bank, they also say.
"Last year we prosecuted, in New York County alone, 30,000 drug cases," Manhattan District Attorney Robert Morgenthau said. "We can do that until the cows come home - until we interrupt the money chain. Drugs come into the United States and money goes out. It is very important to prosecute the people who transmit that money."
A 1988 indictment, developed from an extensive U.S. Customs investigation, charged BCCI laundered $32 million in drug profits from 1986 to 1988 alone.
Founded by Pakistani banker Agha Hasan Abedi in 1972, BCCI grew to be the Third World's largest bank, with operations in 70 countries.
Its main operations were in Luxembourg and the Cayman Islands, countries with a reputation for weak bank regulation.
BCCI actively sought deposits from drug dealers and other questionable sources, prosecutors charge, to inflate its balance sheet and paper over losses from trades and phony loans to the bank's shareholders.
International bank regulators shut down BCCI on July 5, 1991, following auditors' reports describing massive fraud and horrendous loan losses. BCCI pleaded guilty to U.S. racketeering charges in December and agreed to forfeit a record $550 million.
The BCCI closure is "a hit on the infrastructure of the drug trade," said BCCI investigator Jack Blum.
Charles A. Intriago, a Miami-based attorney and publisher of the newsletter Money Laundering Alert, said the BCCI case woke up international bank regulators to the problems of money laundering. But he said drug traffickers can simply go elsewhere with their massive profits.
Aside from drug money laundering, events over the last year clearly spell out how BCCI damaged the U.S. banking system:
-In California, Independence Bank of Encino, with $574 million in assets, was seized by bank regulators in January. BCCI secretly acquired control of the Los Angeles-area bank beginning in 1985 through Saudi Arabian investor Ghaith Pharaon, the Federal Reserve has charged.
A key reason for Independence's demise was the unwillingness of outside investors to rescue the bank, burdened by bad loans, because of unresolved questions of its BCCI ownership.
The Federal Deposit Insurance Corp. says the failure could cost the nation's bank insurance fund $130 million. That money is supposed to be reimbursed from forfeited BCCI assets, but none has been paid to the fund because of pending legal disputes in Washington.
-In Miami, BCCI played a key role in keeping CenTrust Savings Bank alive longer than it should, prosecutors say. That boosted the amount taxpayers will have to pay to bail out of CenTrust, one of the nation's most expensive thrift failures at $1.7 billion, Blum said.
CenTrust Chairman David Paul arranged for BCCI to invest $25 million in CenTrust bonds in 1988. CenTrust repurchased the bonds two months later.
-In New York, First American Bank lost $4.7 million because of BCCI's shutdown in 1991, prosecutors charge.
BCCI secretly acquired First American's parent, First American Bankshares of Washington, D.C., in 1983.
A New York County grand jury and a federal grand jury in Washington late last month indicted former Defense Secretary Clark M. Clifford and his law partner Robert Altman on charges of deceiving regulators about BCCI's role in First American. Clifford and Altman had served as First American Bankshares' chairman and president, respectively.
Blum, credited with aggressively pursuing the BCCI case, said the damage to the U.S. financial system could be greater once regulators determine BCCI's role in other financial scandals of the 1980s, particularly the savings and loan fiasco.
"There are a variety of connections between Milken, Keating, Paul and various BCCI entities that got involved in maneuvering money for the various players in the savings and loan world," Blum said. He referred to three of the largest financial scandals in the 1980s: Michael Milken and the downfall of Drexel Burnham Lambert; Charles Keating and Lincoln Savings and Loan; and Paul of CenTrust.
BCCI had only agency offices in the United States and branches with limited banking powers, therefore the deposit insurance fund wasn't at risk by the closure of the bank. Overseas, however, some 250,000 depositors are outraged at a plan that would reimburse them 30 cents to 40 cents on the dollar for their savings.
Morgenthau, whose office worked with Blum in exposing BCCI's fraudulent activities, says the lesson of these takeovers boils down to this: "People have a right to know who owns their bank."