with Cathy Booth/Miami - Jay Branegan/Hong Kong and Helen Gibson/London Monday

July 29, 1991

from Time Website

"I could tell you what you want to know, but I must worry
about my wife and family - they could be killed."
-- a former top B.C.C.I. officer

"We better not talk about this over the phone. We've found
some bugs in offices that haven't been put there by law
enforcement."
-- a Manhattan investigator probing B.C.C.I.

Bank-fraud cases are usually dry, tedious affairs. Not this one.
Nothing in the history of modern financial scandals rivals the unfolding saga of the Bank of
Credit & Commerce International (B.C.C.I.), the $20 billion rogue empire that regulators in
62 countries shut down early this month (July 1991) in a stunning global sweep. Never has
a single scandal involved so much money, so many nations or so many prominent people.
Superlatives are quickly exhausted:
it is the largest corporate criminal enterprise ever, the biggest Ponzi
scheme, the most pervasive money-laundering operation and financial
supermarket ever created for the likes of Manuel Noriega, Ferdinand
Marcos, Saddam Hussein and the Colombian drug barons.
B.C.C.I. even accomplished a Stealth-like invasion of the U.S. banking industry by secretly
buying First American Bankshares, a Washington-based holding company with offices
stretching from Florida to New York, whose chairman is former U.S. Defense
Secretary Clark Clifford.
But B.C.C.I. is more than just a criminal bank.
From interviews with sources close to B.C.C.I., TIME has pieced together a portrait of a
clandestine division of the bank called the "black network," which functions as a global
intelligence operation and a Mafia-like enforcement squad. Operating primarily out of the
bank's offices in Karachi, Pakistan, the 1,500-employee black network has used
sophisticated spy equipment and techniques, along with bribery, extortion, kidnapping and
even, by some accounts, murder.
The black network - so named by its own members - stops at almost nothing to further the
bank's aims the world over.
The more conventional departments of B.C.C.I. handled such services as laundering money
for the drug trade and helping dictators loot their national treasuries.
The black network, which is still functioning, operates a lucrative arms-trade business and
transports drugs and gold. According to investigators and participants in those operations, it
often works with Western and Middle Eastern intelligence agencies. The strange and still
murky ties between B.C.C.I. and the intelligence agencies of several countries are so
pervasive that even the White House has become entangled.
As TIME reported earlier this month, the National Security Council used B.C.C.I. to funnel
money for the Iran-contra deals, and the CIA maintained accounts in B.C.C.I. for covert
operations.

Moreover, investigators have told TIME that the Defense Intelligence Agency has
maintained a slush-fund account with B.C.C.I., apparently to pay for clandestine activities.
But the CIA may have used B.C.C.I. as more than an undercover banker:
U.S. agents collaborated with the black network in several operations,
according to a B.C.C.I. black-network "officer" who is now a secret U.S.
government witness. Sources have told investigators that B.C.C.I. worked
closely with Israel's spy agencies and other Western intelligence groups as
well, especially in arms deals.
The bank also maintained cozy relationships with international terrorists,
say investigators who discovered suspected terrorist accounts for Libya,
Syria and the Palestine Liberation Organization in B.C.C.I.'s London offices.
The bank's intelligence connections and alleged bribery of public officials around the world
point to an explanation for the most persistent mystery in the B.C.C.I. scandal:
why banking and law-enforcement authorities allowed the bank to spin out
of control for so long.
In the U.S. investigators now say openly that the Justice Department has not only reined in
its own probe of the bank but is also part of a concerted campaign to derail any full
investigation.
Says Robert Morgenthau, the Manhattan district attorney, who first launched his
investigations into B.C.C.I. two years ago:
"We have had no cooperation from the Justice Department since we first
asked for records in March 1990. In fact they are impeding our
investigation, and Justice Department representatives are asking witnesses
not to cooperate with us."
B.C.C.I. was started in 1972 with the putative mission of becoming the Muslim world's first
banking powerhouse.
Though it was incorporated in Luxembourg and headquartered in London, had more than
400 branches and subsidiaries around the world and was nominally owned by Arab
shareholders from the gulf countries, B.C.C.I. was always a Pakistani bank, with its heart in
Karachi.
Agha Hasan Abedi, the bank's founder and leader until his ouster last year, is a Pakistani,
as are most of the bank's former middle managers. And it was in Pakistan that the bank's
most prodigiously corrupt division was spawned.
The Soviet invasion of Afghanistan in 1979 and the resulting strategic importance of
neighboring Pakistan accelerated the growth of B.C.C.I.'s geopolitical power and its
unbridled use of the black network. Because the U.S. wanted to supply the mujahedin
rebels in Afghanistan with Stinger missiles and other military hardware, it needed the full
cooperation of Pakistan, across whose border the weapons would be shipped.
By the mid-1980s, the CIA's Islamabad operation was one of the largest U.S. intelligence
stations in the world.
"If B.C.C.I. is such an embarrassment to the U.S. that forthright
investigations are not being pursued, it has a lot to do with the blind eye the
U.S. turned to the heroin trafficking in Pakistan," says a U.S. intelligence
officer.
The black network was a natural outgrowth of B.C.C.I.'s dubious and criminal associations.
The bank was in a unique position to operate an intelligence-gathering unit because it dealt
with such figures as,

Noriega
Saddam
Marcos
Peruvian President Alan Garcia
Daniel Ortega
contra leader Adolfo Calero
arms dealers like Adnan Khashoggi

Its original purpose was to pay bribes, intimidate authorities and quash investigations.
But according to a former operative, sometime in the early 1980s the black network began
running its own drugs, weapons and currency deals.
"I was recruited by the black network in the early 1980s," says an Arabborn employee who has ties to a ruling family in the Middle East and has
told U.S. authorities of his role in running one of the black units.
"They came to me while I was in school in the U.S.; they spoke my
language, knew all of my friends and gave me money. They told me they
wanted me to join the organization, and described its wealth and political
power, but at first they never said exactly what the organization did."
This operative - call him Mustafa - underwent a year of training that began with education in
psychology and the principles of leadership and proceeded into spycraft, with lessons in
electronic surveillance, breaking and entering, and interrogation techniques.
"Then the nature of our advisers changed," says Mustafa. "The
pleasantness was gone, and we moved to Pakistan, where we trained with
firearms."
Mustafa's first operational assignment took him to London.
"They gave us passports and identification, and we moved a shipment of
(unidentified) goods. In England they had more I.D. waiting for us, because
customs and immigration are strict, but when we moved many places, into
India or China or Latin America, matters were taken care of, and we just
slipped through borders. We would be met. It was always all arranged."
A typical operation took place in April 1989, when a container ship from Colombia docked
during the night at Karachi, Pakistan.
Black-unit operatives met the ship after paying $100,000 in bribes to Pakistani customs
officials. The band unloaded large wooden crates from several containers.
"They were so heavy we had to use a crane rather than a forklift," says a
participant.
The crates were trucked to a "secure airport" and loaded aboard an unmarked 707 jet,
where an American, believed by the black-unit members to be a CIA agent, supervised the
frantic activity.
The plane then departed for Czechoslovakia, taking the place of a scheduled Pakistan
International Airlines commercial flight that was aborted at the last minute by
prearrangement.
The 707's radar transponder was altered to beep out the code of a commercial airliner,
which enabled the plane to overfly several countries without arousing suspicion.
"From Czechoslovakia the 707 flew to the U.S.," said the informant,
insisting that none of the black-unit workers had any knowledge of what
was in the heavy wooden crates.
"It could have been gold. It could have been drugs. It could have been

guns. We dealt in those commodities," Mustafa told U.S. authorities.

Other informants with details about the black network have come forward as the banking
disaster has unfolded.
"B.C.C.I. was a full-service bank," says an international arms dealer who
frequently worked with the clandestine bank units.
"They not only financed arms deals that one government or another wanted
to keep secret, they shipped the goods in their own ships, insured them
with their own agency and provided manpower and security. They worked
with intelligence agencies from all the Western countries and did a lot of
business with East bloc countries."
In Lima, where a probe of B.C.C.I.'s stewardship of Peru's central-bank funds is under way,
local investigators are trying to trace what happened to money in an aborted B.C.C.I.brokered deal to sell French-made Mirage jet fighters to the impoverished nation.
Sources in the clandestine arms trade say B.C.C.I. eventually sold the planes to Pakistan
and India.
U.S. intelligence agencies were well aware of such activities.
"B.C.C.I. played an indispensable role in facilitating deals between Israel
and some Middle Eastern countries," says a former State Department
official.
"And when you look at the Saudi support of the contras, ask yourself who
the middleman was: there was no government-to-government connection
between the Saudis and Nicaragua."
As an equal-opportunity smuggler, the bank dealt in arms from many countries.
"It was B.C.C.I. that financed and brokered (Chinese) Silkworm missiles
that went to Saudi Arabia," the former official says, "and those were
equipped with sophisticated Israeli guidance systems. When you couldn't
use direct government transfers or national banks, B.C.C.I. was there to
hot- wire the connections between Saudi Arabia, China and Israel."
The bank also helped transfer North Korean Scud-B missiles to Syria, a B.C.C.I. source told
TIME.
Yet the bank's arms business was benign compared with the black network's other
missions. Sources say B.C.C.I. officials, known as protocol officers, were responsible for
providing a smorgasbord of services for customers and national officials: paying bribes to
politicians, supplying "young beauties from Lahore," moving drugs and expediting insider
business deals.
When it came to recruiting and persuading, the black network usually got its way.
"We would put money in the accounts of people we wanted to seduce to
work for us," says Mustafa, "or we would use terror tactics," including
kidnapping and blackmail. "The Pakistanis were easy to terrorize; perhaps
we might send someone his brother's hand with the rings still on it."
Adds Mustafa:
"We were after business cooperation or military or industrial secrets that we
would use or broker, and we targeted generals, businessmen and
politicians. In America it was easy: money almost always worked, and we
sought out politicians known to be corruptible."
The black network was the bank's deepest secret, but rumors of its activities filtered through
the bank's managerial level with chilling effectiveness. Senior bankers voice fears that they
will be financially ruined or physically maimed - even killed - if they are found talking about
B.C.C.I.'s activities.

High-level bank officers know what happened to a Karachi-based protocol officer whom the
black network suspected of unreliability last year.
"They found he had been trying to liquidate his assets and quietly sell his
house," says Mustafa. "So, first they killed his brother, and then they sent
brigands to rape his wife. He fled to the U.S., where he is hiding."
U.S. investigators confirm the account but have little hope he will volunteer any secrets if he
is located.
Businessmen who pursued shady deals with B.C.C.I. are just as frightened.
"Look," says an arms dealer, "these people work hand in hand with the drug
cartels; they can have anybody killed. I personally know one fellow who got
crossed up with B.C.C.I., and he is a cripple now. A bunch of thugs beat him
nearly to death, and he knows who ordered it and why. He's not about to
talk."
Currently the black units have focused their scrutiny and intimidation on investigators.
"Our own people have been staked out or followed, and we suspect tapped
telephones," says a New York law-enforcement officer.
The black unit's mission eventually became the pursuit of power and influence for its own
sake, but its primary purpose was to foster a global looting operation that bilked depositors
of billions of dollars.
Price Waterhouse, the accounting firm whose audit triggered the worldwide seizure of
B.C.C.I. assets earlier this month, says the disarray is so extreme that the firm cannot even
put together a coherent financial statement. But investigators believe $10 billion or more is
missing, fully half of B.C.C.I.'s worldwide assets.
How did it happen? B.C.C.I.'s corporate structure allowed the bank to operate virtually
without regulation all over the world.
The bank's organizational web consisted of dozens of shell companies, offshore banks,
branches and subsidiaries in 70 countries. It was incomprehensible even to its own financial
officers and auditors. The bank's extensive use of unregulated Cayman Islands accounts
enabled it to hide almost anything.
The bank's complex organization and unique method of accounting - longhand in paper
ledgers, written in Pakistan's Urdu language - make it unlikely that most of the missing
money will be traced. Nor is it likely that anyone will ever know just how much Abedi, who
has incorporated a new bank, called the Progressive Bank, in Karachi, stole from the rest of
the world.
B.C.C.I.'s downfall was inevitable because it was essentially a planetary Ponzi scheme, a
rip-off technique pioneered by American flimflam man Charles Ponzi in 1920. B.C.C.I.
gathered deposits, looted most of them, but kept enough new deposits flowing in so that
there was always sufficient cash on hand to pay anyone who asked for his money.
During the years of its most explosive growth in the late 1970s and mid-1980s, B.C.C.I.
became a magnet for drug money, capital-flight money, tax-evading money and money from
corrupt government officials. B.C.C.I. quickly gained a reputation as a bank that could move
money anywhere and hide it without a trace.
It was the bank that knew how to get around foreign-exchange rules and falsify letters of
credit in support of smuggling.
Among its alleged services:
In Panama, according to a little-known racketeering suit that the
country brought against B.C.C.I., the bank systematically helped
Noriega loot the national treasury.

B.C.C.I. allowed the leader to open secret offshore accounts under

the names of the Panamanian National Guard, the Panamanian
Defense Forces and the Panamanian Treasury, to transfer national
funds into those accounts and then to tap the funds himself.

In Iraq, B.C.C.I. became one of the principal conduits for money

that Saddam Hussein skimmed from national oil revenues during
the 1980s. According to investigator Jules Kroll, who is tracking
Saddam's fortune, B.C.C.I. helped the dictator move and hide
money all over the world.

In Guatemala the collapse of B.C.C.I. has triggered a government

probe into a $30 million loan that the bank extended to the country
in 1988-89.
Government officials told TIME they suspect that some of the
money may have gone to pay bribes to stifle a four-year-old
investigation of a major B.C.C.I. client, coffee smuggler and arms
merchant Munther Bilbeisi.

o "If the $30 million was given to corrupt public officials and
that can be proved, then the loan should be wiped out or
reduced," says Fernando Arevalo Reina of the Guatemalan
Attorney General's office. (Bilbeisi has denied any
wrongdoing.)
As B.C.C.I.'s influence grew, a corrupt core of middle management evolved, described by
bank employees as "100 entrepreneurs," usually branch officers in foreign countries who
were free to pursue their own agendas.
One such was Amjad Awan, the B.C.C.I. officer who was convicted in Florida for the
money-laundering services he provided for Noriega. As long as these remote managers
kept on gathering deposits, they were given wide latitude to do as they pleased, which
increasingly meant serving a core clientele of what investigators estimate to be some 3,500
corrupt business people around the world.
The more B.C.C.I. became a conduit for such money, the more deposit gathering became
the bank's chief goal.
At annual meetings, founder Abedi would harangue his employees for days on the
importance of luring deposits. That was probably because billions of dollars were vanishing.
At the highest levels, B.C.C.I. officials whisked deposits into secret accounts in the Cayman
Islands. These accounts constituted a hidden bank within B.C.C.I., known only to founder
Abedi and a few others.
From those accounts, B.C.C.I. would lend massive amounts to curry favor with governments
- as in its $1 billion loan to Nigeria - or to buy secret control of companies.
U.S. regulators discovered recently that such loans had enabled B.C.C.I. to buy clandestine
control in three American banks:
First American Bankshares in Washington

National Bank of Georgia (later purchased by First American)

Independence Bank of Encino, Calif.

The latter two were bought officially by Abedi's front man, Ghaith Pharaon, the putative
Saudi tycoon who received an ) estimated $500 million in B.C.C.I. loans in the 1970s and

'80s.
Those loans were secured only by shares of stock in the companies Pharaon purchased,
which meant that they were never to be repaid.
What Abedi got in return for such loans was de facto ownership of three American banks,
since he held their shares as collateral for the unrepayable loans. More important, this
"nominee" shareholder arrangement meant that B.C.C.I. itself remained invisible to U.S.
banking regulators.
Following its discovery earlier this year that B.C.C.I. owned both First American and
Independence Bank, the Federal Reserve ordered it to sell them off.
B.C.C.I.'s deposits also disappeared through the black network, which used the money to
pay bribes and conduct its weapons and currency deals. According to a former officer,
B.C.C.I. bought virtual control of customs officials in ports and air terminals around the
world. In the U.S. millions of dollars flowed through B.C.C.I.'s Washington office, allegedly
destined to pay off U.S. officials.
The bribes and intelligence connections may offer an explanation for the startling regulatory
inaction.
The Justice Department has hindered an investigation by Massachusetts Senator John
Kerry, whose Subcommittee on Terrorism, Narcotics and International Operations was the
first to probe B.C.C.I.'s illegal operations.
According to Kerry, the Justice Department has refused to provide documents and has
blocked a deposition by a key witness, citing interference with its own investigation of
B.C.C.I.
To date, however, the Justice Department investigation in Washington has issued only one
subpoena.
"We have had a lot of difficulty getting any answers at all out of Justice,"
says Kerry.
"We've been shuffled back and forth so many times between bureaus,
trying to find somebody who was accountable. These things are very
serious. What's shocking is that more energy hasn't been expended.
Somebody consciously or negligently took their eyes off the ball in this
investigation."
According to Jack Blum, Kerry's chief investigator in 1988-89, the lack of cooperation was
so pervasive and so successful in frustrating his efforts to investigate B.C.C.I. that he now
says he believes it was part of a deliberate strategy.
Says Blum:
"There's no question in my mind that it's a calculated effort inside the
Federal Government to limit the investigation. The only issue is whether it's
a result of high-level corruption or if it's designed to hide illegal government
activities."
The Justice Department denies any reluctance to investigate.
Said spokesman Dan Eramian:
"We believe there has been good cooperation between law-enforcement
(agencies) in this investigation. We're often accused of dragging our feet,
and part of that we believe is partisan in nature."
Yet the evidence of a cover-up is mounting:

In one of the most mysterious events in the case, B.C.C.I. bank

records from Panama City relating to Noriega "disappeared" in
transit to Washington while under guard by the Drug Enforcement
Administration.
After an internal investigation, the DEA said it had no idea what had
happened to the documents.

Lloyd's of London, which is enmeshed in a racketeering lawsuit

against B.C.C.I., has fruitlessly made offers to provide evidence of
bribery and kickbacks and has made "repeated pleas" to U.S.
Attorneys in Miami and New Orleans to seize B.C.C.I. records.
Lloyd's accuses B.C.C.I. of taking part in smuggling operations and
falsifying shipping documents. The insurance underwriters offered
the results of their voluminous research into the bank's illegal
activities. The Justice Department attorneys ignored the offers,
Lloyd's says.

The U.S. Attorney General has assigned only a handful of FBI

agents to its Washington grand jury investigation of B.C.C.I.'s
relationship to First American Bankshares. The department's main
probe of B.C.C.I. itself is being handled by a sole Assistant U.S.
Attorney in Tampa, who has recently been assigned another major
case.
Similar understaffing is evident in a Miami grand jury probe of the
relationship between B.C.C.I. and the CenTrust savings and loan,
whose failure is estimated to cost taxpayers $2 billion.
This may help account for the fact that a 16-month investigation
has yielded no indictments.

Just as perplexing is why the Bank of England and other authorities took so long to
intervene.
Britain's main financial regulator waited more than a year after seeing a Price Waterhouse
audit that raised serious questions about B.C.C.I.'s viability before seizing its 25 branches in
Britain.
One explanation:
the Bank of England was conducting extended negotiations with Abu Dhabi
authorities, apparently hoping that B.C.C.I.'s current owner, Sheik Zayed
bin Sultan al-Nahayan, would shore up the bank.
But more suspicious experts raise questions about B.C.C.I.'s links to Western intelligence
agencies.
Leaders in Parliament have expressed outrage at the regulatory failure, which among other
things has endangered deposits from as many as 45 municipalities and four utilities.
As authorities sift through B.C.C.I. subsidiaries around the world, they are trying to cope
with potentially massive losses of depositors' money. The Pakistani press spoke of "panic
withdrawals," and one paper added that "smugglers and drug barons" were desperately
trying to rescue their offshore accounts.
In such countries as Nigeria and Botswana, officials were worried that central-bank deposits
at B.C.C.I. might be lost.

Still to be probed, with potentially explosive results, is B.C.C.I.'s Washington office. Sources
have told TIME that one of B.C.C.I.'s Washington representatives distributed millions of
dollars in payoffs to U.S. officials during the past decade. If that is true, the banker's black
book may be the single hottest source since Deep Throat in the Watergate investigation.
U.S. authorities are searching for the Washington representative and other B.C.C.I. protocol
officers, but most have fled to Pakistan. In this investigation, many roads lead to Karachi,
where the infamous black network is enduring its most desperate hour.
As it falters, the testimony by once fearful witnesses is likely to yield a succession of
startling details about one of history's most ornate and ruthless frauds.
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