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Bank of Credit and Commerce International (BCCI) was a major international bank. At its peak, it operated in 78 countries and had over 400 branches and claimed assets of $25 billion.

It was embroiled in the world's worst financial scandal in 1991. It was found to be involved in money laundering, bribery, "support of terrorism, arms trafficking, and the sale of nuclear technologies;... the commission and facilitation of income tax evasion, smuggling, and illegal immigration; illicit purchases of banks and real estate". The bank was found to be effectively worthless. $13 billion was unaccounted for.

Investigations in the United Kingdom (Lord Bingham) and the United States revealed that BCCI had been organised "to avoid centralized regulatory review... to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection".

The liquidators of BCCI, Deloitte & Touche, filed a lawsuit against Price Waterhouse and Ernst & Young which was settled for $175 million in 1998. A further lawsuit against the Sheikh of Abu Dhabi was launched in 1999 for around $400 million. BCCI creditors also instituted a $1 billion suit against the Bank of England. After a nine year struggle due to the Bank's statutory immunity the suit was accepted and went to trial in January 2004.

History

BCCI's founder, Agha Hasan Abedi, started the bank in Pakistan in 1972. Abedi had previously set up the United Bank of Pakistan in 1959. Following the nationalization of United Bank in 1971 he sought to create a new supranational banking entity. BCCI was created with capital from Sheikh Zayed bin Sultan Al Nahayan of Abu Dhabi in the United Arab Emirates, the Bank of America (25%) and, allegedly, the CIA. It is claimed that the CIA were seeking a funding route for the mujahideen, similar to the Investors Overseas Service and the Nugen Hand Bank in the 1960s. However, the vast majority of BCCI's assets were initially from Abu Dhabi.

BCCI expanded rapidly in the 1970s, pursuing asset growth over profits - seeking high net-worth individuals and regular large deposits. The company itself divided into BCCI Holdings with the bank under that split into BCCI S.A (Luxembourg) and BCCI Overseas (Grand Cayman). BCCI also acquired parallel banks through acquisitions - buying the Banque de Commerce et Placements (BCP) of Geneva in 1976; creating KIFCO (Kuwait International Finance Company), Credit & Finance Corporation Ltd, and a series of Cayman-based companies held together as ICIC (International Credit and Investment Company Overseas, International Credit and Commerce (Overseas) etc.). Overall BCCI expanded to 19 branches in five countries in 1973 to 27 branches in 1974 to 108 branches in 1976, with assets growing from $200 million to $1.6 billion. This growth caused extensive underlying capital problems. The bank was "almost certainly" insolvent by 1977 in that it was using cash from deposits to fund operating expenses rather than making investments, a take on a Ponzi scheme. Nevertheless BCCI continued to expand, moving into the Africa markets from 1979 and Asia from the early 1980s.

By 1980, BCCI was reported to have assets of over $4 billion with over 150 branches in 46 countries. The Bank of America was "bewildered" with BCCI and reduced its holding in 1980 and the company came to be held by a number of groups, with ICIC owning 70%. By 1989 ICIC's shareholding was reduced to 11% with Abu Dhabi groups holding almost 40%, however large numbers of shares were held by BCCI nominees. The internal structure of the bank was unusual. There was rigid compartmentalization and there were 248 managers and general managers and only two people above them, Abedi and the CEO Swaleh Naqvi.

BCCI had an uncommon annual auditing system - Price Waterhouse were the accountants for BCCI Overseas while Ernst & Young audited BCCI and BCCI Holdings (London and Luxembourg). Other companies such as KIFCO and ICIC were audited by neither. In October 1985 the Bank of England and the Central Bank of Luxembourg ordered BCCI to change to a single accountant, alarmed at reported BCCI losses on the commodity and financial markets. Price Waterhouse became the sole accountants in 1987.

In 1988, BCCI was implicated in a drug money laundering scheme based in Tampa, Florida - the C-Chase case. BCCI pleaded guilty in 1990 but only on the grounds of respondeat superior.

In 1990, a Price Waterhouse audit of BCCI revealed an unaccountable loss of hundreds of millions of dollars, the bank approached Sheikh Zayed, who made good the loss in exchange for an increased shareholding of 78%. Much of BCCI's documentation was then also transferred to Abu Dhabi.

In March 1991 the Bank of England asked Price Waterhouse to carry out a inquiry. On June 24, 1991, Price Waterhouse reported to the Bank in the "Sandstorm Report" that BCCI was guilty of "widespread fraud and manipulation".

The report included details of how the Abu Nidal terrorist organization had held accounts at BCCI's Sloane Street branch, near Harrods in London. Britain's MI5 or MI6 had signed up two sources inside the branch to hand over copies of all documents relating to Abu Nidal's accounts. One source was the Syrian-born branch manager, Ghassan Qassem. The second source was a young British employee.

The Abu Nidal link man for the BCCI accounts was an Iraqi named Samir Najmeddin or Najmedeen. Throughout the 80s, BCCI had set up millions of dollars worth of letters of credit for Najmeddin, largely for arms deals with Iraq. Qassem later told reporters, and swore in an affidavit for investigators, that Najmeddin was often accompanied by an American, whom Qassem subsequently identified as Marc Rich, a close friend of Bill Clinton's.

Qassen also told reporters that he had once escorted Abu Nidal himself - who was allegedly using the name Shakir Farhan -- around town to buy a tie, without realizing who he was. This revelation led to one of the London Evening Standard's most famous front page headlines: "I Took Abu Nidal Shopping."

On July 5, the Bank of England shut BCCI. Around a million investors were affected.

In 1992, United States Senators John Kerry and Senator Hank Brown co-authored a report on BCCI which was delivered to the Committee on Foreign Relations.

The BCCI scandal was one of a number of crimes and disasters that influenced thinking leading to the Public Interest Disclosure Act of 1998.

Former Directors

• Alfred Hartman
• James R. Bath

See also: Banco Nationale del Lavoro

External link

• The BCCI Affair, Report to the Committee on Foreign Relations States Senate; held at FAS
• Recent report in the Washington Monthly

• Defunct banks