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BCCI Case May Be History's Biggest Bank Fraud Scandal : Finance: Losses from seized institution may reach $15 billion. Some Third World central banks could collapse.

July 11, 1991|SARA FRITZ and JAMES BATES | TIMES STAFF WRITERS

WASHINGTON — By all accounts, the case of the Bank of Credit and Commerce International is already shaping up to be the biggest bank fraud scandal in history.

Estimated losses range as high as $15 billion. Central banks of several Third World nations are in danger of collapse as a result of BCCI's closure. Competing lawsuits brought by disgruntled depositors are certain to tie up courts around the world for years go come.

And, in the United States, where perhaps as many as four grand juries and several congressional committees are exploring aspects of the BCCI case, the alleged fraud by bank officials threatens to tarnish the reputation of some prominent political figures, such as Democratic super-lawyer Clark M. Clifford.

BCCI was seized last Friday by banking regulators in Britain, Luxembourg, the United States, Switzerland, Spain, France and the Cayman Islands after an audit discovered that the bank was hiding massive losses and was on the verge of financial collapse. Until then, major questions existed about the allegedly fraudulent international financial empire that had been secretly built by the Abu Dhabi-owned bank. BCCI executives had cleverly evaded the efforts of banking authorities to penetrate the firm's internal affairs.

But, as a result of the seizure, law enforcement officials are now expected to gain access to BCCI internal documents that will disclose the full scope of the alleged scandal and possibly result in major indictments in several countries. Even before Friday's action, sources say, ex-BCCI employees previously convicted of laundering drug money had been cooperating with law enforcement officials in Florida.

What already seems clear to bank regulators is that BCCI Holdings, a $20-billion banking firm controlled primarily by Arab shareholders, is at the center of an alleged fraud of unprecedented complexity that demonstrates the weakness of the anti-fraud laws in the international banking system.

"We're going to see an international liquidation, and it's going to be a mess," a top U.S. official who is familiar with the investigations predicted. "There are going to be a lot of people who are going to lose money."

Benchmark Losses

Although the exact losses caused by BCCI's demise are not likely to be known for some time, congressional sources estimate them at between $10 billion and $15 billion. U.S. law enforcement sources peg it at more than $5 billion, and the bank's shareholders reportedly have acknowledged a loss of $4.5 billion caused by bad loans and other problems.

No matter which of these estimates proves correct, experts say the foreign exchange losses caused by BCCI will far exceed the previous benchmark set in the late 1970s with the collapse of Massey Ferguson, an over-borrowed multinational tractor manufacturer.

With BCCI's collapse, many depositors are looking to Abu Dhabi's ruler, Sheik Zayed ibn Sultan al Nuhayan, who controls 77% of BCCI, to compensate the victims. Officials of Abu Dhabi and the Bank of England are currently meeting in London to discuss the matter.

Among the hardest-hit victims are European depositors, mostly Asian small business owners, who apparently were lured to BCCI by a scheme that allowed them to avoid paying withholding and value-added (indirect sales) taxes. Under British law, residents' deposits are insured up to 75%, to a maximum of 15,000 pounds.

Meanwhile, the central banks of a number of countries such as Nigeria, Swaziland, Peru and a few Caribbean countries are threatened by the demise of BCCI, which is believed to have held large deposits from many Third World nations. In Peru, investigators are probing the dealings between BCCI and former President Alan Garcia Perez.

Political Repercussions

In the United States, the political impact may far exceed the financial fallout of BCCI's collapse. In fact, U.S. officials say, it appears that BCCI may have been using the money it took from Third World banks to shore up the institutions it controlled in the United States.

BCCI-installed officers are still running First American Bank in Washington, D.C., and banking authorities maintain that BCCI has a secret controlling interest in Independence Bank in Encino, Calif. Earlier this year, the Federal Reserve Board acted to sever the link that officials believe had existed between those two institutions and BCCI.

Both banks are federally insured and separately capitalized, so they are not threatened by BCCI's seizure.

First American executives deny that there has been any untoward influence on them from BCCI. "We don't take orders from them," said Jack Beddow, First American's president and chief executive officer.

Still, sources say Clifford and his law partner, Robert Altman, will soon be removed as officers of First American, and they--along with other unidentified political figures in both parties--are under investigation by law enforcement officials.

Loans to Politicians

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