PAWLEY'S ISLAND, S.C. — Crime has no fatherland; this is one of the lessons of the still-spreading BCCI scandal. The $20-billion bank was chartered in Luxembourg, headquartered in London, controlled by the ruler of an Arab oil sheikdom--and, until regulators in seven countries shut it down July 5, it was active in 70 countries.
The Bank of Credit and Commerce International was a friendly, full-service bank. It laundered money for clients like Manuel A. Noriega, while making contributions to Jimmy Carter's charitable foundation. Both Carter and U.N. Secretary General Javier Perez de Cuellar got free rides on the company jet.
BCCI was impartial. It worked with Mossad, the Israeli intelligence service, and with Abu Nidal, the Palestinian terrorist. Operating through offshore banking havens like the Cayman Islands, BCCI was always ready to help favored customers evade taxes, launder drug and rackets money, sell illegal arms and generally have a grand old time.
Its public-relations strategy was complex. On the one hand, news accounts report that critics of the bank were beaten and terrorized. One critic was silenced after he received the hand of his brother--still wearing rings. More conventionally, BCCI ran what staffers called a "RAF," or Rent-A-Face. These "Faces" were prominent people ready--for a fee--to appear at BCCI-related functions. There are indications some U.S. politicians were on this list.
All these irregularities seem to have escaped the bank's auditors until a year ago, when a confidential memorandum from Price Waterhouse to the Bank of England warned of problems. The Bank of England, the oldest and most revered of the world's central banks, mysteriously did nothing with this information for almost 12 months. Neither Price Waterhouse, the Bank of England, nor any other responsible party went public with this information. Unsuspecting, honest depositors from London to Hong Kong trooped confidently up to the teller windows to deposit their savings. Since most countries have less deposit insurance than the generous FDIC program of the United States, many innocent depositors--not to mention the not-so-innocent drug lords, tax cheats and spies--who counted on BCCI will lose some or all of their deposits.
Losses will be huge. Some say $15 billion of the bank's $20 billion has been looted. Repercussions of the still-spreading scandal will emerge for years.
Reputations will crash. Former U.S. Secretary of Defense Clark M. Clifford, a confidant to more Presidents than most Americans can remember, has been tarred by the scandal. Alan Garcia, former president of Peru, is fighting allegations that he used a relationship with BCCI to loot his country's central bank of something like $50 million. It appears a number of Western intelligence agencies took advantage of the bank's ability to spirit money and arms around the world.
An infuriated House of Commons wants to know why the Bank of England let British depositors--including local government authorities who may have lost millions--put money in a bank it knew was unsound. What did the government know and when did it know it? This Watergate-style question threatens a Conservative Party, still shaken by the ouster of Margaret Thatcher.
The scandal is crossing the Atlantic. Widely respected Manhattan Dist. Atty. Robert M. Morgenthau charges the Justice Department has stonewalled his investigation of the bank. The Justice Department indignantly denies this, and points to investigations of its own.
At this stage, the scandal looks bipartisan. One set of clues seems to point toward Iran-Contra and, at worst, may implicate U.S. government agents in drug trafficking; another paper trail leads toward the U.S. Congress. Like the savings-and-loan mess, BCCI will tarnish both parties and the image of government, as a whole, in the eyes of the public.
All this looks different in countries like Pakistan--where BCCI was one of the few banks providing essential financial services to business and consumers. If BCCI is an outlaw there, it is an outlaw like Robin Hood--with international financial institutions cast as the Sheriff of Nottingham. With the International Monetary Fund and leading banks perceived as robbing poor countries to pay off the rich, many Third World politicians and businessmen think more Robin Hoods is just what the world needs.
One lesson of the BCCI scandal has already emerged: There is nothing simple about the new global economy. Most supporters of the trend toward worldwide economic integration believe integration and deregulation go hand-in-hand. Nothing could be farther from the truth.
BCCI reminds us that a worldwide economic system requires a global regulatory framework. Taxpayers especially need to take note: U.S.-based banks engaged in the wild and wooly world of international finance are backed up by the taxpayer-dependent FDIC. Without effective international regulation, U.S. taxpayers are, in effect, held hostage.