KARACHI, Pakistan — The Bank of Credit & Commerce International used a veil of charity, nationalism and religious piety in the country of its birth to avoid paying tens of millions of dollars in taxes. Instead, it channeled most of the huge profits it earned in Pakistan to a corporation owned by a close friend of the bank's founder, to inflationary tax-free bonds and to pet projects of Pakistan's most powerful politician, President Ghulam Ishaq Khan.
Documents obtained by The Times indicate that Ishaq Khan was serving as the nation's most senior finance official when BCCI was granted special tax-free status for its highly profitable Pakistani operations in 1981. That was the year the bank's founder, Agha Hasan Abedi, created a charitable foundation that sheltered the bank's income from taxes and earned Abedi a reputation as a larger-than-life philanthropist among most of his countrymen.
Ishaq Khan--who does not appear to have benefited financially himself--also served as chairman of the BCCI foundation when it made its largest single donations ever: $10 million in grants in 1988 and 1989 to finance a private institute for science and technology, a now-secret facility where the current project director is A. Qadir Khan, the Pakistani scientist most closely associated with the nation's attempts to build a nuclear bomb.
The foundation did assist many of Pakistan's needy and was responsible for many good works. But an analysis of 10 years of BCCI foundation accounts--obtained by The Times and verified in dozens of interviews with present and former BCCI officers--shows that less than 10% of the $60 million in profits BCCI reported it amassed here in the past decade actually went to the nation's indigent and incapacitated, to the institutions that care for them and to the religious and educational "good works" for which Abedi is best known here.
Through its large investments in government bonds that the World Bank has cited as a significant cause of Pakistan's soaring inflation and expanding black economy, the BCCI foundation actually made more money in interest alone than it ever donated to charity.
For each dollar the foundation spent to care for cancer patients or for scholarships for the poor, it spent thousands more on shares of stock in a private Pakistani cement company that has never paid the foundation a single dividend. That company is owned by Abedi's close friend, Saudi entrepreneur Ghaith R. Pharaon. Pharaon was indicted with Abedi in New York last month in the massive bank fraud scandal that has engulfed BCCI's operations in the United States.
And for every dollar the foundation donated to its public showcase project--a long-term slum improvement program in suburban Karachi where the director himself believes BCCI exploited charity in the name of Abedi's personal prestige--it spent tens of thousands more on Abedi's personal pet projects.
They eventually had to be slashed or abandoned when President Ishaq Khan and the rest of the foundation's board, instead, allocated funds for the Ghulam Ishaq Khan Institute for Engineering Sciences and Technology.
"The biggest problem with the BCCI thing is that people have now lost faith in philanthropy," said Prof. S. A. K. Lodhi, a Pakistani scientist who headed for nearly a decade one BCCI-financed sub-foundation that has languished for lack of funds.
Despite apparent conflicts of interest at the top levels of the Pakistani government, the operations of the BCCI foundation do not appear to have violated Pakistani laws.
The foundation's investment in Pharaon's Attock Cement Corp. appears to be permitted under at least one of the 28 broad objectives outlined in the foundation's articles of association, which served as the basis for the government concession allowing it to operate here largely tax-free.
The huge donations to Ishaq Khan's private institute are permitted under the foundation's mandate to "encourage research, investigation, invention, planning and development." That mandate would sanction the financing of nuclear weapons development in a country where an "Islamic Bomb" is viewed popularly and politically as a patriotic mission.
The foundation's sizable investment in tax-free government bonds has left it with a $60-million endowment that still can be donated to charity, if the board so decides.
But the foundation's records show a pattern in BCCI's Pakistani operations that bank sources here said BCCI displayed in many of the 76 counties where Abedi expanded his vast empire into what became the Third World's largest financial institution.
It is a pattern of using money to make more money, to influence key politicians and to shelter as much of it as possible from taxation. It is a pattern that challenges not only Abedi's domestic image as a devout benefactor of the poor but also BCCI's moral case for its defense here and in the West.