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Key BCCI Figure Falls From Grace : Banking: Ghaith R. Pharaon, who allegedly arranged the secret purchase of Independence Bank in Encino, was a favorite of Saudi Arabia rulers before they got burned.

August 25, 1991|RONE TEMPEST | TIMES STAFF WRITER

JIDDA, Saudi Arabia — As with almost everything in the kingdom of Saudi Arabia, family standing in the royal court was what counted most in the rise and fall of Saudi business tycoon Ghaith R. Pharaon.

He is a central figure in the scandal surrounding the Bank of Credit and Commerce International's alleged secret purchase of three American banks, one of them Independence Bank in Encino. More important, in the Saudi social context, he is also the son of the late Dr. Rashad Pharaon, personal physician and senior adviser to three Saudi kings.

This powerful connection made the Pharaon family in this sultry Red Sea port city and business capital one of the most prominent, influential clans in the kingdom.

But when Dr. Pharaon, the Syrian-born patriarch of the family, died two years ago, the royal link--already strained by Ghaith Pharaon's high-flying lifestyle and Western habits--was finally severed.

"I think it is safe to say that Ghaith Pharaon is not one of the most popular people here these days," said an Australian businessman who has worked in the kingdom for years. "Too many people, including members of the royal family, lost money with him. We are talking telephone-number-sized amounts--telephone numbers with area codes and country codes and everything."

After graduating from Harvard Business School in 1965, Pharaon used the family connection to build a business empire with international interests ranging from Pakistani cement to a suburban Paris theme park.

As son of the "physician to the court," he was a much-sought-after business partner for foreign firms trying to make inroads in the emerging, oil-rich Saudi economy. As one of a handful of Western-educated Saudis of that time, he was trusted with the money of many prominent families.

And during the incredible boom years of the late 1970s and early 1980s, suave, multilingual Pharaon--equally at home in Paris or the Pakistani Punjab--made and spent millions. His 1983-84 entry in the reference book "Who's Who in Saudi Arabia," published by a company he still owns, listed him as "chairman of board of 22 local and international corporations."

He used some of his fortune to build a block-long, walled marble palace in the exclusive Rawdah section of Jidda. The home, equal in grandeur to the palaces of the upper-elite princes in the Wahabite dynasty here, features massive carved wooden doors, a domed entry hall and eight turreted towers like those found on medieval crusader castles. The grounds are planted with date palms and brilliantly colored bougainvillea bushes.

In a February, 1985, interview with the English-language Arab News here, Pharaon said he was the largest cement dealer in the country, importing 20 million tons in the years 1978-84. That was the period when Saudi Arabia launched many of its most ambitious public works projects--billions of dollars worth of construction dedicated to bringing the kingdom into the 20th Century.

But by 1985, when the interview with the Arab News appeared, the boom was mostly over. The full extent of the slide was not yet clear. Pharaon, however, used the interview to warn bankers to be more conservative in their lending policies.

"By simply looking at the published results of the banks in Saudi Arabia and banks dealing with the Saudi market," he said, "one can conclude that the number of classified (unsecured) loans is rising rapidly, and prudent as they are, those bankers could not foresee this kind of situation. Therefore, they did not curtail their lending limits to their clients. This has resulted in an increase in substandard or classifiable loans not in accordance with good banking practices."

But Pharaon did not necessarily practice what he preached. Later the same year, according to a report by the Federal Reserve Board, BCCI secretly lent Pharaon $23 million to act as a front man in the purchase of Independence Bank. The largest bank in Southern California's San Fernando Valley, its current assets are listed at $667 million. According to federal investigators, the loan was unsecured and was obtained on the basis of false information, exactly the kind of loan that Pharaon had warned about in his interview.

Pharaon also has been named as the alleged front man in the purchase of banks and savings institutions in Florida and Georgia, including First National Bank of Georgia, once owned by Bert Lance, President Jimmy Carter's close adviser and budget director. Pharaon also is under investigation for his links with several insurance companies in California and Georgia. He was named an unindicted co-conspirator by a grand jury investigating the BCCI scandal in New York. The Federal Reserve is seeking to ban the Saudi financier from the U.S. banking industry.

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