A Look at the Fraudulent Accounting Practices of BCCI

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London-based Bank of Commerce and Credit International (BCCI) was a banking and financial institution that had the appearance of being a venerable company. Since its inception in 1972 by Agha Hasan Abedi, the company held a Luxembourg registration and initially did business in Karachi and London. Before its eventual downfall and forced closing in 1991, the bank was doing business worldwide in nearly 75 countries. This included the US institution First American Bankshares (FAB) of Washington, D.C., which was operated by former Secretary of Defense and one of the Vietnam War architects, Clark M. Clifford who served as chairman, and Robert Altman, president of FAB.

A continuously operated scandal, conceived by Abedi and his assistant Swaleh Naqvi, caused the bank to grow to the seventh largest financial institution in the world at the time of its collapse. The depths and intricacies of the fraud and criminal activity by Abedi et al. let many in the banking community to dub the former giant “Bank of Crooks and Criminals International.”

The Genesis of the Scandal

Early on, BCCI structured itself as a holding company with a multi-layered structure of subsidiary and wholly-owned entities. Although such a corporate structure was normal for the times, BCCI purposely created separate entities to evade the banking regulations of the different countries where BCCI set up banking relationships. Through the spiraling web of corporations established underneath BCCI, the bank established itself in Europe, the Middle East, Africa and the United States.

Criminal Acts Committed

Among the egregious acts committed by BCCI were money laundering, bribery, and the corruption of pubic officials. Corruption occurred particularly in African and Third World countries as a way to evade regulatory burdens. The bank used questionable payments to Third World officials as a way to buy silence and evade banking regulators wishing to look at the books and records of BCCI and its affiliates.

A second tier of BCCI’s criminal activity involved the secret purchase of banks in the US, and then merging these entities with very little oversight by state or federal regulators. BCCI used political figures like Clifford and Altman, but also Bert Lance, former Director of the Office of Management and Budget (OMB) under President Carter and U.S. Senator Stuart Symington (D-Missouri), as well as a list of former banking regulators and officials to help avoid detection and subvert U.S. banking laws. This allowed BCCI to continue its U.S. influence through FAB and Independence Bank of San Fernando, California.

Aftermath and Consequences

BCCI was involved in a 1988 investigation by federal officials for a drug money laundering case. Although federal officials bungled their investigations and ultimately caused a top Customs official investigating the matter to resign in 1989, a plea agreement was reached. This plea agreement led to the discovery by the U.S. District Attorney for New York County, Robert Morgenthau (an office he held from 1975 to 2009) of what would be a global scandal of massive proportions.

The books and records of BCCI had been audited and certified by the former accounting firm Price Waterhouse (UK) that, knowing the extent of the fraud and criminal activity engaged in by BCCI, believed under an agreement with the government of Abu Dhabi that any losses to investors would be covered. BCCI was forced to shutter its doors in July 1991 by Luxembourg and Hong Kong. Indictments were filed against chief officers and directors including Altman, Clifford, and Abedi. F. Lee Bailey, the lawyer of the famed O.J. Simpson murder trial, was disbarred by the State of Florida as a result of his involvement as a director for First American.

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Hank Gorman writes on banking, finance, law, business, accounting and other similar subjects. Hank encourages those with an interest in finance & accounting to consider the financial accounting jobs with moneyjobs.com when they contemplate a career choice.