History Timeline 1990's

President Bush with Gulf War troops. Courtesy National Archives. Right: New York Stock Exchange in 1921 by Irving Underhill, Courtesy Library of Congress.

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U.S. Timeline - The 1990s

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  • Timeline

  • 1991 - Detail

    July 29, 1991 - Bank of Credit and Commerce International is indicted in New York for the largest bank fraud in history.

    BCCI Bank Fraud

    Do you know where your bank has been? Do you know who they've been involved with, or associated with, or what their internal business practices have been? For most, almost all, that answer is no. Since the establishment of the initial Bank of North America in 1791, through the various Banks of the United States, and the Federal Reserve the banking industry has been regulated in various ways. The Department of Justice has attempted, in various manners, to insure that the industry is doing business in a way that protects the depositors and investors by investigating those banks and financial institutions that stray from the regulations. But that has not always been a straight line affair, either in the financial panics of the distant past, i.e. the Crises of 1893, the Great Depression 1929, or the recent past, the Savings and Loan Crises of 1989, and the recession caused by practices in the housing and lending industry circa 2008.

    The story of the Bank of Credit and Commerce International includes many of those concerns and practices. It even includes the presence of today's Robert Mueller, yes, that Robert Mueller, at the time an Assistant Attorney General. And even though you may not know the name of BCCI as a bank within the United States, you may remember some of the players associated with them at various times, including the Bank of America and First American. Okay, enough of that. How did the Bank of Credit and Commerce become a behemoth, then the largest bank fraud in history? Let's recount, and the count is in the billions.

    The Bank of Credit and Commerce International was begun by a Pakistani, Agha Hasan Abedi, in 1972, registered in Luxembourg, with headquarters in Karachi, Pakistan, and London, England. Its United States ties, at the time, were essentially only in the funding arena. BCCI was initially funded at twenty-five percent by the Bank of America. The other seventy-five percent by the ruler of Abu Dhabi. Confused yet. Just wait. Abedi was an experienced banker since his founding of the Bank of Pakistan in 1959, which had been subsequently nationalized. He wanted to be a banker again, one with international scope. Within ten years of the founding of BCCI, he had accomplished that. In 1982, BCCI had four hundred branches in seventy-eight nations with twenty billion dollars in assets. Tremendous growth. Hazy practices. Use of bank deposits to cover bank expenses was purported to be one of them. Headquarters now in Luxembourg and the Cayman Islands, two jurisdictions with lax bank regulations, allowed some of that hazy to escape regulatory eyes.

    However, it did come to the notice of the Treasury Department in the United States, warning the Federal Reserve that BCCI should not be allowed to own a United States bank. Even Bank of America was confused by their practices at this point and pulled their investment out of the international bank. Despite that, in 1982, fifteen BCCI clients bought a Washington, D.C. Bank Holding Company with two hundred and ninety-four branches in D.C., Maryland, and Virginia, renaming it First American. There were assurances that BCCI itself would not be involved, however, they had been considering, or attempting, a purchase of the firm for years, and actually paid fees to those clients to front part of the purchase. By 1990, a BCCI audit noticed that hundred of millions of dollars were unaccounted for. The ruler of Abu Dhabi made good on that. The audit also pointed out irregularities, such as loans to shareholders for $1.48 billion, and the fact that BCCI actually owned, illegally, First American, as much as sixty percent of it. To those that ran BCCI, the 1.2 million depositors were incidental to the phony loans and chicanery at the zenith of its structure. In one instance, they paid a bank manager $32 million to keep quiet. It was apparently common knowledge among bank employees that there were fraudulent loans, often without documentation.

    But there were other problems as well; money laundering for shady despots and criminals in the drug trade, such as Saddam Hussein, Manuel Noriega, and the Medellin Cartel. By 1986, the Justice Department, through U.S. Customs, had begun an undercover operation. By 1988, BCCI was indicted for their part in the money laundering operation, then pleaded guilty to a lesser charge.

    Efforts continued in various nations, including England, into the financial structure of the Bank of Credit and Commerce International, fraught with so much fraud, manipulation, and deception that reconstructing its financial history was almost impossible, eventually concluding that to restructure the bank was impossible and that it should be seized. This occured on July 5, 1991 in Luxembourg; on July 7 in Hong Kong. Three weeks later, on July 29, 1991, the bank, Abedi, and others were indicted on twelve counts of bank fraud, money laundering, and theft. By November, the indictments included the illegal purchase of a second American Bank, Independence Bank of Los Angeles. Do you know where your bank has been?

    BCCI paid $10 million in fines and forfeited $550 million of its American assets. Independence Bank was liquidated in 1992. First American became part of First Union Bank in 1993. First Union merged with Wachovia in 2001, which was sold/merged into Wells Fargo in 2010. It is estimated that five billion dollars just vanished within the BCCI structure, lost to bad investments in futures and options trading, the cotton industry, and undocumented loans. It is not widely thought that the money was pocketed.

    Photo above: Montage of photos (left to right); Bank of the United States, South Carolina, 1932, Francis Benjamin Johnston, and BCCI Logo, 1991. Courtesy Library of Congress and Wikipedia Commons. Below: Depositers in Great Depression after the failure of the Bank of the United States, 1931, New York World Telegraph. Courtesy Library of Congress. Info source: "BCCI Scandal: Behind the 'The Bank of Crooks and Criminals'", 1991, Steven Mufson and Jim McGee, Washington Post; "World Class Fraud; How BCCI Pulled It Off, A Special Report; At the End of a Twisted Trail, Piggy Bank for a Favored Few," 1991, Steve Lohr, New York Times; Wikipedia Commons.

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