BCCI – the shadiest bank in the world

Drug deals, prostitution, Saddam Hussein and the CIA: the astonishing story of the BCCI’s spectacular $20 billion collapse.

Peter Iantorno April 28, 2015

Banking is a boring business: money comes in, money goes out, pencils are pushed and papers are stacked. However, in the case of the Bank of Credit and Commerce International (BCCI), that couldn't be further from the truth.

Set up in 1972 by Pakistani financier Agha Hasan Abedi (below), the BCCI became the largest corporate criminal exercise ever - with a mafia-like method of operation and links to money laundering, CIA scandal, drugs and arms trafficking, prostitution, bribery and crooked dictators that ended in a spectacular $20 billion collapse and the closure of the bank. It's fair to say that the BCCI was a not your average high-street bank.

Abedi wasn't always destined to end up a criminal kingpin. He started a promising career in banking in Pakistan with Habib Bank, before founding his own Union Bank Ltd (UBL) in 1959 and bringing about big changes in the banking culture in the country - most notably the concept of a personal banking service. The new concept of personalised banking was a big hit in Pakistan, but UBL's biggest take up came from overseas, with the newly oil-rich Gulf countries - especially the UAE - forming close economic ties with the bank that saw both entities prosper.

All was rosy until 1972, when banking was nationalised in Pakistan and suddenly Abedi didn't have the freedom to operate in the way he'd been used to. In response to the change, Abedi formed the BCCI: an international bank registered in Luxembourg and with head offices in London and Karachi, that would be free from the constraints of any and all national governing bodies. At the height of its powers it would go on to have 417 offices in 73 countries, and liabilities estimated at close to $20 billion.Agha Hasan AbediBut how did Abedi manage to build this all-encompassing behemoth of a financial institution that somehow managed to evade the normal legal rules and regulations applied to the world's other big banks? The answer to that is far from simple, but the most basic explanation is that the BCCI, from its inception, was made up of many layers of technically separate yet interwoven entities, which connected to each other through a near-impenitrable web of holding companies, nominee investors, affiliates, subsidiaries and banks within banks.

To say it was complicated is putting it mildly. In fact, the system was so intricate that even to the bank's own financial auditors, it was far from clear what was going on. Much like American Charles Ponzi's famous 1920s scam to which he now lends his surname, the BCCI relied on its operatives taking vast amounts of deposits, which were then placed in secret accounts in the Cayman Islands and used to pay off earlier debts.

The most important thing - which, according to former BCCI employees, Abedi stressed at annual company meetings - was that enough cash-flow kept coming in so the bank always had enough to pay anyone who asked for their money. The only difference between this and Ponzi's original scheme was that instead of the insignificant by comparison $20 million that Ponzi (below) cost his investors, CBBI's global operation managed to accrue some $20 billion before collapsing in spectacular fashion.Charles Ponzi Breaking America
The initial capital for the BCCI came from investments from Abu Dhabi and the Bank of America, but constant quarrels over the lack of regulation offered by the Luxembourg and Cayman Islands-based business resulted in the Bank of America drastically reducing its shareholding and, by 1980 withdrawing almost completely. Naturally, with such suspicion already surrounding BCCI, the Office of the Comptroller of the Currency (OCC) within the US National Treasury was intent that the rogue bank should not be allowed to buy its way into the American banking system.

However, unperturbed the the OCC's opposition, the BCCI forged ahead with plans to take clandestine control of its own portfolio of US banks. The way it was done was startlingly simple, yet almost impossible to prevent. Firstly, the BCCI would loan out huge sums of money to various wealthy individuals who would front the purchase of majority shareholdings in US banks. Of course, the OCC would never allow the BCCI to buy shares directly, but using these seemingly unconnected front men, the purchase went through without a hitch.

While the front men would own the shares in name, they would be used as collateral against the initial loan, which was never paid back, meaning that, in essence, it was the BCCI that owned the banks. Using this method, the BCCI effectively took control of First American Bankshares, National Bank of Georgia and Independence Bank of Encino, while remaining completely invisible to US banking regulators. Bank of America While the American banks were being hoodwinked into clandestine takeovers, US involvement in the BCCI wasn't entirely involuntary as, according to a 1991 article in Time Magazine, the CIA secretly maintained accounts at the bank, which it used for various shady projects, including arming and financing the Afghan mujahideen in the Afghan War against the Soviet Union.

The organisations worked hand in glove for a number of years, but during the late 1980s, as the Soviet Union started to weaken, a US Customs undercover operation infiltrated the bank's private client division, uncovering its role in money laundering for drugs, arms and even human traffickers. The revelations about the BCCI had led many of its genuine investors to ask serious questions about the legitimacy of the bank, and in March 1991, the Bank of England launched an independent enquiry, which discovered that the BCCI had engaged in "widespread fraud and manipulation" and even handled money for the likes of Saddam Hussein, the Medellin Cartel and the Abu Nihal terrorist group.

This was the death knell for the BCCI, and by July 5, regulators had managed to persuade a court in Luxembourg to order the bank liquidated. The very same day, London and US branches were shut down, and in the two days following, regulators marched into the remaining 415 offices all over the world and closed them all down.Agha Hasan Abedi AuditoriumBy this time Abedi had already retired due to ill health, and was living back in Karachi, Pakistan. Of course when the BCCI revelations unravelled he was indicted and had warrants out for his arrest in the both the US and the UK, but the Pakistani authorities never gave him up, so he remained in Pakistan until his death from heart failure in 1995.

With the BCCI dissolved, the investigation into exactly what happened and the attempt to recoup as much as possible of the $20 billion depositors lost was a long and laborious one. It took 21 years and a massive $656 million in lawyers' fees to get to the bottom of it, with the files only closing on the case in 2012.

In the end, a number of high-profile law suits and prosecutions followed the investigation, including a record 14-year jail term in the UK for a businessman with close ties to the bank, Abbas Gokal. While some 50 per cent of the money lost was ultimately recovered and a number of individuals were made to face the consequences of their actions, for an organisation that had the whole world in its pocket, there were undoubtedly a lot of people who got away with their part in the most sensational global criminal case ever.

Still think banking is boring?