Bank of Credit and Commerce International

BCCI's founder, Agha Hasan Abedi, established the bank in 1972. Abedi, a prolific banker, had previously set up the United Bank Limited in Pakistan in 1959 sponsored by Saigols. Preceding the nationalization of United Bank Limited in 1974, he sought to create a new supranational banking entity. BCCI was created with capital 25% of which came from Bank of America and the remaining 75% from Sheikh Zayed bin Sultan Al Nahyan, the ruler of Abu Dhabi in the United Arab Emirates.

BCCI expanded rapidly in the 1970s, pursuing long-term asset growth over profits, seeking high-net-worth individuals and regular large deposits. The company itself divided into BCCI Holdings with the bank under that splitting into BCCI SA (Luxembourg) and BCCI Overseas (Grand Cayman). BCCI also acquired parallel banks through acquisitions: buying the Banque de Commerce et Placements (BCP) of Geneva in 1976, and creating KIFCO (Kuwait International Finance Company), Credit & Finance Corporation Ltd, and a series of Cayman-based companies held together as ICIC (International Credit and Investment Company Overseas, International Credit and Commerce [Overseas], etc.). Overall, BCCI expanded from 19 branches in five countries in 1973 to 27 branches in 1974 and 108 branches by 1976, with assets growing from $200 million to $1.6 billion. This growth caused extensive underlying capital problems. The Guardian alleged that BCCI was using cash from deposits to fund operating expenses, rather than making investments. Investigative journalist and author Joseph J. Trento has argued that the bank's transformation was guided by the head of Saudi intelligence with a view to enabling it to finance covert American intelligence operations at a time, in the aftermath of Watergate, when the American intelligence agencies were defending themselves from investigations by domestic authorities.

In 1973, the BCCI applied for an offshore banking licence in Singapore that was rejected by the Monetary Authority of Singapore (MAS) on the basis that the bank was too new at just a year old and low in capitalisation. In 1980, they attempted to reapply but were yet again turned down by the MAS on the basis of its weak international regard.

BCCI entered the African markets in 1979, and Asia in the early 1980s. BCCI was among the first foreign banks awarded a license to operate in the Chinese Shenzhen Special Economic Zone which bore testament to Agha Hasan Abedi's public relations skills, a feat that had yet to be achieved by the likes of Citicorp and JP Morgan. Some of China's largest state banks were depositors in BCCI's Shenzhen branch.

There was rigid compartmentalization; the 248 managers and general managers reported directly to Abedi and the CEO Swaleh Naqvi. It was structured in such a way that no single country had overall regulatory supervision over it so as not to hinder potential growth and expansion opportunities. Its two holding companies were based in Luxembourg and the Cayman Islands – two jurisdictions where banking regulation was notoriously weak. It was also not regulated by a country that had a central bank. On several occasions, the Office of the Comptroller of the Currency, a bureau within the U.S. Department of the Treasury that regulates national banks, told the Federal Reserve in no uncertain terms that BCCI must not be allowed to buy any American bank because it was poorly regulated.

By 1980, BCCI was reported to have assets of more than $4 billion with more than 150 branches in 46 countries. Bank of America was "bewildered" by BCCI and reduced its holding in 1980, and the company came to be held by a number of groups, with International Credit and Investment Corp ('ICIC') owning 70%. By 1989, ICIC's shareholding was reduced to 11% with Abu Dhabi groups holding almost 40%. However, large numbers of shares were held by BCCI nominees.

In 1982, 15 Middle Eastern investors bought Financial General Bankshares, a large bank holding company headquartered in Washington, D.C. All the investors were BCCI clients, but the Fed received assurances that BCCI would be in no way involved in the management of the company, which was renamed First American Bankshares. To alleviate regulators' concerns, Clark Clifford, an adviser to five presidents, was named First American's chairman. Clifford headed a board composed of himself and several other distinguished American citizens, including former United States Senator Stuart Symington. In truth, BCCI had been involved in the purchase of FGB/First American from the beginning. Abedi had been approached about buying it as early as 1977, but by this time BCCI's reputation in the United States was so poor that it could not hope to buy an American bank on its own (as mentioned above, the OCC was adamantly opposed to BCCI's being allowed to buy its way into the American banking industry). Rather, it used the First American investors as nominees. Moreover, Clifford's law firm was retained as general counsel, and also handled most of BCCI's American legal work. BCCI was also heavily involved in First American personnel matters. The relationship between the two was so close that rumors spread BCCI was the real owner of First American.

BCCI had an unusual annual auditing system: Price Waterhouse were the accountants for BCCI Overseas, while Ernst & Young audited BCCI and BCCI Holdings (London and Luxembourg). Other companies such as KIFCO and ICIC were audited by neither. In October 1985, the Bank of England and the Monetary Institute of Luxembourg (Luxembourg's bank regulator) ordered BCCI to change to a single accountant, alarmed at reported BCCI losses on the commodities and financial markets. Price Waterhouse became the bank's sole accountant in 1987.

Investigations begin

BCCI's demise began in 1986, when a U.S. Customs undercover operation led by Special Agent Robert Mazur infiltrated the bank's private client division in Tampa, Florida, and uncovered their active role soliciting deposits from drug traffickers and money launderers. This two-year undercover operation concluded in 1988 with a fake wedding that was attended by BCCI officers and drug dealers from around the world, who had established a personal friendship and working relationship with undercover agent Mazur. At the same time he was dealing undercover with BCCI executives, Mazur used his undercover operation to establish a relationship with the hierarchy of the Medellín Cartel as one of their sources for laundering drug proceeds. Mazur's and others' roles in the sting operation were highlighted in the film The Infiltrator (2016, adapted from the eponymous autobiography).

In 1988, the bank was implicated as the center of a major money laundering scheme. After a six-month trial, BCCI, under immense pressure from U.S. authorities, pleaded guilty in 1990, but only on the grounds of respondeat superior. While federal regulators took no action, Florida regulators forced BCCI to pull out of the state.

In 1990, U.S. Senator Orrin Hatch presented an impassioned defense of the bank in a speech on the Senate floor. He and his aide, Michael Pillsbury, were involved in efforts to counter the negative publicity that surrounded the bank, and Hatch solicited the bank to approve a $10 million loan to a close friend, Monzer Hourani.

American inquiries and legal actions

In 1991, Robert Mueller declared the government had been investigating BCCI since 1986 resulting in intense media coverage.

In 1992, United States Senators John Kerry and Hank Brown became the co-authors of a report on BCCI, which was delivered to the Committee on Foreign Relations. The BCCI scandal was one of a number of disasters that influenced thinking leading to the Public Interest Disclosure Act (PIDA) of 1998. The report found that Clifford and his legal/business partner Robert A. Altman had been closely involved with the bank from 1978, when they were introduced to BCCI by Bert Lance, the former director of the Office of Management and Budget, to 1991. Earlier, Pharaon was revealed to have been the puppet owner of National Bank of Georgia, a bank formerly owned by Lance before being sold back to First American (it had previously been an FGB subsidiary before Lance bought it). Clifford and Altman testified that they had never observed any suspicious activity, and had themselves been deceived about BCCI's control of First American. However, the federal government and Morgenthau contended that the two men knew, or should have known, that BCCI controlled First American. Pharaon also was revealed to be the puppet controlling owner of CenTrust Bank in Miami, Florida.

Morgenthau and the federal government brought indictments against Clifford and Altman, but did not pursue Clifford due to his age and deteriorating health (he died in 1998). Altman was indicted and tried in New York, though he was ultimately acquitted following a jury verdict of not guilty. Altman later accepted a de-facto lifetime ban from any role in the banking industry to settle a civil suit by the Fed.