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THE BCCI AFFAIR

CLARK CLIFFORD AND ROBERT ALTMAN

Introduction

For twelve years, from BCCI's initial attempts to acquire FGB/First American in January, 1978, until their forced resignation in August, 1991 from their positions as the top officials of First American, former Secretary of Defense Clark Clifford and his law partner, Robert Altman, were the central figures in BCCI's acquisitions and management of U.S. banks.

During that time, they met with and represented BCCI's top management, major shareholders, major borrowers, and every figure of consequence who participated in BCCI's frauds in the United States. Their roles included:

** Representing Bert Lance in his sale of National Bank of Georgia (NBG) to BCCI nominee Ghaith Pharaon in 1977 and 1978.

** Representing Lance, BCCI, and all of the Arab shareholders in the Financial General Bankshares (FGB) takeover and all related litigation from late 1977 through late 1990.

** Representing Commerce and Credit American Holdings (CCAH), the new entity created to buy FGB, and several levels of holding companies below CCAH, from 1978 through late 1990.

** Acting as chairman and president, respectively, and directors of First American, from 1981 through August 1991.

** Negotiating First American's purchase of National Bank of Georgia from Pharaon and BCCI in 1985 and 1986.

** Handling legal matters for First American, and selecting First American's other counsel from 1978 through late 1990.

** Representing BCCI before state and federal regulators from 1978 through late 1990.

** Representing BCCI before Congress from 1988 through 1990.

** Purchasing shares of First American and borrowing funds from BCCI for their shares of First American from 1986 through 1989.

** Coordinating the legal defense of BCCI and of all of its officers charged in the Tampa case, including handling the selection of attorneys for all of the individual BCCI officers, following BCCI's October, 1988 indictment.

Clifford and Altman have testified that they were throughout this period deceived as to BCCI's ownership of and control of First American and other BCCI entities in the United States, and ignorant of the bank's wrongdoing in any material respect. In Clifford's words:

In all these years, we didn't encounter a single suspicious circumstance. . . Were we deceived? Apparently, we were deceived.(1) (emphasis added)

We have not violated any law. We have not been guilty of any impropriety. . . if all that we read about, this poisonous, constant stream of misconduct, if that is a true statement of what this bank did, then we have been grossly deceived.(2)

As Altman testified:

The allegations that relate to misconduct on our part, I want the record to be clear, that we deny them totally and completely.(3)

In contrast, numerous BCCI officers who appeared before the Subcommittee testified that Mr. Clifford and Mr. Altman must have known that BCCI owned First American. Abdur Sakhia, for instance, testified:

[I]n any management discussions . . . on our future in the United States, we would think of three entities -- BCCI, National Bank of Georgia and First American -- in the same breath. Who would be going where, who would work in which entity, what area of entity will be handled by which entity, allocation of businesses, markets, geographic territories, all took place as if this was one entity. . . [I]t is very hard to believe, very, very hard to believe, almost impossible to believe. . . that Clifford and Altman did not know [about BCCI's ownership of First American].(4)

Similar statements were made in public testimony and in staff interviews by BCCI officials Amjad Awan, Akbar Bilgrami, and Nazir Chinoy concerning Clifford and Altman's role in BCCI and First American.

While it is clear that no one, with the possible exception of BCCI's top two officials, Abedi and Naqvi, knew of all the criminal conduct at the highest levels of the bank's operations, numerous people at BCCI and associated with it did know of BCCI's ownership of First American, its use of nominees for acquisitions generally, its lending to First American's purported shareholders, and its strategy for expansion in the United States.

Findings

The Subcommittee received with care the detailed proffer of information and testimony provided by Clifford and Altman, and struggled to reconcile their statements with the other information provided to the investigation. Reaching judgments regarding the nature and extent of Clifford and Altman's intentions is impeded by the lack of witnesses to a number of key meetings over the course of a decade regarding BCCI and First American in which only Clifford, Altman, and BCCI's top two officials, Abedi and Naqvi, were permitted to participate. Few memoranda exist as to the substance of any of these meetings, and it was the practice of Abedi, Naqvi, Clifford and Altman to exclude all others from these meetings who might otherwise give witness as to what was discussed and decided.

Nevertheless, based on a review of all of the documents and testimony before the Subcommittee, the account provided by Clifford and Altman to the Subcommittee is not consistent with the facts. Regrettably, as the chapter below details, in case after case, explanations provided by Clifford and Altman concerning their conduct are contradicted not merely by sworn testimony of other witnesses, but by contemporaneous documents which set forth facts that are at odds with their testimony. The totality of the information concerning Clifford and Altman leads to the conclusion that regardless of whether they too were deceived by BCCI in some respects, both men participated in some of BCCI's deceptions in the United States. Testimony of mid-level BCCI officials, contemporaneous documents created by others, and the legal documents and correspondence involving Clifford and Altman directly, together lead to the conclusion that Clifford and Altman:

** Assisted BCCI in purchasing a U.S. bank, Financial General Bankshares, with the participation of nominees, and understood BCCI's central involvement in directing and controlling the transaction.

** Made business decisions regarding acquisitions for First American that were motivated by BCCI's goals, rather than by the business needs of First American itself.

** Represented as their own to regulators decisions that had been made by Abedi and BCCI on fundamental matters concerning First American, including the purchase by First American of the National Bank of Georgia and First American's decision to purchase branches in New York City. While these decisions were ratified by First American's board of directors, they were decisions made initially by BCCI and communicated to Clifford and Altman, who in turn secured ratification of them, as necessary, by First American's boards.

** Concealed their own financing of shares of First American by BCCI from First American's other directors and from U.S. regulators.

** Withheld from regulators critical information that they possessed to secret BCCI's ownership of First American.

** Deceived regulators and the Congress concerning their own knowledge of and personal involvement in BCCI's illegalities in the United States.(5)

Early Involvement

Clifford, Altman and Bert Lance each testified that their mutual involvement with BCCI began in the fall of 1977, in connection with Lance's decision to participate in a hostile takeover of Financial General Bankshares (FGB) in Washington, and the participation of a group of Middle Eastern investors, advised by BCCI.

But their accounts diverge as to how Clifford and Altman came to know BCCI and Abedi, and when Clifford and Altman began to participate with Lance and Abedi in planning BCCI's strategy for acquiring U.S. banks.

By Clifford and Altman's account, they knew nothing of BCCI and were introduced to the bank by Lance in December, 1977 and did not represent BCCI until mid-February, 1978 in connection with litigation with SEC and FGB's management. By Lance's account, Clifford's involvement with the case began two months earlier, soon after Lance met with Abedi in New York and discussed with Abedi BCCI's need to enter the U.S. market.

In Lance's account:

I went to see Mr. Clifford, who had represented me since Labor Day weekend of 1977, and I said: Mr. Clifford, I have made the acquaintance of Mr. Abedi. His bank is BCCI. He has some interest in talking to me about future relationships, whether that is in regard to being merely a consultant or being actively involved in one of his operations somewhere

. . . it is absolutely imperative and incumbent upon me to make sure that we know what kind of people that I am getting involved with . . . I asked Mr. Clifford, because of his knowledge and expertise . . . to do his due diligence on my behalf, as my attorney . . . Every instance o[r] report that I either got or from what Mr. Clifford told me came back that Mr. Abedi was a man of integrity and character.(6)

Based on the assurances he had received from Clifford, Lance went to London, met with Abedi again in late October, and began discussing the possibility of a takeover of FGB with Abedi and BCCI.(7)

In contrast, Clifford testified that the first he learned of BCCI was when Lance, as a "former client," brought Abedi to meet them in December, 1977 on "merely a social visit."(8) By Clifford's account:

One of the main subjects we discussed in that brief social meeting was the aid that he had for his bank, of providing the Third World with banking services which they had not ever had before . . . I found him to be pleasant and a man of importance. Thereafter, I'd hear from time to time that the little reports would sift in that Mr. Abedi and BCCI were in the process of acquiring stock in a company called Financial General Bank Shares. That's a bank holding company, centered in Washington. I had not heard of them before.(9)

In fact, in the period that Clifford testified he was merely hearing "little reports" sifting in "from time to time," Clifford and Altman were already representing Lance in connection with his attempt to sell the National Bank of Georgia to Ghaith Pharaon in a transaction fully negotiated by and handled by Abedi, ostensibly on Pharaon's behalf. This representation had begun no later than early December, 1977. As Lance testified, the negotiations concerning National Bank of Georgia with Abedi had taken place between Thanksgiving and Christmas, and were in that period turned over by Lance to his attorneys:

They [Mr. Clifford and Mr. Altman] were very aware of what I was trying to do and were very helpful to me in trying to do that. . . After discussions with Mr. Abedi about the National Bank of Georgia, I turned over these negotiations to Bob Altman to deal with Pharaon's attorney, a gentleman by the name of Frank Van Court, who is a member of the Vincent and Elkins law firm in Houston.(10)

Thus, Lance refers to an ongoing representation of him by Clifford and Altman, stemming out of Congressional testimony a month earlier, while Clifford describes Lance as a "former client." Lance places Clifford's involvement with him with BCCI in October, prior to discussions about the structuring of the FGB takeover, while Clifford places his first contact in late December. Lance places Clifford's representation of him on the BCCI-related acquisitions by December, while Clifford places the representation in mid-February. In each case, the difference between the testimony is that Lance places Clifford as a participant in the critical decisions that BCCI made in late 1977, while Clifford places himself at a distance from these decisions. Clifford's desire not to have been involved is understandable, because the manner in which Lance and the Middle Eastern investors chose to conduct their takeover bid for Financial General Bankshares would prove, within three months, to have been illegal by a federal judge.

A mid-December, 1977 article in The Washington Post provides irrefutable evidence of Clifford and Altman's involvement in negotiations by Lance at that time regarding investments by "Middle Eastern financial interests . . . into banks and other U.S. investments" in a deal in which the "matchmaker" was described as Abedi, head of BCCI. The article states that the Middle Eastern investors represented by Abedi want Lance "to set up a holding company to direct their capital into banks and other U.S. investments," and quotes Altman as confirming that negotiations between Lance and Abedi had taken place concerning the bank transactions:

"There are a lot of people who are trying to guess what's going on," said the attorney, Robert A. Altman, but he added that few are privy to the details. "The terms are still being negotiated. We hope to have a statement shortly."(11)

In the same article, Altman is described as announcing Lance's intention to sell his shares in the National Bank of Georgia as of early December, 1977 to an unnamed purchaser for $20 a share -- the exact amount paid in early January, 1978 to Lance by Ghaith Pharaon on behalf of himself and BCCI.(12) Thus, Altman and Clifford were already representing Lance in his negotiations over sales of his bank to Pharaon at the beginning of December, 1977; and in connection with the establishment of a bank holding company, obviously referring to the structure to be used by BCCI to acquire Financial General Bankshares, by mid-December, 1977; the period in which Clifford testified he had been privy only to "a social visit" from Abedi concerning other matters, and during which Clifford by his account did not represent Lance, described by Clifford as "a former client," at all.

Takeover of Financial General

As of January, 1978, Clifford and Altman were simultaneously representing Lance in his discussions with BCCI about the possible takeover of Financial General Bankshares; meeting with Abedi and other BCCI officials concerning that takeover; representing Lance in negotiations with Abedi and BCCI officials concerning the purchase of National Bank of Georgia by Ghaith Pharaon; and preparing to handle representation of the Arab shareholders who were ostensibly using BCCI as an "investment advisor" for the Financial General Bankshares transaction.

These roles were not being undertaken casually, or in a routine fashion, but in the context of what was about to become a high-stakes, highly-publicized hostile takeover of a major metropolitan Washington bank. The takeover bid was agreed to by Lance and BCCI in late November, 1977 and begun in December with purchases of Financial General Bankshares shares on the open market. It was structured so that each shareholder participating in the bid with BCCI would purchase an amount of shares just below the 5% that would trigger the requirement of SEC disclosure -- a strategy demonstrating some sophistication about and knowledge of U.S. regulations. The strategy, an obvious violation of SEC law if discovered, was dictated by the group's need to acquire an adequate block of shares in the FGB stock to challenge the controlling management of FGB, the Middendorf group, which already owned about 20 percent of the target bank.

This initial strategy created an underlying problem for Lance, BCCI, the Arab group, and its attorneys which was never corrected. If Lance, BCCI, the Arab investors, or their attorneys admitted the truth -- that they had been acting as a group from the beginning, purchasing blocks of FGB shares just under disclosure requirements to avoid premature disclosure and a more aggressive defense against the takeover by FGB's current management -- they would be admitting to possibly criminal violation of U.S. securities laws. Yet in denying this truth, they committed themselves to what was at the time a significant distortion of the truth, and a distortion which grew ever complicated over time.

Thus, an original, untrue proposition -- that the BCCI group was not a group at all, but a collection of Arab individuals who happened to use BCCI as a joint investment advisor, and who happened individually to independently become interested on the same week in the same U.S. bank -- was one which Clifford and Altman wound up maintaining from February, 1978 onwards, from the time the SEC filed suit against the Arab investors, Lance, and BCCI, charging that they had acted as a group, and had intentionally violated U.S. security disclosure laws by failing to disclose their intent to gain control over FGB. The representations made by Clifford and Altman concerning BCCI's role regarding First American in the years that followed were consistent with this original lie, and therefore inconsistent with the truth.

In their prepared testimony before the Senate, Clifford and Altman described the thrust of the SEC suit and their state of knowledge upon entering the case:

BCCI served as the banker and investment adviser to a number of wealthy Middle Eastern rulers and businessmen. Without our involvement or advice, four of these investors had purchased stock in an American holding company called Financial General Bankshares ("FGB"), the predecessor to First American, without filing certain disclosures with the Securities and Exchange Commission ("SEC").(13)

In their joint written statement to the Subcommittee, Clifford and Altman testified explicitly that they were not involved in the structuring of the original takeover attempt, the selection of the investors, or any other aspect of the transaction:

Without our involvement or advice, four of these [Middle Eastern] investors had purchased stock in an American bank holding company called Financial General Bankshares . . . without filing disclosures with the Securities and Exchange Commission ("SEC"). The SEC investigated these transactions, and the management of FGB, concerned that these purchases foreshadowed a possible corporate takeover effort, filed suit against the Arab investors, BCCI, Mr. Abedi, and others. We were retained to represent Bert Lance, Agha Hasan Abedi, BCCI, Sheikh Mohammed bin Zaied al Nayhan, Sheikh Sultan bin Zaied al Nahyan, Faisal al Fulaij, and Abudullah Darwaish.(14)

This account is contradicted by a January 30, 1978 memorandum found in BCCI files in Abu Dhabi by the Federal Reserve, and previously held in BCCI files in Karachi, Pakistan, from Abdus Sami, a BCCI official, to BCCI chairman Abedi. In this memorandum, Sami advises Abedi that Clifford personally approved the details of the plans for the takeover, and describes BCCI's intention to circumvent SEC disclosure by keeping purchases of the shares to just under 5 percent for each shareholder.

In the memorandum, Sami advised Abedi that in order "to keep ownership to below 5 percent we have to distribute the ownership to 4 persons of substance." Sami noted that "we have already given the names of Sheik Kamal Adham and Mr. Fulaij. We want two other names immediately." In the memorandum Sami also told Abedi that Lance had suggested the retention of Clifford as chief counsel "in view of the possibility of this [takeover] contest and also for presentation of the holding company application to Fed[eral Reserve]." According to Sami, "[I] met Clark Clifford and explained to him our strategy and goal. He was happy to know the details and has blessed the acquisition."(15) [emphasis added]

The memorandum clearly states that Clifford was involved in the FGB takeover from the beginning -- before two of the original four shareholders had even been chosen, before a takeover contest had actually begun, before an application was made to any regulator, before the SEC knew of any activity that might prompt its interest. The memorandum, found by the Federal Reserve in BCCI's files, is a contemporaneous representation of the understanding of the BCCI official most directly involved at the time in meetings with Lance and Clifford concerning the purchase of FGB. Accordingly, its clear import has to be given considerable weight.

The chronology in the memorandum is supported by the legal bills sent by Clifford and Altman to BCCI, and provided to the Subcommittee in the spring of 1992 by BCCI's liquidators. In their written statement to the Subcommittee, Clifford and Altman testified that they did not provide advice to BCCI, or its Arab investors, until the litigation involving the SEC and the Middendorf group, which began in mid-February 1978. But the bills from Clifford's law firm to BCCI, provided to the Subcommittee in May, 1992, demonstrate that they actually represented BCCI and the Arabs in January, 1978, just as Sami had specified, and contrary to Clifford and Altman's testimony.

Clifford, Altman and the Regulators

Neither Clifford or Altman were experienced in either banking law, or in takeover litigation. Accordingly, Baldwin Tuttle, a former Federal Reserve attorney, was retained to handle banking regulatory issues, and the law firm of Wachtell, Lipton, Rosen & Katz in New York was retained to advise on the takeover itself.

In the months that followed, numerous filings were made with banking regulators by Tuttle, the Wachtell firm, and Clifford and Altman on the behalf of the Arab investors, BCCI, and Lance concerning the nature and extent of BCCI's involvement in the transaction.

For example, the original application to the Federal Reserve of October 19, 1978, made by CCAH and the original Middle Eastern shareholders and signed by Altman, stated:

The proposed individual investors in CCAH have substantial funds and it is contemplated that the funds to be used by each of them to purchase the equity interest in CCAH will be provided from their personal funds and possibly from personal borrowings from one or more financial institutions (which would be unaffiliated with BCCI or any of its affiliates), except that at least an aggregate of $50 million will be provided from personal funds and not more than an aggregate of $20 million will be borrowed. Such investors intend that if personal borrowings are made, Financial General Shares purchased pursuant to the Offer will not serve as collateral for such borrowings. (emphasis added)(16)

A November 24, 1978 letter from Altman to the Federal Reserve Bank of Richmond reiterated the commitment that:

neither BCCI nor any other organization related to BCCI contemplates owning any equity interest in CCAH.(17)

On January 12, 1979, Altman again told the Federal Reserve by letter that the shareholders would not borrow from BCCI or its affiliates. In October, 1980, when CCAH resubmitted an application to the Federal Reserve signed by Altman, Altman reiterated that BCCI had no role in the transaction:

BCCI owns no shares of FGB, CCAH, or CCAI, either directly or indirectly, nor will it if the application is approved. Neither is it a lender, nor will it be, with respect to the acquisition by any of the Investors of either FGB, CCAI, or CCAH shares . . . All of the Investors in CCAH have substantial funds and the funds to be used by each of them to purchase their equity interest in CCAH will be provided from their personal funds . . . . No principal of Applicant will retain any personal indebtedness in connection with this transaction.(18)

As described in the chapter on BCCI's activities in the United States, ultimately the decision came down to a public hearing at the Federal Reserve on April 23, 1981 in which Clifford and Altman, along with Mr. Adham and Mr. Fulaij, made an appeal to regulators to allow the acquisition to move forward. As Clifford told regulators at the hearing when he was asked about BCCI's involvement in the acquisition, BCCI's role would be:

None. There is no function of any kind on the part of BCCI . . . I know of no present relationship. I know of no planned future relationship that exists.(19)

In their prepared testimony before the Senate, Clifford and Altman testified that they made full disclosure to the regulators at that meeting concerning the contemplated relationship between BCCI and the Middle Eastern investors who bought shares in CCAH. Clifford and Altman testified that the regulators "were advised that certain of First American investors were also shareholders in BCCI; that the investors used BCCI as their commercial and investment bank; that BCCI had provided and would continue to provide "advisory and other services to the shareholders with respect to their CCAH investments; and that BCCI served as a communications link with the investors."(20)

As discussed earlier, Robert Mannion, the Associate General Counsel for the Federal Reserve, who conducted the public hearing on the FGB takeover, broached the issue of the relationship between the Middle Eastern investors and BCCI on numerous occasions, but ultimately accepted the assurances of Clifford, Altman and the Middle East investors themselves that BCCI would neither own nor control Financial General Bankshares.

Part of the problem is that the permissible relationship between BCCI and First American was never explicitly set out by anyone at the Federal Reserve, beyond the original requirement that BCCI could not act as a lender to the shareholders for the original purchase of FGB, and was limited to acting as an "investment advisor," and conduit for information. The principal official regulatory discussion of the degree to which BCCI and FGB could interact was set forth in a letter to the Federal Reserve from the Deputy Comptroller General, Mr. William Muckenfuss, in a letter to the Chairman of the Federal Reserve Board, which became part of the record upon which the Federal Reserve's approval of the CCAH application was granted. The Comptroller's office signed off on the takeover of Financial General Bankshares, stipulating certain conditions:

It has now been represented to us that BCCI will have no involvement with the management, and other affairs of Financial General, nor will BCCI be involved in the financing arrangements, if any are required, regarding this proposal. This commitment is critical, both now, and in the future, since a relationship with another financial institution would be a significant factor in appraising this application. This is especially important in light of overlapping ownership, which will exist between Credit and Commerce Holdings, Credit and Commerce Investment, and BCCI. Moreover, any enhanced, direct or indirect affiliation or relationship between BCCI and Financial General, would take on even greater significance in light of the fact that BCCI is not subject to regulation and supervision on a consolidated basis, by a single bank supervisory authority."(21)

Testifying before the Subcommittee, Clifford acknowledged that he interpreted the Muckenfuss letter to have signified a definite agreement in three areas: "one, BCCI would not acquire any stock in First American at the time of the tender offer; two, that they would not, in any way, finance the purchase of the stock in First American; and three that they would have no control over the operation of First American."(22)

Clifford's interpretation of the obligation differs from the plain text of the Muckenfuss letter and OCC's requirements. OCC stated that its approval was condition on BCCI not being involved with management. For that concept, Clifford unilaterally substituted the word "control," a substantially less stringent standard than that which the OCC actually required.

Concerning the first point, no documents have been found by the Subcommittee which definitively prove Clifford and Altman knew BCCI had acquired stock in First American prior to the conclusion of the FGB acquisition. But the Sami memorandum contains material suggesting that precisely such an arrangement had been approved by Clifford in the early days of the FGB takeover, and other documents provide circumstantial documentation of Clifford's knowledge about the proposed Middle Eastern shareholders in FGB not being at risk.

An October, 1978 telex from former CIA Director Richard Helms to Mohammed Rahim Irvani, one of the original investors, shows Helms advising another BCCI front-man on language designed to hold him harmless for acting as a front-man for BCCI. The language of the telex states that by agreement, Irvani would be not be liable for any liability caused by granting a power of attorney to Clifford and his firm in connection with the FGB takeover, and suggests that this language be sent to the Clifford firm.(23) Irvani was then listed, within days of the telex, in an application filed with the Federal Reserve by Altman on behalf of CCAH, listed as one of its intended principal shareholders, along with representatives of the Abu Dhabi royal family, and Faisal al Fulaij -- another nominee for BCCI.(24)

What was unusual about this agreement provided to Irvani by Helms at the time of Irvani's application to the Federal Reserve as a shareholder of CCAH is not the power of attorney given to Clifford and Altman -- they would hold a power of attorney for all of the Middle Eastern investors -- but rather the indemnification, which essentially states that Clifford and Altman have the power to act in Irvani's name without liability attaching to Irvani -- meaning that someone else, presumably BCCI, would be indemnifying Irvani against any possible liability as a result of the use of his name. As a result, Irvani would not be at risk for any actions he participated in during the takeover, and therefore would be understood to be a nominee by anyone knowing of the indemnification.

On point two, William Taylor, the head of Banking Supervision for the Federal Reserve, and Gerald Corrigan of the New York Federal Reserve, gave credence to Clifford's interpretation in testimony before the House Banking Committee. Corrigan stated that "there was no prohibition of borrowing from First American even when the stock of First American was placed as collateral." According to Altman, the only prohibition on pledge of stock was for the initial takeover. Nevertheless, Taylor's and Corrigan's testimony is at odds with the specific language of the Muckenfuss letter relating to "financial arrangements .... both now and in the future." Moreover, whenever Clifford and Altman clearly knew of such borrowing by First American shareholders from BCCI against collateral, such as in connection with their own such borrowings, various rights offerings, and First American's purchase of National Bank of Georgia, they took steps to hide this information from the regulators.

On point three, Clifford and Altman have remained adamant that BCCI never exercised any control over First American. On this point, however, there is substantial evidence to the contrary.

Management of First American

In testimony to the House Banking Committee, Clifford stated that "Before accepting the offer to serve [as Chairman of First American] however, a fundamental agreement was made with the shareholders on the issue of authority," that he [Clifford] would run the bank. (25) Counsel for Clifford acknowledged, however, that "the specific agreement... was an oral agreement" and that there was nothing in writing to support their client's assertion.(26) Clifford characterized his involvement in the operations of the bank as "no ivory tower experience for us." He explained that "This was a hands-on occupation. I took it as my first obligation."(27)

However, BCCI in fact participated in the selection of First American's top management from the outset of Clifford and Altman's tenure. As detailed in the Federal Reserve's summary of charges, Abedi, BCCI's CEO, interviewed a series of candidates for the new chief executive officer of First American, including former Citibank president William I. Spencer, Daniel J. Callahan, James Drumwright, and Robert Stevens, the last of whom ultimately became First American's CEO and president. While Spencer turned down the job offer after meeting with Abedi following an introductory meeting with Clifford, Callahan was informed by Clifford that he would not be offered the position of CEO of First American because Callahan had requested "exclusive administrative, operational and executive control" of the bank.(28)

Clifford's involvement with Abedi in this process -- which begin within days of the April 23, 1981 hearing before the Federal Reserve -- is evidence of his understanding at the time that BCCI would have a substantial say in the most important decisions affecting First American's future, beginning with the selection of a CEO. Contrary to the assurances provided the Federal Reserve by Clifford and Altman, no CEO would be chosen who would require full autonomy in decisions regarding the bank.

In prepared testimony before the Senate Foreign Relations Committee, Clifford and Altman stated that "The evidence is conclusive that the two companies [BCCI and First American] had different -- and incompatible--operating policies and procedures, strategic concepts, bank support functions, staffing and administrative programs, customer bases and controls and systems." Clifford cited as proof that BCCI did not control First American the testimony before the House Banking Committee of Robert P. Black, the Chairman of the Richmond Federal Reserve, who said, that in a review of First American's activities in 1991, "we have found no evidence of influence or control."(29)

In practice, BCCI's involvement in day-to-day affairs of some of First American's members banks was either very limited, or non-existent, and in others, such as First American Virginia, the institution under the jurisdiction of the Richmond Federal Reserve, limited to a few transactions. But in other parts of First American, including First American Georgia and First American D.C., BCCI clearly influenced both important banking investment decisions and other transactions. In connection with First American New York, BCCI controlled most of the critical decisions by First American, including the hiring of management, the size, location and choice of office space, and the business strategy. More importantly, when it came to fundamental issues of First American's acquisition and sales strategy, BCCI's needs over the course of a decade repeatedly dictated First American's decision making, rather than independent business judgments by the U.S. officials of First American.

First American New York

In their written testimony to the Subcommittee, Clifford and Altman made the following presentation concerning the issues related to BCCI's involvement with decisions concerning First American New York:

BCCI has not in any way controlled First American Bank of New York ("FABNY"), much less the First American organization. These events now being questioned cannot be viewed in isolation, and are related to unique circumstances in New York during the 1982-1983 time period. . . In connection with the 1981-1982 regulatory proceedings to acquire two New York banks owned by FGB, an application was submitted to the New York State Banking Board. Due to strong opposition, the investors agreed to divest the New York City bank following the tender offer. The Middle Eastern investors, in effect, were forced to create a new bank in New York City -- an unforeseen development.

As a result, an entire management group to operate the New York bank had to be identified and hired. Mr. Abedi, as investment advisor to the shareholders, was consulted about bankers whom he might know or recommend for employment by the new First American Bank of New York. This assistance was particularly welcome as FABNY was to have an international banking capability, and Mr. Abedi's background was devoted to international banking. At no time, however, did Mr. Abedi make decisions concerning the selection, hiring, or dismissal of officers. Final authority -- as made clear by Board minutes -- rested with Mr. Clifford and the FABNY board.(30)

However, in testimony before the Subcommittee, Altman acknowledged that the circumstances pertaining to BCCI's involvement in the establishment of a New York office for First American had lead to BCCI being unusually involved in some of the start-up functions of First American there.

When the acquisition was completed in the spring of 1982 we were then in a very awkward and, to some extent, unhappy posture. We were under an obligation to sell the New York City bank. And we were under a need to set up a new bank and really set it up from scratch. We had nothing in the city. We had no staff. We had no location. We had no resources. It put us, as I say, in a difficult position.

Now throughout the takeover litigation and during the regulatory proceedings, we essentially had two contacts in New York. One was the law firm of Wachtell, Lipton, Rosen & Katz that was co-counsel with us and represented the shareholders during these proceedings. And the other was BCCI, which had a representative office and was acting as the investment advisor. . . And so we went to the people we knew at Wachtell, Lipton and we asked the attorneys did they know of space in the city. And they did. And they recommended space. And we went to BCCI's representative office in New York, which was then headed by this man, Elley. And he also attempted to assist us by telling us of brokers or space that he was aware of. And, indeed, this was something that I worked on personally.

But I was not in New York City and when I would go up there and I was to get back messages or information, I would usually ask people to send it either to BCCI in New York or to the New York lawyers. They acted, in effect, as a local contact for us.

And so BCCI was trying to be helpful to us. Now this did not seem particularly out of the ordinary.(31)

Thus by Altman's account, BCCI, like Wachtell, Lipton, was acting a local contact and assistant to help First American establish its presence. Unfortunately, the account does not square with other information obtained by the Subcommittee concerning the circumstances which lead to the opening of the New York office of First American, nor does it provide any business justification for First American having made the decision to open a New York office in the first place.

To begin with, there was no obvious business justification for First American to purchase two branches in New York City from Banker's Trust, where banks like Citibank, Chase Manhattan, and Chemical Bank collectively had many hundreds of branches. Indeed, a decade later, George Davis, Clifford's successor as CEO of First American, would conclude that the New York operation of First American had lost money for years and remained in 1992 a drain on the resources of First American overall.(32) By contrast, Abedi and BCCI had made acquisition of a bank in New York his priority since 1975, while First American had not done any preparation in insure its ability to do business there. Again, in Altman's words:

We had nothing in the city. We had no staff. We had no location. We had no resources.(33)

The obvious question was why First American, under the circumstances, would as among the earliest actions of Clifford and Altman at the head of First American, go ahead with expanding First American's operations through purchasing New York branches under such difficult conditions. The answer, as numerous BCCI memoranda suggest, was that Abedi and BCCI needed the branch to act as an outpost in the U.S. for BCCI's international operations, and that Clifford and Altman were essentially acting as covers for BCCI's acquisition there, that had been previously blocked by New York bank regulators when BCCI sought to go in directly.

For example, a memorandum dated July 25, 1983, from BCCI employee Aijaz Afridi to BCCI Number 2 Swaleh Naqvi, with copies to BCCI officials Kemal Shoaib and K.K. Elley, described BCCI's plan for First American New York in terms that suggest it would operate independently from the other First American banks. According to this BCCI official, while operating independently, First American New York would be subsidized by the other First American banks, using their assets as sources of funds and their clients as sources for "their entire international business," with First American New York becoming "their Central Treasury."(34)

The BCCI memorandum discusses such issues as how to achieve growth and profitability for First American New York, how to project its image domestically and internationally, how to introduce the bank to Third World countries, new products and services, and related issues. Under "basic assumptions," Afridi noted:

Management style and Philosophy will be on the pattern of BCC -- No interference from the Holding Co. and free hand to the Management.(35)

The record also shows that BCCI's involvement in directing the establishment of this office was pervasive. For example, as both BCCI officials and BCCI documents show, it was BCCI, not First American, that determined how much office space First American would lease in New York. As Sakhia testified:

The decision of hiring, decision for acquisition of space . . . the New York office of First American was identified by BCC officers and approved by Mr. Abedi. He made the decision to rent that space.(36)

The space that was rented by First American was 350 Park Avenue, close to the offices already established by BCCI in New York at 320 Park Avenue. According to the Federal Reserve, and contrary to Altman's sworn testimony, it was BCCI, not Wachtell, Lipton, that directed the choice of a location, and when Clifford and Altman objected to the cost of the location, they were overruled by Abedi.(37)

Over the ensuing decade, the space would prove grossly excessive for the actual needs of First American, and its costs would become a significant drain on First American's resources. A letter dated December 13, 1982 from Elley to Swaleh Naqvi, Abedi's number two at BCCI, on BCC New York stationery, documents the nature of the relationship between BCCI and First American in New York. In the letter, Elley brings Naqvi up to date with a meeting he has had with Altman concerning the First American Bank in New York, and covering the subletting of space at 350 Park Avenue, renovation of the space, selection of board directors, recruitment of key staff, selection of auditors and attorneys, and coordination with the holding company and the shareholders -- all matters being handled for First American by Elley as a BCCI employee and reported to Naqvi, the BCCI senior executive at a time when Clifford and Altman were ostensibly in control of First American.(38)

BCCI also handled the purchase of new branch offices in New York for First American. In March 1983, while Elley was still employed by BCCI as head of its New York representative office, he began discussions with Bankers Trust officials regarding the purchase of branches of their bank for First American. Six weeks later, when First American submitted bids for the branches, BCCI officials -- not First American officials -- handled the negotiations.(39)

For instance, in an October 14, 1982 letter to Swaleh Naqvi, Khusro Karamat Elley, an employee of BCCI in New York, wrote concerning "the subletting of space, ... selection of board of directors, recruitment of key staff, selection of auditors, selection of lawyers, compensation package, including fringe benefits, projections for first year's operations, coordination with holding company and shareholders." (40)

Another letter written by Mr. Elley to Mr. Naqvi concerns the Board of Directors of First American Bank in New York and Mr. Elley's recommendation of Mr. Richard Paget to the board. In response to a question regarding the Paget recommendation, Altman testified only that:

We had a very unusual situation that developed in New York. And you were focusing on a period nearly 10 years ago, very limited in time.(41)

Clifford and Altman's written testimony referred to a single candidate for First American New York recommended to them by Abedi.(42) In fact, as specified below, BCCI had direct involvement in, and apparent control over, numerous key personnel decisions in First American New York beginning in early 1982 and continuing through at least early 1986.

For example, in October, 1982, Abedi had contacted Joseph Feghali, the president of another bank with whom BCCI had a correspondent banking relationship, interviewed him in Los Angeles, and offered Feghali the position of president and CEO of First American New York. In subsequent meetings, Abedi and his number two at BCCI, Naqvi, offered Feghali a seven-year contract with First American, including benefits and salary for Feghali, before Feghali had communicated with either Clifford or Altman. Only after these decisions had been made did Feghali meet with Altman. At that point, Altman and Feghali met to discuss First American New York operations with Elley, and continued further negotiations over the terms of a draft employment contract Altman provided Feghali, who ultimately turned down the offer from BCCI and from Altman for medical reasons.(43) Later, this scenario was repeated in 1983 in connection with BCCI first interviewing and then recommending to Clifford and Altman the hiring of Bruno Richter as CEO and president of First American New York, a position he accepted in July 1983.(44)

Following Richter's hiring by Clifford and Altman, he in turn sought to hire other bank officials for First American New York who were required to interview not only with Altman, but with Abedi and Naqvi in London. Later, when Clifford and Altman became unhappy with Richter, his firing was discussed at length with Abedi by Clifford and Altman. His replacement, William Duncan, was selected as First American New York's new president and CEO only after interviewing with Abedi in London.(45)

Ultimately, two BCCI officers, Elley and Afridi, were transferred by BCCI's New York agency to First American New York. Naqvi discussed the issue with Altman and then offered Elley a position at First American New York as senior Vice President. After leaving BCCI for First American, both officers continued to receive BCCI benefits including reimbursements from BCCI for gas, electric and telephone bills, as well as concessionary mortgage rates from BCCI.(46)

The minutes of a BCCI U.S. marketing meeting held in 1985 describe the participation of these two former BCCI officials during their tenure at First American in meetings aimed at strengthening BCCI's control of the U.S. bank. As the memorandum stated:

"Mr. Afridi opened the meeting and emphasized that the purpose of the meeting was to coordinate the efforts of different locations of BCCI and other institutions [emphasis added] so that the President's desire to have a totality of approach is achieved. It is a great challenge that the group faces in the present and future U.S. operations."(47)

Afridi was a former employee of BCCI who at the time was working for First American of New York and, according to the memorandum, "requested the members to work together to overwhelm the U.S. market. Historically, we have not made a calculated approach to the U.S. market." When Senator Kerry asked Mr. Altman to comment on the memorandum, Mr. Altman, who did not attend the meeting, said, "I can't explain what this does mean.....I can't comment on the propriety of what the participants were doing, but I think it is troubling."(48)

When asked by Senator Kerry if Mr. Elley and Mr. Afridi, whom Mr. Altman had hired from BCCI, were working behind his back on the joint marketing plan, Altman replied. "That is correct."(49) However, Abdur Sakhia, the head General manager for U.S. operations, testified that Altman talked to him personally "about [joint BCCI-First American] marketing."(50)

First American Bankshares' Capitalization

The handling of First American's capitalization by BCCI and by Clifford and Altman raise further substantial questions about their independence of BCCI's control in handling First American's most important financial transactions -- its capitalization. BCCI's direct involvement with Clifford and Altman in connection with financing for First American began almost immediately after the Federal Reserve approved the CCAH application, and continued throughout the 1980's.

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