The bank, BCCI, headquartered in the United Arab Emirates and closely connected to ruling regimes in both Pakistan and Saudi Arabia, initially pitched itself as the leading bank for the so-called Third World.
Source: Foreign Policy
The Dictator-Run Bank That Tells the Story of America’s Foreign Corruption
BCCI was a kleptocratic institution whose influence reached the White House—and a model for today’s global crooks.
One bank, above all others, highlights the modern realities of transnational corruption and how authoritarian governments abroad can sink their tendrils into Western governments. Overseen by autocratic oligarchs abroad, this bank used everything including shell companies, fake foundations, and anonymous real estate purchases to launder billions and billions of dollars. And when Western investigators got wind of its financial fraud, this bank immediately began bankrolling white-shoe law firms and shady PR operators—even going so far as to fund leading U.S. presidential campaigns, corrupt the leading voices in at least one American political party, and even grow close to the American president himself.
The story is, in many respects, the perfect blueprint for modern kleptocracy—and how autocratic regimes abroad use strategic corruption and financial secrecy tools to swindle billions of dollars while also shifting U.S. policies to their own corrupt ends.
It’s a saga that has been largely forgotten. That’s a shame, because in many ways the unprecedented graft and collapse of BCCI foretold precisely the kinds of transnational kleptocratic practices that would take root around the globe over the past decade—and how wide-open the United States remains when it comes to the infiltration of foreign dirty money.
In hindsight, it’s almost impossible to believe just how overlooked the BCCI affair now is. The bank, headquartered in the United Arab Emirates and closely connected to ruling regimes in both Pakistan and Saudi Arabia, initially pitched itself as the leading bank for the so-called Third World. It tried to position itself as a non-Western alternative for small-scale depositors across the postcolonial space, from sub-Saharan Africa to South Asia to Latin America.
And for a while, that scheme succeeded. BCCI ended up operating in over 70 countries—including the United States, Switzerland, France, and the United Kingdom—and at one point boasted over $20 billion in assets (or nearly $50 billion in today’s money). By the mid-1980s, BCCI appeared well on its way to meeting its goal of becoming the world’s largest bank by the year 2000.
And it wasn’t just the size of BCCI’s till. Those running BCCI spun the bank as an institution interested more in achieving moral gains, rather than increasing its total assets. (“The spirit of BCCI is permeated by a moral dimension and this eases the burden of management,” its founder once claimed.) To that end, BCCI bankrolled the Third World Foundation, which it said would help “relieve poverty and sickness” in developing nations, and even created an award to mirror the Nobel Peace Prize, which it awarded to everyone from Nelson Mandela to former West German Chancellor Willy Brandt.
Unbeknownst to those small-scale depositors taking advantage of BCCI’s services, though, the bank was in reality little more than a Ponzi scheme for the higher-ups involved, who were simply pocketing the deposits while trying to recruit new customers. By the time BCCI collapsed, nearly $10 billion had disappeared, never accounted for.
As investigators later found, BCCI was the perfect money laundering vehicle for everyone from Panamanian drug kingpins to Pakistan’s dictatorial first family to brutal regimes across the Middle East. Utilizing the kinds of kleptocratic tools still with us—anonymous shell companies, anonymous real estate purchases, and plenty more—the bank helped everyone from Panama’s Manuel Noriega to Iraq’s Saddam Hussein to the Philippines’ Ferdinand Marcos move and stash their money abroad. Indeed, foreign dictators couldn’t get enough of BCCI’s services; at one point, according to one analysis, BCCI grew so close to Pakistani despot Muhammad Zia-ul-Haq that “it is almost surprising that the dictator himself didn’t get a job with the bank.” (Zia’s son ended up getting a job as vice president with Bank of America, which was one of BCCI’s American partners.)
BCCI, of course, couldn’t keep its Ponzi scheme going forever. So when rumors about financial malfeasance first began percolating in the mid-1980s, the bank sketched out a playbook that corrupt foreign outfits would employ for decades to come.
The firm employed a number of sleazy PR operators and supposedly white-shoe law firms in the United States to threaten any critical voices. (One of the firms linked to the BCCI scandal, Skadden, Arps, Slate, Meagher & Flom, would later play a key role in former Trump campaign chair Paul Manafort’s corrupt schemes out of Ukraine, using many of the same tactics BCCI employed.) It filed heavy-handed lawsuits against any critical journalists, especially in the U.K.—where one investigative journalist, Anthony Mascarenhas, was beaten and stabbed during his reporting and had his investigative findings into BCCI stolen. BCCI’s Western auditors (most especially PwC, also known as PricewaterhouseCoopers) also completely whiffed on discovering the gargantuan fraud right under their noses—or, in some cases, simply ignored it wholesale.
Most remarkably, BCCI and its affiliates managed to hire some of the most prominent politicos in Washington on their behalf. Among those voices on the dole of the BCCI network was Clark Clifford, then considered one of the doyens of the Democratic Party, who had worked closely with presidents from Harry S. Truman to Jimmy Carter. BCCI’s affiliates had also helped bankroll presidential campaigns, such as Gary Hart’s presidential run. Higher-ups at BCCI affiliates even grew unnervingly close to Carter.
All of these deep political connections helped stonewall Washington’s investigations into BCCI’s massive corruption. Even when the Department of Justice finally began probing BCCI’s financial schemes, it hardly pushed far; when the department offered a sweetheart deal to BCCI, the lead Senate investigator said it was indicative of “the power of BCCI to fix anything,” adding that Washington’s response was a “fucking outrage.”
Eventually, BCCI collapsed under the weight of its own fraud. When it did, it was clear that it had committed “the largest bank fraud in world financial history,” as one American official said—enough to land the bank on the cover of Time magazine.
The lessons of BCCI’s collapse should have been clear. While the United States beefed up regulatory oversight in the banking sector in the decade following—shell banks can no longer operate in the United States, for instance—the kleptocratic tools BCCI utilized are all still firmly in place. U.S. states still produce hundreds of thousands of anonymous shell companies every year. The United States still allows anonymous real estate purchases across almost all of the country. And the lawyers and PR specialists and auditors are still free to work on behalf of any clients they’d like, without any legal requirement that they check whether or not the source of their clients’ incomes stems from transnational money laundering operations.
Much of that, unfortunately, rises from one reality underpinning modern kleptocracy, as much as it underpinned BCCI’s machinations: greed. While U.S. legislation helped clean up the banking sector in the aftermath of the BCCI affair, and while some of the main American political actors involved suffered significant reputational and financial damage, efforts at bringing broader transparency have been effectively gutted by assorted industrial lobbyists and the new politicos in their pockets. For instance, after the U.S.’s Patriot Act took added anti-money laundering regulations to numerous industries highlighted in the BCCI affair, the Treasury department issued “temporary” exemptions from these new regulations for everything from real estate to private equity to escrow agents to luxury goods. Thanks to lobbying efforts of those respective industries, these “temporary” exemptions are now nearly two decades old—and have only continued to attract inflows of dirty money from every corner, every regime, and every crooked outfit that wants in.
If anything, the story of BCCI is now more relevant than it’s ever been in the 30 years since the bank’s collapse. The BCCI affair set the example for everything that came since in the world of modern kleptocracy, and that still corrupts the United States today. From setting up anonymous shell companies to purchase American real estate to targeting American auditors that are willing to look the other way, from bilking billions via banking Ponzi schemes to even hiring prestigious law firms that provide everything from legal counsel to media relations to lobbying and political connections, the playbook that BCCI helped create is still alive and well, all in the service of laundering foreign dirty money. With things like “authoritarian influence,” which sees everything from disinformation campaigns to bounty-hunting orders to foreign payments to American politicians hidden behind webs of opaque transactions, or the questionable links between Donald Trump and Deutsche Bank—which has itself been connected to pro-Kremlin forces out of Moscow—still in the news, we overlook the lessons from BCCI’s implosion to our own peril.