Corporate Fraud Of Pakistani England establish Bank BCCI

2. Presented to:
Sir Abdul Aziz Khan Niazi
Presented by:
Sameera Khan

4.  Agha Hasan Abedi was born in a well off Shia Muslim family
in Lucknow, British Indian and migrated to Pakistan.
 He started his career with Habib Bank before independence,
 He brought about significant changes in Pakistan's banking
culture when he founded the UBL in 1959.
 He was its first general manager and quickly arose to the
position of president and chairman of the board of directors.
 Under his stewardship, UBL became the second largest bank in Pakistan.

5.  Mr Agha introduced a mass of professional innovations, including the concept
of personalised service and banking support to trade and industry, and paying
particular attention to the bank's overseas operations.
 Mr Agha initiated close economic collaboration in the private sector between Pakistan
and the UAE. The UAE President, Sheikh Zayed bin Sultan Al Nahyan extended his
investment to UBL operations both in Pakistan and abroad.
 When banking was nationalised in Pakistan in 1972, Mr Agha
founded the Bank of Credit and Commerce International with
the Bank of America NT & SA (National Trust and
Savings Association) as a major shareholder.

6. Bank of Credit and Commerce International
(BCCI)
 BCCI was a major international bank founded in 1972 by Agha
Hasan Abedi, a Pakistani financier
 The Bank was registered in Luxembourg with head offices
in Karachi and London.
 Within a decade BCCI was operating in 78 countries, had over 400
branches, and had assets in excess of US$20 billion, making it the
7th largest private bank in the world by assets.

7.  Expanded rapidly in 1970s, pursuing long-term asset growth over profits, seeking
high net-worth individuals and regular large deposits.
 Divided itself 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 in1976,creating KIFCO (Kuwait
International Finance Company), Credit & Finance Corporation Ltd.
The Complexity…

8.  BCCI had an unusual annual auditing system:
 Price Waterhouse Cooper 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.
 BCCI was shut down in 1991 after Bank of England
audits revealed that fraud, improper loans and
unreliable accounting practices had been discovered

9.  BCCI was involved in:
 Money laundering
 Tax elusion
 Bribery, smuggling, arms transferring
 Illegal purchases of banks and real estate.
 Suspect of catering to drug dealers, arms
merchants and third world dictators

10. The fraud required a highly classified organizational structure, designed to
foster deception and avoid centralized regulatory review
BCCI’s annual auditing system was designed to be non-transparent, wi
complexity built in to avoid the detection of illegal accounting practices
Magnitude of the fraud:
£7 billion of undeclared debts

11. WHAT REALLY HAPPENED?

12.  BCCI was a personal piggy bank for its Arab and Pakistani owners and its
favoured customers.
 For its best customers, millions of dollars were advanced, often without
documentation and sometimes in violation of the bank's own lending limits.
 When the loans went bad and losses mounted, the bank apparently hatched a
scheme to cover them up by making interest payments on loans with deposits
from other customers.
BCCI : Bank of Crooks & Criminals

13.  And when capital was needed to absorb further losses, the bank
artificially pumped up its share price by lending money to existing
shareholders to buy more stock.
 The proceeds from the stock would help balance the bank's books, but
actually the bank was merely taking depositor money and investing it in
the bank.
 It was essentially a "stateless" bank that operated in the United States
and about 78 other countries, chartered in Luxembourg, run by
Pakistanis, owned by Arabs, headquartered in Britain and serviced by
outposts in the Cayman Islands.

14. How to hide losses? 
 Bought banks in USA
 Laundered money from tax havens
 Illegal share buying schemes
 Complex ownership structure
 Borrow from Arabs
 Loan adjusting

15. THE SANDSTORM REPORT

16.  In March 1991, the Bank of England asked Price
Waterhouse Cooper to carry out an inquiry. On June 24,
1991, using the code name "Sandstorm" for BCCI, Price
Waterhouse Cooper submitted the Sandstorm report
showing that BCCI had engaged in "extensive
fraud and manipulation".

17. Support of terrorism

18. The Sandstorm report, parts of which were leaked to The Sunday
Times, included details of how the Abu Nidal terrorist group had held
accounts at BCCI's Sloane Street branch in London.
Britain's internal security service, MI5, had signed up two sources
inside the branch to hand over copies of all
documents relating to Abu Nidal's accounts.
One source was the Syrian branch
manager, Ghassan Qassem, the second a
young British employee.

19. The Abu Nidal link man for the BCCI accounts was an Arab based in
Iraq named Samir Najmeddin.
Throughout the 80s, BCCI had set up millions of dollars worth of letters
of credit for Najmeddin, mostly for arms deals with Iraq.
Qassem later swore in an sworn statement that Najmeddin was often
accompanied by an American, whom Qassem subsequently identified
as the financier Marc Rich.

20. Rich was later accused in the U.S. for tax evasion and racketeering
in an apparently unrelated case, fled from country, and received a
controversial pardon from Bill Clinton on January 20, 2001.
Qassem also told reporters that he had once escorted Abu Nidal, who
was apparently using the name Shakir Farhan, around town to buy a
tie, without realizing who he was. This expose headed in 1991 to one
of the London Evening Standard's best-known front-page headlines:
"I Took Abu Nidal Shopping."

21. Closure of the bank?

22. On July 5, 1991,the Bank of England closed down BCCI.
Around a million investors were affected.
In 1992, U.S Senators John Kerry and Hank Brown co-authored a report on
BCCI, which was delivered to the Committee on Foreign Relations.
The BCCI scandal was one of a number of crimes and disasters that
influenced thinking leading to the Public Interest Disclosure Act of 1998.

23. The British government also set up an independent inquiry, chaired
by Lord Justice Bingham, in 1992.
Its House of Commons Paper, Inquiry into the Supervision of the
BCCI, was published in October of that year.
Following the report, the bank's liquidators launched the Three
Rivers council vs. Bank of England case, on behalf of thousands of
BCCI creditors who are suing the Bank of England for its failure to
properly supervise the bank.

24. The BCCI creditors sought £850m in damages, claiming that the
Bank of England was guilty of wrong doing in public office.
However, in 2002, Robert and Ernest, former number three of Clear
stream, described as a "bank of banks" which practices "financial
clearing", discovered that the BCCI had continued to maintain its
activities after its official closure, with "microfiches" of Clear
stream's illegal unpublished account.

25. LEARNINGS

26.  The critical role of senior management and key investors in
establishing an honest, open and practical bank culture.
 The need for powerful executives and backers of institutions to be
controlled within a secure enterprise-wide corporate governance
structure, if the interests of other stakeholders, (such as deposit
holders), are to be safeguarded.
 The need for independent and unified regulation and auditing of
complex financial combination.

27.  The danger that attempts to preserve confidence in a bank, even
when well-intentioned, will lead to further cover-ups inside and
outside the bank.
 The oldest lesson of all: the simplicity with which massive bad
loans and trading losses can be covered up in banks by extending
further credit, failing to record deposits, and juggling accounts.