Statements to the Congress - statement by J. Virgil Mattingly, Jr. William Taylor, and E. Gerald Corrigan to the House Committee on Banking, Finance and Urban Affairs - Transcript

Federal Reserve Bulletin, Nov, 1991

Fourth, since allegations of an illegal BCCICCAH link reached the Federal Reserve in late 1988 from the Internal Revenue Service (IRS) and another source, the Federal Reserve has continuously investigated the relationship between the two, detecting and producing, in our view, substantial evidence of violations by BCCI and others of the Bank Holding Company Act and other statutes.

In January 1989, after receipt of these allegations, the Federal Reserve conducted a special review of CCAH and its relationship to BCCI, examining the financial relationship between BCCI and the First American banks. The Federal Reserve continued to make inquiries into any possible link through 1989 and 1990. BCCI and CCAH representatives consistently denied that such a link existed, and the records available to the Federal Reserve at that time provided no evidence to refute their assertions.

The Federal Reserve asked regulators in Luxembourg and the Cayman Islands, where the principal BCCI bank subsidiaries were chartered, to verify the reports of a BCCI-CCAH link. The Luxembourg regulator in 1990 advised that it would investigate the matter but was having difficulty obtaining the necessary information. Cayman regulators stated that they had no relevant records on the matter.

The Federal Reserve also sought information from law enforcement agencies conducting probes of BCCI. In June 1989, while the U.S. Attorney's Office in Tampa was continuing its investigation of BCCI, a Federal Reserve official met with attorneys from that office, offered the assistance of examiners, and indicated that the Federal Reserve wished to obtain information on the investigation when completed. On February 7, 1990, two days after BCCI was sentenced for money laundering, two experienced Federal Reserve counsel went to Tampa to determine from the U.S. Attorney's Office whether their investigation had unearthed any evidence that BCCI owned or controlled CCAH. The U.S. Attorney's Office referred the Federal Reserve counsel to IRS investigators, who indicated that a report of the findings of their investigation had been prepared. The IRS did not provide a copy of the report, or mention any tapes made during their investigation, because of considerations of grand jury secrecy and witness safety. The Federal Reserve investigators were told of the existence of an informant, whose credibility the IRS said they seriously doubted, and of another lead. In April 1990, the IRS provided the name of the informant and arranged for him to call the Federal Reserve. The Federal Reserve was unsuccessful in repeated attempts to contact the informant until 1991.

In further efforts to obtain information on the alleged control by BCCI of CCAH, the Federal Reserve, in the spring of 1990, pursued another avenue of the investigation. In June 1990, the Federal Reserve reached an information-sharing agreement with the New York County District Attorney's Office and subsequently obtained access pursuant to a New York Supreme Court order to certain of the materials presented to a state grand jury investigating BCCI. This agreement and the information sharing and ongoing collaboration of the Federal Reserve and the District Attorney's Office were to be of great benefit to both agencies in uncovering evidence of what Mr. Morgenthau, the New York County District Attorney, has characterized as the largest banking fraud in history.