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

In fall 1990, the Federal Reserve, acting on information provided to us by the New York County District Attorney, demanded and-after initial refusals by BCCI's auditors, Price Waterhouse-was able to review at BCCI's London offices a report confirming the existence of more than $1 billion in nonperforming loans by BCCI secured by CCAH shares. Based on the evidence gathered by Federal Reserve investigators, the Board, on January 4, 199 1, formalized and broadened the investigation, authorizing use of discovery and subpoena powers. Later that month, the Federal Reserve initiated examinations of the entire First American banking organization, focused on determining whether there were any financial dealings with BCCI.

The Federal Reserve's investigation has been intense and thorough, encompassing the seizure and review of tens of thousands of pages of documents both here and abroad, weeks of depositions, interviews of more than fifty persons in the United States and overseas, and cooperation with federal, state, and foreign law enforcement agencies. The evidence unearthed by our staff establishes the nature and extent of numerous violations of law, the methods by which the violations were engineered and implemented, and the nature and whereabouts of the evidence establishing the violations.

The quality and quantity of evidence uncovered by the Federal Reserve's investigation are evident from our 110-page July 29 Notice of Charges and the boxes of relevant documents turned over to the committee under its subpoena. In that notice and one other notice issued on July 12 relating to Independence Bank, the Federal Reserve has assessed a civil money penalty of $200 million against BCCI and initiated actions to bar nine individuals associated with BCCI from involvement with U.S. banks. At the request of the U.S. Attorney for the District of Columbia, the Board has deferred temporarily the assessment of substantial civil money penalties against the individuals involved pending completion of the U.S. Attorney's criminal inquiry. Finally, after discussions with the Federal Reserve, First American and its parent holding companies have recently changed management to further distance the First American banks from the taint of any association with BCCI.

Fifth, in assessing the BCCI matter, it is important to keep in mind that this matter is essentially a case of systematic and deliberate criminal fraud. Although our bank examination powers allowed the Federal Reserve to detect poor operating controls as well as evidence of money laundering at BCCI's U.S. agencies, more extensive and intense efforts were required to uncover BCCI's ownership of stock in U.S. banking organizations. BCCI took maximum advantage of an unsupervised cooperate structure to conceal and warehouse in bank secrecy jurisdictions billions of dollars in fraudulent transactions.

The Federal Reserve does not have the power to coerce truthful testimony from uncooperative criminal conspirators. Nor can the Federal Reserve offer immunity to those willing to come forward. Using the authorities available to it, the Federal Reserve continued to investigate the matter both here and abroad, and we now know that BCCI's top management was seriously concerned with the supervisory initiatives of the Federal Reserve. Eventually our efforts paid off, and we uncovered the truth. Once the Federal Reserve obtained credible evidence, we acted quickly to marshal the facts and move against BCCI and others involved in the alleged illegal activity. We have also taken care in accordance with the due process requirements under which we operate to bring actions only when we have sufficient evidence to support them, thereby avoiding any misstep at this stage that might allow BCCI and others to escape the consequences of their actions.