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

The Federal Reserve recognizes that one of the best ways to deter the kind of fraud that occurred at BCCI is through criminal punishment that sends a loud and clear message to would-be offenders. Throughout the Federal Reserve's investigation of BCCI, we have made criminal referrals whenever we discovered illegal activity, and have provided to criminal investigators the evidence and investigative leads that we have gathered, as well as our hard-won knowledge and expertise regarding the BCCI case. We believe that this will be vital to any prosecution of BCCI and others involved in BCCI's illegal acquisitions of U. S. banks. We are greatly encouraged that the New York County District Attorney's Office has secured indictments against BCCI and two of its senior officers and that the Tampa U.S. Attorney's Office has indicted senior BCCI officers for racketeering involving money laundering. We are continuing to work with the U.S. Department of Justice and the New York County District Attorney, who are actively pursuing the BCCI fraud.

BANK OF CREDIT AND COMMERCE INTERNATIONAL

Structure of BCCI

BCCI was founded in 1972 and until recently operated principally under the leadership and management of individuals from Pakistan. Initial equity financing of BCCI was provided by Middle Eastern investors and Bank of America. Bank of America sold its ownership interest in 1980. In April 1990, to bolster BCCI's sagging financial position, the ruling family and the government of Abu Dhabi provided additional capital that increased their ownership interest in BCCI shares from about 30 percent to 77 percent.

BCCI's operations eventually encompassed subsidiaries, branches, and affiliates in sixty-nine countries, with the largest concentration of local deposits in the United Kingdom. BCCI's total assets of about $20 billion ranked it as about the 200th largest bank in the world, roughly the size of a major regional bank in this country.

At the apex of the BCCI organization was the parent holding company, BCCI Holdings (Luxembourg) S.A., which was chartered and headquartered in Luxembourg. Below the parent were two principal banking subsidiaries: Bank of Credit and Commerce International S.A., and Bank of Credit and Commerce International (Overseas) Limited, which were chartered in Luxembourg and the Cayman Islands respectively. Although BCCI was headquartered in Luxembourg, Luxembourg authorities did not supervise BCCI on a consolidated basis, thereby allowing BCCI to escape normal banking oversight.

Under Luxembourg law, holding companies are not subject to supervision. Thus, BCCI's holding company was able to establish an elaborate and extensive network of subsidiaries and affiliates to carry out its activities. Our investigation indicates that when BCCI encountered a legal impediment, it would often create another affiliate or use one of its myriad existing or affiliated entities to circumvent it. In one instance, BCCI apparently created an affiliate whose sole purpose was to serve as BCCI's alter ego in warehousing fraudulent transactions in which BCCI could not safely engage directly. BCCI was able to do this in substantial part because there was no consolidated home country supervision of its banking activities.