The scandal had been developing for nearly two decades and encompassed an intricate international web of financial institutions and shell companies that had escaped full regulation. BCCIs activities, and those of some of its officers, included dubious lending, fraudulent record-keeping, rogue trading, flouting of bank ownership regulations and money laundering in addition to legitimate banking activities. The banks structure and deal making was so complex that, a decade after the institution was liquidated, its activities are still not completely understood.

Although institutions such as the CIA and the Bank of England reportedly had some knowledge of BCCIs activities before the scandal broke, regulators worldwide including a special college of regulators set up to oversee the institution in 1987 proved unable to take early and decisive action against the bank. Regulation was made difficult by inadequate communication among agencies, and by the high-level government connections that BCCIs leaders cultivated. Although they may not have endorsed the banks activities, various influential figures in the US and around the world overlooked signs that could have exposed the scandal before 1991, and lent the institution a veneer of respectability.

One such sign was the banks involvement in money laundering and the financing of arms trafficking. BCCIs presence in the Cayman Islands, and its many offices all around the world, made it a useful route for tainted funds. Clients included such figures as former Panamanian dictator Manuel Noriega, as well as individuals who were involved in various drug and crime cartels. American enforcement officials had uncovered evidence of these transactions by 1983, but did not act on them until 1988. At that point, the US Customs Service completed an undercover operation that led to the arrest of several BCCI figures, who were convicted of money laundering on July 29, 1990. The bank itself pleaded guilty to the laundering charge and was fined $14 million.

The banks international web began to unravel in 1990 when Regardies, a Washington-based business magazine, published a story that questioned the BCCI links of the owners of a significant US bank, First American. The Federal Reserve began an official probe into the alleged connection between BCCI and First American. In March 1991, BCCI admitted that it had acquired a 25 per cent stake in First American, without the approval of regulators. The Fed then ordered BCCI to sell the shares in question. Investigations continued in the US and, separately, in London. In June, Price Waterhouse, a principal BCCI auditor, informed the Bank of England that it had found evidence of widespread fraud and account juggling in BCCIs operations. The auditors came to believe that, despite its pace of growth, the bank might never have made a genuine profit in the whole of its 19-year existence.

Throughout its history, BCCI had made large loans to companies and individuals without properly securing them. The loans represented massive concentrations of credit risk, but were often not properly documented or monitored. When these loans went bad, the bank had no legal recourse, and was forced to absorb the losses. This strategy, which ran counter to common sense and all principles of good lending, racked up huge losses for BCCI. It covered up this problem by taking in new deposits and not recording these straightforwardly on its books, and by otherwise creating a matrix of false accounts that hid the losses for years.

Another way BCCI lost money was through huge losses incurred by its treasury department, particularly in the early 1980s though these losses may themselves have been a way of disguising other losses and misdoings. BCCI also reportedly lost hundreds of millions of dollars through a financial services trading company that it set up.

These two men became involved with BCCI in 1978, when they were hired as the banks US lawyers. One year earlier, BCCI had set its sights on Financial General Bankshares, the company that would later become First American. A takeover group that included Bert Lance (a banker from Georgia, better known as the Carter administrations budget director) and various Middle Eastern shareholders was formed in 1977. By 1978, it had purchased 25 per cent of the available shares in Financial General. At that point, the SEC charged the group with failing to disclose ownership information, but did not stop the takeover.

When the takeover group made a $70 million bid for Financial General, the Federal Reserve Board initially rejected it. This hurdle did not stop BCCI and the investors connected to it, however, and in 1980, Financial General accepted a takeover bid of $180 million. Approval for the deal was delayed until 1982, while regulators attempted to verify that BCCI would not be controlling the US bank. Clifford and Altman assured the authorities that they would be in charge of the purchased institution, and the deal was allowed. The two lawyers became the top executives of the Washington bank, which was renamed First American Bankshares. Eventually, when BCCIs involvement with the bank was publicised, First American lost a large amount of business and, in 1993, part of it was sold to First Union Corp.

Clifford and Altman maintained that they had acted in good faith, and that BCCI had not gained effective control over the US bank. In 1993, Altman was acquitted of charges of bank fraud in a New York state court, while charges against Clifford were set aside due to his ill health. In 1998, not long before Clifford died, both men reached a $5 million settlement with the Federal Reserve Board without admitting any of the allegations.

Despite various investigations and reports since 1991, its difficult to sum up the cause of the BCCI scandal in any simple way. Lax corporate governance, manipulation by backers and bank officers with their own personal agendas, general fraud and failure of fundamental risk management structures at the highest level of the bank can be considered the primary engines driving the losses to the banks stakeholders. More specifically, the banks untenable loan and acquisitions strategies, poor treasury and record-keeping practices, and its habit of hiding the massive losses that resulted, led to its downfall. BCCIs numerous regulatory violations and legal liabilities, and its negligence in protecting the interests of depositors who were not wealthy or well connected, hardly need pointing out.

On a brighter note, the bank officers and liquidators appointed by the courts after the scandal have used settlements, forfeitures and fines to recover significant monies for stakeholders particularly small depositors damaged by the banks failure. In December 1991, BCCI made the first of many large contributions to the depositors restitution pool, when it pleaded guilty to criminal charges and agreed to forfeit $550 million. In 1994, the government of Abu Dhabi, which took over BCCI after the scandal broke, agreed to pay $1.9 billion to the depositors pool. Meanwhile, from 1995, various of BCCIs wealthy Middle Eastern backers who had been sued or fined for their involvement in the scandal began to reach settlements worth hundreds of millions of dollars.

1972: BCCI is founded.

1977-78: Middle Eastern investors associated with BCCI take control of First American and National Bank of Georgia, while telling regulators the banks will not be controlled by BCCI.

Early 1980s: BCCI treasury operations lose big money through risky trading.

1988-90: BCCI and some of its staff are investigated and convicted of money laundering.

1990: Article in Regardies prompts renewed investigation of whether BCCI controls First American.

June 1991: Price Waterhouses Sandstorm report for UK regulators details serious fraud at BCCI

July 1991: Regulators take control of BCCI offices in key countries.

Midlate 1990s: Key Middle Eastern figures in the BCCI saga and Abu Dhabi agree to pay large sums in restitution.

The BCCI Affair: A Report to the Committee on Foreign Relations, United States Senate, by Senator John Kerry and Senator Hank Brown, December 1992

BCCI Page of the Association of Accountancy and Business Affairs. The Association is a non-profit-making pressure group devoted to promoting openness and scrutiny in business and the accounting profession, and has a special interest in the long-lived BCCI affair. The BCCI page hosts a censored version of the original 1991 Sandstorm report, which the UK government continues to refuse to publish citing confidentiality concerns.