Renewed media interest in John McCain's role in the Keating 5 scandal have left pundits questioning whether Obama's campaign will seize upon McCain's interference with bank regulators on behalf of an icon of the Savings & Loan scandal as a talking point. However, there are good reasons for the Obama camp to downplay the Keating 5 affair. Most Democrats on Capitol Hill were friendly with major figures in the S&L scandal, because they were important fundraisers for the Democratic Party. However, Joseph Biden's connection to the S&L debacle also connects him to the most notorious banking scandal of the 20th century, the Bank of Credit and Commerce Intl. (BCCI).
Joseph Biden has been a Delaware Senator since he won the 1972 election. He served as the Chairman of the Senate Judiciary Committee from 1987-1995 where he had oversight authority for the Department of Justice at the height of the S&L scandal, and the investigation into BCCl, dubbed the Bank of Crooks and Criminals by Robert Gates, at that time the Deputy Director of the CIA. He, also, served as an influential member of the Foreign Relations Committee.
Biden's connection to prominent figures in the Savings & Loan disaster dates back to the mid -70s, when he was a political favorite of Jake and C.H. Butcher, tycoons in the S&L industry until the collapse of their banking empire in 1984, which cost the Federal Deposit Insurance Corporation an estimated $1.1 billion, and led to the largest closure of banks since the Great Depression. Butcher banks had been in trouble with regulators since '75, however, they were able to maintain their fraudulent business practices through political interference with bank regulators; a service that was bought by generous campaign contributions.
The Bank of Credit and Commerce Intl. (BCCI) was founded in Karachi, Pakistan in 1972 by Agha Hasan Abedi, a close friend of Jimmy Carter. It grew into one of the world's largest private banks with 400 branches spread throughout 73 countries, and $23 billion in assets. BCCI consisted of layers of interlocking corporate entities, which enabled it to decentralize record keeping, avoid banking regulations, and evade a complete audit of its operations. Due to this, the extent of BCCI's illicit financial activity remains obscure. However, in 1991, there was enough documented evidence for regulators to work in concert to shut down BCCI internationally.
BCCI has been referred to as the largest case of organized crime in history. Its unique corporate structure was established with the intent of facilitating illegal activity, and its roster of account holders was a who's who of drug lords, intelligence personnel from hostile nations, and terrorists. The investigation into BCCI was touched off by the Senate Foreign Relations Subcommittee on Narcotics, Terrorism, and International Relations led by John Kerry, which, at the time, was investigating allegations that CIA supported Contra forces were engaged in drug trafficking.
John Kerry's Subcommittee, however, was obstructed from undertaking a thorough investigation into BCCI. The case was turned over to NY District Attorney Robert Morgenthau by Jack Blum, Kerry's chief investigator, after the Justice Department failed to take action on the information uncovered. Morgenthau's investigation is credited for setting in motion the events that resulted in the demise of BCCI's global operations. One of the most shocking revelations to come out of the investigation was that, for a decade, BCCI had secretly controlled the largest bank chain in the D.C. area, First American Bankshares, Inc.
BCCI had been engaged in a protracted struggle to implement its strategy for penetrating the U.S. market in the 1980s. Its plan to purchase U.S. banks, and later merge them with BCCI branches in the U.S. was frustrated by regulatory barriers. However, BCCI did succeed in acquiring four U.S. banks that operated in seven states, and became a major shareholder of others, without attracting the attention of regulators. The key factor that enabled BCCI to penetrate the U.S. banking industry was its political clout.
BCCI was infamous for bribing political figures in its areas of operation, and the United States was no exception. Clark Clifford and Robert Altman, prominent figures on Capitol Hill, and Georgian Banker Bert Lance, Carter's Confidant, an important Democratic fundraiser, and, also, a friend of the Butcher brothers, were integral to BCCI's acquisition of U.S. banks. The obstruction of the investigations into BCCI has been largely attributed to the CIA, which maintained accounts at the bank. A rival explanation, however, was the political connections BCCI cultivated, and called upon in its times of need.
David Paul was just one of the politically connected S&L high-flyers with a large stake in the continued operation of BCCI. Paul was the Chairman of CenTrust Savings & Loan, Florida's largest thrift, which built its spectacular growth on Michael Milken's junk bond market; integral to the economic meltdown of the late "-80s. CenTrust was involved in multiple financial entanglements with other troubled thrifts of the S&L era, such as Charles Keating's Lincoln S&L. BCCI was the 2nd largest shareholder of CenTrust stock.
In 1987, CenTrust disclosed that Ghaith Pharaon, a Saudi born businessman who acted as a front for BCCI, had acquired 17% of CenTrust stock, but announced that it was a friendly investment with no takeover intentions. By 1988, Pharaon held 25% of CenTrust stock. In 1988, the failure of the junk bond market began to appear on CenTrust's accounting books, and regulators threatened to close the bank due to insolvency. BCCI bought the junk bonds that were causing CenTrust large losses, which CenTrust later repurchased after bank regulators were satisfied, and left. CenTrust's inevitable collapse in 1989 cost taxpayers an estimated $1.7 billion.
David Paul was an active democratic fundraiser with enormous access to Capitol Hill. He hosted lavish dinners for his Democratic favorites, such as John Kerry. At the height of Kerry's investigation into BCCI, Paul became Kerry's Co-Chairman for the Democratic Senatorial Campaign Committee. David Paul was, also, close to Joe Biden, and donated generously to his Senate campaigns, and his 1988 bid for the White House. In 1987, Paul flew to Wilmington, DE to watch Biden announce his presidential campaign in person. Clark Clifford was, also, a political supporter of Joe Biden, and donated generously to his campaign committee in 1988 and 1989.
The Justice Department was widely criticized for the way it handled the BCCI investigation, and for failing to follow through with prosecutions. Subpoenas requested by the Kerry Subcommittee were not provided by the Justice Department until the investigation was drawing to a close. The Justice Department claimed that issuing the subpoenas would compromise an undercover Customs Department investigation into BCCI, Operation C-Chase. However, C-Chase investigators reported a lack of support from the Justice Department, and a failure to follow up on leads that connected BCCI to members of the Democratic Party.
C-Chase investigators uncovered BCCI's secret ownership of First American, and the support it received from Clark Clifford and Robert Altman, however, the investigation was never expanded, and the leads were not followed. The C-Chase investigation, also, recorded a BCCI official talking about the connections the bank had to the Foreign Relations Committee, which, the individual believed, would prevent him from becoming a target of investigation.
The C-Chase investigation culminated in the prosecution of a handful of BCCI personnel in Florida for drug trafficking. Despite the accumulated evidence, Racketeering Influenced and Corrupt Organizations Act (RICO) charges, which could have crippled BCCI, were not brought. Instead, the Justice Department negotiated a plea agreement between BCCI and the U.S. Attorney in Tampa. The Justice Department agreed to shield BCCI from further criminal action from the U.S. Attorney in FL in exchange for cooperation in drug trafficking investigations, and a $14 million fine. The Justice Department encouraged regulators to allow BCCI to continue operations.
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