Corruption: Feeling the Heat

(2 of 4)

-- As the charges and countercharges flew, U.S. law-enforcement sources quietly acknowledged what the Gates report to Von Raab clearly indicated: that at least some government officials have known since the late 1980s of the secret black network within the bank whose existence TIME disclosed in articles in July. The network used bribery, extortion, kidnapping and possibly murder to further the bank's aims. Last week sources told TIME that the black network surfaced briefly in the U.S. during a sting operation that forced B.C.C.I. to plead guilty in Tampa last year to laundering drug money. Members of the group came forward to offer their chilling services to undercover U.S. Customs agents who posed as money launderers. But when the agents sought to broaden their investigation to include a probe of the network, their superiors denied the request.

-- A grand jury hearing evidence presented by Manhattan district attorney Robert Morgenthau was readying the first of a series of indictments against B.C.C.I. officials and others in a case stemming from the bank's secret ownership of First American Bankshares, the parent of Washington's largest bank. Among those testifying before the New York jury was former Defense Secretary Clark Clifford, the chairman of First American, who has denied knowing that B.C.C.I. owned his banking firm.

In the supercharged atmosphere surrounding B.C.C.I., sensational -- if largely unconfirmed -- allegations swirled like leaves in a storm. Many originated in Britain, where newspapers and television stations competed fiercely for scoops. According to one such report in the London Guardian, the CIA used B.C.C.I. accounts to pay nearly 500 prominent Britons, apparently for information about British arms sales and overseas contracts. The Guardian also said B.C.C.I. funded a clandestine joint effort by Argentina, Libya and Pakistan to acquire nuclear arms.

The scandal transfixed Britain throughout the week. In a bruising dustup in Parliament, Neil Kinnock, leader of the opposition Labour Party, called Major "utterly negligent" for failing to take action against B.C.C.I. while serving as Chancellor of the Exchequer in January 1990. Replied an ashen-faced Major, who said he had learned of the full extent of the bank fraud only on June 28: "If you are saying I am a liar, you had better say so bluntly." Robin Leigh-Pemberton, governor of the Bank of England, later affirmed that Major first received details of the scandal in late June.

With Britain absorbed by the scandal, a London court suspended the liquidation of B.C.C.I. accounts in the country to seek a bailout for 120,000 local depositors, who held a total of $400 million in the bank. The outraged victims of the shutdown, who included Indian and Pakistani families and some 30 municipalities, stood to receive just 75% of their money, up to a maximum of about $25,000. But Sheik Zayed bin Sultan al-Nahayan, the ruler of Abu Dhabi who acquired control of B.C.C.I. for $1 billion last year, was still fuming because the clampdown shuttered the bank without warning just as he was planning to restructure it. "He will do nothing unless there is incredible political pressure that he simply cannot resist," says a highly placed Arab banker.