Corruption: Feeling the Heat

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British authorities said they were virtually forced to shut the bank. Leigh- Pemberton defended the seizure on grounds that "the culture of the bank is criminal." While he called the well-regarded Zayed's purchase of the bank "a welcome development," he said the corruption that originated with B.C.C.I. founder Agha Hasan Abedi and his fellow Pakistani managers had penetrated the entire institution. "The fraud involved not only past management but continuing management, board members and representatives of the shareholders," Leigh-Pemberton said. Yet he insisted that the full scale of the wrongdoing had only recently come to light.

In shuttering B.C.C.I., the regulators relied on a June audit by the accounting firm Price Waterhouse that called the fraud "one of the most complex deceptions in banking history." Price Waterhouse found that the bank had routinely siphoned funds from deposits and created fictitious loans to generate phony profits. But such practices only created an insatiable demand for more bogus transactions.

Though Clifford and First American president Robert Altman insist that their foreign partners kept hands off First American, the auditors said B.C.C.I. used the U.S. firm's stock as an essential part of many fraudulent deals. B.C.C.I., said Price Waterhouse, covertly acquired the stock of First American, code-named WXYZ in the report, through "prominent Middle Eastern individuals" who thus were merely nominal -- or "nominee" -- owners. B.C.C.I. then used First American shares as collateral for sham loans that produced phony income. Clifford, meanwhile, regularly briefed Abedi and Kamal Adham, a major B.C.C.I. shareholder from Saudi Arabia, on First American's operations. Clifford said the meetings were needed to keep B.C.C.I., as adviser to the Arab owners of First American, informed about the U.S. firm.

Yet he and Altman were also deeply enmeshed in B.C.C.I.'s affairs. The two men served as attorneys for B.C.C.I. and masterminded the bank's defense in the money-laundering case in Florida. Former B.C.C.I. bankers have told TIME that Altman even traveled to London to assure B.C.C.I. shareholders that the money-laundering case was a mere aberration that would be swiftly settled. Altman later returned to London, the insiders said, to soothe shareholders' concerns about B.C.C.I.'s losses by blaming the red ink on depressed conditions in many Third World areas where the sprawling bank operated.

Repercussions from the bank's collapse rippled far beyond Washington and London. In Peru the scandal reinvigorated charges that Garcia, President of the country from 1985 to 1990, had plundered the treasury by whisking funds through a B.C.C.I. branch in Panama. Garcia has called the allegations a political smear to keep him from running again in 1995. But Fernando Olivera, a member of the Peruvian Congress who has been Garcia's nemesis, demanded last week that prosecutors try the allegations in court. Among other things, investigators want to know how Garcia managed to acquire two fashionable Lima homes and take frequent foreign vacations on a presidential salary of just $18,000 a year.