Scandals: Is That All There Is?

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It was the ultimate package deal, a grand compromise designed to clean up one of the world's messiest piles of financial wreckage. Bank liquidators, acting on behalf of the moribund Bank of Credit & Commerce International, marched into a crowded Manhattan courtroom last Friday and settled, in one unexpected swoop, all U.S. criminal charges outstanding against B.C.C.I. as a corporation. The bank, which in the U.S. is now essentially just a hollow shell, pleaded guilty to federal and state charges of racketeering, fraud and money laundering. The liquidators agreed to surrender virtually every penny of B.C.C.I.'s assets in the U.S., a total of $550 million, which represents the largest criminal forfeiture in history.

The guilty plea, hammered out during four months of intense negotiations among banking authorities and prosecutors in Washington, London and Luxembourg, was designed in part to impose some order on the worldwide scramble to lay claims to B.C.C.I.'s remaining assets. So far, auditors have found only $1.5 billion in the coffers of a bank that once held $22 billion in deposits. "We felt we could duke it out for years, or we could accommodate each other. I think we found a fair arrangement," says George Terwilliger, the acting Deputy U.S. Attorney General.

Half of B.C.C.I.'s forfeiture has been allocated to a worldwide fund to compensate innocent depositors who lost their money when the bank collapsed. The remaining half has been reserved for a U.S. contingency fund to shore up financial institutions that B.C.C.I. secretly controlled. Washington regulators fear that the already depleted guarantee fund at the Federal Deposit Insurance Corporation could be endangered by banking problems at the Independence Bank in Encino, Calif., and at Washington's First American. Their concern was so acute that authorities immediately transferred $5 million of the forfeited money to the Encino bank to prevent its collapse.

But far more money is needed to compensate victims worldwide, so authorities are seeking a much bigger bailout. Their intended source: the ruler of Abu Dhabi, Sheik Zayed bin Sultan al-Nahayan, who is now the major shareholder in B.C.C.I. For months banking authorities and liquidators have tried to talk Zayed into donating billions of dollars to cushion the losses of depositors around the world so they might recoup 30% to 40% instead of the 10% now expected. B.C.C.I.'s agreement with the U.S. may pave the way for that bailout.

Zayed, who has already poured billions into the bank, shows signs of wanting to make the best of a bad situation by reviving portions of B.C.C.I. as a bank based in the Middle East. "What B.C.C.I. was all about is the infusion of Arab dollars into the U.S. and the political influence that goes with it," says a B.C.C.I. investigator. Just what Zayed might demand for pouring more billions into what's left of B.C.C.I. remains unspoken, but Abu Dhabi has made it clear in the past that it would prefer some sort of restructuring to outright liquidation.