Sept. 24 █ In his speech to the nation last week, President Bush said a key element in America╠s new all-out war to eradicate terrorism will be to identify and cut off the sources of financial support for terrorists. Bush repeated the message Monday, announcing that he had signed an executive order freezing the financial assets of several alleged charities that evidence suggests are actually fronts for the al-Qaida network. But actually achieving the goal of cutting off the terrorists from their sources of financial support may well prove more difficult than anyone expects, requiring investigators to probe deep into the offshore activities of America╠s mightiest banks and the financial affairs of many of America╠s leading public figures.
OVER THE YEARS, the worlds of terrorism and dollar-based global finance have in fact become so entwined that no less a figure than Bush himself appears at one point in his career as a private businessman to have been unwittingly involved financially with associates of a Persian Gulf banker named Khalid bin Mahfouz. Mahfouz has now been identified in press reports as a source of financial support for an al-Qaida charitable front █ a powerful example of just how far the tentacles of terrorist-linked offshore money have reached into the fabric of American finance.
More about that in a minute. For now, it is enough to know that as a result of the unregulated worldwide growth of offshore banking, international business and finance is rife with such entanglements.
DOLLAR╠S KEY ROLE
Over the years, the dollar has emerged as the only truly global currency and is freely accepted in countries everywhere as a de facto local currency for commercial transactions. According to a report this month by the Federal Reserve, there is approximately $550 billion in U.S. currency now in existence, with roughly half of it in the hands of foreigners. Some 90 percent of all $100 bills in circulation are held by foreigners.
It is this money █ a sea of stateless wealth that has been growing relentlessly for more than 40 years █ that has enabled some of the vilest criminals in the world to move into, infect and spread throughout the U.S. banking system.
Cocaine traffickers from Columbia, Bolivia and Peru. Opium smugglers from Afghanistan. Arms dealers from Europe. Penny stock swindlers from Canada. Crooked bankers from the Persian Gulf. They are all part of a global criminal underworld that traffics in human misery. They take their profits in dollars, and, like any free-enterprise capitalist, they like nothing better than to put those dollars safely away in U.S. bank accounts, brokerage accounts and even real estate.
The entry points into all these markets are the offshore banking centers of see-no-evil countries like the Cayman Islands, the Netherlands Antilles, the Bahamas, Luxembourg, Switzerland, Austria and the Pacific island nation of Vanuatu, which is the size of Connecticut and has only 4,000 telephones in the whole country but operates a bustling international financial center.
These are the places where the international criminal underworld spiffs up its money in a clean suit of clothes to go shopping in America. This is possible because the biggest and most sophisticated multinational banks in America █ the nation╠s so-called money center banks █ are there waiting to serve them, operating what amount to financial Laundromats that take the stink off the cash.
THRIVING OFFSHORE BRANCHES
But many of these countries quickly realized they could attract yet more capital by enacting bank secrecy laws that prevent foreign governments █ namely, the United States █ from discovering the identities of people who set up local shell companies as incorporated businesses, then use the shells to hide income that hasn╠t been taxed.
These shell companies, which often call themselves banks as well, began setting up "correspondent" banking relationships with the U.S. money center banks, further confusing the picture. Soon, the secrecy alone became reason enough to go there.
African and Latin dictators began hiding their plundered loot in the same offshore banks where the Euro-dollar financing subsidiaries of Fortune 500 insurance companies were also doing business █ along with Medellin cocaine traffickers, Mafia torpedoes and insider traders on Wall Street.
There are now more than 4,000 "offshore banks" in the global banking system. In the Cayman Islands, 570 "banks" have put their names on doors in the country╠s capital city of Georgetown, but nearly 100 of them are nothing more than mail drops. Typically, these shell banks have no real physical presence anywhere, and are simply make-believe entities created by criminals ranging from tax evaders to drug-trafficking army generals.
A two-year Senate study makes it no longer possible to deny what everyone has known all along ... big, money center banks like Citicorp, JP Morgan Chase, and Bank of America have so completely ignored the "know your customer" rule of prudent banking that the entire business of offshore banking has been compromised.
There are 65 such shells in the Bahamas, and more are springing up every day and in places like Montenegro, Vanuatu, even in a place called Nauru, a 21-square-mile sandbar in the middle of the Pacific Ocean. Nauru has one radio station, 500 TV sets and 12,000 people. It, too, is now a hub of global finance.
All of this has gone on for so many years and decades that it is simply no longer possible to sort out the tax evaders and the criminals from the legitimate business people. And by and large, the major money center banks no longer bother to try █ not that they ever tried very hard.
BANKS DON╠T KNOW CUSTOMERS
But the evidence is overwhelming that the banks have no desire to find out who specifically they are doing business with █ and what their customers╠ backgrounds actually are █ before providing them banking services that, in effect, put a criminal╠s money through the spin cycle.
Now, a two-year study by a Senate Committee chaired by Michigan Democrat Carl Levin makes it no longer possible to deny what everyone has known all along: that big money center banks like Citicorp, JP Morgan Chase and Bank of America have so ignored the "know your customer" rule of prudent banking that the entire business of offshore banking has been compromised. One U.S. banker is quoted in the study as telling Senate staff investigators, "There is no reason for offshore banking to exist if not for tax evasion, crime or whatever."
Said the Levin report, which was published in February to almost no attention in the press: "U.S. banks, through the correspondent accounts they provide to foreign banks, have become conduits for dirty money flowing into the American financial system and have, as a result, facilitated illicit enterprises, including drug trafficking and financial frauds." The report specifically named Citicorp, Chase, and BOA as among those that have, by their sloppy practices, opened "a significant gateway into the U.S. financial system for criminals and money launderers."
The findings in the Levin report are astonishing. Twenty money center banks were examined by staff investigators. Collectively, the banks had more than $500 billion in assets on their books, 90,000 employees on their payrolls and operations in more than 35 countries around the world. Nearly every bank surveyed had extensive "correspondent" banking relationships with offshore entities and shell-type operations █ in the majority of cases running to well over 1,000 such relationships with shells. One bank alone was processing more than $1 trillion daily in foreign wire transfers at the time the staff investigators turned up.
In an early interview with investigators, Chase Bank, which has one of the largest networks of correspondent banking relationships in the country, claimed that U.S. banks don╠t even open accounts for small foreign banks in obscure jurisdictions.
In fact, the opposite is true. Investigators eventually found that Chase itself was processing the illicit proceeds of Internet gambling through an obscure correspondent bank in Antigua.
Nor was that all. Under questioning, one Chase banker disclosed that the bank really did not know the first thing about many of its offshore customers. The employee told investigators that she herself was responsible for the bank╠s correspondent relationships with 140 offshore outfits but that she had never actually visited more than 25 to 30 of the larger ones. The small ones were simply ignored.
More than 4,000 "offshore banks" have by now barnacled themselves onto the global banking system. In the Cayman Islands, 570 "banks" have their names on the door somewhere in the country╠s capital city.
The banker told investigators she had never received any anti-money-laundering training from Chase, that she had never been trained in due diligence analysis, that the bank had no standard forms for conducting due diligence and that there were no internal procedures whereby she was ever notified of countries, or correspondent banks, of which she ought to be suspicious when opening accounts.
The Levin report overflows with such stories. There was the Miami bank █ Security Bank N.A. █ which disclosed that for almost two years it simply looked the other way as more than $50 million worth of proceeds from financial fraud, Internet gambling and money laundering flowed through its books courtesy of an offshore outfit bearing the name British Trade and Commerce Bank.
Or consider the $2.7 million in drug money that the Bank of New York processed for a small offshore bank in Columbia and the Bahamas, British Bank of Latin America. Or the claim by Bank of America that it did not know, until investigators from Levin╠s staff alerted it, that an offshore bank in St. Kitts was using it to launder hundreds of millions of dollars per month in illicit proceeds from Internet gambling. Citibank never bothered to find out the source of money moving through it via a Cayman Island shell bank that was actually laundering drug money via Argentina, according to the report. Citibank let "hundreds of millions of dollars" flow through it even after receiving a seizure order from U.S. law enforcement targeted at the accounts of the Cayman bank █ M.A. Bank.
Or consider the case of Harris Bank International, which made a point of never asking its offshore correspondent clients who they were doing business with. In this way, Harris wound up doing business with an offshore outfit known as Standard Bank Jersey Ltd., apparently not realizing that Standard Bank, in turn, was handling accounts for a shell bank named Hanover Bank, which was engaged in processing millions of dollars associated with financial frauds. The report says Harris Bank told the investigators it had no idea whom else Standard Bank might have been doing business with and that it had no immediate plans to find out.
These dealings are but a fraction of the questionable financial transactions that began growing following the Yom Kippur War and the quintupling of oil prices in the early 1970s.
The price surge transferred financial leverage from the money capitals of New York and London to Persian Gulf states like Bahrain that few people in the West had ever heard of before. The result? Western businessmen and bankers proved only too eager to curry favor with people who, overnight, seemed to have the wealth of the pharaohs spilling from their pockets.
Only later was it learned that Pharaon was actually a front man for a Pakistani financier named Agha Hasan Abedi, who presided over an outfit bearing the name Bank For Credit & Commerce International. This institution, ostensibly based in Pakistan but with its main offices in London and New York, was in turn bankrolled by moneymen from Saudi Arabia. Among the fat cats were top members of the Saudi royal family and even the Croesus-rich head of Saudi Arabia╠s intelligence service, Kamal Adham, a brother-in-law of King Faisal.
The bank █ whose false bookkeeping and impending collapse first came to public attention as a result of an expose I published in New York Magazine in June of 1991 █ turned out to be a colossal criminal enterprise that touched nearly every country on Earth. The bank was engaged in widespread, pandemic bribery of officials in Europe, Africa, Asia and the Americas. It laundered money on a global scale, intimidated witnesses and law enforcement authorities, engaged in extortion and blackmail. It supplied the financing for illegal arms trafficking and global terrorism. It financed and facilitated income tax evasion, smuggling and prostitution.
Its main means of operation? Secrecy █ the secrecy that came from acting through BCCI-controlled shell companies in every offshore banking center in the world, the exact same modus operandi employed by thousands upon thousands of crooked offshore banks to this very day.
BUSH UNKNOWINGLY TIED IN
For a period in the 1980s, the bank╠s tentacles even touched George W. Bush. This occurred when Bush █ who at that point had not yet entered politics, but whose father was vice president in the Reagan administration █ sold a small and struggling oil company he had started to a Texas wildcatting outfitter named Harken Energy, which was not much bigger than Bush╠s outfit. Doing so set in motion a chain of events that wound up entangling Bush, briefly but awkwardly, in the affairs of not just BCCI but of the bin Laden family itself.
BIN LADEN CONNECTION
Several published reports from the early 1990s quote an associate of Bath╠s named William White █ himself an Annapolis graduate and Naval fighter pilot █ as claiming that Bath was actually involved in a secret conspiracy to funnel Saudi money into the United States and that he has worked as a CIA liaison to Saudi Arabia since 1976 █ the year when Bush╠s father, George H. W. Bush, became head of the CIA. White is quoted as saying that Bath ran an aviation business and obtained several aircraft from the CIA. Bath was quoted as denying any involvement with the CIA. In 1988, Salem bin Laden was killed in Texas in a private-plane crash. There has been much conjecture █ but no established facts █ as to the reasons for, or circumstances of, the crash.
In any event, Houston-based Bath ran a Cayman Islands-based aviation business bearing the name Skyway Aircraft Leasing Ltd., which was actually owned, according to a court document, by a wealthy Saudi banker named Khalid bin Mahfouz. In 1977, Mahfouz █ who was reported by The Wall Street Journal in 1999 to be undergoing treatment for drug abuse █ joined up with the previously mentioned Saudi front man for BCCI, Ghaith Pharaon, and became an investor in a small Houston bank, Main Bank of Houston, in which Bath himself held a stake.
When Harken needed capital to expand, Bush █ by then a member of Harken╠s board █ helped the company obtain a $25 million infusion from the Union Bank of Switzerland, via an Arkansas investment banker named Jackson Stephens. Few people at the time had yet even heard of BCCI, but Bush would doubtless have been astonished to learn that he was being surrounded by people with ties of one sort or another to the biggest and most crime-infested bank in the history of world capitalism.
For starters, Jackson Stephens, head of the Little Rock investment firm that bears his name, would eventually be named as the promoter of a deal in which BCCI attempted, through various front men, to take over the largest bank in Washington D.C. Bush would also have been astonished to learn that the Persian Gulf patron of his oil patch pal, James Bath █ Mr. Khalid bin Mahfouz █ was himself an early and large investor in BCCI. Finally, he would doubtless have been surprised to learn that the bank that actually cut the $25 million check for Harken █ an outfit bearing the name Banque de Commerce et de Placements █ was in fact only half owned by Union Bank of Switzerland. The other half was owned by BCCI.
Those facts would certainly have eliminated much of Bush╠s presumed surprise when he subsequently learned that no sooner was the Harken financing completed than Union Bank of Switzerland sold its interest in Harken to a Saudi real estate developer named Abdullah Bakhsh, whom The Wall Street Journal has described as a "sometime business associate of BCCI figures Ghaith Pharaon and Khalid bin Mahfouz."
As for Mahfouz, who was fined $212 million by the United States for his involvement in BCCI and barred from any further activities in the American banking system, he has now resurfaced - in connection with Osama bin Laden.
A March 2000 press report by the Paris-based Intelligence Newsletter said bin Mahfouz was being held under house arrest in Taif, Saudi Arabia, at the behest of U.S. authorities. The reason: Mahfouz was believed to have provided financial aid to a charitable front organization raising money for Osama bin Laden █ the Afghan-based terrorist who had already been linked to the 1993 World Trade Center bombing, the 1992 attack on U.S. Servicemen in Somalia, a 1995 bombing in Riyadh, Saudi Arabia, and the 1998 bombings of U.S. embassies in Africa. A top counter-intelligence source in Washington says Mahfouz is still under house arrest.
These are the types of people Washington now needs to root out of the nation╠s █ and the world╠s █ financial systems if it is to cut off the flow of money to the terrorists who have attacked America. But the tentacles not only now reach into just about every major money center bank in the country, they have even brushed up against the early business affairs of the very man who is now rallying America to the fight. In the end, getting the dirty money out of America may prove every bit as hard as pulling bin Laden from the mountains of Afghanistan.