Solutions to BCCI case
BCCI CRIMINALITY CASE STUDY
Summary of the case study
The Bank of Credit and Commerce International (BCCI) was established in 1972 by Agha Hasan Abedi. It was a deliberate set up of sophisticated international bankers with multiplying layers of entities, related to one another through an impenetrable series of holding companies, affiliates, subsidiaries, banks-within-banks, insider dealings and nominee relationships. BCCI was a vehicle fundamentally free of government control. It had ideal mechanism for facilitating its illicit activity and even by others like governments officials whose laws BCCI was breaking. It was involved in a multiplicity of activities e.g. accepting deposits, management of prostitution, option and commodity trading, acquisition of other banks, real estate trading, sale of nuclear technologies, money laundering, drug and arms dealing, support of terrorism, etc. It had 3000 criminal customers and crime record spanning over 78 nations. All manner and forms of crime were found in the records of the bank.
BCCI had the following mechanisms for crime commission: shell corporations, bank confidentiality and secrecy havens, layering of corporate structure, front-men and nominees, back-to-back financial documentation among BCCI controlled entities, kick-backs and bribes, intimidation of witnesses, and retention of well-placed insiders to discourage governmental action.
Nothing stays secret forever. BCCI’s criminality broke loose over time and though it tried to blame other people for its wrongs, especially whistle blowers, a comprehensive audit conducted by Price Waterhouse Coopers exposed most of the criminal activity in a report known as the Sandstorm report and it was liquidated in 1991.
Stakeholders involved in the case
Investors – these provided funds that were used to repay other previous loans when they fell due. Most of them were cheated into investing
Customs agents – would connive with BCCI and would receive bribes to facilitate drugs and arms trafficking.
Charitable organisations – would be given donations by BCCI to create for itself a good name and secure public favour.
Governments of 78 nations through their parties political leaders and presidents – Abedi would do whatever it would take to get the support of these influential people. Some of them were his business partners. While some of them would provide licences even for illicit deals.
Nominee companies – acted as providers of capital yet they were holders of title only and had no ownership to assets and real estate.
Support institutions – a group of institutions called ICICs saved as co-conspirators
BCCI’s private investigators – carried out investigations on the loyalty of those who had information concerning the bank’s criminal activities. They would go to the
extent of threatening and or killing potential and real informants and destroying information they held.
Attorneys for BCCI – these these were there to defend BCCI in law suits.
The press – would publish news on the criminal dealings of BCCI.
Liquidators – . Had a duty to implement the legal procedures for liquidating BCCI but they later pleaded guilty for criminal conspiracy, financial fraud, concealment of information and poor enforcement of rules
Auditors – audited the accounts of BCCI. There was Price Waterhouse Coopers and Touche Ross which latter handled the liquidation of BCCI.
Regulators - had a duty to regulate BCCI’s activities yet they ended up neglecting their duty in exchange for kick-backs.
Prostitutes – were – were there to serve Abu Dhabi’s family and BCCI VIPs’ personal needs. They were trained and would be given as princesses to Abu Dhabi to secure favour of the royal families.
Witnesses – were there to bear witness of BCCI’s criminality. Some were silenced by threat of death and bribes
Other conspirators – most of them took part in gun running, narcotics and nuclear weapons.
The public – were affected either directly or indirectly by the actions of BCCI, e.g would benefit from community development or from charity.
Prosecutors – helped in legal proceedings against BCCI
Employees – worked for BCCI.
Founder – is the one who established BCCI. His name is Agha Hasan Abedi.
Forms of unethical conduct
Evading regulation – BCCI was free from government control. They disregarded the law and would even review regulations
Fraudulent activities – these include the mechanisms for crimes given above.
Supporting terrorism and arms trafficking – BCCI actually trained the Cartel death squad that was responsible for gun running and it financed its operations through the sale of nuclear weapons and technologies.
Smuggling drugs – BCCI had affiliates involved in narcotics dealing and BCCI set a branch that would particularly cater for cocaine dealers of in Columbia.
Income tax evasion – BCCI would in as much as possible avoid tax payment through the use of improper accounting principles that would give them tax advantages and hence would deprive many governments of their tax revenue.
Money Laundering – illegally acquired money from say gun running and drug dealing was channelled through proper banking channels to disguise its illicit origins.
Illicit purchases of banks and real estate – had a number of premises under BCCI whose right to ownership was questionable.
Creating loans in bogus names – BCCI would use names of prominent Middle East investors without their knowledge.
Poor lending practices – would lend to its co-conspirators even if they were not credit worthy to finance their illegal practices hoping to benefit from them. They would advance funds to non-existent companies.
Purchase of own shares – BCCI used about $93.5 million loans to buy its own shares.
Bribery – BCCI would use bribes to court government and political figures, central bank officials, the public through charitable organisations to buy goodwill and many other parties whose support it considered important.
Document backdating – putting false dates on documents .
Concealment of information – BCCI would make efforts to intentionally hide their losses and criminal activity .They would do so by shredding documents, arson and improper record keeping e.g. documents were filed in chronological order and no relationship could be established amongst transactions. This was also intended to confuse investigators .
Falsification of information - this would meet the sole purpose for the establishment of BCCI which was set up deliberately to operate extensively in secrecy jurisdictions and hence avoid full comprehension of its operations. This was achieved by the use of false accounting practices and manipulation of accounts.
Foreign exchange dealings – Africans would bring foreign currency in exchange for kick-backs.
Insider trading and nominee relationships – BCCI officers would use inside information for trading in BCCI shares. BCCI had shareholders acting as nominees without real ownership to capital and real estate.
Management of prostitution – Would hire prostitutes to satisfy the needs of the BCCI VIPs and Abhu Dhabi families and hence win the favour of royal families and discourage government enquiries.
Intimidation of witnesses – BCCI would threaten witnesses and whistle blowers by every means possible through direct and in direct threats and gun shots. Hence many lost their freedom.
There is need for accountability by people who make decisions on behalf of the organisation. There was no existence of effective mechanisms that allowed accountability. The founder was accountable to himself. Corporate governance issues in the case
Responsibility to stakeholders stakeholders A well managed company is argued in the King’s report to be aware of and respond to social
issues, placing a high priority on ethical standards. BCCI did not display responsible behaviour to its stakeholders and the collapse of the bank was imminent given that the bank was operating a Ponzi scheme.
– Agent problem Principal – There was a conflict of interests in which those in positions of trust such as directors had competing professional or personal interests. An example is that of hiring prostitutes to satisfy the needs of BCCI VIPs Such competing interests it made it difficult to fulfill duties and had an effect of compromising decision making. Lack of transparency transparency
Openness is very important in corporate governance. There were no mechanisms that facilitate free and easy public access to BCCI, political and personal information and the laws, rules, social connivances and processes that facilitate and protect those individuals and corporations who freely join, develop and embellish the process. This lack of management making necessary information available in a candid , accurate and timely manner depressed investor confidence in the bank. Fairness
The rights of various groups were not acknowledged and respected. Independence Independence
It is the extent to which mechanisms have been put in place to minimize or avoid potential conflicts of interest that may exist, such as dominance by a few strong individuals .These mechanisms range from the composition of the board, to appointments to committees of the board, and external parties such as auditors internal systems and controls. The lack of such mechanisms facilitated BCCI’s criminality. Discipline Corporate discipline is defined in the King’s report as a commitment by a company’s senior
management to adhere to behavior that is universally recognized and accepted to be correct
and proper. This encompasses a company’s awareness of and commitment to the underlying
principles of good governance. Involvement in bribes and money laundering show lack of discipline on the part of BCCI officers. Conclusion
If the above corporate governance values were respected, the ethical crimes cited above would not have been committed and BCCI would have been saved from collapsing.
