Corruption and Accountability in the Global Economy
March 4, 1993
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Panelists:
Jack Blum
Principal Investigator responsible for breaking the B.C.C.I. scandal as Counsel, U.S. Senate Subcommittee on Terrorism, Narcotics and International Operations; former Chief Investigator, U.S. Senate Subcommittee on Multinational Corporations
Michael Cavallo
Commodities Trader; Founder, Cavallo Prize for Moral Courage in Business and Government
Karen Lissakers
Director of International Business and Banking Studies, Columbia University and Author of Banks, Borrowers and the Establishment
R. Thomas Naylor
Professor of Economics, McGill Universityl; Author, Hot Money and the Politics of Debt
Interlocutor:
Martin Mayer
Investigative Reporter and Author of The Money Bazaarsand The Fate of the Dollar
Moderator:
Adam Shore
EPIIC Colloquium
"The issue here is that in a globalized world economy there will be criminal behavior, of the same ratio, that also will be globalized."
--Jack Blum, U.S. Senate Counsel who broke the BCCI scandal
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Technological advancements since World War II have transformed trade, created international money markets, and extended the web cast by corporations across international boundaries. Each business day, more than one trillion dollars--more than the entire money supply of the US--moves through complex computers in a web of finance and communications that binds together a supranational economic system. Some believe that the speed, scale and complexity of the fast flow of electronic funds has undermined sovereignty and made the global money system vulnerable to accident or malice.
In this context fall three major banking scandals, Banco Ambrosiano, BCCI, and the BNL affair, which have exploded in the past decade bringing into question the effectiveness of banking regulation and the extent of national sovereignty.
Banco Ambrosiano was a Milan-based commercial bank with historically strong ties to the Vatican. From 1974, the director of the bank, Roberto Calvi, cemented the shady relationship with the Vatican to secure a channel for flight capital out of Italy. He gradually moved more than $1.3 billion offshore to Nassau, Switzerland and Luxembourg.
Calvi was arrested and charged with violation of Italian exchange-control laws in 1982, but intervention by the Vatican in the form of an ambiguous letter appearing to assume all losses incurred calmed authorities and creditors. This conditional letter was not honored, however, when the bank collapsed.
The Bank of Credit and Commerce International (BCCI) was founded by Agha Hassan Abedi in 1972 as a Third World bank for Third World customers. Backed by the ruling family of Abu Dhabi, the bank's growth mushroomed to more than four hundred branches in seventy-three countries. BCCI's growth, however, was rooted in a series of smoke and mirror transactions.
The bank gave loans to special clients for hundreds of millions of dollars which were never to be paid back as they were reinvested in the bank. BCCI maintained branches in the world's most lax banking havens: the Cayman Islands and Luxembourg.
BCCI carefully nurtured relationships with prominent political figures around the globe, adding to the bank's credibility. Lord Callaghan, Britain's former Prime Minister, Pakistan's President Zia, and former President Jimmy Carter were all caught in the web. Abedi employed Clark Clifford, an adviser to presidents starting with Harry Truman, as well as his protege Robert Altman. BCCI also catered to all sorts of clients, ranging from the CIA and Israel's Mossad to the Palestinian terrorist leader Abu Nidal. The bank helped Peru hide money from the World Bank and knowingly assisted drug barons to launder billions of dollars from cocaine sales.
When BCCI was shut down in the U.S., branches in sixty-two countries were either closed or run under tight supervision. The victims of the scandal were the 1.3 million depositors. Third World governments were also crippled--Cameroon lost $200 million in pension funds and Peru lost $600 million in federal funds.
The Banca Nazionake del Lavoro (BNL) is Italy's second largest commercial bank, with branches all over the world. Its office in Atlanta, however, was the epicenter for the BNL affair or "Iraqgate" scandal. Following Washington's foreign policy debacle with Iran, Iraq, became the favored nation to maintain stability in the Middle East. Instrumental in propping up Iraq was ready access to credit, eventually made available by the BNL branch in Atlanta.
Despite Iraq's bad credit rating, the US administration allowed Iraq to take out loans under the Food Aid program. Christopher Drogoul, head of the BNL branch in Atlanta, borrowed billions of dollars from other banks, which was then lent to Iraq at a slightly higher interest rate. It was this money, many allege, that enabled Iraq to build its ballistic missile and nuclear weapon programs. The U.S. government reportedly agreed to act as a guarantor on these loans.
The subsequent Senate investigation into the matter revealed a lack of regulation of foreign banks, deliberate misallocation of federal funding, and signs of a government cover-up.
Serious questions arising from these three scandals outline imperatives for the future. To avoid recurrences, stricter bank regulations are necessary on both national and international levels. The most formidable problem is the creation of an international regulatory body, and the implication that such an institution might have for national sovereignty. Calvi's actions exposed the dangers of "grey areas" in legal jurisdiction across national boundaries. The capacity of bank havens to shade illegal capital was illustrated in the BCCI affair.
Officials at the Bank of England were legally prohibited from passing on information vital to American authorities in their investigation of BCCI. Accounting firms auditing the banks are not obliged to divulge information unless instructed to do so by their clients. Is there a way--in this globalized and computerized economy, where money can be transferred with a key stroke--to control these types of activities? How can governments, institutions and individuals be held accountable?