How could an impeccably honest Bedouin sheik get stuck in a mess like this? Despite his solid-gold reputation, Sheik Zayed bin Sultan al-Nahayan, ruler of Abu Dhabi and President of the United Arab Emirates, found himself last week at the center of the largest global banking scandal ever. As the most recent owner of the notoriously corrupt Bank of Credit & Commerce International, which regulators closed earlier this month, Zayed has become the unwitting goat for nearly two decades of alleged fraud by the bank's Pakistan-based managers and for years of neglect by banking authorities around the world. After investing $1 billion to shore up B.C.C.I. since he acquired it last year, Zayed faces the humiliation of losing control of the bank, and the moral -- if not legal -- responsibility for helping to bail out depositors who were victims of fraud.
The sheik had plenty of companions in misery as shock waves from the B.C.C.I. shutdown rippled across the globe. Authorities seized more than 75% of the bank's $20 billion of assets in 69 countries. Customers from Bahrain to Beijing suddenly found themselves cut off from their funds. Political sniping broke out in Britain when members of the opposition Labour Party attacked regulators for hastily closing 25 branches of B.C.C.I. across the country. Panama pleaded with the Bank of England to return $18 million of government funds that ousted dictator Manuel Noriega had squirreled away in B.C.C.I. accounts in Britain. In the African republic of Botswana, officials kept the local B.C.C.I. branch open and guaranteed all loans and deposits to prevent a run.
Everywhere the same wrenching question arose. How could regulators in the U.S., Britain and other countries have allowed B.C.C.I. to develop into a monstrous criminal enterprise whose activities ranged from laundering drug money to financing clandestine arms sales? Authorities seemed content for years to ignore mounting evidence, provided by private audits and former B.C.C.I. officers, of the bank's misdeeds. According to leaked audit reports, B.C.C.I. used deposits to enrich many of its Arab investors -- and then covered up the fraudulent transactions. The bank also cultivated a global network of political contacts to help keep regulators at bay. The heavy hitters included former Defense Secretary Clark Clifford, since 1982 chairman of Washington's First American Bankshares, which B.C.C.I. secretly gained control of in the mid-1980s. (Clifford has denied knowledge of B.C.C.I.'s ownership.)
Nowhere was the anguish and turmoil over B.C.C.I.'s collapse greater than in Britain, where the Bank of England froze more than $400 million of deposits in 120,000 accounts held largely by Indian and Pakistani families and small businesses. The outraged depositors included some 60 municipalities that had placed as much as $160 million of public funds in B.C.C.I. accounts. Customers may have to wait months to receive what is insured under British law: 75% of their money, up to a maximum of (pounds)15,000, or $24,000 at current exchange rates. Shaken B.C.C.I. depositors jammed hastily arranged telephone hot lines, some manned by fluent speakers of Hindi, Urdu and other Asian languages, with calls for advice. At the same time, many of the 1,200 B.C.C.I. employees who lost their jobs in the shutdown marched outside the Bank of England to protest the move.