NEW YORK -- Bank of Credit and Commerce International did not record substantial deposits that Islamic banks made to help the Luxembourg-based bank holding company cover its losses, the Wall Street Journal said Tuesday.
The Journal, quoting from a report the accounting firm of Price Waterhouse completed for the Bank of England, said BCCI held as much as $300 million in unreported funds from Islamic banks at the end of June, a week before the largest banking fraud in history was revealed.
'Altogether BCCI Holdings (Luxembourg) S.A. had as much as $589 million of unrecorded deposits,' the newspaper said, quoting from the Price Waterhouse report released to the bank's creditors last week.
BCCI Holdings is the main business entity in the banking group, 77 percent of which is owned by the ruler of Abu Dhabi and other emirate officials.
Islamic banks, which operate under Moslem laws barring the payment of interests on loans, must invest in areas regarded as 'productive,' such as commodity trading.
'The major part of the unrecorded Islamic banking deposits -- $245 million -- were taken from an entity identified in the report as 'Tumbleweed,' which former BCCI officials identify as Faisal Islamic Bank of Egypt, an Islamic banking business based in Egypt,' the Journal said.
According to the Price Waterhouse report, BCCI's use of unrecorded deposits was 'part of the massive fraud at the bank' and helped 'conceal past losses and avoid making provisions for bad loans.' The report also said that to conceal its loan losses, BCCI drew funds 'on bogus loan accounts in the name of prominent Middle Eastern investors.'
The newspaper said 'the Price Waterhouse findings suggest that the depositors in Faisal Islamic Bank, many of them poor Egyptians, are at risk from the seizure of BCCI,' the Journal said.
'Their money, in large part, has been used to help prop up BCCI to the benefit of its Pakistani managers and the Mideast sheiks who own it, ' the Journal said.
The Egyptian government owns 51 percent of Faisal Islamic Bank, formed in 1977, while Saudi Arabian and other Middle Eastern investors own the remaining 49 percent.
'Its relationship with BCCI dates back to the late 1970s,' the Journal said. It described Faisal Islamic Bank as a 'sister institution of Dar al-Maal al-Islami, an international banking institution based in Geneva. Both are headed by Prince Mohammed bin-Faisal al-Saud of the Saudi ruling family.'
The Journal said the Price Waterhouse report listed 'many other alleged frauds at the heart of BCCI,' while the 'extreme loyalty of a small group of Pakistani bankers' allowed the poorly managed bank to continue its business for years until the Bank of England closed its operations in Britain July 5.
The Bank of England's action triggered a flurry of legal proceedings in many of the 69 countries where BCCI operated.
The newspaper said a number of Pakistani bankers stood by the founder Agha Hasan Anbedi and his protege Swaleh Naqvi. Both were indicted by a New York grand jury last week for what District Attorney Robert Morgenthau and others termed the biggest banking scandal in history.'
The United States has requested the extradition of the two men.
In a separate report, the Journal also said the BCCI scandal could harm a number of Democratic lawmakers with ties to BCCI.
'In a move signaling increased partisan conflict in the BCCI scandal, investigators for Republican Sen. Orin Hatch prepared a report that presents links between Democratic lawmakers and a failed Miami thrift tied to BCCI,' the Journal said.
Hatch's report focused on the ties between BCCI and CenTrust Savings Bank, the failed Miami thrift once headed by David Paul, former co- chairman of the Democratic Senate Campaign Committee.
'Paul is an 'interlocking relationship' between BCCI and CenTrust through Ghaith Pharaon, the Saudi financier who often acted as BCCI's front man in its investments in the United States,' the newspaper added, quoting from Hatch's report.
The report said Pharaon 'played a prominent role' in a decision by U.S. federal regulators to keep the ailing thrift afloat in 1988 at a huge cost to taxpayers.
Hatch 'made a ringing endorsement on the Senate floor of the Justice Department's agreement to settle a massive money-laundering case against BCCI for a payment of $15 million' in February 1990, the newspaper said.
