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Why Did Rudy Giuliani Submarine a BCCI Probe?

“His office’s apparent mishandling of solid BCCI leads is fair crit­icism of him whether he did or did not know about it: he missed a golden opportu­nity to examine the so-called Bank of Crooks and Criminals”

by

The Ties That Blind: Why Did Rudy’s Office Submarine a BCCI Probe?
October 19, 1993

A specter that haunted Rudy Giuliani’s first run for mayor in 1989 — the associa­tion of his then law firm, White & Case, with the notorious international drug laun­derers and terrorist boosters at BCCI — is coming back to haunt him. The reason it’s returning is that much of what the former U.S. Attorney said back then to deflect me­dia attacks about the relationship was flat­-out wrong. A Voice reexamination of the issue raises new conflict-of-interest questions both about Giuliani’s late 1988–early 1989 job talks with the firm — whose ties to the world’s most corrupt bank were far more extensive than it has publicly claimed — and his office’s hitherto unre­ported, yet simultaneous, submarining of a BCCI probe.

Giuliani maintained then that he had only asked the firm, which had hired him just a couple of months before he formally announced his candidacy that May, if it represented any clients “under investiga­tion by my office when I served as U.S. Attorney,” not about clients “under investi­gation by other prosecutors.” Concluding that the BCCI prosecutions, which then appeared to be limited to the federal indict­ments in Tampa, had “nothing to do with my office” and “no connection to my work,” Giuliani declared the issue “irrele­vant.” He was so angered by the controver­sy, however, that he stormed off a WNBC­-TV set when asked about it, and, six days after the story surfaced, took a leave of absence from the firm.

Contrary to Giuliani’s 1989 claims, how­ever, his office did receive a hand-deliv­ered, October 31, 1988, criminal referral about BCCI signed by top Federal Reserve and New York State Banking Department officials, as well as a November 8 follow-up letter listing suspected Panamanian and Colombian drug money deposits then flow­ing through BCCI’s New York office. These letters, as well as at least one November 4 meeting involving high-level Federal Re­serve, state banking, and Giuliani officials, were spurred by the findings of an emergen­cy joint examination of BCCI’s New York office conducted by both regulatory agen­cies immediately after the October 11 Tam­pa indictment of BCCI (surprising the bankers at a fake bachelor party orchestrat­ed by Customs agents made the bust a nationally televised news story). In addition to noting that the joint examination had uncovered apparent violations of the Bank Secrecy Act, the referral letter stated that “a money laundering scheme may be in prog­ress” at the New York branch — about as vivid a declaration as normally staid bank examiners are likely to make.

Giuliani’s office was also indirectly in­volved in the Tampa undercover opera­tion — indeed one of the prime launderers caught in the BCCI net, Robert “the Jewel­er” Alcaino, had been indicted by Giu­liani’s office that September. That is why the press statement issued by U.S. Customs Commissioner William Von Raab the day of the Tampa indictments listed his own and Giuliani’s press representatives as the only media contacts on the story. It is also why one of the Giuliani assistants who at­tended the November 4 meeting with the banking regulators, Steve Robinson, was handling not only the Alcaino case but that of another launderer, Colombian Pedro Charria, who also was charged with running drug money through BCCI.

Despite these many warnings about a bank already charged with $31 million in drug laundering, Giuliani’s office never got back to the bank regulators and never opened a grand jury inquiry. Several months later, a congressional investigator frustrated by Justice Department resistance to any broad-based BCCI investigation went to Manhattan District Attorney Robert Mor­genthau and convinced him to launch one. With the cooperation of the same state and federal banking officials mystified by the lack of response from Giuliani’s office, Mor­genthau indicted and convicted a host of BCCI officials in 1991 and 1992.

His case included counts that flowed from the money-laundering charges de­scribed in the ignored 1988 referral, which was sent to top Giuliani aide Bruce Baird. Contacted by the Voice, Baird, a Washington lawyer who contributed to Giuliani’s campaign as recently as August, said he doesn’t “have a clue” about what happened in response to the letter, and can’t recall receiving it. Robinson said he was not aware a referral letter had been sent and was not involved in any action the office took after the meeting with the regulators.

The 1988 bulletins about BCCI were ar­riving at Giuliani’s office just as he and his top aide Denny Young, who remained at the U.S. Attorney’s office until the end of January 1989 and joined White & Case (W&C) on February 16, were having their initial discussions about possibly joining the firm. A headhunter long friendly with Giuliani who was the unofficial go-between in these negotiations, Wendeen Eolis, first talked to Giuliani about W&C’s interest in November. The Manhattan Lawyer report­ed at the time that formal Giuliani talks with the firm began in December after a lunch involving Young and a partner there. Eolis says: “In the fall of 1988, there were lots of law firms chomping at the bit to talk partnership to Rudy, but White & Case was one of the select few Rudy and Denny chose to consider.” A source close to the discussions says the early meetings with W&C preceded by weeks their consider­ation of the only other serious bidder, Pros­kauer, Rose, Goetz and Mendelsohn.

While W&C would later claim that its role with BCCI had “never been significant,” figures obtained by the Voice reveal that the firm earned at least $4 million in the fiscal year ending September 30, 1987, from a half dozen BCCI-related clients. Two of the partners who met with Giuliani early in the negotiations and who participated in the four-member management committee vote to offer Giuliani and Young a combined million-dollar package ($780,000 for Giu­liani and $300,000 for Young, with Giu­liani taking almost twice the draw of the average partner) were directly involved in the BCCI-related business — W&C chair James Hurlock, and Eugene Goodwillie Jr. Hurlock became a major Giuliani donor, raising $19,500 while contributing $2000 to the 1989 campaign himself; Goodwillie, the principal partner in charge of the BCCI work, gave $1000; W&C lawyers gave a total of $48,000.

W&C’s 1987 client billings list $624,302 directly from BCCI and another $429,675 from the booming BCC affiliate in Colom­bia, which had two branches in Medellín, was closely tied to the drug trade and even became the multimillion-dollar depository for druglord Jose Gonzalo Rodriguez. It earned a mere $16,000 from the Republic of Panama that year, but that was a sharp dip from the 1986 total of $109,000, and was on top of the $300,000 Giuliani associates acknowledged in 1989 that W&C had earned over a period of a few years from the Panamanian national bank (BCCI and the Panama bank combined to hide $23 million of Noriega loot). The firm was so deeply involved with Ghaith Pharaon, the now fugitive Saudi tycoon and BCCI share­holder eventually indicted for illegally fronting for BCCI in the acquisition of three American banks, that in 1987 it listed $1.1 million in fees from Pharaon’s holding companies, Redec and Interredec; $643,000 from his oil company Attock; and $98,000 from the Pharaon Group.

W&C also reportedly earned substantial fees over the years involving Pharaon’s bank transactions, including two much-in­vestigated ventures: his sale of the National Bank of Georgia to Clark Clifford’s First American, and the purchase of the Califor­nia-based Independence Bank. Fueled by over $300 million in sometimes secret loans from BCCI, Pharaon spent years scouting and occasionally buying American banks as an apparent agent of BCCI, which was effectively barred by federal regulators from directly taking over one.

A few weeks after Pharaon’s principal representative here, Amer Lodhi, began co­operating with investigators in March 1989, he was told by W&C brass that Pharaon had issued an ultimatum: either it dropped Lodhi, who had recently taken a counsel position at W&C, or Pharaon would walk away from the firm. Lodhi, who was first involved with W&C as a young associate back in the ’70s, was shown the door within weeks of Giuliani’s ironic arrival.

When Clifford, the legendary Washing­ton lawyer still under indictment with Mor­genthau, appeared before a Senate commit­tee probing BCCI in October 1991, he was asked about his billings to the bank. Distin­guishing it from the mountain of fees he’d collected from the BCCI-backed First American, Clifford said his direct work for the bank was “an occasional matter because they used White & Case.” (Clifford added that BCCI also “sometimes used Sullivan & Cromwell” as well as one California and Florida firm.) “I think, as a matter of fact,” he concluded, “they used them a good deal more than they used us.”

The association was so strong that Assis­tant U.S. Attorney Thomas Zaccaro says it was W&C’s actions in the 1985 Indepen­dence deal that have become the legal hook giving federal prosecutors jurisdiction to bring a still-pending $37 million civil claim against Pharaon in New York courts. Zac­caro also says that W&C is “probably con­flicted out” of the ongoing case because of the role the firm played in the BCCI-con­nected acquisition. A Federal Reserve affidavit in the case spells out two aspects of W&C’s involvement — indicating first that W&C “drafted an investment advisory agreement” naming BCCI as Pharaon’s in­vestment adviser on the deal (a device that concealed the fact that BCCI was actually buying the bank); and second, that W&C then participated in discussions surround­ing Pharaon’s repayment of a loan that had partially financed the “Independence ac­quisition” (the $12 million Pharaon used to repay this loan came from BCCI). The Fed document does not say that W&C had any knowledge of the full scope of BCCI’s hand in this acquisition.

Since W&C represented both Pharaon and BCCI, as well as other apparent fronts for BCCI like the First American Bank of New York (FABNY), investigators have also pondered the question of whether part­ners in the firm were aware of the bank’s or Pharaon’s deceptive practices with regula­tory agencies. These questions have in­volved practices reaching back to the early ’80s when W&C, knowingly or not, helped pave the way for BCCI’s covert entry in the New York market by assisting in the sale of over 35 Bankers Trust branches to FABNY — the key to establishing the new bank as a force in this region (BCCI could only run an office, not a real branch in New York, and was thus barred by regulators from taking domestic deposits here in its own name). Bankers Trust was W&C’s larg­est and oldest client, and FABNY became a client too, paying the firm over $330,000 in fees from 1984 through 1986.

It was difficult for any observer not to notice the stark signs of BCCI’s involve­ment with FABNY since it was BCCI offi­cials, not First American, who initiated the Bankers Trust purchase, and BCCI that ran a yearly average of $10.6 million through FABNY (more than any other American bank), with 47 BCCI affiliates maintaining accounts there. FABNY was even head­quartered virtually next door to the BCCI agency on Park Avenue and took its top executives from BCCI ranks and recommendations.

No proof of any W&C misconduct in all of these dealings, however, has ever been alleged, and the firm has never even been legally targeted. When The American Law­yer reported in 1991 that Morgenthau and the Fed had subpoenaed documents related to Pharaon from W&C, a W&C spokesman said: “None of the services we have ren­dered to Dr. Pharaon have been called into question, nor do we expect them to be.” He has so far been proven correct. (As some measure of the depth of W&C involvement with FABNY, the firm billed the First American trustee $30,000 for gathering its extensive files related to Morgenthau’s sub­poena, with Hurlock and Goodwillie’s names appearing on the bill.)

But, in view of Pharaon’s still-pending New York and federal indictments, Federal Reserve orders permanently barring him from participating in the banking business in the U.S., and the continuing civil pro­ceedings that involve W&C, it is certainly possible that the firm was concerned in 1989, when it hired Giuliani, that the al­ready spreading BCCI scandal might turn in Pharaon’s direction. Since Hurlock, Goodwillie, the firm’s spokesman, and the Giuliani campaign declined to answer Voice questions about these issues, it is unclear whether any of W&C’s attraction to Giuliani might’ve been connected to con­cerns about the expanding BCCI case.

It’s also unclear if Giuliani himself knew about the 1988 BCCI referral, follow-up letter, meeting, and other discussions that involved his office. The then deputy attor­ney general at Justice in Washington, Rob­ert Mueller, did a retrospective review in August 1991, though he could not recall how his review began (“I know we had some allegation that a referral wasn’t fol­lowed through on,” he said). The Mueller review came on the heels of several events that presumably embarrassed the Justice Department into trying to come up with some explanation for how it managed to miss the biggest international bank robbery in history. The U.S. Attorney for the South­ern District of New York — under Giuliani or in the years after his departure — was hardly the only federal law enforcement agency in the Reagan/Bush era to look the other way when BCCI appeared on its ra­dar screen.

One event that may have prodded Mueller’s review was Morgenthau’s sweep­ing indictments, virtually all of which have led to convictions, on July 29, 1991, and the D.A.’s press statement at the time, which pointedly thanked the Federal Re­serve and state banking officials who’d met with Giuliani’s staff but never said a word about any cooperation from Justice. Anoth­er was the August 1, 1991, hearing of Sena­tor John Kerry’s Subcommittee on Terror­ism, Narcotics, and International Operations, when Customs chief Von Rabb and Kerry counsel Jack Blum took turns blasting the Justice stonewall on BCCI, and when Federal Reserve counsel Virgil Mat­tingly mentioned for the first time that the 1988 New York referral had been sent.

Newly assigned to oversee Justice’s BCCI investigations, Mueller may have been pushed as well by two House probes. On September 5, New York congressman Charles Schumer released a report that, af­ter several discussions with Mueller, faulted federal efforts, concluding “more could and should have been done to put BCCI out of business, sooner rather than later.” (A year later Schumer issued a much tougher re­view, saying law enforcement secrecy made it impossible to determine if the reason for what he described as pervasive governmen­tal inaction on BCCI was a lack of coordi­nation “or something more ominous, such as the possibility that criminal prosecutions may have been deflected or interfered with for illegal or nonlegitimate purposes.”)

On September 11, when Clifford testified for the first time in a much-ballyhooed public appearance, House Banking Com­mittee staff distributed a Federal Reserve chronology that spelled out the details of the 1988 referral, as well as a committee minority report that revealed that Fed offi­cials had “briefed Assistant U.S. Attorneys, FBI agents and IRS agents in the Southern District of New York concerning BCCI money laundering” in November of 1988.

In response to Mueller’s 1991 questions, the two Giuliani assistants, Robinson and Mary Lee Warren, who attended the 1988 meeting with the regulators began to put together their own explanation of what hap­pened. Both of them, to varying degrees, tried to minimize what the Fed and state officials told them. Robinson prepared a letter contending that the meeting was a getting-to-know-you session in which gener­al information was exchanged, with BCCI discussed only intermittently and without apparent purpose. “They clearly thought there were irregularities at the bank,” Rob­inson told the Voice, “but they did not suggest we open an investigation.” Un­aware of the referral letter to Baird, Robin­son could not quite figure out what the Fed wanted his office to do, though he says they did make it clear that they could not legally provide the prosecutors with detailed infor­mation on suspect BCCI accounts unless the Southern District “opened a formal in­vestigation” and “issued a grand jury subpoena for the documents.” He said maybe that was a “cryptic suggestion” Giuliani’s office should’ve taken. Insisting that the meeting and the bank were “no big deal” to him at the time, Robinson says that the whole issue just “fell off my map” after the session. He wrote the memo about it at the request of Warren, who was the narcotics chief in Giuliani’s office in 1988 but had become the head of the narcotics division in Washington, working under Mueller, by the time she called Robinson in 1991.

Warren, who is still at Justice and who also talked to Mueller, dismissed the meet­ing as a “hospitality session,” adding that the regulators “might have mentioned a bank” and that it “might have been BCCI” (though she could not recall what, if any­thing was said about any bank, she did remember that the group “ate cold cuts” and that she and Robinson had “a hard time finding” the Federal Reserve office). Angrily declaring that there “absolutely was not” any referral letter sent to Giuliani’s office, and refusing to listen to the three references to it in congressional documents, Warren also claimed to have “no recollec­tion” of the follow-up memo sent to her by the Fed four days after the meeting, which sources say listed specific bank customers who may have committed criminal violations.

While a Fed participant indicated later that the session was arranged at the request of Giuliani’s office, Warren says it “certain­ly wasn’t us who asked for it” and that the meeting “came out of the blue” — coinci­dentally, just five days after the referral letter. Robinson suggested that the meeting occurred because their Charria and Alcaino probes had resulted in subpoenas for BCCI records that the regulators were aware of, though Warren says she knew nothing at the time about either drug launderers’ use of the bank.

The only aspect of this disputed meeting that both sides agree on is that “nothing ever came of it,” as Warren puts it. Fed officials later told Morgenthau’s office they could not explain why the Southern District never followed through, but Mueller did not question the regulators, nor did he re­view their detailed notes of the meeting. Indeed, he has no recollection of ever see­ing the Fed referral letter or Robinson’s memo. “I can’t tell you I did a thorough investigation,” says Mueller, who nonethe­less says he was “satisifed” that whatever was done was appropriate. “I do recall the question coming up generally why Morgen­thau was doing such a good, aggressive job and yet there was no Southern District in­volvement. Ultimately the answer was that the case was being driven by the Federal Reserve and I don’t know why they weren’t working more closely with the Southern District.” He added that he knew none of the details of the Fed’s early efforts to enlist the Southern District in the probe, but said that he vaguely recalled that whatever was referred to Giuliani’s office “fell within the ambit of the Tampa money laundering probe” and “perhaps” wound up passed along to Florida officials. There is no evi­dence, in fact, that it ever was.

Baird’s memory lapse, Warren’s state­ment that she doesn’t know if she discussed the Fed meeting with any superiors, and Robinson’s fleeting acquaintance with the case leave no one who was associated with it who can answer questions about Giu­liani’s knowledge. Giuliani won’t get on the phone either, but it is hard to imagine that this hands-on prosecutor, with his own press officer listed as fielding questions about BCCI defendants associated with the Tampa operation, had no idea that these BCCI red flags were being waved in his direction. His simple disavowal of any knowledge about the actions of his own top investigator — revealed in last week’s Voice — seemed to be enough to silence any further assessment or exploration in the media.

Curiously, the press had no such re­sponse in 1989, continuing a drumbeat of stories about W&C clients and internal practices even when Giuliani adamantly denied any knowledge of them. Giuliani was particularly tarred with a Noriega brush in that campaign, though he insisted he had no way to know the firm represent­ed the druglord dictator prior to press revelations. However, the Voice has obtained a W&C prospectus then used to attract new lawyers that specifically said the firm repre­sented “foreign sovereigns” on an array of banking issues and listed Panama as one of 10 such clients. (Indeed the press had no such tolerance in the Liz Holtzman affair this year, hammering away at her though she swore under oath she had no idea her office had selected Fleet Bank as an under­writer, and all that countered her denial were reasonable inferences.)

With Giuliani’s extraordinary record as one of the country’s most effective federal prosecutors, he is certainly due the benefit of the doubt on issues involving his old office. But his service as U.S. attorney is all the public has to evaluate when it considers Giuliani, and, if he is running on that record, it is the press’s job to take a look at its possible underside. His office’s apparent mishandling of solid BCCI leads is fair crit­icism of him whether he did or did not know about it; he missed a golden opportu­nity to examine the so-called Bank of Crooks and Criminals that even loaned $9.5 million to the most ruthless Arab ter­rorist, Abu Nidal, who maintained a $60 million account at BCCI’s fashionable Sloane Street branch in London.

It cannot be emphasized too strongly that no one knew in 1988 when Giuliani’s top staff passed on these BCCI leads that Morgenthau would manage to put the BCCI pieces together inch by inch over a period of years, ultimately bringing this corrupt colossus down. The congressional investiga­tor who came to Morgenthau — just six months after the federal referral to Giu­liani — convinced him to take on this hunt by pointing to all the allegations in his own backyard, from the Fed laundering to the possible false filings involving FABNY. Had Morgenthau not responded, the Southern District stonewall could very well have resulted in protecting BCCI from the death­blow it deserved, leaving the investigation in the hands of the Justice officials else­where who had stopped short.

Giuliani is also responsible for his choice of a law firm. His deal with W&C was widely assailed in the legal press at the time, which found its price tag inexplicable, especially for a lawyer who was hired to run for mayor by a firm that did no real munic­ipal work (The American Lawyer‘s Steve Brill said Giuliani was using the firm as “a meal ticket and a mail drop”).

It hardly looks now like this potential mayor did the requisite due diligence be­fore going there, and though no one in the media has reminded the public, he went back to the firm — despite all the hard ques­tions — when he lost. He stayed there for half a year, finally drifting away in 1990. All those W&C partners who believed so deeply in his 1989 candidacy that they dug in their pockets for dough have stopped contributing, adding to the curiosity of this temporary marriage.

As Erwin Cherovsky notes in his “Guide to New York Law Firms,” W&C “scarcely resembles the prototypically white shoe law firm which went by that name 15 years ago,” with “business connections and a gentlemen’s club atmosphere” having given way “to the hustle and bustle of a firm on the cutting edge.” Cherovsky concluded that while the firm has been on the upswing in recent years, “it still has not regained the standing it once enjoyed.” The collection of clients detailed here for the first time does little to enrich that reputation; and the vigi­lant Giuliani should’ve noticed.

David Dinkins has a four-year record as mayor to defend; it merits much of the criticism Giuliani has leveled. All Giuliani has is his legal practice — as a public and private advocate. Before we make him mayor, we are entitled to know as much as possible about that record. ■

Research: Jon Bowles, David Carnoy, and Adam Macy  

This article from the Village Voice Archive was posted on September 2, 2020

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