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The Lawyer Who
Broke Open The Bank
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\
C\ \Investigator Jack Blum, Baring the BCCI Scandal
'( \)
) 1 Accordingly, at ' his 50th-birthday party the weekend before
By Phil McCombs last, Blum's friends held a roast and presented him with a bullet-
w........,,.Staw.- proof vest. ADd they put up a sign, for potential assassins, at the en-
From the miasma of what has come to be called the Bank of tra.nce to their Annapolis neighborhood: "HE LIVES DOWN
Crooks and Criminals scandal emerges a quintessential Washington THERE, with an arrow.
type, a somewhat pudgy figure of medium height. middle-aged, with What Blum described in his testimony was an' alleged intema-
strong eyeglasses- an unlikely combination of legal smoothie tiona! criminal conspiracy of almost unbelievable proportions-be-
rogue investigator in a beige suit. "The phone has not sbJptJl nng- ginning to daw on the American consciousness now, but which, for
ing, says Jack Blum with satisfaction. "Every newspaper, radio a long time, Blum said, he could not get the justice Department or
television station from here to Tierra del Fuego wants the story. other federal law agencies seriously interested in. He was joined at
Koppel filmed him in his downtown Washington law office. So the witness table by former U.S. customs commissioner William
did "MacNeil/Lehrer." Most others he turned down. von Raab in speculating on why.
In testimony Aug. 1 on BCCI (Bank of Credit and Commerce "High-priced anesthesia" in Washington, was the way Blum put
lnternationaO before Sen. John Kerry's <D-Mass.) Foreign Rela- it after von Raab alleged that "influence peddlers" such as Clark
tions subcommittee on terrorism, narcotics and international opera- Clifford, Robert Altman, Robert Gray and Frank Mankiewicz creat-
tions, it was Blum who recounted the inside details of how the Sen- ed an among senior U.S. officials "that BCCI was proba-
ate investigation be headed-stumbling and frustrated at times, but bly not that bad because all these good guys that they play golf with
helped bring about on July 29 the indictments by a all the time were representing them."
New York grand jury against 'the bank and two of its officers on "'t's like the cesspool overflowing on the front lawn," said
charges of frnud, money-laundering, bribery and theft. Blum, ever blunt and colorful in his own reassuring, plodding way.
And that, officials said, is just scratching the surface of a larger
scandal involving drugs and international politics. See BLUM, D2, CoL 1
----- -- -------- . __ ......... -
(Mankiewia, wOO with Gray works
for the public relations firm HiB aod
Knowlton, later issued a statement
c:alling von Raab's testimony "inc:rtm-
bly irrespoosible and totally false. Nei-
ther I, nor Robert Gray, oar anyone
else from HiB and Knowlton eYer con-
tacted, on behalf ci BCCI. anyooe in
the Department of Justice or . in the
executive branch or . on Capitol
Hill." He also noted in a tdephooe in-
terview that Blum had not named him
Clr' Gray in his testimony, adding. "'
have no problem with Jack Blum at
aD.")
"Mr. Blum," said Sen. Alan Cranston
(I)-Calif.) at one point in the beariog, '1
admire yoor courage it taDlg the risks
that you took. knowing the sort ci
pie that wouldn't like what you were
up to."
Indeed, Blum's tale bas its hair-
raising moments-meeting a shady
source in a warehouse near the Miami
air)lort, attending an adversarial meet-
ing in a Miami law <ifice "where I was
the only one in the room not wearing a
weapoo," entertainiQg a BCCI infutmer
it his home after warnings &un law
eab cement friends that it could be
dqerous. "And I said," be I'PO)III'Ud
in his testimony, 'Why is that?' And
they said, 'These people are murder-
ers, drug dealers, they are actuaUy
dealing in the narcotics, and you are
taking a great risk.' ,.
BNm did it anyway, and got a lot ci
good information as a result
"''ve always assumed you take your
cbaoces doing whatever you do." be
says easily in an interview in a Wash-
ington restaurant. "''ve had a lllUDber
ci threats. I don't like to dwell on
them."
The only dWd ci a ~ and a
teacher, Blum was born in the Bconx
aod grew up in Elizabeth, NJ., m a
. bouse his grandmotber had lived in
since 1902. He attended high school at
an Orthodox yeshiva on the Lower
East Side ci Manhattan. and entered
Bard College with the class ci 1962.
There, he came under the powerful in-
fluence ci two refugees &un Nazi Ger-
many, philosophy professor Heinrich
Bluedler and his wife. .Hamab Arendt,
whose "'rigins ci TotaJitarianism' was
already a classic. and who was tbeo at
work on "&:bmann in JeN!alem."
'1 spent time in their apatbneut in
New York. where W.H. Auden and
Mary McCarthy were regular visitors;
he recalls. "' remember they were so
worried about Auden, becal.l8e he IM!d
this derelict life. so the two WOOieQ
went to tbe Lower East Side and
cleaned his apartment.
~ eJiperieoces shaped bim. ,
,. .. .., , ..
"""""
saw the importance or me me ot me
mind, of. ideas, not material values."
Now, '1 feel ahnost like I'm in. ancient
Egypt, where people buried their
wealth. When I saw a picture of the Po-
tomac home of [First American Presi-
dent) Robert Altman, I thought of the
Chinese emperors. You 1\M to ask,
what are you domg bere and why do
the things you do, and is the fundamen-
tal thing the accumulation of wealth?
And what are you going to offer your
society? This is basic stuff. How did I
wind up in a society that's forgotten
bow to revere its elders and care foc
its children. which has been the busi-
ness of an mankind toreverr
Bluecher and Arendt urged him to
think about wbat happened it <Jerma-.
ny, ua country so civiiUJed on one level,
and so monstrous on another." He
learned, he says, bow evil comes on lit-
tle by little, his prolessol' drumming it
in that "passivity and a willingness to '
accept each new affront as it comes
along, incrementaDy, means that sud-
denly you find the whole monstrous
mess in your lap because you've waited
too long."
LikeBCCI.
Blum originally wanted to be a
muckraking journalist, aod started his
own weeJdy newspapa in oollege, but
decided against it because he came to
feel that joumatism involves "a kind <i
perpetual adolescence, a reacting to
everything as if it were fresh. I wanted
to be an actor rather than an observ-
er."
He went to Columbia Law School
and then came to Washington in 1965,
first working at the FCC and then
quiddy switching to antitrust investiga-
tion for Sen. Philip Hart. Later he
probed rrr in Chile and Lockheed's
overseas payments for Sen. Frank
Church. He bad returned to private
practice when, several years ago. by
bappetastanre, be first heard ci. tbe Pa-
.
Clockwise ttomlop, lawyer Jack Blwn. BCCrs London branch, a.od Seo.Joho meeting wilh Blum.
.....
kistani-founded, Arab-owned and Lux-
embourg-based BCCI: An American
banker said his bank didn't want any-
thing to do with it.
Blum testified that be thought this
"odd" at the time, and in the best gum-
shoe tradition "just stored the informa-
tion in the back of my head."
In 1987, at Kerry's invitation, he
came to the subcommittee to investi-
gate the relationship between interna-
tional dnlg trafficking and foreign poli-
cy. A strong Democrat. he says he
thought it was "a good time to return
to the Hill. lraJH:ontra was on the ta-
ble. Reagan was out soon, and there
seemed to be a break in the political
wan I had fared for six yean/' of Re-
publican hegemony in Washington.
One day in early 1988, be recalled in
his testimony, a witness used a chart
labeled " 'Noriega's Criminal Empire.'
And at the center of the chart, he had
'BCCI.' Suddenly. the information I had
parked in the back of my head years
befure became reJevant. And I began
to seek out more information about
BCCL"
By "'uck," be found a senior BCCI of.
ficer who told him. "You have to tmder
stand, the business d this bank is deal-
ing with roughly 3,000 high-net-worth
airninaJ clients, that most of the other
activity, the branch activity, the myriad
corporations, is not real banking busi-
ness for them." There were delays in
issuing subpoenas-a federal investi-
gation in Tampa might otherwise have
been jeopardized, Blum was told-until
mid-1988, but when they came out the
impact was stunning.
Blum received a call from an uniden-
tified woman in London. Talk to Ali
Akbar, she said. Blum called Akbar,
who turned out to work for BCCI. Talk
to Mr. Awan, he said. It was Awan
who came to Blum's home and, in an
eight-hour interview, made it "clear
that this bank was a major aiminal en-
terprise.".
Things really heated up from there,
according to Blum's testimony. The in-
tense lobbying in Washington. BCCI of-
ficials allegedly revving up their shred-
ding machines. And Blum's frustration
as the work of the committee closed
down in October 1988 because of the
approaching presidential election, with
the end of his own contract and his ap-
proaching return to private practice.
"We ran out of time," says Blwn.
" ... The only option was to hun what
we knew over to federal authori-
ties..
Who, in the time-honored tradition,
"said they'd be back in touch, and there
was no further contact at that point"
As be was packing up the contents
of his desk, Blum another hot
tip and followed it. debriefing a key
source for three days in the Embassy
Suites Hotel near the Miami airport.
Customs and IRS agents had wired the
room, and bad trouble because "Em-
bassy Suites uses cinder block between
rooms, and you can't driB through cin-
der block to run a wire through the
wall."
The resulting taped material was
shocking-involving, among other
things, the use of the bank to purchase
First American Bankshares in 'Wash-
ington-and Blum offered the witness
and the material to the Justice Depart-
ment Then, he testified, '1 waited for
something to happen. [There was! no
follow-up. And I began to worry that
something was very wrong with this
case."
In early 1990, federal in
Tampa obtained a guilty plea from two
BCCI five bank officials to
a:
r
I
..
f
~
&"
i
..
r
charges of laundering money from
drug dealers. BCCI paid a $14 million
fine, but, Blum testified, he was ''per
sonally infuriated. I had taken what I
considered to be considerable risk and
gone to I thought great length to put
serious evidence in front of the Depart-
ment of Justice. The agents !mew ..
well knew, that there was more to this
case."
As a precaution, Blum had already
approached New York District Attor
ney Robert M. Morgenthau with the
sensational material, and Morgenthau
had nm with it, declaring the case "the
largest bank fraud in world history."
"Morgenthau really did the investi-
gation," Blum testified. "He finished
out the piece that I couldn't."
.Modesty becomes. For his part,
Mike Cherkasky, Morgenthau's chief
of investigations, is wild with praise for
Blum. Cherkasky says his office wasn't
working on BCCI at the time, "and]ack
Blum literally walked into my office in
March of '89, and after talking to him
it was like my head was spinning, and I
didn't think we could do it He told the
story that is now literally occupying
hundreds of investigators and report
ers, and he substantially told that story
in March of '89. I marched him into
Morgenthau's office to meet with Mor-
gentbau and John Moscow [deputy
chief of investigations], and they hit it
off right away. He didn't bring any doc-
uments, but in the early part of the
case Jack was an enormous resource.
.He was the guy who started it."
Meanwhile, Blwn bad returned to
private practice at Lobel, Novins, La-
mont & Flug in Washington, working
for banks and other international cli-
ents who needed advice on how to
combat corruption. And-what the
beck-he ran in the Democratic coo-
gressionaJ primary in 1990 against
Rep. Tom McMillen in Maryland's 4th
District, winning 12 percent of the
vote in a campaign that cost him less
than $1,()()0-all his own rooney. ;
"' got totally disgusted that McMil
len got elected and tmned his office in-
to a funding operation," Blum says. "He
got a huge amount of money from
bank-related PACs, when he's on the
Banking Conunittee." McMillen bad re-
sponded to all this, during the ~
paign, by finding "a certain cynicism to
Jack's position that members of Coo-
gress can be bought and sold. l think I
have represented the district well on a
variety of issues, and the voters will
show confidence in me. ..
They did.
Which bothers Blmn not a whit '1
was totally unknown," he says with a
smile, "and I tormented him, and in-
flicted a lot of pain, I hope."
Peruvians
DefendBCCI
Deposits
Militant Leader Said
To Drive Off Others
By Eugene Robinson
............. , .... Soniot
Peru's large deposita five years ago
with the Bank of Credit and Com
merce International, which figure in
an indictment of BCCI yesterday in
New York, were less a matter of
choice than of financial necessity, Pe-
ruvian officials have argued in inter-
views with Lima-based journalists.
New York District Attorney Rob-
1 ert Morgenthau charged that BCCI
paid up to $3 million in bribes to se-
nior officials of the Peruvian central
bank in 1986 and 1987 in order to ob-
tain hundreds of millions of dollars in
.
In a press ccnference, Morgenthau
identified the officials as Hector
Neyra, who was then general manag-
er of the central bank, and Leone! F't-
gueroa, then president of the bank's
seven-member board of directors.
Neither man could be reached for
comment yesterday, but friends and
associates defended them as booest
civil servants.
According to reports in the Peruvi-
an press, Neyra-who currently
works with MacroConsult, a Lima-
based consulting finn-has defended
the decision to place funds with BCCI
as one of the few optioos then opeo to
the beleaguered Peruvian govern
ment
Those financial optioos began to
narrow after Alan Garda took office
as Peru's president in 1985. A young,
charismatic leader, Garcia sought to
carve out a roJe for himself as a lead- .
ing spokesman for the Third World.
He railed at the international banking
system, and backed up his rhetoric by
unilaterally deciding to limit Peru's
payments on ita foreign debt owed to
private banks and international lend-
ing agencies.
After leaving office last year, Gar
cia was widely criticized in Peru for
having helped precipitate the virtual
the economy during the 6-
naJ three years of his term. Political
opponents have been trying for
months to link him to BCCI and al
leged secret accounts, but nooe of the
chargee bas stuck and most have been
demonstrated false.
In 1986, Peru was keeping ita re-
serves-totaling at least $1 billion-
in the Bank of Intematiooal Settle-
ments in Basel, Switzerland. But as
Garcia's rhetoric became more and
more strident, afficiaJs ot the Swiss
Major international
banks declined to
bid for
business in the face
of President
Garcia's militant
stand.
institution became increasingly ner-
vous, according to an account given
recently by Neyra Finally, Neyra has
said, bank officials asked that Peru's
funds be withdrawn.
Neyra said recently, In an inter-
view with the Lima correspondent for
the F'mancial Times, that major inter-
national banks declined to bid for Pe-
ru's business in the face of Garcia's
militant stand. But BCCI apparently
was interested.
A technical study by the central
bank's staff recommended depositing
$100 million with BCCI, Neyra re-
portedly has said, but $200 million
was placed with the bank because offi-
cials could not find another suitable
place for the funds. In exchange for
the deposita, Peru received a $60 mil-
lion line of credit, which eventually
was doubled to $120 million.
The Peruvian government bad to
pay 1.25 percent above the prime in-
terest rate to borrow against the
credit line-a charge that has been
called excessive since the borrowing
was fully secured by the deposited re-
serves. Central bank officials defend-
ed the interest charges as necessary
to cover administrative costs.
The decision to deposit funds with
BCCI was made by the seven-mem-
ber board of directors headed by Fi-
gueroa. The board is autonomous, al-
though the Peruvian president e.ijoys
some infJ.uence over the board's deci-
sions.
Neyra bas reportedly said that
BCCI paid competitive interest on the
central bank's reserve funds.
At no time, Neyra has told local re-
porters, did the amount of central
bank reserves in BCCI's Panama
branch exceed $250 million-or
about one-third of the COW!try's dwin-
dling reserves. Some congressional
critics have put the amount at $270
million, and some press accounts have
pegged it even higher. The Peruvian
funds apparently were withdrawn in
late 1987 after consulting firms
raised questions about BCCI. All toJd,
the Peruvian reserves were kept in
the bank for about one year.
CIA Reported BCCI Allegation
Iii!
7 /ZBJ By Michael