CIA DID NOT PASS ON BCCI INFORMATION TO FEDS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP99-01448R000401700007-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: May 23, 2012
• Sequence Number: 7
• Publication Date: October 26, 1991
• Content Type: OPEN SOURCE

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CIA did not pass on BCCI information to Feds
By TERESA SIMONS ROBINSON
UPI Business Writer
TM Waahington Poat
The New York Tlmes
TM Waahln9ton Tln-ea
The Wall Street Journal
The ChNstian Sclenca Monitor
New York Dally News
USA Today
TM Chk;apo TMtwne
Oate _ `_
WASHINGTON (UPI) Acting CIA Director Richard Y~~ admits that the
intelligence agency did not tell the Federal Reserve that the scandal-
plagued Bank of Credit and Commerce International secretly owned a U.S.
bank holding company.
But Kerr, testifying on Capitol Hill Friday, denied his agency had an
improper relationship with the rogue Pakistani-run bank and said the CIA
used the bank only on " an extremely limited basis. "
Kerr was responding to allegations the CIA may have co-opted the bank
to turn it into a financier of covert intelligence activity such as arms
sales to Iran, the profits of which went to aid the Nicaraguan Contra
rebels.
Meanwhile, President Bush declined to answer questions about the
propriety of a former White House aide who has been retained on a
$600,000, two-year contract as a lawyer for a Saudi sheik involved in
the scandal.
Ed Rogers, who resigned as a top aide to White House chief of staff
John Sununu, is representing Sheik Kemal Adham, a former Saudi
intelligence chief identified as a principal owner of BCCI.
Bush said Rogers is " a free citizen to do anything he wants once he
leaves the White House. My concern is about the White House itself, that
it be beyond any perception of impropriety. "
Sen. John Kerry, D-Mass., on the other hand, suggested that Rogers
may have been hired for his political connections.
Noting that Rogers has no criminal law experience, the senator said,
"You are inevitably left asking what services can he provide that are
worth $600,000. "
Kerr} conducted hearings this week on BCCI, a global enterprise that
regulators in seven countries seized last July after the Bank of England
uncovered evidence of fraud, drug trafficking and money laundering at
British branches.
The victims potentially include as many as 1.2 million depositors in
the 70 countries where BCCI operated. Deposits were frozen when the bank
was seized.
At Friday's hearing, Kerr said the CIA knew in 1985 that BCCI had
secretly acquired illegal ownership of the Washington area's largest
bank holding company, First American Bankshares, but did not give the
evidence to the bank's regulator, the Federal Reserve.
But he said the CIA did inform the Treasury Department, which
oversees regulators of other banks. Federal Reserve officials have said
no one at Treasury passed on the information.
Under questioning by Kerry's panel, Kerr said he did not know which
CIA officer failed to tell the Federal Reserve, but he also said he did
not plan to find out or to discipline the person.
He said a number of documents on BCCI's suspected money laundering,
drug trafficking and involvement in terrorism and weapons sales had been
disseminated to various governmental agencies, including the Commerce
and State departments and the FBI.
QONTniueo ._ .3.
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2.
"The CIA did its job and did it well, " Kerr told the Senate
Subcommittee on Terrorism, Narcotics and International Operations.
Sen. Hank Brown, R-Colo., later maintained the CIA dropped the ball.
" If you know about a fire you don't call the city manager's office; you
call the fire department. They called the city manager's office, " he
said.
Treasury spokeswoman Claire Buchan described the CIA's early evidence
on BCCI as "interesting background material" but said it would not
have added to what the Fed already knew. Treasury obtained more useful
information on its own in 1988 and did pass it along to the Fed, she
said.
Kerr, meanwhile, also emphatically denied allegations that the CIA
had an improper relationship with BCCI. He characterized as "baseless"
suggestions that BCCI founder Agha Hassan Abedig had been put on the
agency's "watch list " in an effort to persuade him to fund covert
operations.
" We used BCCI on an extremely limited basis for legal banking
transactions, " Kerr said.
The CIA has said it used the bank as a "transfer point " for routine
movements of funds.
For national security reasons, Kerr declined to discuss the
allegations in depth during the public hearing but he agreed to meet
with the Senate panel next week in a private session.
Earlier in the week, Georgia banker Bert Lance, director of the
budget under President Jimmy Carter, claimed the CIA played a major role
in the affairs of BCCI.
Although Lance offered little evidence, he is not alone in his
assertions. In Abedi's home country of Pakistan, several officials claim
BCCI routinely did the CIA's bidding.
Testimony in hearings on the Iran-Contra arms-for-hostages scandal
also indicated that BCCI was to earn a profit for funding a $10 million
weapons sale to Iran, arranged by arms dealer Adnan Khashoggi, believed
to be a Reagan administration operative.
ly.
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CIA `Mistake'
Cited irrCase
Of lst American
By Mark Potts
VYa~hinttm Pat Snf(Nnter
The CIA's acting director yesterday said the
agency made an "honest mistake" when it
failed to send the Federal Reserve Board a
1985 report that revealed that the Bank of
Credit and Commerce International secretly
owned Washington's First American Bank-
shares Inc.-something the Fed did not dis-
cover until late last year.
Richard Kerr, the acting CIA chief, said the
agency sent the report to the Treasury De-
partment, assuming that it would be passed
along to appropriate officials in other depart-
ments. The Federal Reserve is an independent
agency that oversees bank holding companies
such as First American Bankshares.
But two members of the Senate subcommit-
tee on terrorism, narcotics and international
operations sharply criticized the agency's han-
dling of its intelligence on BCCI's activities
and the way the information was disseminated
to other federal agencies.
At a news conference after the hearing,
Sen. John Kerry (D-MassJ, the subcommit-
tee's chairman, said it was a "mistake of judg-
ment" for the CIA not to tell the Federal Re-
serve what it knew about BCCI's alleged own-
ership of First American. 'There's a major
breakdown of communications, of- follow-
through." ~ ~,
Sen. Hank Brown (R-Cdc~`' ~~te~ that
authorities might have bean,ebDe~aCt earlier
had the CIA been more foreeful about raisin
alarms about the bank's activitti~.
know there's a fire, you don't call,' '
the city manager's office, you call,
the fire department." Brown said.
"They called the city manager's of-
fice."
During the hearing, however,
Kerr bristled at the suggestion that
the CIA fell down on the job. Point-
ing out that the agency had dissemi-
nated many reports on BCCI to
agencies throughout the govern-
ment, Kerr noted repeatedly the dif-
ference between the CIA's inte]li-
gence-gathering mission and that of
a law enforcement agency.
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The New cork Tlmee
The We~ltington Timy
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TM Cttrletlan Science Monitor
New York Deily Newe
USA Todhr
The CMeapo Tribune
...CIA assumed report would be passed along
"We were focusing on a set of ac-
tivities that really went beyond
BCCI," he said, referring to BCCI's
money-laundering activities and the
bank's alleged role as the banker for
terrorist organizations and the fi-
nancing of arms deals.
Kerr also rejected several news
stories that characterized BCCI as a
"CIA bank," and said the agency did
nothing more. thae maintain a few
ordinary bink aooounta3 that he said
were lawful and proper.
Kerry and Brown did not restrict
their criticism to the. CIA, lashing
out at the agencies that got reports
from the CIA and failed to act. Not-
ing Kerr's testimony that the CIA
first distributed raw intelligence re-
ports about BCCI's alleged involve-
ment in money laundering in 1984,
Kerry said: "An awful lot of informa-
tion was being given to people... .
[t just seems that nobody wanted to
respond....
CONTINUEe
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"Somewhere in this process you
would have thought somebody would
have leaped up and said there's a
major problem in this bank,' Kerry
said.
Kerr said the agency had "dissem-
inated" several hundred reports,
many of them in the form of raw in-
telligence, over the past seven
years. He said an internal investiga-
tion into the CLa's handling of the-
case had suggested that the agency
needed to improve the way it die
seminates intelligence information.
to other agencies. ..
Kerr declined to elaborate, and he
also declined to answer several
questions from the senators about
various personalities in the BCCI sa-
ga, citing intelligence sensitivities,
The subcommittee plans to hold ~'
closed session with Kerr next week
to deal with those questions.
The subcommittee also heard tes-
timony from Laurence Pope, a coun-
terterrorism official at the State De-J
partment.
Pope said the State DepartmesiC
learned in 1986 that BCCI branctt~s?
in Europe had helped the Abu Nidal
terrorist organization trade in weap-
ons and other business enterpriis~.
through front companies, and s~C
BCCI was involved in providi>t~
banking services for other terrorist
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C.I.A. Admits It Failed to
Tell Fed About B.C.C.I.
spews w the t+eM vort rimes
WASHINGTON, Oct. 2S -The Cen-
tral Intelligence Agency admitted to-
day ~ltat it had failed to tell a regul-
tory agency what it knew about the
Bank of Credit and Commerce Inter-
national, including B.C.C.I.'s secret
control of an American bank.
Richard Kerr, the Acting Director
of Central intelligence, told a Senate
subcommittee that although the
agency knew in the mid-1980's that
B.C.C.I. was involved in illicit activi-
ties, including money laundering and
terrorism, it had failed to report that
information to the Federal Reserve
Board. And the C.I.A. did not tell the
Fed that B.C.C.I: had gained control
of First American Bankshares in
1981, he said, after the agency learned
of the secret takeover in 1985.
Nor did the agency report B.C.C.I.'s
secret control of First American to
the Justice Department, which is now
investigating whether First Amer-
ican officials lied in denying that
B.C.C.I. controlled the bank.
'A Major Failure
Senator John F. Kerry, the Massa-
chusetts Democrat who is chairman
of the Foreign Relations Committee's
Subcommittee on Terrorism, Narcot-
ics and International Operations,
which conducted the hearing, said the
agency was guilty of "a major failure
of communication and tollow-
through." Senator Hank Brown, a
Colorado Republican, said, "[t they
had shared their information, there's
every reason to believe that this could
have been stopped five years ago."
Mark Mansfield, a spokesman for
the agency, sold tonight, "It is the
C.I.A.'s policy to report possible viola-
tions of the law to the appropriate
law-enforcement authorities." But he
said the agency went beyond ita for-
mal obligations in informing the
Treasury and other law-enforcement
agencies of potential illegalities at
B.C.C.I.
Under a 1981 Presidential order on
intelligence activities, the C.I.A. is re-
quired to report to the Attorney Gen-
eral violations of "specified Federal
criminal law " th
s
t
t
"Bank fraud is not on the specified
crimes list," Mr. Mansfield said, "but
we reported it anyway, without any
legal obligation to do so, because it
was and continues to be our policy."
Mr?. Kerr ofte~ed-t}ie'most detailed
account yet of the C.I.A.'s involve-
ment with B.C.C.I., including the
agency's use of the bank, which was
seized in July by financial regulators
in seven countries. Yubltsnea reports
in July told of evidence that the
agency had used B.C.C.I. to make
payoffs abroad, and that the bank had
been used as part of the C.I.A.'s se-
cret program to support anti-Com-
munistguerrillas in Afghanistan.
The agency has also been accused
of using the bank as a conduit in the
sale of arms to Iran and the diversion
of funds to the Nicaraguan contras,
and of thwarting Government investi-
gations of B.C.C.I.
Mr. Kerr told the subcommittee,
"We used it as a normal bank, with
accounts associated with lawful, au-
thorized activities."
He said that in the Iran-contra
scandal "the C.I.A. was not involved,
nor did it have knowledge of any use
of B.C.C.I." Senator Kerry then asked
Mr. Kerr about "significant evi-
dence" that Oliver North, the White
House national security aide who di-
rected the Iran~ontra operation, had
consulted with William Casey, then ,
the Director of Central Intelligence.
"I wouldn't want to get into a de?'
bate or an argument on that," Mr.
Kerr said, "but I think that evidence
is primarily hearsay and not evi-
dence."
Addressing what he called "allega-
tions in the media of C.LA. illegal or
improper relationships with B.C.C.I.,
let me go down those directly," Mr.
Kerr said. "The C.I.A. did not assist
or encourage, either by action or im-
plication, any wrongdoing on the part
of B.C.C.I. or its employees. C.I.A.
took no action, including withholding
information, to influence or impede
any existing or potential civil or
criminal investigation or prosecution
of B.C.C.I."
a
t
uncovers whsle Mr. Kerr told the subcommittee
collecting intelligence. Among the that there were many questions he
crimes that must be reported are tor- could not answer in a public session.
eign espionage, murder and other via Mr. Kerry announced that he would
lent offenses, violations of export con- hold a closed session next week.
trot laws and bribery of public offi-
cials.
CpN71i819E
The Washington Post
The New York Times ---~
The Washington Times _
The Wall Street Journal
The Christian Science Monitor
New York Daily News
USA Today
The Chicago Tribune
Date
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Richard Kerr, Acting Director of Central Intelligence, testifying yesterday before a Senate subcommittee.
State Department officials also testifying were, from left, Laurence Pope, Alan J. Kreczko and Gr~n~ ~;,? --;.
5
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CIA Says It May Have Made
a Mistake on BCCI
^ ?anking: It should have notified
proper agencies about possible
wrongdoing, official says.
By ROBERT L. JACKSON
TIMES STAFF WRITER
WASHINGTON-The acting director of the.
CIA acknowledged Friday that his agency may
have erred in failing to notify proper authorities
about early evidence of wrongdoing by the
scandal-plagued Bank of Credit & Commerce
International.
Richard Kerr told a Senate subcommittee that
the CIA learned in 1985 that BCCI had secretly
gained control of Washington's largest bank
holding company four years eazlier. He said the
agency did not alert the Justice Department or
the Federal Reserve Boazd, the agencies that
could have acted to end BCCI's control.
Kerr said the CIA's report on the matter went
only to the Commerce Department and the
Treasury. Failure to notify the other agencies
was "an honest mistake," he told the Senate
Foreign Relations subcommittee on terrorism,
nazcotics and international operations, which
has been holding hearings on the worldwide
BCCI scandal.
Sen. Hank Brown (R-Colo.), a subcommit-
tee member, said the CIA "should look with
greater caze in the future" tm he
#~ue of which
agencies should receive its repo and assess-
menu. "When there's a Nye, youn't call the
city manager's office, yrnf call tl~_fire depart-
ment."
Kerr said the CIA is constantly reviewing the
list of agencies to whi it issues
?we believe there is r m to improve ' ~`
The handling of the information linking BCCI
to the Washington bank contrasts with the
CIA's actions on another matter involving fire
international banking enterprise, which was
shut down in July by ~egulatars representing;
several countries.
Kerr said that in 1983 and 1981, the CIA
discovered evidence that BCCI was laundering
drug money and handling bank accounts of
terrorists. He said the agency promptly reported
the findings to the FBI, the State Department
and Treasury.
Ths Washington Post
The New York Times __
Ths Washington Times
The Wall Strsst Journal
The Christian Science Monitor
New York Daiy News
USA Today
Chkpo TribuM
.7
Dats
Washington attorneys Clazk M. Clifford and
Robert A. Altman, formerly the top officers of
First American Bankshares Inc., the firm that
BCCI secretly acquired in 1981, have repeatedly
denied knowledge of the acquisition.
usede BCCI'sofaze flungl banking syshemthn CtIhe
1980s to move money around the world for its
intelligence-gathering activities. He reiterated
Friday that "these were perfectly legitimate
and legal operations." He told the subcommittee
that the CIA simultaneously was filing reports
on the bank's activities and did not "assistbr
encourage" wrongdoing.
The bank was unaware that it handled any
CIA money, Kerr added.
John Kerry (D-Mass.), the panel's chali?-
man, asked Kerr if he knew that Mideast arms
broker Adnan Khashoggi had been involved in a
BCCI-financed deal to ship $10 million wortli~of
missiles to Iran through a Canadian business
group, and that the transaction had fal)~n
through.
"The CIA had no knowledge of any BCCI
involvement in the sale of arms to Iran," Kerr
replied.
Separately, investor Ghaith Pharaon
flatly denied that he acted as BCCI's front min
in the United Stetes, according to papers fro a
New York federal court obtained Friday by ~e
Associated Press.
In his first formal defense of Federal Reserve
charges that he played a central role in BCt~
infiltration of the U.S. banking system, Pharsoa
denied that he helped BCCI and a subtridiait~y
acquire 859b of the small Independence Bank of
Encino. ~.
Pharaon acquitted I
d
n
ependence in 198;
i23 million. He also disputed allegations
BCCI founder and chairman
A
h
,
g
a Hawn AI
Ate. appointed a BCCI executive, Ke
Shoaib
h
, as c
airman of Independence Bank.
Pape
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The htew York Times _
The Washington TI _
Ths Wall Street Journal
Ths Christian SCNnce Monitor
htew Yorlt Dally News _
USA Today
CIA WROTE HUNDREDS OF REPORTS ON BCCI, BUT DID NOT TELL FED OF
U.S. LINK
By MIKE CHRISTENSEN=
c. 1991 Cox News Service=
WASHINGTON The Central Intelligence Agency distributed
hundreds of reports on the outlaw Bank of Credit and Commerce
International, but failed to tell the Federal Reserve or Justice
Department that BCCI secretly owned a U.S. bank, acting CIA
director Richard Kerr told a Senate subcommittee Fridax.
A 1985 report that BCCI had gained control of Financial General
Bankshares, predecessor of First American Bankshares, was sent only
to the Treasury Department, Kerr said, on the assumption that any
vital information would be forwarded to the appropriate agency.
It was, he said, " a legitimate decision based on our
understanding of who ... had responsibility for it, " though
" `with hindsight, we might have done it differently. " The CIA is
reviewing its distribution rules.
" I think it's a mistake of judgement," said Sen. John Kerry,
D-Mass., chairman of the Foreign Relations subcommittee on
terrorism. He promised to hold further hearings on the subject and
summon Treasury officials to testify.
The ranking Republican on the panel, Hank Brown of Colorado,
called it a "major breakdown " that raised serious questions about
CIA management.
" If you know about a fire, you don't call the city manager's
office, you call the fire department, " Brown said. "They called
the city manager. "
Kerr, testifying for the first time on the BCCI scandal,
acknowledged that the CIA had maintained bank accounts with BCCI
branches, using that access to gather intelligence. But he firmly
denied that the agency had any worked with or controlled BCCI
operations for its own ends.
Former federal budget director Bert Lance testified earlier in
the week that he thought BCCI and its founder, Aga Hassan Abedi,
had been " co-opted " by the CIA in 1984.
"The CIA did not assist or encourage, either by action or
implication, any wrongdoing on the part of BCCI or its employees, "
Kerr said. "CIA took no action, including withholding information,
to influence or impede any existing or potential civil or criminal
investigation or prosecution of BCCI. "
Kerr said the CIA first became interested in the
Luxembourg-based bank in the late 1970s, primarily in connection
with money laundering for the drug trade, the transfer of arms and
the financing of terrorists.
The CIA produced several hundred reports either about BCCI
activities or mentioning the bank, Kerr testified, and distributed
them to a variety of federal agencies, depending on the subject
matter involved. These "intelligence consumers " included the FBI,
Drug Enforcement Agency, National Security Agency, the Customs
Service, Commerce Department, the Federal Reserve Board, Department
~ONT1~1~!~~' ~~ ~~
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of Energy, State Department and even the U.S. trade representative.
The CIA was more interested in what BCCI was doing rather than
who controlled the bank, Kerr testified. " We were focused on
larder strategic problems and issues, not on the bank itself or the
individuals involved, " he said. " We were focused on a set of
activities that really went beyond BCCI, but were using BCCI as a
mechanism. "
ia.
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TM New York Times _
TM Washington TI _
The Wall Street Journal
The Chrlstlan Sclenq Monitor
New York Daly News
USA Today
TM Chk;ago Trl urn
Date ~7
CIA Didn't Give Justice, Fed Data About BCCI, Official Says
By MARCY GORDON
Associated Press Writer
WASHINGTON (AP) - The acting director of the CIA told Congress
Friday that the agency wrote hundreds of reports about the outlaw
Bank of Credit and Commerce International but failed to inform the
Justice Department of BCCI's illegal ownership of a big U.S. bank.
A Republican senator said the statement raised "major
questions " about how the CIA operates.
The CIA had accounts at foreign-owned BCCI but later found out
about its illicit dealings and used the bank to monitor drug
traffickers and terrorists, Richard Kerr testified at a Senate
subcommittee hearing.
When the CIA discovered in 1987 that BCCI had secretly acquired
First American Bankshares Inc. five years earlier, the agency told
the Treasury and Commerce departments but not Justice or the
Federal Reserve, Kerr said. He said the CIA believed at the time
that Treasury would pass the information on.
The Federal Reserve, which regulates bank holding companies,
alleged this summer that BCCI used Middle Eastern front men to
illegally buy First American, a bank holding company based in
Washington.
"With hindsight, we might have done it differently, " Kerr told
the Senate Foreign Relations Subcommittee on Terrorism, Narcotics
and International Operations. The panel, which held public hearings
this week on the BCCI scandal, plans to hear additional testimony
from Kerr next week in a closed session.
" An awful lot of information was being given to people, " said
Sen. John Kerry, D-Mass., the subcommittee's chairman. " I'm not
assigning any conspiracy to it ... but the information you were
generating was not being responded to. "
Kerry told reporters after the hearing that he considered the
CIA's action a mistake of judgment. "
The panel's ranking Republican, Sen. Hank Brown of Colorado,
said, " If youknow about a fire, you don't call the city manager's
office, you call the Fire Department. "
" I think it raises major questions about the way the CIA is
managed, " Brown said.
Treasury spokeswoman Claire Buchan said the department received
a report from the CIA in 1985 on an unnamed Washington bank holding
company said to have links to BCCI.
"While (the report) might have been useful background
information, it wasn't overly significant to the people who
received it, " Buchan said.
A Commerce Department official, speaking on condition of
anonymity, said the department's Office of Intelligence Liaison had
received information about BCCI from the CIA. " It was deemed
CON7MIUED _ a.
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2.
unnecessary by that office to circulate the memo to senior
officials and thex shredded it, " the official said.
BCCI and First American do not fall within the Commerce
Department's jurisdiction, the official said.
BCCI, which had branches in the United States and many foreign
countries, has been accused of running an international network of
drug smuggling, arms peddling, money laundering and bribing of
public officials.
Financial regulators around the world shut down BCCI's
operations in July. A New York grand jury indicted the bank, its
Pakistani founder and its former chief executive officer for
alleged fraud and theft of depositors' funds.
Sen. Kerrx disclosed this summer that the CIA had done reports
on BCCI in the mid-1980s, but Kerr's testimony was the first
indication the agency had generated a large number of documents.
" Kerr also defended the CIA's own dealings with BCCI, dismissing
as outrageous a published report this summer that the agency
participated in an alleged BCCI "black network " of illicit
activities around the world.
" CIA did not assist or encourage ... any wrongdoing on the part
of BCCI or its employees, " Kerr said.
He also said the CIA did not impede any criminal investigations
or prosecutions of BCCI, and did not use the bank in the sale of
weapons to Iran in the Iran-Contra arms-for-hostages transactions.
Kerr also rejected testimony by former federal budget director
Bert Lance, who told the subcommittee Wednesday that he's convinced
the CIA recruited BCCZ's founder in 1984 in order to use the bank
for CIA purposes.
Lance's statements buttressed testimony Tuesday by Abdur Sakhia,
a former top BCCI official who said that BCCI head Agha Hasan Abedi
apparently had been taken off the intelligence agency's
" watchlist " around 1984.
But Kerr called the idea that the CIA recruited Abedi
"baseless. "
BCCI "was used on an extremely limited basis for legal banking
transactions, " he told the subcommittee.
The CIA used BCCI both to support its activities abroad, such as
paying agents, and to funnel money to guerrilla groups supported by
the United States in Nicaragua and Afghanistan, officials have
said.
One of the things the CIA discovered, according to State
Department officials, is that the radical Palestinian terrorist
organization of Abu Nidal was banking at BCCI in Europe and using
the money to support front companies in Poland and East Germany.
We did work with other governments ... to dismantle that
network, " Larry Pope, associate coordinator for counter-terrorism
at the State Department, testified at Friday's hearing.
"Our concern was with the terrorists and their activity, not
with the bank, " he said.
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TM Washlnyton Post
TM New York Times
TM Waahinyton Times
TM Wall Street Journal
TM Christian Science Monitor
New York Daiy News
USA Today
The Chlcapo
ne
~ 1
CIA chief denies improper association with BCCI
By TERESA SIMONS ROBINSON
UPI Business Writer
WASHINGTON (UPI) Acting CIA Director Richard gli~err denied Friday
that the intelligence agency had an improper relationship with the
scandal-plagued Bank of Credit and Commerce International and said the
agency used the bank only on " an extremely limited basis. "
Kerr was responding to allegations that the CIA may have co-opted the
rogue Pakistani-run bank to turn it into a funder of covert intelligence
activity such as arms sales to Iran, the profits of which went to aid
the Nicaraguan Contra rebels.
But Kerr told a Senate panel the allegations are "outrageous and
unfounded. " And he characterized as "baseless " suggestions that BCCI
founder Agha Hassan Abedig had been put on the agency's "watch list "
in an effort to persuade him to cooperate.
" We used BCCI on an extremely limited basis for legal banking
transactions, " Kerr said in a statement before the Senate subcommittee
on Terrorism, Narcotics and International Operations.
He did not say why the CIA elected to use the rogue bank on an even
limited basis, but in the past he has said the agency used it as a
"transfer point " for routine movements of funds.
Kerr also reiterated Thursday that BCCI was a "target " of the CIA
and that the agency collected information on how the bank was being used
to launder money and finance drug trafficking, terrorism and weapons
sales.
"The CIA did its job and did it well, " he said.
He said much of the information the agency collected was disseminated
to various governmental agencies, including the Treasury, Commerce and
State departments, the Federal Reserve and the FBI.
Already in 1985, Kerr said, the CIA reported that BCCI had secretly
acquired illegal ownership of the Washington area's largest bank holding
company, First American Bankshares, which until recently was headed by
Clark Clifford, a longtime presidential adviser and a secretary of
defense under President Lyndon Johnson.
Kerr was called before the Senate panel at the end of a week of
testimony that included allegations the CIA may have used BCCI to fund
its covert activities.
Bert Lance, director of the budget under President Jimmy Carter,
claimed the CIA played a major role in the affairs of the bank.
Although he offered little evidence, he is not alone in his
assertions. In Abedi's home country of Pakistan, several officials claim
that BCCI routinely did the CIA's bidding.
A former BCCI official, Abdur Sakhia, testified that Abedi told him
he had been hesitant to travel to the United States because he was on
the CIA's watchlist and was being harrassed. Suddenly, Abedi no longer
was reluctant to travel, Sakhia said, adding he assumed that was because
a deal had been struck.
Testimony in hearings on the Iran-Contra arms-for-hostages scandal
also indicated that BCCI was to earn a profit for funding a $10 million
weapons sale to Iran, arranged by arms dealer Adnan Khashoggi, believed
to be a Reagan administration operative.
CONTiNUEU ,a ,.
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Z
Meanwhile, The Wall Street Journal reported Friday a sudden flurry of
legal activity in Egypt, where a Saudi sheik involved in the scandal
lives.
The newspaper said a plea arrangement might be in the works with
Sheik Kamal Adham, the former Saudi intelligence chief identified as a
principal owner of BCCI. Such a development could be useful to
prosecutors investigating BCCI's secret activities in the United States.
The office of David Eisenberg, an assistant U.S. attorney in the BCCI
case, confirmed that he has been in Cairo this week. Also, Ed Rogers,
who was retained as a $300,000-a-year attorney for Adham after resigning
as a top aide to White House chief of staff John Sununu, is also in
Egypt, an aide said.
President Bush, asked about Rogers at a news conference Friday, said:
"He's a free citizen to do anything he wants once he leaves the
White House. My concern is about the White House itself, that it be
beyond any perception of impropriety. "
Asked why he thought Rogers went to the Saudi sheik, Bush said: "Ask
him. I don't know what he's selling. I don't know anything about this
man except I've read bad stuff about him and I don't like what I read
about it. "
O,
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C.I.A.'s Track Record
Stands Up to Scrutiny
STAT
To the Editor:
"The Once and Future C.I.A." (edi-
torial, Oct. 18) asserts the Central
Intelligence Agency "has, at least to
public perception, flunked." To
support this assertion, you suggest
the agency failed to anticipate the tall
of the Berlin Wall, Saddam Hussein's
aggression and the impbsion of the
Soviet Union. This portrayal of the
agency's performance is inaccurate,
and does a disservice by furthering a
perceptbn that is tlat~out wrong.
With respect to the Berlin Wall, the
C.I.A. did draw policy makers' atten-
tion in advance of its collapse to the
possibility the embattled East Ger-
man regime might have to dismantle
it. But the wall was meroly the most
conapicUOUS symbol of a broader phe-
nomenon -the collapse of Commu-
nism in Eastern Europe - on which
our analytic record is very good.
Even before Mikhail S. Gorbachev
came to wer in 1986, we had pointed
to the l~ellhood of political crisis in
one or 1~ore East European states
beforo qie decade was out.
Md 1 two years after 11tr. Gor-
bachev! emergence as Soviet leader
- and fllmost two years before the
advent of democratic change M Po-
land - we foresaw in attr assess-
ments that Mr. Gorbadter-'s policies
were likely to destabilize Eastern Eu-
rope and lead to a dramatic turn of
events there. On specific cauntrles,
we warned months in advance that
the orthodox party leadership bt Hun-
gary would be swept aside, and that
~~ Czechoslovak regime was- in-
-~crlltsingly wlnerabk. WA
Solidarity's election victory iI7 Poland
and that full German uNty would
come much faster than most observ-
ers thought possible.
Concerning. Saddam Hussein, the
C.I.A. clearly warned of his potential
for aggression. Longer-range esti-
mates fudged that the apparent re-
straint in Iraqi foreign policy
following the war with Iran reflected
the realities facing postwar Iraq
rather than a fundamental shut in
Saddam Husseln's policies or region-
al ambitions. During the spring of
1990 we tracked Saddam Husseln's
increasingly threatening tone and be-
havior; in the days leading up to the
The Washington Post
The New York Times
The Washington Times
The Wall Street Journal
The Christian Science Monitor
New York Dally News
USA Today
The Chicago Tribune
Date
invasion of Kuwait we reported the
buildup of Iraqi forces on the border,
and we gave explicit warning of the
possibility of attack more than a
week before it occurred.
As for the "implosion of the Soviet
Union," the C.I.A. has been saying
wldf increasing insistence since the
Tate ~980's that Mr. Gorbachev's poli-
cies of halt-way reform would not
work. In examining the likely result
of this failure, we posited scenarios
ranging from reactionary retrench-
ment to a breakthrough by the demo-
oats led by Boris N.. ~Geltsin. Even if
there were a reactionary centralizing
retrenchment, we said it would not be
tenable as its leaders would lack a
coherent program.
For a specific example, M April of
this year -tour months before the
abortive coup in the Soviet Union -
the C.I.A., in a detailed, Nne-page
assessment entitled "The Soviet
Cauldron," e>ipilcitly said the Soviet
empire and system of governaltce
was breaking down, that "the centT'al-
ly planned economy had broken dbwtt
irretrievably" and that there was' ~
"situation of growing chaos" in whf~h
"explosive events have become`fm
creasingly possible." The C.I.A:'~af~=
easement spelled out the possibiilsl-s
in no uncertain terms: "reactionl~ry
leaders, with or without Gorbac!lidv';
could Judge that the last chance. do ~
had come and move under the ba~th'er
of law and order." We specificfitly
called attention to "a premedltlat~,
organized attempt to restore a"iT:H`-
fledged dictatorship," and noted'th~lr
military, Ministry of Internal Affttil'~s
and K.G.B. leaders were "maRit+t~
preparations for a broad use of fbii'ce
!n the political process."
In this April assessment we clinr=
acterized the long-term prospecfs? bf
a reactionary coup In the Soviet
Union as poor, and even short-tf3l"Itf
success as far from assured. In 4he
longer term we said that "with or
without Gorbachev, with or without a
putsch, the most likely prospect for
the end of this decade, if not earlier, is
a Soviet Union transformed into some
independent states and a confedgra-
tion of the remaining republics, in-
cluding Russia."
CONYlP:Ili~G
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The facts are there. The evidence is
abundant. What is dismaying and dis-
appointing is that too many people
who ought to know better are popular-
izing the notion that C.I.A. has never
got it right.
Any attempt to assess the C.I.A.'s
performance based on the simplistic
criteria of "success or failure" triK~-
alizes the contribution of intelligegce
to the understanding of issues. No one
can predict the future precisely, and
no organization is perfect, but C.LA,.'s
track record stands up to scrutit>,r -
and our Congressional oversi~lt
committees provide it. 1 welcn}ipye.,:
that scrutiny and stand by our rec~prd.
I commend it to those who, out ,pf
ignorance or malice, are so quiClS.tp
disparage and dismiss the work tfiis
agency has done and Is doing oii t~re
most complex and challenging iaait,~Es
of our time. RICHARD J. N R1t
Acting Dir. of Central Intelligence
Langley, Va., Oct. 18, Tl`~}
CONTINU~.~
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The Washington Post
The New York Times
The Washington Times
The Wall Street Journal
The Chrlatian Science Monitor
New York Daily News
USA Today
The Chicago Tribune
X97
The Once and Future C.I.A.
These have not been stellar years for the
Central Intelligence Agency. Even with the distin-
guished outsider Judge William Webster in charge,
the once-proud agency has, at least to public percep-
tion, flunked. Who there anticipated the fall of the
Berlin wail, the aggression of Saddam Hussein, the
implosion of the Soviet Union?
Nevertheless, President Bush contends he
needs an experienced insider and has nominated
Robert Gates to be Director of Central Intelligence,
a choice the Senate Intelligence Committee votes on
today. There are strong reasons to vote no.
Mr. Gates has done his best to dispel the doubts
that forced him to withdraw when he was first
nominated in 1987. He has seemed contrite and
open-minded and cites his broad experience and
future vision. But senators would do well to consider
at least three criteria:
Whether his past performance shows him to
warrant their trust ... whether he has earned the
confidence of agency employees ... and above all,
whether he, an insider, is the right person to lead the
agency into uncertain times. On each count, Mr.
Gates falls short.
David Boren, the committee chairman, com-
mends Mr. Gates for forthrightness. Yet he over-
looks occasions when Mr. Gates helped skew intelli-
gence assessments and was demonstrably blind to
illegality. The illegality concerned the Iran-contra
scandal. Mr. Gates contends he was "out of the
loop" on decisions about what to tell Congress. And
he defends his professed ignorance on grounds of
deniability -that he was shielding the C.I.A. from
involvement. These contentions defy belief.
The testimony of others puts Mr. Gates, on at
least two occasions, very much in the loop. He
supervised preparation of Director William Casey's
deceitful testimony to Congress about the scandal.
And one C.I.A. analyst, Charles Allen, says he
informed Mr. Gates, before it came to light, of three
unforgettable details: Oliver North's involvement,
the markup of prices of arms sold surreptitiously to
Iran, and diversion of the proceeds into a fund for
covert operations. In a telling lapse of his reputedly
formidable memory, Mr. Gates could not recall the
details when Congress asked two months later.
The second criterion concerns intelligence esti-
mates. Incorrect forecasting should not be disquali-
fying; estimates can be wrong for the right reasons.
But when they're wrong for reasons of political
expediency, that's "cooking the books."
The hearings have documented at least three
cases of such slanting: a May 1985 estimate on Iran,
estimates of Soviet influence in the third world, and
assessments of Soviet complicity in the assassina-
tion attempt on Pope John Paul II. Mr. Gates has
responded to their testimony but not refuted it. He
evidently went to great lengths to manipulate the
process, because highly reticent career officials
testified against him in public. That electrifying
development demonstrates how little `confidence
Mr. Gates enjoys in the agency.
It can be argued that his experience makes him
well suited to lead the C.I.A. into the future. As a
former Deputy Director and deputy national securi-
ty adviser, he knows how intelligence assessments
are put together and what policy makers need. And
he knows the U.S. will not keep spending $30 billion a
year on intelligence.
But it is more reasonable to think the agency
would be better off with a director unbound by
William Casey's dark legacy -the conviction that
the agency knows best, a barely concealed con-
tempt for Congress and a belief that anything goes,
including evading the law. Reshaping the agency
wisely depends on casting off that legacy.
Thomas Polgar, a C.I.A. veteran, urged the
committee to consider the message that confirma-
tion would send. Would officials wonder whether it
was wise for outspoken witnesses to risk their
careers by testifying? Would they say to them-
selves, "Serve faithfully the boss of the moment;
never mind integrity? Feel free to mislead the
Senate -senators forget easily?"
By voting no, senators will vote to remember.
Page
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CIA's Acting Chief Says U.S. Is Read
To y
Cooperate With Solriet S A
PY gE'~y
By GERALD F. SEIB
n41j Reporter of Txa Wwi,i, SrnaSr Jotrnrrwi,
WASI-IINGTON-The acting head of the
Central Intelligence Agency said the U.S.
is ready to open an era of cooperation with
the revamped Soviet intelligence. service.
Richard Kerr, who is running the intelli-
gence community while the Senate debates
the nomination of Robert Gates as director
of central intelligence, said the CIA is
"quite willing to talk and discuss with the
KGB those areas where we have a com-
mon interest, whether they are terrorism
or narcotics or issues of (weapons ] prolifer-
ation."
Mr. Kerr, in an interview, was respond-
ing to a Soviet government suggestion this
week that the two intelligence services,
Cold War foes for four decades, begin
working together in some areas. The idea
was offered by Yevgeny Primakov, who
has just been named head of the indepen-
dent intelligence agency the Kremlin is
creating to take over intelligence functions
long handled by the KGB.
Creation of the service apparently will
change the Soviet system radically by sep-
aratingintelligence activities from internal
security work.
ar
liners. which was led in part by the
KGB.
It isn't clear what relationship Mr. Ba-
katit- and the traditional KGB bureauracy
wW have with Mr. Primakov and the new
Soviet intelligence service.
But U.S. officials said Mr. Bakatin indi-
cated in his meetings with Mr. Baker that
the KGB would like to get CIA help in
drawing up legal guidelines governing the
operatlaoa of an inteWgence service in a
deulocratk society.
1Kr. Kerr said the CIA would "cer-
tainl,}r" be willing to provide help in that
area. "We have had more experience and
are more directly involved in the issues of
legality, and with issues of oversight and
the role of an inteWgence organization in
democracy," he said.
But it's also clear there wW be lim_
its on CIA cooperation with the Soviet Un-
ion. Mr. Kerr said he isn't prepared to de-
clare anend to the intelligence rivalry be-
tween the CIA and the KGB. "I don't be-
lieve we've reached that point," he said.
The U.S. still wW have to "wait and see
where they are waling to cooperate" and
whether the KGB is dropping some of its
more unsavory activities, he added.
The CIA's willingness to begin working
with the Soviet intelligence service in some.
areas represents a sharp change in atti-
tude here as well. "I've been particularly
reluctant-and I think the agency as a
whole has been reluctant, to date at least-
to engage the KGB in a direct and in an
equal-to-equal discussion," Mr. Kerr said.
"Quite simply, we didn't want to bring
them up to our level."
But now, Mr. Kerr said, "we have a
new KGB. And I think we have to be will-
ing to look at this KGB with new eyes, just
as we're looking at the Soviet Union."
In recent years, there has been some
tentative U.S.-Soviet cooperation on such
matters as battling narcotics and ter?
rorism. But contacts have been conducted
largely through the State Department, and
haven't directly involved intelligence agen-
cies.
Now, Mr. Kerr said, "we will clearly
begin something that's more direct than it
has been..'
The move toward more cooperation be-
gan last month, when Secretary of State
James Baker met with KGB Chairman Va-
dim Bakatin during a visit to Moscow. Mr.
Bakatin had taken over the spy agency
and begun cleaning out its ranks after the
felled August coup by Communist h
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