The BCCI Affair

A Report to the Committee on Foreign Relations
United States Senate
by
Senator John Kerry and Senator Hank Brown
December 1992
102d Congress 2d Session Senate Print 102-140

< Prev.

Next >

[For the entire, lengthy report written by Senators John Kerry and Hank Brown, see either FAS.org or GlobalSecurity.org.]

CAPCOM: A Case Study of Money Laundering

Introduction

In the entire BCCI affair, perhaps no entity is more mysterious and yet more central to BCCI's collapse and criminality than Capcom, a London and Chicago based commodities futures firm which operated between 1984 and 1988. Capcom is vital to understanding BCCI because BCCI's top management and most important Saudi shareholders were involved with the firm. Moreover, Capcom moved huge amounts of money — billions of dollars — which passed through the future's markets in a largely anonymous fashion.

Capcom was created by the former head of BCCI's Treasury Department, Ziauddin Ali Akbar, who capitalized it with funds from BCCI and BCCI customers. The company was staffed, primarily, by former BCCI bankers, many of whom had worked with Akbar in Oman and few of whom had any experience in the commodities markets. The major investors in the company were almost exclusively Saudi and were largely controlled by Sheik AR Khalil, the chief of Saudi intelligence. Additionally, the company employed many of the same practices as BCCI, especially the use of nominees and front companies to disguise ownership and the movement of money. Four Americans, Larry Romrell, Robert Magness, Kerry Fox and Robert Powell — none of whom had any experience or expertise in the commodities markets — played important and varied roles as frontmen.

While the Subcommittee has been able to piece together the history of Capcom and can point to many unusual and even criminal acts committed by the firm, it still has not been able to determine satisfactorily the reason Capcom was created and the purposes it served for the various parties connected to the BCCI scandal. It appears from the available evidence that Akbar, BCCI, and the Saudis all may have pursued different goals through Capcom, including:

• misappropriation of BCCI assets for personal enrichment.
• laundering billions of dollars from the Middle East to the US and other parts of the world.
• siphoning off assets from BCCI to create a safe haven for them outside of the official BCCI empire.

Conditions At BCCI Which Spawned Capcom

By early 1985, BCCI was on the verge of financial collapse as the result of losses in the commodities markets executed by the head of the bank's Treasury Department, Mr. Z.A. Akbar.⁽¹⁾ Akbar, a young Pakistani and protege of Swaleh Naqvi, the bank's Chief Executive Officer, had been plucked from his job at National Bank of Oman in 1981 to manage BCCI's investments from its headquarters in London. Despite the fact that Akbar had no apparent experience in the commodities, foreign exchange or securities markets, by 1984 he was managing over $5.5 billion at BCCI Treasury.⁽²⁾

As Akbar invested heavily in the futures' markets, losses at BCCI treasury began to mount. According to Masihur Rahman, BCCI's former chief financial officer, Akbar made highly unusual investments based on unsound assumptions:

He [Akbar] was taking positions on silver and 20 year bonds, suggesting that 20 year bonds would be 7% or 6.8%, and things like that,, which anybody who understands treasury knows how deeply discounted it would be if you project that sort of thing for 20 years. And he was taking those sorts of positions for a premium.⁽³⁾

As the losses increased to staggering levels, Akbar created a maze of artificial accounting. According to a 1991 Price Waterhouse report, Akbar split the department's functions into normal Treasury activities and 'Number Two' account activities" . . . outside the scope of external audit . . . in the name of private clients but for [BCCI]. . ."⁽⁴⁾ The report explained that the "Number Two" accounts derived from:

"misappropriation of external funds deposited under trust with [BCCI] to be managed on behalf of a few prominent people who are also shareholders of Holdings, and maintaining a pool of funds in the private named accounts of A. R. Khalil which were used freely by Z. Akbar to fund adjustments. . ."⁽⁵⁾

In other words, Akbar inflated BCCI Treasury profits through the use of unrecorded deposits in the accounts of important BCCI "customers", such as Khalil.

By 1985, Akbar's treasury department had accumulated losses approaching $1 billion, leading to a near collapse of the bank.⁽⁶⁾ Akbar and, presumably Naqvi, recognized that the off-balance sheet accounting in the "Number Two" accounts could no longer adequately hide the massive losses. Accordingly, "out-of-book" or unrecorded deposits were moved "out-of-bank" to a new financial entity — Capcom Financial Services, Ltd.

At Capcom, Akbar and Naqvi reasoned, the phony BCCI accounts could be further disguised and placed beyond the reach of bank auditors. In short, Capcom afforded BCCI a wider scope of options for the manipulation of accounts, the continuation of frauds and, perhaps, a last ditch attempt at fiscal recovery.

Creation of Capcom 1984-1985

On April 26, 1984 Akbar registered an obscure company named Hourcharm, Ltd, at his home address in London. On May 22, 1984, Hourcharm was renamed Capital Commodity Dealers, Ltd., and then in July, Capcom Financial Services. Capcom was funded with a capital of 1 million which during the first year was augmented to 10,00,000 pounds and then increased to 25,000,000 pounds (approximately $37,000,000).

Capcom commenced trading in London on September 17, 1984. According to the June 22, 1991 Price Waterhouse Report to the Bank of England, "Capcom ... rapidly became one of the most significant of the brokers used by Treasury [BCCI]."⁽⁷⁾ Indeed, within the first year customer accounts bulged to over 100,000,000 (approximately $160,000,000), inordinately large sums for a fledgling commodities brokerage company.⁽⁸⁾ According to Masihur Rahman, "Capcom was given an official credit line" by BCCI.⁽⁹⁾

A 1991 documentary on BCCI, produced in London, featured Jehangir Masud, a former employee of the Abu Dhabi Investment Authority, and Shahid Suleri, a former BCCI employee, commenting on the connections between Capcom and BCCI. Masud claimed, "the [BCCI] Treasury put huge volumes of business through generating large brokerage fees for Capcom." Suleri recounted that Capcom allocated profits to their own account, losses to BCCI, using BCCI funds as margin deposits.⁽¹⁰⁾ In testimony to the Subcommittee, Rahman concurred, noting that "many of the transactions that the bank was doing [were] being routed through Capcom, who obviously was scaling out the differentials ....and passing on the heavy losses and things to the bank."⁽¹¹⁾

Capcom Operations

Capcom operated as a broker in the London and Chicago commodities markets. Commodities markets should be distinguished from the stock markets, which are more or less "cash markets" designed for "direct investment." As author Martin Mayer has explained, "you own what you buy and your success is a function of the success of the company in which you have purchased shares."⁽¹²⁾ According to Mayer, futures markets, in contrast to cash markets, do not offer the investor the "commodity that underlies the activity." Mayer has written that futures investors:

"trade contracts to purchase or sell that commodity on a future date. The contract is inescapable. Those who purchase must stand ready to receive the commodity at a specified delivery point at this price on a specified date (or to buy an offsetting obligation from someone who has a contract to deliver to that point on that date, thus permitting the "clearing corporation" that serves the exchange to extinguish both contracts.) Those who sell futures contracts must stand ready to deliver the commodity to the delivery point for this price on the specified date (or buy in someone else's contract to accept delivery.) As a result future's markets are not situations where everyone can win.⁽¹³⁾

The commodities markets in the U.K. and the U.S. are not restricted, regulated or supervised as stringently as the banking industry or the securities markets.⁽¹⁴⁾

Moreover, the commodities markets can sustain almost limitless volume, a necessary prerequisite for crime on the scale of that contemplated by BCCI since fraudulent transactions may be hidden in a multitude of legitimate ones. In a letter to the directors, the Chairman of Capcom, Larry Romrell, reported that 165 million in trading during the first four months of operation, and profits of 883,393. That trend continued until 1988 leading Akbar to boast to agent Mazur: "We have contracted 165,000 contracts totalling $53 billion with Drexel Burnham," and later, "we have done over $90 billion total in 1988."⁽¹⁵⁾

While the number of contracts and dollar volume seems unbelievable, a commodities company can artificially create massive volume by many small or no-risk trading methods. Indeed, the volume generated by Capcom helped it to generate respectability and acceptance with reputable banks and brokers.⁽¹⁶⁾ For example, listed under "Auditors and Advisers" in Capcom's 1987 Annual Report were the following major international banks: Manufacturers Hanover Trust Company, London, National Westminster Bank Plc, Manufacturers Hanover Trust Company, New York, Deutsche Westminster Bank, A.G., and National Westminster Bank, plc. Elsewhere, Capcom noted its ties to Dean Witter Reynolds, American Express Bank, Refco, Prudential Bache Trading Corp., and Sumitomo Trust and Banking, Ltd.⁽¹⁷⁾ Like BCCI, Capcom attempted to buy legitimacy to assist its rapid expansion.

Capcom's expansion took it to the United States where it opened Capcom Futures in late 1984.⁽¹⁸⁾ Mohammed Saghir, born in the same town in India as Abedi, and a former cohort of Akbar's at the National Bank of Oman, was brought in to run the Chicago operations. The American Board of Directors mirrored that of London with Larry Romrell serving as the Chairman.

In testimony before the Subcommittee, Wendy Gramm, the Chairperson of the Commodities Futures Trading Association (CFTC) described the relationship between Capcom US and Capcom UK:

Capcom UK and Capcom US were intertwined. Both companies had common directors and shareholders. Capcom UK owned 82% of Capcom US from May 1985 until June 30, 1987.

BCCI Pulls Out

In July, 1985 the BCCI accounts were ostensibly withdrawn from Capcom, apparently on the advice of the firm's auditors who counseled that the bank should not be engaged in the kind of speculation intrinsic to the commodities markets.⁽¹⁹⁾ With all visible BCCI accounts closed, Chairman Larry Romrell observed in Capcom's annual report: "The cessation of BCCI business obviously had an impact upon our volume."⁽²⁰⁾

However, according to the 1991 Price Waterhouse report, at the same time that BCCI withdrew from Capcom an amount of $68 million was paid by BCCI Treasury to Brenchase, Ltd, a subsidiary of Capcom, controlled by Akbar, raising the question of whether or not BCCI had really withdrawn from the firm.⁽²¹⁾ Moreover, the Price Waterhouse report notes that, "...despite an apparent cessation of trading links with Capcom ...two payments of $50 million were made to Capcom in March, 1986 out of external funds for which no liability for repayment was recorded."⁽²²⁾ These and other comparable payments clearly suggest that Naqvi and Akbar continued to use Capcom to shield BCCI funds and perhaps to move money.

Moreover, as late as 1989 the client list for Capcom Futures, the US subsidiary of London-based Capcom Financial Services, consists of several apparent BCCI accounts in the names of BCCI employees controlled by Z.A. Akbar.

It is not clear why Naqvi and Akbar chose to maintain the public facade of a split between Capcom and BCCI. One possible explanation is that Naqvi and Akbar profited from BCCI losses both at BCCI treasury and later at Capcom. When Senator Kerry asked Mr. Rahman if Mr. Naqvi had profited from the BCCI losses, the former BCCI manager responded, "since only two, three people are involved ...somebody has profited a lot."⁽²³⁾

Akbar and Capcom

In 1986, after the discovery of BCCI losses on cotton trading, Akbar left the BCCI Treasury to join Capcom. According to Masihur Rahman, Akbar "was released" from BCCI, taking "his company car and other benefits."⁽²⁴⁾

Upon moving to Capcom, Akbar formed Financial Advisory Services (FAS), an introducing broker, or marketing arm for Capcom. FAS was owned by Akbar's Panamanian-registered, Liechtenstein operated nominee company, ZASK Trading and Investments, Ltd.

Akbar did not immediately become a Director of Capcom, sitting instead in the FAS offices which adjoined Capcom. Akbar explained to Mazur his reasons for not joining Capcom's Board of Directors:

when I left the bank, BCCI people, they said 'Mr. Akbar, for, for at least a couple of years you don't go and sit in the office...it doesn't look nice that you leave the bank...and establish your own company'... they said 'please keep away'...⁽²⁵⁾

But it was Akbar, nevertheless, who directed operations at Capcom. With the freedom of singular control over a vast pool of BCCI's "out-of-book", "Number Two" Treasury funds deposited at Capcom, Akbar manipulated to enrich himself. The Subcommittee has concluded that with Akbar at the helm, Capcom engaged in blackmail, bogus loans, "bucket shop" trading, use of nominee frontmen, artificial mirror-image trades, co-mingling of funds, money-laundering, theft, skimming of accounts, and kickbacks to insiders.

For example, Akbar arranged for kickbacks to Peniel Investments, a Liechtenstein-based, Panamanian-registered company that he owned. This arrangement, and others, specified commissions that he paid to himself of between $5.00 and $12.00 per contract on business he had introduced to Capcom, specifying "BCCI Overseas" as a qualifying account. In the months during which BCCI lost $430 million at Capcom, Akbar paid himself a total kickback of 4,671,579.86 (approximately $7,000,000).⁽²⁶⁾ It is not clear whether Naqvi and anyone else at BCCI knew about or participated in these kickback schemes.

Capcom and Money Laundering

There is evidence that Capcom engaged in money laundering for a variety of clients both in the United States and in London. For example, some 50 transactions were identified in the Futures, Inc. accounts with insufficient or no supporting documentation regarding the source or disposition of funds. These transactions totalled more than $125,000,000.⁽²⁷⁾

In testimony to the Subcommittee, Customs agent Robert Mazur testified how Akbar used "mirror-image" trading to launder huge sums of money. Mirror image trading involves buying contracts for one account while selling an equal number from another account. Since both accounts are controlled by the same individual any profit or loss is effectively netted. According to Mazur, Akbar explained that because these "mirror image" transactions can be lost among many millions of dollars worth of legitimate transactions "it would take forever for anyone to ever find it."⁽²⁸⁾

Using mirror-image trading, Akbar bilked the BCCI Treasury accounts and laundered money for one of Capcom's most notorious clients, General Manuel Antonio Noriega.⁽²⁹⁾ Although complex, the series of transactions involving Noriega, BCCI and Capcom provide an illustration of textbook money laundering.

Capcom, BCCI and Noriega

From 1982 through 1986 Noriega opened accounts with BCCI for the "placement of secret funds of the [Panama] National Guard — money which Noriega was using for his personal use and that of his family."⁽³⁰⁾ Despite the fact that the accounts were "no correspondence" accounts in countries with strict bank secrecy laws, Noriega was not completely free from risk in his use of the public funds because the accounts were opened in his name and with his signature.⁽³¹⁾

As of 1986, Noriega had placed approximately $23 million in BCCI accounts in Luxembourg and London. In July of that year, BCCI and Noriega began to shuffle these funds. On 26 July 1986, two Noriega accounts containing $8.1 million and $3 million were transferred from BCCI, Luxembourg, to the account of the Banco Nacionale de Panama at the Union Bank of Switzerland in Zurich⁽³²⁾ in the name of a company called [sic] "Finlay International."⁽³³⁾

On this same day, other Noriega accounts at BCCI totalling $11.8 million were transferred into the accounts of Banco Nacionale de Panama at Deutsche Sudamerikanische Bank in Hamburg, Germany, also in the name of [sic] "Finlay International."⁽³⁴⁾ Thus, in a complicated set of transactions, the entire sum of Noriega's BCCI accounts was transferred to banks other than BCCI, held in accounts not opened by Noriega, and held in the name of an entity other than Noriega.

The transfers became even more convoluted over the next two years. On 8 September 1988, the entire $23 million was transferred to the Banco Nacionale de Panama account at the Middle Eastern Bank in London in the name of [sic] "Findlays."⁽³⁵⁾ This transfer served to consolidate the funds in a single account. Despite the fact that the funds were nominally held in the account of the Banco Nacionale de Panama, the accounts themselves had been opened by Noriega (who personally signed the account opening documents) and remained in his control.⁽³⁶⁾

On 13 September 1988, the Chief of the Private and Investment Banking Division of the Nacionale Banco de Panama instructed Middle East Bank to transfer the money from its account to the account of [sic] "Finleys International Ltd."⁽³⁷⁾ This transfer thus served to remove Banco Nacionale de Panama from the transaction altogether.

From 15 September 1988 through 19 September 1988, Finley instructed Middle East Bank to disburse almost the entire balance which had been amassed in Finley's account. The letters from Finley were signed by Capcom's President, Z.A. Akbar.⁽³⁸⁾ Three of these payments totalling $20.5 million were made to Capcom and credited to the GESS and GOOD Capcom customer accounts.⁽³⁹⁾

Another $2.6 million was paid to a coded account at the Trade Development Bank in Geneva, Switzerland.

The transfers between Finley and Capcom effectively laundered the funds originally deposited in BCCI by Noriega. The transactions constituted "mirror image" trading; in effect, the same person — Akbar — stood on both sides of the transaction. Akbar was the managing director of Capcom and almost certainly possessed the controlling interest in the majority of the company's shares.⁽⁴⁰⁾ He also was the chairman and director of Finley. Moreover, he possessed a Power of Attorney for the GESS account and his brother was a director of the company behind the GESS account.⁽⁴¹⁾

In the entire set of transfers between Capcom, Finley, and the Capcom Accounts, the funds were under Akbar's control and subject to his direction. In order to disguise the transactions, Akbar continually sought to inject other parties into the scenario and to portray the transfers as legitimate business transactions between non-identical parties.⁽⁴²⁾ However, the documents indicate that Akbar moved funds from a bank account under his control to a company of which he was the managing director and then into Capcom customer accounts under his control.⁽⁴³⁾ What appeared to be transactions between different entities were merely transfers of funds between nominally different accounts under the control of the same individual. Akbar used Capcom and its accounts to conceal the source of the funds and "transform" them into facially legitimate business capital, brokerage fees, and bank account deposits.

Capcom and Shakarchi

Capcom may also have laundered money in the so-called "Lebanese connection" case. According to the Peat, Marwick report, on February 10th, 1988, Capcom received a telex from Ahmed Tawfik giving instructions to make a payment of $150,000 to Shakarchi Trading. Shakarchi trading was a Zurich-based currency trading firm, principally involved in gold bullion trading. Reportedly, a number of wealthy Egyptians had accounts with the firm which was owned by Mohammed Shakarchi.

In February, 1989 Shakarchi was linked by U.S. and Swiss investigators to two Lebanese brothers, Jean and Barkev Magharian, who admitted that some of the two billion swiss francs they channeled into Swiss banks and trading houses between 1985 and 1988 derived from drug transactions. The Magharian brothers told investigators that $36 million the couriers brought to them in Switzerland from Los Angeles came from cocaine profits.

The case gained notoriety when Swiss Minister of Justice was forced to resign in January 1989 after admitting that she told her husband, who worked for Shakarchi, that the firm was about to be implicated in Switzerland's biggest financial scandal.

Capcom and AMBROS

Yet another suspicious relationship maintained by Capcom was with a German trading company, Ambros Holdings. Approximately 44% of the Capcom U.S. client base consisted of West German individual and corporate accounts controlled by a handful of Western German companies such as "A and G management", SFS GmbH management" and "Ralf Ltd." For example, Metzler SFS controlled 37 of the accounts, or 39% of the total. The most important of the German clients was Ambros holdings which accounted for 50% to 70% of Capcom Future's gross commissions and revenues in the period September/October 1988. According to Capcom's records, the ledger balance was $40 million.

Ambros was a Panama registered company with offices in both Germany and Liechtenstein. The company's President and Secretary was Richard Sax, who traded for Ambros through Capcom Futures, and elsewhere in Chicago, under the alias of Richard Wagner.

Ambros declared bankruptcy in Germany in 1991. German prosecutors have been investigating the collapse of the firm which may have lost as much DM 500m in the commodity futures markets. According to press reports, German investigators believe that Ambros operated as a giant Ponzi scheme.⁽⁴⁴⁾

Majority Shareholder of Kamal Adham and A.R. Khalil

The June, 1991 Price Waterhouse Report noted the overlap of shareholders between BCCI and Capcom: "[Capcom's]...initial shareholders were dominated by major shareholders of [BCCI]."⁽⁴⁵⁾ A.R. Khalil, Minister of Communications for Saudi Arabia and Deputy Chief of Intelligence — and a major BCCI shareholder — was the dominant shareholder and director of Capcom from its foundation until its termination. Besides Khalil, the "Saudi Group", included, Kamal Adham, Khalil's former boss and the lead investor in the FGB takeover; J.J. Uddin, who acted as a substitute for Khalil; El Sayed E. El Jawhary, an associate of Adham and Khalil; and Robert E. Powell, an American with long-standing ties to Adham and Khalil.

Although little is known about Mr. Khalil, the Subcommittee has learned that in 1976 he became Director General of Ministry of Communications of Saudi Arabia. The Subcommittee has also obtained a brief description of Khalil's background which he provided to officials of the Federal Reserve on April 23, 1981 in connection with the proposed acquisition of Financial General Bankshares:

My career has been devoted to business and I presently hold interests in real estate, mechanical and electrical maintenance projects, and commodities. In addition, I have been involved in some business ventures with American and British manufacturers for the installation of electronic and computer equipment in Saudi Arabia.⁽⁴⁶⁾

In a document entitled "A Brief Resume of the Company and Its Directors, Capital Commodities Dealers, Ltd.", Khalil is identified as a prominent Saudi Businessman, involved in real estate and construction, mainly in Saudi Arabia, U.A.E. and Oman. He is also listed as the owner or director of the following companies: Arabian Electronic Project Establishment, Global Chemical and Maintenance Systems (where Robert E. Powell was CEO), and Rockwell International, USA (where Kerry Fox worked). The resume estimated Khalil's net worth to be "US $300,000,000."

It is noteworthy that during the same years that the Chief of Saudi Intelligence, Kamal Adham, is entering the American banking industry through the purchase of First American, his successor in Saudi intelligence, Mr. Khalil, is quietly purchasing three houses in the United States with the assistance of Americans Kerry Fox and Larry Romrell — key players in Capcom.

U.S. Connection: Romrell, Magness and Fox

The investor relationships in Capcom represent the culmination of a long relationship between members of Saudi intelligence and important figures in the US communications industry. The record establishes the relationship between Khalil and the Americans, Romrell, Magness, and Fox had its genesis in the communications industry prior to the creation of Capcom.⁽⁴⁷⁾ First, Kerry Fox had a long relationship with Khalil through his work in the electronics business for Martin Marietta and Rockwell International with the Saudi government dating five to ten years prior to the creation of Capcom.

Second, Romrell and Magness proposed numerous ventures in communications to BCCI and Khalil in the three years prior to the formation of Capcom, 1982-1985. The proposals included the installation of state-of-the-art electronics and communications in the Saudi military command center. In October, 1982 Romrell expressed interest to Akbar in "working with the bank [BCCI] and managing any interests they may have in our area."

US Investments Proposed By Romrell/Magness

Larry Romrell has told the Subcommittee that he met Khalil in 1981. The timing of the meeting appears to have been just subsequent to Khalil's appearance at the Federal Reserve in Washington D.C. in connection with the takeover of Financial General Bankshares.⁽⁴⁸⁾

After entering into a real estate venture with Khalil, Romrell moved quickly to solidify his relationship with Akbar, BCCI and Khalil. The Subcommittee has compiled a log of business proposals by Romrell for BCCI. (see Appendix I) Mr. Romrell explained the various propositions in a response to written questions from the Subcommittee:

Mr. Akbar had indicated to me that his clients or BCCI — I always had difficulty distinguishing between Mr. Akbar's actions on behalf of his Mid-East investment client and his actions on behalf of BCCi — might be interested in investing in the United States, principally in "bricks and mortar" office buildings. I suggested some possible investments to Mr. Akbar. I never sought or received any compensation from BCCI or Mr. Akbar for managing properties or anything else.⁽⁴⁹⁾

While there is insufficient evidence to determine whether or not any of these proposals were consummated between the parties, the heavy traffic of proposals in 1983 to 1985 raises many serious questions about Romrell's and Magness' involvement with BCCI. Moreover, documents suggest that during this period BCCI credit was an important vehicle for Mr. Romrell and Mr. Magness in their personal affairs.

BCCI and TCI

Documents provided to the Subcommittee also indicate that BCCI may have been a shareholder in TCI, the largest cable company in the United States.⁽⁵⁰⁾ All TCI shareholders were issued WTCI stock when the latter was spun-off from TCI as a separate company. The WTCI stock was then listed independently and was publicly traded on its own. In a letter to Akbar, Romrell wrote:

"I am enclosing an Information Statement which has just become available this morning covering the distribution to the TCI shareholders of all the outstanding shares of WTCI...the stock will be distributed by today by mail along with the enclosed Information Statement to all TCI shareholders...there is a possibility that the WTCI stock price will sell for a price upwards from $8.00. I still intend to buy for our accounts at the best possible price somewhere between $2 to $4.50. If you have any comments or require any additional information, please give me a call."⁽⁵¹⁾

Six months later, Romrell wrote Akbar about an apparent agreement:

"I understand the WTCI stock will officially start trading at opening of business tomorrow, March 20. I want to confirm my understanding that I have established pursuant to my conversation with you a $100,000 credit line with which to purchase stock and, in addition, that you have authorized me to purchase stock in your behalf up to a $100,000 limit. The combined credit line would then be $200,000, except that I would reduce my credit line within 30 days from $100,000 to $85,000. If this is not your understanding or does not meet with your approval, please contact me immediately.⁽⁵²⁾

Romrell has told the Subcommittee that, in fact, there was no agreement and no combined credit line. He acknowledged that the wording of the letter "did not sound good".⁽⁵³⁾

Perhaps the most provocative document suggests that Romrell was seeking a $200 million credit line from BCCI for TCI:

"...the TCI finance group that they are interested in obtaining a loan facility...I asked Bob Magness...he asked me to determine whether there would be any interest ion the part of BCCI...I believe the credit facility that TCI is looking for is around $200,000,000...as a separate matter, WTCI will soon be looking for approximately $50,000,000 to construct a new microwave route...there may be an opportunity to put this deal together with BCCI if you are interested."⁽⁵⁴⁾

According to TCI's lawyers, the company has never had any relationship of any kind with BCCI:

[There is] no evidence that the TCI or the Related companies had any business dealings with Capcom, BCCI, or any currently identified related entity or person... ⁽⁵⁵⁾

Romrell, Magness and Capcom

During the period that Romrell is passing on WTCI information to Akbar, he is also contemplating an investment in Capcom: "Magness and I have discussed your proposal to invest in a U.S. brokerage firm in Chicago or New York and to participate in the ownership and operation to the mutual benefit of BCCI and ourselves."⁽⁵⁶⁾ To entice the participation of Romrell and Magness in Capcom, Akbar represented to the Americans that the firm would earn a minimum of $4 million per year, and potentially as much as $10 to $15 million.⁽⁵⁷⁾

Despite the fact that neither of them had any experience or expertise in the futures markets, Magness and Romrell agreed to become directors on May 27, 1984.⁽⁵⁸⁾ They also decided to make a financial investment in the firm. Magness, in a notarized statement dated May 12, 1992, explained to the Subcommittee:

"...I agreed to buy a 1 percent interest for approximately $15,000."⁽⁵⁹⁾

"I was not offered anything for my investment beyond the [above stated 1 percent] interest in Capcom. Nor was I offered anything as an inducement to become a member of Capcom's board of directors."⁽⁶⁰⁾

However, Magness and Romrell also purchased a stake in Capcom with funds provided by BCCI. In a "Note for file" written November 9, 1984, Romrell scribbled:

"Bob and I" funded our share capital and loan stock as follows: "We agreed to fund $14,744⁽⁶¹⁾ and borrow $75,000 each from BCCI London...Balance of current amount due was funded from our Credit Lines at BCCI, London."⁽⁶²⁾

The Subcommittee has obtained documents which appear to show that, in fact there were other loans beyond those provided by BCCI. Magness and Romrell executed no-risk loans to purchase Capcom stock in a September 17, 1984 agreement with a Panamanian company secretly owned by Akbar, managed in Liechtenstein by a Dr. Franz Pucher. The company was named "Peniel Investments, Inc."⁽⁶³⁾ Akbar provided Romrell and Magness with subordinated Loan Stock in the amounts of 330,000 (approximately $450,000) for Romrell and 69,300 (approximately $90,000) for Magness.⁽⁶⁴⁾ A very unusual aspect of the loans is that they were self-liquidating: funds paid into Romrell's and Magness' loan accounts from profits in their "managed investment" accounts would be used to pay down the loan principal. ⁽⁶⁵⁾ In other words, these loans resembled the standard issue BCCI no-risk loans provided to those who acted as nominees for the bank.

Another set of documents dating some months later shows additional loans to Magness and Romrell from Paten Holdings, Inc., a different Panamanian company, operated out of Geneva by Mme. Cecile Ringenberg, and again, secretly owned by Akbar. ⁽⁶⁶⁾

Romrell has told the Subcommittee that "at the time I understood Paten Holdings to be a Swiss bank."⁽⁶⁷⁾

On May 23, 1985, the Capcom directors used Paten Holdings to increase the capital base in Capcom from L10,000,000 to L25,000,000. By increasing the capital base of the firm, Romrell's and Magness' overall holdings were also increased. Romrell, who had placed only $15,000 of his own money into the firm, found himself with holdings valued in excess of $2 million.⁽⁶⁸⁾

The Loan Agreement, dated June 17, 1985, between Paten Holdings, Inc. and Romrell and Magness provides both men with 169,500 (approx. $250,000). The terms require payment no later than June 17, 1987. The collateral for the loans was the shares secured by an attached memorandum of deposit and dividends and interest were to be retained in order to reduce the outstanding balance of the loans. As Romrell explained: "...with regard to Paten Holdings, Inc...we had originally planned to reduce that loan with dividends from Capcom."⁽⁶⁹⁾

Indeed two years later, in July 1987, Romrell proposed a 30 percent dividend in a letter to Khalil, Adham, and Jawhary.⁽⁷⁰⁾ However, upset from the events surrounding the CBOT investigation, the Saudi Group refused to allow the dividends. In order to accommodate the Americans, Akbar arranged for Romrell and Magness to enter into replacement loan agreements with Paten Holdings, Inc. The new loans were for an increased amount, 221,157.93 (approx. $330,000) and were secured by the Capcom shares. ⁽⁷¹⁾

The year-end 1987 audit of Capcom in London by Arthur Anderson raised the issue of disclosure of the Paten and Peniel loans:

"All transactions with related or associated parties have, where material and appropriate for the presentation of a true and fair view...There are no agreements whereby the directors could receive benefit from dealing transactions either directly or indirectly through agency agreements...In respect of the agency agreements between Capcom Financial Services, Ltd and the following companies: a) Peniel Investments, Ltd, and b) Paten Holdings, Inc. ...In addition, we confirm that the agreements were entered into at arms length and that no director or shareholder has an interest in either agent company. The company and its subsidiaries have at no time during the period entered into any arrangement, transaction or agreement to provide credit facilities (including loans, quasi-loans, credit transactions, mutually beneficial arrangements or guarantees or security for liabilities for any directors, shadow directors, officers or their connected persons (except as permitted by the Companies Act 1985 and as disclosed in the accounts.)⁽⁷²⁾

The Paten and Peniel loan documents show this statement by the auditors to be completely false. Either the auditors colluded with Capcom management, or more likely, they were misled as to Paten and Peniel by the management of Capcom.

Ultimately, Romrell tried to sever his connection to Paten. According to Cecile Ringenberg, an emergency meeting was called in London by Sheik Khalil. At that meeting, control of Paten passed from Romrell to Akbar. Romrell has indicated to the Subcommittee that he has never met Cecile Ringenberg, although a xerox of her calling card was provided by him to the Subcommittee.⁽⁷³⁾

Capcom Nominees

The Subcommittee has uncovered documents which show that Romrell and Magness clearly understood that they were acting as nominees on behalf of Capcom. In a 1987 letter to Khalil, Romrell wrote:

"it was my understanding that the majority shareholders were not willing to sign these guarantees ...As far as I personally am concerned, except for my paid-up stock and notes, I have acted as nominee for one or more of the original shareholders."⁽⁷⁴⁾

Five days later, Romrell reiterated this point in another letter:

"...It was my understanding at that time the majority shareholders representing yourself, Sheikh Kamal, and Mr. Jawhary...but it was the only one [plan] we could see that would retain the original shareholders through voting trusts and nominees and meet the needs of the Chicago Board of Trade. It was understood by the reorganized shareholders that they were nominees for the original shareholders. Thus, the actual beneficial ownership did not change."⁽⁷⁵⁾

The reason for using American nominees by Capcom was clearly stated by Akbar in his taped conversation with undercover U.S. Customs agent Robert Mazur: "...it's better if we use some other people as our nominees, instead of showing [Capcom] as BCC subsidiary"⁽⁷⁶⁾ This is the identical strategy to that pursued by BCCI in its acquisition of First American Bank in Washington D.C.

Robert Powell

Robert Powell, a California businessman with interests in the Middle East, was also a director of Capcom, and, he claims, unbeknownst to him, a nominee for the company. Powell, like so many others involved in the BCCI affair, claims to feel "deceived, duped, humiliated ...etc...etc."⁽⁷⁷⁾

Powell has a background in infrastructure and aircraft maintenance for the U.S. military, having provided "contract services to the United States Air Force, Military Airlift command, for the operation and maintenance of United States Air Force facilities located at Wake-Island, Mid Pacific."⁽⁷⁸⁾ Despite his close relationship to the U.S. military during the Vietnam War, Powell claims to have no background in, or affiliation with, military intelligence. Rather, he told Subcommittee staff that he simply follows the military "where they go."

According to Powell, in 1968 he was contacted by an assistant to Sheik Kamal Adham named Mamoud Arabe who met with him in Washington D.C. and subsequently set up meetings for him with Adham, then chief of Saudi Intelligence, and A.R. Khalil, the Deputy Chief of Saudi Intelligence, in New York. According to Powell, he believed that Adham and Khalil were simply "advisor(s)" to the King of Saudi Arabia and that during their meeting they only discussed "differences between Democratic and Residential candidates [with] a little bit of talk about the company and the services we offer."⁽⁷⁹⁾ Nevertheless, at some point thereafter, Powell settled in Saudi Arabia where he became the managing director for Global Chemical and Maintenance Systems, a company owned by A.R. Khalil. When Global Chemical opened an office in Oman in 1976 Powell met Z.A. Akbar who was then working at the National Bank of Oman, which was partially owned by BCCI. The next year Powell established a banking relationship for Global Chemical with BCCI, and while he lists BCCI as Global's bank in its annual report, he claims under oath that "no Global entity or myself borrowed any money from BCCI."⁽⁸⁰⁾

Powell became involved with Capcom in 1984 at the suggestion of Akbar.⁽⁸¹⁾ According to Powell he invested 80,000 Pounds Sterling in Capcom, money which was financed, although as of June 21, 1992, Powell was uncertain the nature or source of the financing.⁽⁸²⁾ Powell told the Subcommittee that he believed his initial investment represented the extent of his holdings. In July, 1992, however, prompted by questions from the Subcommittee, Powell contacted Capcom in London which advised him that by July 1985 he had accumulated 3,500,000 shares of stock — 15% of the firm's holdings. Most of that stock was transferred from his account in 1987 but as of July 1992 he still owned 250,000 shares of stock. According to Powell, "When or how I became the owner of a 250,000 shares is not explained by the record nor do I have any knowledge about the activities that created this apparent paper increase." Powell wrote the Subcommittee "[I]t is obvious that the company can do anything it pleases with its shares without informing the affected parties. Is not hindsight beautiful?"⁽⁸³⁾

Powell's account of Akbar's deception and of his relationship with BCCI, however, require further investigation. By his own admission, Powell met with Akbar "once or twice a year" in London to review Capcom and his stock holdings.⁽⁸⁴⁾ Moreover, he acknowledges having met Abedi on at least one occasion and Naqvi on at least a half dozen occasions.⁽⁸⁵⁾ These meetings with BCCI's top management strike the Subcommittee as strange given Powell's claim that he had such a limited relationship with BCCI as an institution.

Kerry Fox

As mentioned earlier, the genesis of Capcom's links to the U.S. lies in the relationship between Kerry Fox and A.R. Khalil. Fox had been Vice-President and General Manager of communications and electronics at Martin Marietta and President of two of Rockwell International's major divisions when he met A.R. Khalil while doing business with the Saudi government.⁽⁸⁶⁾

Correspondence between Fox and Khalil suggests that they maintained a close relationship: "A.R. Khalil was and is a good friend of mine."⁽⁸⁷⁾ According to Fox, "I had known Sheikh Khalil for several years prior to that through business relationships with the Saudi government...(prior to 1982.)"⁽⁸⁸⁾ Moreover, Fox and Khalil owned neighboring homes in Texas and in Florida.⁽⁸⁹⁾

During the early 1980's Fox went to work for U.S. Telephone Communications, which by 1982, had experienced "phenomenal growth and revenues of $90 million annually." In 1985 Fox founded his own company in the telecommunications industry — American Telecommunications Inc. He also invested in a number of real estate projects with his partner, Larry E. Romrell.⁽⁹⁰⁾

In an affidavit, Fox described his relationship with Akbar who "at that time... was personally handling many of Sheikh Khalil's world-wide financial transactions."⁽⁹¹⁾ According to Fox, "I worked closely with Mr. Akbar both as managing director of the Capital Fund, but more importantly for me when he served as a Director of American Telecommunications Corporation."⁽⁹²⁾ Fox described Akbar's role with ATC: "I worked closely with him by telephone to assist our company through some very difficult start-up and financial problems. Mr. Akbar provided badly needed financial resources to the company, first as equity and later as debt, which was instrumental to the company's survival."⁽⁹³⁾ Indeed, Capcom and related entities purchased in excess of 350,000 shares of ATC stock, over 100,000 ATC warrants and loaned the company hundreds of thousands of dollars. In the affidavit, Fox defended Akbar as: "absolutely honest, trustworthy, and very honorable. He is a man of the highest integrity, having a strict code of high morals and business ethics."⁽⁹⁴⁾

After Akbar was indicted for money laundering by the US Attorney's office in Tampa Florida, he resigned from the board of ATC. Akbar was replaced by Larry Romrell on the board, even though Romrell told the Subcommittee that "by the late 1980's he and Fox had a personal falling-out."⁽⁹⁵⁾

This background raises questions about Fox, who along with Romrell acted on behalf of Khalil in 1981 and 1982 to purchase three residences in the U.S. and manage them. The Subcommittee has learned that the three properties located in New Smyrna Beach, Florida; Dallas, Texas; and Vail, Colorado were each financed by BCCI and managed by Akbar.⁽⁹⁶⁾ Second, while Fox and Romrell "used the houses from time to time", the property deals may have been used to financially benefit the two Americans who at the time were salaried employees. ⁽⁹⁷⁾

The Subcommittee invited Fox to testify on these matters at its July 30, 1992 hearing, but Fox, though his attorneys, invoked his fifth amendment privilege not to incriminate himself.⁽⁹⁸⁾

The Capital Fund

Kerry Fox, although not a director of Capcom, was a director of The Capital Fund, an open-ended public investment fund launched by Capcom. The stated purpose of the FUND was investment in stocks, bonds, metals, options, and commodities. Control of the FUND resided in the "Manager", Capital Management Services, which had its operating base in Muttra, Oman. The original Directors were Paten Holdings and Zask Trading and Investment, Ltd, Akbar's secretly held Panamanian companies operated out of Liechtenstein. These entities were replaced as directors by Kerry Fox in October, 1985, indicating that Akbar had complete confidence in his ability to control Fox.⁽⁹⁹⁾

By January 1, 1986 the initial L10,000,000 share capital had been fully subscribed, making it appear that the general public had invested in the Capital Fund.⁽¹⁰⁰⁾ In fact, however, Akbar controlled almost everything behind the FUND, including Zask Investment, Paten Holdings, his brother and Dr. Franz Pucher, the Liechtenstein lawyer. Akbar secretly contributed $8,145,000 (81 percent) of the $10,000,000 deposited in the FUND with the remaining 19 percent coming from BCCI/Capcom insiders, including Kamal Adham and Mr. E. El Jawhary.

The first year of investments by the Capital Fund resulted in an impressive profit, $2,278,708, and, in fact, the FUND produced profits in every other year until its termination in 1988. However, Ian Watt of Peat Marwick McLintock, characterized the profits as "artificial" and explained that through "matched" and "back to back" transactions, money from at least 17 accounts was transferred into Fund, totalling an estimated $3,334,480.⁽¹⁰¹⁾ Watt concluded that the FUND played a significant role in Capcom's operations: "In all, save a number of insignificant cases, the client account in which profit was created was FUND."⁽¹⁰²⁾

The Capital Fund continued to increase and prosper until Akbar's indictment for drug money-laundering on October 10, 1988. After the indictments, Kerry Fox met A.J. Puri in December, 1988 at the Dallas-Ft. Worth airport and was advised that the Capital Fund would be wound up.⁽¹⁰³⁾ However, it was not until September 18, 1990 that Capital Management Services ceased trading and was liquidated.⁽¹⁰⁴⁾

The 1987 Chicago Investigation

In early 1987 the Chicago Board of Trade (CBOT) clearing corporation imposed a requirement that the owner of 5% or more of a clearing member guarantee the house obligations of such member. Accordingly, in June, 1987 the ownership of Capcom UK in Capcom US was reduced from 82% to 4%. The individuals who purchased Capcom UK shares in Capcom-U.S. did so with a loan from Capcom UK. One month later, in July 1987, Capcom US loaned Capcom UK nearly $3 million. That loan was never serviced and the Subcommittee has concluded that Capcom was involved in nothing more than a shell game to restructure its US operations.

At the same time that the restructuring was taking place, an investigation of Capcom had been undertaken by the CBOT to determine the identities of the individuals and entities which had an ownership interest in Capcom. In response to the investigation, A.R. Khalil wrote to Capcom's chairman, Larry Romrell, demanding that all the directors be fully advised of the true owners of Zask Investment and Trading, Akbar's company, which had surreptitiously increased its ownership in various Capcom entities. Ironically, Khalil ask that Romrell keep "my advisor, Mr. Z. Akbar, fully informed."

The issue was resolved when the secretly held Akbar-controlled interests in Capcom declined and the Saudi Group re-established its majority position using relatives and associates of Adham and Khalil on the Boards to escape the disclosure requirements of the US regulators. For instance, Mr. Wadia Sayed Khalil acquired a 39 percent ownership, and Mr. Robert E. Powell a 1 percent ownership, which combined with others in the "Saudi Group" totals 52 percent.⁽¹⁰⁵⁾

In its investigation of Capcom the CBOT also disclosed that Capcom had engaged in numerous serious violations. Stephen Early, General Counsel to the CBOT testified before the Subcommittee:

[O]ne of the violations was that Capcom London was acting as a principal rather than an agent in transactions entered into on behalf of its customers. Now in essence, what that means, if I can put it in simplest terms, is that Capcom London was selling to its customers out of its inventory of positions of contracts traded at the board of trade....It is illegal in the United States...What we require is that the customer gets is the trade that was transacted in the public auction on the floor of the exchange and nothing else.⁽¹⁰⁶⁾

Early concluded that "a trading practice such as this ...may be a means to further cloud what you have already encountered as the disarray of records, which is typical of Capcom and BCCI." Capcom settled with the CBOT and agreed to "cease and desist" from further violations and to pay a $124,000 fine.⁽¹⁰⁷⁾

Early also testified that at the time "[W]e had no direct evidence of money laundering on behalf of Capcom."⁽¹⁰⁸⁾ However, during the same period, undercover Customs agent Robert Mazur was learning from BCCI insiders that Capcom was, in fact, being used to launder money. Mazur's undercover tapes formed the basis for the October, 1988 indictment of the trading firm.

Akbar Blackmails BCCI

In the summer of 1988, just months before the indictment in Tampa, Akbar contacted the Special Counsel to the Foreign Relations Committee, Jack Blum, and during a luncheon meeting in New York, claimed that he could lay out in detail the criminality of BCCI. Akbar boasts were real: according to the 1991 Price Waterhouse Report, "...Akbar took certain documents with him when he left [BCCI]. In 1988 he used this information to blackmail [BCCI], which paid $32 million to prevent him disclosing the true nature of the activities of Treasury..."⁽¹⁰⁹⁾ Akbar may have been using his meeting Blum to threaten BCCI. In testimony to the Subcommittee, Blum characterized his meeting with Akbar as "a $30 million lunch."⁽¹¹⁰⁾

The alleged bribes from BCCI to Akbar were paid into the TWOY account at Capcom. According to the Ian Watt audit, "TWOY and TWOY2 are both controlled by Akbar's brother, Mr. R. Akbar. The beneficial owners are not known..."⁽¹¹¹⁾ But Watt notes, "Akbar possessed a power of attorney over both TWOY accounts."⁽¹¹²⁾

In a secretly taped conversation Akbar explained to agent Bob Mazur the use of coded accounts to disguise ownership. Akbar used the example of TWOY, which he described as his account, and explained that "TWOY" was a translation, presumably from his native language, of the word "who":

"But if somebody asks, who's that person. Number two, it means who? For my account and Tawoy. It is called Tawoye. Tawoy. My account is Tawoye. Tawoye means who. No one asks who's Tawoye. We are not supposed to. ⁽¹¹³⁾

The auditors noted the booking of a $31 million loss in the TWOY account in March 1987 from Standard and Poors Index futures trades.⁽¹¹⁴⁾ In short, Akbar may have used the Twoy account to launder money that he had extorted from BCCI.

The 1988 Indictment

Capcom Financial Services, Ltd., the British parent company of the Chicago-based Capcom Futures, Inc., was indicted by a grand jury in Tampa, Florida on October 10, 1988.⁽¹¹⁵⁾ S.Z.A. Akbar and BCCI were also named in the indictment.

The indictment charged that Capcom had participated in a conspiracy to launder money and to violate federal narcotics laws.⁽¹¹⁶⁾ The indictment specifically charged that Capcom had used its bank and customer accounts to launder drug money for the Medellin cartel and other Latin American sources.⁽¹¹⁷⁾

Just as BCCI mounted a full scale public relations assault following the October 1988 indictment, so it appears did those with ties to Capcom contemplate a similar campaign. In his January office diary, Romrell noted "talked to Magness about CNN report and Capcom... waiting to know the source of the misinformation."⁽¹¹⁸⁾ TCI, which Magness is chairman of, owns 20% of CNN. During the same period, Romrell also scribbled in his diary "Ramsey Clark/Lyndon Johnson/ Atty Gen is talking to people in Wash D.C. ... Drug charges may be lifted against Capcom."⁽¹¹⁹⁾

But the charges were not dropped and, in fact, a second, superseding indictment against BCCI was issued in 1989.⁽¹²⁰⁾ This second indictment added 14 additional defendants but it neither deleted Akbar or Capcom as defendants nor did it alter the legal claims made against them.⁽¹²¹⁾

Akbar was arrested in the UK where he had also been indicted. He was found guilty and sentenced to 18 months in prison. After his release, he fled to Paris where he was again arrested. Akbar is currently awaiting extradition to the United States. While Capcom Financial Services, Ltd., the UK parent, has been indicted, Capcom Futures, the U.S. subsidiary, has never been indicted.

The day after Akbar and Capcom were indicted in the U.S. for drug money-laundering, a memorandum was written by Romrell and John Parry, which revealed that Romrell had working knowledge of some of the "sensitive" accounts at Capcom, and that a joint agreement existed between Romrell and Capcom to make investments:

"On Tuesday 11th October 1986 it was decided by mutual agreement between John Parry and Larry Romrell that it would be in the best interests of the company to liquidate the open positions in the account GESS (General Securities). This decision was taken in light of the sensitive nature of the account pertaining at the time...

"It was decided to close the account slowly over a matter of days, if necessary, so as to preclude any market comment concerning unnatural activity at Capcom.

For all of the above reasons it was also decided to liquidate any open positions in the accounts of Little and Large."⁽¹²²⁾

1989 Chicago Investigation

Following the announcements in October 1988 of the Florida indictments of Capcom UK for money laundering and drug trafficking, the futures markets activities of Capcom US, according to CFTC Chairperson Gramm, "became of great concern" to the CFTC.⁽¹²³⁾

Indeed, the CFTC and the Chicago Mercantile Exchange commenced an inquiry into Capcom. According to Chairperson Gramm:

We were also interested in examining the Capcom US records to identify potential evidence that might suggest money laundering. Although money laundering is not a violation of the Commodity Exchange Act, the commission staff wanted to be sure all relevant information was available to the authorities who could best use it.⁽¹²⁴⁾

On August 15, 1989, the CME Clearing House Finance Subcommittee reviewed the staff report of the activities of Capcom Futures from January, 1986 through May, 1989 and concluded that there was a reasonable basis to charge Capcom U.S. with the following violations: "Act of bad faith" (commingling customer funds with house funds); Permitting the Misuse of facilities; Detrimental Act; Uncommercial conduct; Accepting new trades when account undermargined; Transfers of positions with no change in ownership; notification of reduction in capital in excess of 20%; and non-compliance with financial requirements.

The CME found that trading at Capcom was often done on the basis of oral instructions received from customers which were then confirmed in writing. In some instances, according to the CME, "the files showed no confirmations." Moreover, the CME's internal investigation found that:

There were several transfers of funds from unaffiliated Capcom-U.S. customer accounts into the Ixora account, an account owned and controlled by Z.A. Akbar. According to the CME, no written authorizations were obtained prior to the transfer of the funds.

According to the CME, Akbar, the owner of the Ixora account, told the firm "he intended to use the account for trading and the firm anticipated significant trading volume."⁽¹²⁵⁾ The Ixora account actively traded from December, 1986 until May, 1987. From November, 1987 through October, 1988, there were twelve receipts into the account totaling $9.84 million and twenty-five disbursements totaling $9.82 million. CFTC Chairperson Gramm testified that IXORA was also "involved in a complicated $2 million transaction involving Finley International, Ltd. and Capcom UK."⁽¹²⁶⁾ Finley, as noted earlier, was the account used to launder General Noriega's money.

Certain of the trades in the Ixora account were clearly BCCI-related. For instance, a confirmation letter, dated April 27, 1987 is addressed to Mustafa Kamal c/o Bande Hasan. Mr. Hasan was an employee of BCCI in Miami. Moreover, CFTC Chairperson Gramm told the Subcommittee that:

Information developed in our inquiry with respect to the Ixora account at Capcom US, however, indicated that certain disbursements were made to persons apparently unrelated to the purported account owners, including Akbar Bilgrami, who may be the same Akbar Bilgrami identified as the Director of Latin American Overseas by the October 1988 indictment.⁽¹²⁷⁾

The Subcommittee has obtained documents which show that Romrell is the individual named on the IXORA account at First National Bank of Chicago. Moreover, Ixora account statements and bank statements were sent to him at his Western Telecommunications offices. CFTC Chairperson Gramm testified to the Subcommittee that "In February of 1988 S.Z.A. Akbar instructed that a cash disbursement of $100,000 be made the IXORA account ... to Mr. Romrell's account." ⁽¹²⁸⁾ Concerning the IXORA account, Romrell told the Subcommittee:

[I] learned from the Subcommittee that Ixora also had an account at Capcom, but I have no knowledge of that account.

Ixora was a Cayman Islands corporation that was owned by Mr. Akbar. Mr. Akbar asked me to find the name of a Cayman Islands lawyer to handle this matter....To my knowledge, Ixora never conducted any business whatsoever.⁽¹²⁹⁾

According to Chairperson Gramm, investigators were unable to learn anything more about the IXORA account because "Mr. Saghir exercised his fifth amendment rights with respect to all questions concerning this account when his investigative testimony was taken by the CFTC.⁽¹³⁰⁾

The CME also found that there were multiple transfers of funds between Mohammed Zaheer, the brother of Capcom Futures' President, M. Saghir and two unaffiliated customer accounts.

On October 29 1987 there were six receipts in the Zaheer account totaling $4.84 million and the next day there were two disbursements totaling $4.80 million. The CME noted that "from the period December 31, 1986 through May 31, 1989, the ledger balance of the account was usually less than $150,000." These transfers are particularly suspect because an investigative firm retained by the CME discovered that Mr. Zaheer worked in a service station in Karachi, Pakistan and his position at this service station is described as "not very high."⁽¹³¹⁾

After reviewing the Saghir/Zaheer transactions, Gerald Beyer, Vice President for the CME, told the Subcommittee that "On a person level, when I was involved in this investigation, I was certain that it involved drug money and laundering of money. But there was no way we could prove that. We discussed that in our committee; we discussed that among ourselves."⁽¹³²⁾

Despite suspicions about highly unusual transactions, CFTC Chairperson Wendy Gramm told the Subcommittee:

In terms of finding trading violations or Commodity Exchange Act violations that perhaps could support money laundering, we did not find any discernible pattern... [N]o one has ben able to — at least other law enforcement officials have not been able to find money laundering in Capcom US, to our knowledge, as of now.⁽¹³³⁾

Money laundering, as Chairperson Gramm testified, is not even a violation of the Commodities Futures Trading Act. Incredibly, it appears that the CFTC and the self-regulatory organizations have never even made a criminal referral for possible money laundering:

Senator Kerry. [H]ave you ever specifically referred, or have any of the exchanges ever made a criminal referral for money laundering?

Dr. Gramm. We have raised concerns.

Senator Kerry. Have you made a criminal referral for money laundering?

Dr. Gramm. No. Not— not specifically in that regard...

Capcom Today

Chairperson Gramm told the Subcommittee that the results of the inquiry by the CFTC "contributed to the removal of Capcom US from US financial markets."⁽¹³⁴⁾ According to Gramm:

The Chicago Mercantile Exchange, CME, immediately restricted the trading activities of Akbar and subsequently made specific findings in October of 1989 that Capcom US had violated CME rules, including accepting new trades in an undermargined account and improperly transferring positions between accounts. Capcom US paid a fine of $500,000 and agreed to withdraw as a CME clearing member.

Early in 1989 the Chicago Board of Trade, the only US exchange for which Capcom UK was a member, suspended Capcom UK indefinitely and Capcom UK was subsequently expelled on August 24, 1989. Also, on June 30, 1989 they allowed Capcom US to withdraw from CBOT membership. In accepting the Capcom UK settlement, the Board of Trade had reason to believe that Capcom UK had entered into reckless and unbusinesslike dealings, was unable to demonstrate capital compliance, and engaged in fraud and dishonorable conduct in its dealings with the exchanges, among other things.

In October of 1990 the NFA, the National Futures Association, found Capcom US to have violated NFA rules by making misrepresentations to a customer and making unauthorized trades, failing to collect proper margin from a customer, and failing to supervise employees and agents. As a consequence NFA ordered Capcom US to relinquish its FCM registration and NFA membership and never to reapply, and to dissolve its corporate status at the earliest possible date.

Ms. Gramm also stated that "all of the information developed by the commission [including that developed by the exchanges]....was made available to the prosecutors in charge of the criminal case pending in Tampa."

While Capcom UK was indicted in the US, it has never been tried and has successfully avoided service of process. More amazingly, Capcom UK continues to operate in London to this day. In fact, it has developed new European clients. While ZA Akbar is in jail in France, his legal defense bills, in excess of $100,000 a year are being picked up by Capcom. Moreover, Akbar's brother and Mrs. Puri, until recently, served on the board of Capcom.

Conclusion

Turmoil in the Persian Gulf after the fall of the Shah of Iran in 1979 left a vacuum in the CIA's capability to gather information. The huge CIA operation in Iran was lost, including its most important listening stations to monitor the Soviet Union and China. With Iran and Iraq locked in a land war, options remaining were limited to several friendly nations: Saudi Arabia, U.A.E., Oman, and Kuwait. With the revolutionary changes in technology that spawned the modern communications industry in the 1980's came the need for the proper U.S. agencies to employ it, and, conversely, for our allies to gain access to it.

It was in this climate that majority shareholders in BCCI approached U.S. executives in the communications industry to serve on the board of Capcom. The Americans, Larry Romrell, Robert Magness, both of Telecommunications Inc., and Kerry Fox of American Telecommunications Company, had no knowledge or background in commodities trading, and evidently were never involved in the management of the firm.

The evidence of the role of Saudi Intelligence officials, Adham and Khalil, who are the principle liaisons with the CIA over two decades, owning and controlling Capcom, is disturbing to the Subcommittee for two reasons. First, the Subcommittee is concerned by the possibility of a foreign intelligence service promoting a policy agenda in the U.S. Secondly, the close relationship of Saudi Intelligence to the CIA leads to the question of whether or not the CIA was aware of Saudi activities in the U.S.. The CIA has unequivocally told the Subcommittee that it did not use and has no knowledge of Capcom, and that it was unaware of the investments in Capcom by Sheik Adham and Sheik Khalil.

Unfortunately, it will be increasingly difficult to ascertain the purposes for which Capcom was used. In a December, 1990 letter, it was noted that Mrs. Puri, wife of A.J. Puri, was handling the "final details" of the Capital Fund wind-up. Although the meaning of final details is ambiguous, the London Independent reported in August, 1991 that "more than 100 boxes of files and other papers belonging to BCCI-linked Capcom Financial Services...were destroyed on the orders of a senior Capcom official...The request to destroy the documents was made by Sushma Puri...Ms. Puri is also co-director along with Capcom's founder, S.Z.A. Akbar, of Futures Advisory Services."⁽¹³⁵⁾

Documents do still exist in the United States. Andrea Cocoran of the CFTC told the Subcommittee that the CFTC has all the records. Chairperson Gramm added that "We do have an investigation that continues regarding Capcom US."⁽¹³⁶⁾

While it is encouraging to learn that the CFTC is continuing to investigate Capcom, four years have lapsed since Capcom was originally indicted. Counsel for Larry Romrell, the Chairman of Capcom, told the Subcommittee in the spring of 1992 that his client had not been interviewed nor had his records been subpoenaed by any law enforcement agency: the Subcommittee was the first government entity to show interest in Mr. Romrell's role in the entire Capcom affair. Clearly, in the United States, a much greater investigative effort needs to be devoted to Capcom. It is hard to understand why British regulators — in light of the Peat Marwick report — have allowed Capcom UK to continue operations. Subcommittee staff have been advised that Lord Justice Bingham has looked into the irregularities surrounding Capcom in the United Kingdom. His findings regarding Capcom's activities in the UK will, it is hoped, expose more of the facts concerning its extensive activities in the UK than the US investigations have been able to uncover.

In terms of the broader lessons of Capcom, regulation of the futures markets need to be greatly strengthened. Even a cursory background check on Akbar would have revealed that he had managed the Treasury accounts at BCCI which lost $400 million in the futures markets in the early eighties. Moreover, regulators who appeared before the Subcommittee testified on the one hand that annual audits of Capcom US turned up nothing irregular, but that Capcom's books and records were a mess. That such a contradiction was allowed to continue for four years indicates that the CFTC needs to critically review the effectiveness of the various exchange audits. Finally, money laundering should be made a crime under the Commodities Futures Trading Act.

APPENDIX 1

Romrell Proposals To Akbar

1. Installation of a subscription T.V. service in Saudi Arabia: "...I would rather work with you and Mr. Khalil on this venture."⁽¹³⁷⁾ (Khalil was the Minister of Communications in Saudi Arabia.)

2. "...Mr. Khalil, the Saudi Sheikh...I will go over the material with him and I feel confident he will be interested..."⁽¹³⁸⁾

3. Advice on how to proceed on TCI's bid to the Saudi Arabian government for cable television distribution system located at the Royal Saudi Air Defense Command School, Jeddah.⁽¹³⁹⁾

4. Advice on proposal to TCI to install a cable system for the Ministry of Defense and Aviation Army Air Defense Command.⁽¹⁴⁰⁾

5. $90,000,000 investment in a hospital in Houston, Northwest Medical Center. Proposal that Magness and Romrell take 25 percent, BCCI 50 percent, doctors 25 percent.⁽¹⁴¹⁾

6. $22,000,000 joint purchase of Stouffers Inn, Denver.⁽¹⁴²⁾

7. BCCI loan proposed for $2,600,000 for a related investor group to purchase 30 percent in cattle feedlots owned partly by Magness and Romrell.⁽¹⁴³⁾

8. Purchase proposal of Winterwood Townhomes, Steamboat Springs, using BCCI loan of $2,500,000 arranged by Romrell.⁽¹⁴⁴⁾

9. Proposal of an investment of $3,100,000 in Marina Del Rey, California.⁽¹⁴⁵⁾

10. $300,000 credit line from BCCI for operation of Amigo Farms. (April 18, 1984)⁽¹⁴⁶⁾

11. $50,000 credit line for Romrell and Magness from BCCI. (June 5, 1984)

12. Beehive International building in Salt Lake City, Utah; Corporate Secretary and General Counsel is Romrell's brother; "with his inside information we could make a good deal."⁽¹⁴⁷⁾

13. Oil and gas investment in Windsor Reservoir.⁽¹⁴⁸⁾

14. "$6 million of credit on real estate to a friend of Romrell.⁽¹⁴⁹⁾

15. "Duds 'n Suds" share offering purchase proposal before public issue proposed by Romrell to Akbar.⁽¹⁵⁰⁾

16. Proposal for BCCI to be a partner in a land deal in Phoenix with Mr. Noel Cullison, who Romrell had arranged to borrow $525,000 from Capcom.⁽¹⁵¹⁾

17. $2,635,899 balance in loan credit from BCCI to Winterwood.⁽¹⁵²⁾

18. "I scheduled a meeting with Mr. Shoaib and Mr. Nazarian with myself and Mr. Magness."⁽¹⁵³⁾

19. "Also, I am enclosing another letter from Tony Coelho. Tony Coelho would be the third most important man in the U.S. Government, with the President and the Speaker of the House being first and second most important."⁽¹⁵⁴⁾

APPENDIX II

Money Flow From BCCI to Capcom and Related Individuals

The following transactions are an indication of the dimension of the relationship between the BCCI group and Capcom and related individuals, transactions which occurred in Capcom, and other financial details which have been found on documents produced to the Subcommittee. In some instances, this information resolves and explains questions regarding Capcom, but in others it raises questions.

The itemization of these transactions is presented here only as a log to put on public record in some consolidated order the evidence of financial events which relate to Capcom.

A. ATC / FOX / Akbar et al.

Akbar and entities which be controlled issued credit and purchased equity in American Telecommunications, Inc (ATC). The Chairman and CEO of ATC is Mr. Kerry Fox. Mr. Larry E. Romrell is a Director of ATC. Mr. Fox was a Director of Capital Fund, a Capcom public investment fund which was the recipient of large amounts of moneys skimmed or laundered by Capcom, as described later in this report.

The following transactions occurred between Mr. Kerry Fox, ATC, Akbar, Capcom, Financial Advisory Services, and BCCI:

1. 150,000 shares of ATC purchased by Zask Investments and Trading, owned by Akbar, operated out of Liechtenstein.

2. 30,000 shares purchased as in 1 above.

3. 177,102 shares purchased by Financial Advisory Services (FAS), owned and controlled by Akbar, linked to Capcom as an "introducing agent". April 20, 1988.

4. $100,000 borrowed by ATC from Zask, June 1, 1989.

5. 50,000 warrants of ATC stock purchased by FAS.

6. 50,000 warrants of ATC stock purchased by Zask.

7. 25,000 warrants of ATC stock (not purchased) owned by Akbar.

8. June 11, 1991 letter from Fox to Akbar offers ATC warrants to Capital Fund, referring to the February 12, 1987 and August 5, 1988 grants of warrants.

9. September 30, 1988 letter from Fox to Akbar solicited Akbar's support in arranging receivables financing in the amount of $1.5 million.

10. $100,000 loaned to ATC June 15, 1988 by Akbar. Fox refers to ATC making losses and asks Akbar to consider making another $100,000 credit.

11. Request from Fox to Akbar May 3, 1988, stating that Fox had "nowhere else to turn" and was in a "near term but critical cash flow problem" (emphasis added), for "another" immediate loan of $250,000 and longer term $2-3,000,000 financing package.

NOTE: Akbar was a Director of ATC to November 4, 1988, when he resigned subsequent to his and Capcom's October 10, 1988 indictments for drug money-laundering. Some of the above transactions occurred after the indictment and conviction of Akbar.

B. BCCI / Fox, Romrell / Khalil / Adham

Fox and Romrell acted as a front for A.R. Khalil for the purchase of three real estate assets in the U.S., as described later in this report. Akbar was the BCCI officer who arranged the financing.

1. $530,000 loan from BCCI to Fox/Romrell for construction of "Potato Patch" house, Vail, Colorado.

2. $908,625 loan from BCCI as of February 7, 1983, apparently for Vail Associates apartments.⁽¹⁵⁵⁾

3. $2,000,000 loan BCCI to Dr. Charles Howard, Houston for sale of "Potato Patch" house by Romrell/Fox, who arranged loan and received part of proceeds.

4. November 8, 1982 letter from BCCI, Cayman to Fox/Romrell confirming loans outstanding:

$754,619 (Potato Patch, Vail)

$108,742

$532,003 (collateral: 1st mortgage on Khalil's Vail house)

5. Payments of $15,000, $34,995, and $20,000 were paid by Khalil to Fox/Romrell in March, April 1981, apparently to find costs of a real estate construction project.

6. Fox/Romrell had an account at BCCI, Cayman, #03002241, which had a balance of $388,486.33 on December 1, 1981.

7. $2,635,899 balance in loan accounts at BCCI for Magness, Romrell properties (Amigo Farms).⁽¹⁵⁶⁾

8. $2,000,000 loan request by Romrell from BCCI, Cayman for IXORA Investments, Ltd, a company owned by Akbar cited by the CME in 1987 for 53 irregular transactions which imply money-laundering, although the Audit Report stated "We cannot speculate on the reasons, known only to them." The CME required total financial disclosures against the threat of expulsion, which caused ownership and directorship changes in 1987/88.

The transfers into the account came from A. Bilgrami, the BCCI officer convicted of drug money-laundering and presently serving prison sentence in Florida.

$1,950,000 was dispersed from the IXORA account at Capcom U.S. to Capcom U.K. on September 23, 1988.

A letter of January 1990 from First Chicago indicates that IXORA is an account owned by Akbar c/o Romrell, who had apparently acted for the company IXORA for many years.

9. A British accountant investigating for the Serious Fraud Office, London, noted:

"...a series of transfers made out of and back to the Winterwood Associates [Romrell/Magness] funding around year end 1985. Two amounts of $1,000,000 were credited to this account from Bank America Int'l, N.Y. prior to Dec. 31, 1985. Subsequently, on 2 Jan. 1986, one amount of $1,000,000 was transferred to 1st Interstate Bank favoring Larry Romrell and another of $1,018,750 transferred to Account No. 01024628 of Mr. A.R. Khalil with BCCI. Ziauddin Akbar and K. Muneer were involved in authorizing both transfers." "The 01024628 account has been identified from our investigation into treasury operations as a London treasury pool account."

This suggests that the Winterwood Associates account of Romrell/Magness and/or Romrell may have been connected to the "routing of funds" by BCCI.

10. Kamal Adham, majority shareholder of Capcom, was responsible for estimated losses at BCCI of $199 million as of December 29, 1990.⁽¹⁵⁷⁾

11. A "Note for File 11.9.84" indicates that BCCI loaned Magness and Romrell $75,000 each to buy shares in Capcom.

C. Capital Fund (Capcom) / Kerry Fox

This was a public investment fund organized by Akbar/Capcom with Kerry Fox as Director. It was the recipient of funds from skimming and money-laundering.

1. October 14, 1985 share capital of $900,000 was authorized and by January 1, 1986, $10,000,000 was fully subscribed by investors.⁽¹⁵⁸⁾

2. Akbar controlled entities, Notan Trading and Investment, Zask Investments and Trading, Pate Holdings, Riziaudden Akbar contributed $8,145,000 of the $10,000,000 to capital fund, thereby benefiting of 80 percent of the funds skimmed or laundered into Capital Fund.

3. October 31, 1988 Special Audit identified $2,900,000 of funds artificially "processed" between certain accounts of which Capital Fund was the recipient.

4. $734,158 was skimmed into Capital Fund from 16 customer accounts by "internal matching."⁽¹⁵⁹⁾

D. Capcom Financial Information

1. Audit as at October 31, 1988 for Capcom: 1988 showed Brokerage Commission Income 7,156,692 and loss on ordinary activities 8,514,936. Stock ownership at this date by Directors was as follows:

a. Romrell: 250,000 shares, down from 2,750,000 shares in 1987

b. A.R. Khalil: 8,250,000 shares (1/3 of outstanding)

c. A.K. Puri: 3,620,000 shares

d. B. Magness: 250,000 shares

e. S.Z.A. Akbar: 6,000,000 shares

2. February 3, 1988 Khalil "sold" 8,250,000 shares to Akbar for 8,250,000. However, 4,000,000 cash was debited to a Capcom account which did not have sufficient funds and the balance of 4,250,000 was offset of "other obligations." The transaction appears to be only a camouflage of Khalil's interest to circumvent disclosure requirements imposed by regulatory authorities in late 1987.⁽¹⁶⁰⁾

3. October 31, 1988 Special Audit revealed a total of $3,600,000 of artificially processed transactions between accounts at Capcom.

4. October 31, 1988 Special Audit detailed 11,518,360 provision against "doubtful customer balances."

5. Auditors noted an unexplained deposit in Capcom of 8.6 million by an Egyptian Dr. Attia with no trading having taken place.

6. $53,000,000 schedule of "profits" for the ARKY account at Capcom found in Akbar's desk. Presumably this is the account of A.R. Khalil. These "profits were made from October, 1984 to September, 1985, the period in which BCCI lost $430 million at Capcom. This is the clearest evidence that the shareholders of Capcom and/or Akbar stole funds from BCCI through artificial market transactions.⁽¹⁶¹⁾

7. $525,000 loan to Mr. Noel Cullison for a real estate development in Phoenix, arranged and managed by Romrell.⁽¹⁶²⁾

8. Romrell borrowed $400,000 from Mideast Finances, Ltd., P.O. Box 211, Port Vila, Vanuatu for the purchase of his shares in Capcom Futures, Chicago. the credit was strictly limited to the value of his Capcom Futures shares, with no other liability. The document is dated September 30, 1988, but is not signed, leaving open the issue of whether this was the actual form of financing for his share purchase.

9. Magness entered into the same financing arrangement with Mideast Finances, Ltd, Vanuatu as in (8) above, dated September 30, 1988. The document in file is not a signed copy either.

10. A Resolution of the Board October 3, 1988 Authorized Share Capital Increase of Capcom Financial Services, Ltd, London to 100,000,000 (approximately $150,000,000). The intent evidenced by this document evidences the large scope of business contemplated by Capcom. Such a capitalization would have placed it among the largest brokerage houses in the world within three years from start-up.

11. May 11, 1989 letter from Parry to Romrell requiring confirmation of the debt of Romrell ($400,000) and Magness ($100,000) to Capcom Financial Services, Ltd, requesting repayment and confirmation that Capcom Futures, Inc shares are the security for this indebtedness.

This document suggests that the financing of Romrell's and Magness' shares was not done through Mideast Finances Ltd, Vanuatu, or that Capcom Financial Services, Ltd owns Mideast Finances, Ltd and assigned the debt.

It should be noted that in the Capcom group was a company called Capcom Bankers, Ltd, Suite 11, Melitco House, Rue Pastenn, port Vila, Vanuatu.

12. August 14, 1986 letter from Akbar, Capcom Financial Services to Romrell, Western Telecommunications states that Romrell's balances on July 18, 1986 at Capcom were as follows:

Investment Account $48,670 CR

Loan Account 53,250 DR

The loan account had been paid down with profits from the Investment Account leading to a new balance as follows:

Investment Account $14,260 CR

Loan Account 30,000 DR

This implies that the Capcom share financing was "self-liquidating" from internal Capcom transactions, so that Romrell would finally own the shares without paying for them.

13. It is reported that BCCI lost $430,000,000 in the Capcom affair.⁽¹⁶³⁾ This allegedly occurred from September, 1984 to July, 1985.

14. An internal Capcom account GESS (General Securities Corp) loaned FAS (Financial Advisory Services, Ltd, owned by Akbar) 1,627,812.03 to purchase its office building at 107 Grays Inn Road, London on September 1, 1986.

The repayment of the loan does not connect to its funding, having come from the following. Sources: Sheikh Nooruddin, Middle East Bank, with funds which should have gone to GESS, instead going to GOOD (195,000), TWOY (350,000), GESS (1,209), totalling 1,754,000.

15. A snapshot of internal account management at Capcom is provided by an audit review revealing the following:

Finley International (presumably the company through which Noriega's money passed) sent $1,000,000 on September 16, 1988 and $10,000,000 on September 19, 1988. Akbar's explanation to the auditors was that "funds were to cover losses made by GESS when covering GOOD's position in silver in 1987."

16. The audit report stated that Predelict Investments, Ltd, owned by the Nigerian National Petroleum Corporation, loaned Capcom $10,000,000 from its Capcom Sub-account 134-170-054/52/200, with a two percent fee paid to Predelict, as noted on a letter October 4, 1988. The funds were returned to Predelict 12/10/88.

17. "The owner of the GOOD account is El Rayan, an Islamic Investment company based in Cairo...one of the largest in Egypt in import/export and real estate and funds management...Egyptian authorities closed El Rayan in November 1988." It was described as "Capcom's biggest account" and may have "lost" up to $90,000,000.⁽¹⁶⁴⁾

It should be noted that the code used on all telexes from Romrell to A.R. Khalil at the Kamal Adham office in Jeddah is "GOOD".

18. A total of $47,500,000 in nine separate transfers was paid to Capcom from Credit and Finance Corp, Cayman; BCCI Overseas, Cayman; Bank of New York. These transactions relate to Blackmail, Akbar, $32 million as discussed later.⁽¹⁶⁵⁾

19. $150,000 payment February 10, 1988 through Capcom from Ahmed Tawfick to Shakarchi Trading, A.G., the Zürich-based company recently identified in a $1 billion money-laundering scandal in Switzerland.⁽¹⁶⁶⁾

20. $68,000,000 was paid from Treasury at BCCI to Brenchase, Ltd, a wholly owned Capcom subsidiary, on June 25, 1985, "for an unknown purpose."⁽¹⁶⁷⁾

21. "Two payments of $50,000,000 were made to Capcom in March, 1986 out of external funds [BCCI Treasury] for which no liability for repayment was recorded."⁽¹⁶⁸⁾

22. Capcom Financial Services, Ltd loaned $10,000,000 originally to Capcom Futures, Inc, Chicago, then replaced that loan with a $12,500,000 loan.⁽¹⁶⁹⁾

23. Romrell had a series of payments to and from Capcom in London around July 1, 1987 for his personal account at Capcom: $25,000, $148,000, $22,000, $50,000.

[End Notes]

1. According to Akbar Bilgrami, the losses at BCCI were accumulating long before Akbar assumed his responsibilities at BCCI's Treasury. According to Bilgrami, the "hole" in BCCI dated from the mid-seventies and increased until the early 1980's when the accountants began to suspect that BCCI was in financial difficulty. BCCI's Treasury losses were nothing more than a convenient means for explaining the actual financial condition of the bank.
2. Tape 150N, 9/2/88, 11:20 a.m., London, from U.S. v. BCCI, et al in Tampa.
3. S. Hrg. 102-305, Pt.1, p.513.
4. Price Waterhouse, 1991 Report, Section 4, Treasury, p.16.
5. Id at 17.
6. Price Waterhouse, 1991 Report, p.2.
7. Id. p.21.
8. By October 3, 1988, a Resolution of the Board of Directors authorized an increase in share capital to 100,000,000, a staggering amount, raising the question as to how the firm planned to grow so quickly.
9. S. Hrg. 102-350, Pt. 1, p.513.
10. Bandung Productions, transcript, "The Fraud of the Century", September 11, 1991, pp. 53-59.
11. S. Hrg. 102-350, Pt. 1, p.513.
12. Markets, by Martin Mayer, Norton Publishing, 1988, p.xxi.
13. Id. p. xxiv.
14. According to the Chairperson of the Commodities Futures Trading Commission, Wendy Gramm, the futures markets operate on the same principle of "know your customer" as banks. According to Gramm:

    The futures broker, the futures commission merchant, does have responsibilities with regard to its customer accounts, including knowing its customers. The self-regulatory organizations have an obligation to ensure that they are meeting those responsibilities, and also do audits concerning brokers' activities with regard to their customers.

    see Gramm testimony, S. Hrg. 102-350, Pt. 6, p.647.
15. Price Waterhouse Report, June 22, 1991, p.21, Reprinted in S. Hrg. 102-350, Pt.5.
16. According to the Chairperson of the Commodities Futures Trading Commission, Wendy Gramm, Capcom US "was a relatively small, smaller than average company, with not many customer accounts and unremarkable in its trading." see Gramm testimony, S. Hrg. 102 -350, Pt.6, p. 647.
17. Capcom 1987 Annual Report. In testimony before the Subcommittee, Andrea Cocoran, Director of Planning and Supervision at the CFTC, confirmed that Capcom UK realized a net loss on futures trading of $76,206,064 to Refco. see testimony, Andrea Cocoran, S. Hrg. Pt.6, p.651.
18. In her testimony to the Subcommittee on July 30, 1992, Wendy Gramm, the Chairperson of the Commodities Futures Exchange Commission (CFTC), noted that "we found that certain principals of Capcom US, specifically S.Z.A. Akbar, Sushma Puri, and Mohammed Saghir, had previously worked at BCCI. S. Hrg. Pt. 6, p.7.
19. Price Waterhouse Report, June 22, 1991, p.21, emphasis added
20. Id.
21. Price Waterhouse Report, July 22, 1991, p.20. Reprinted in S. Hrg. Pt. 5.
22. Id. p.21
23. S. Hrg. 102-350, Pt. 1, p.513.
24. Id. p. 513.
25. Mazur tapes 150N, 9/20/88, 11:20 p.m., p.73, line 22-23, p.74, line 15
26. Handwritten Consolidated Profit and Loss Statement, Capcom, October 31, 1985.
27. February 17, 1989 Audit, Coopers and Lybrand Investigation of Capcom, p. 2.
28. Wall Street Journal, Peter Truell, 11/22/91, p.A1.
29. According to the 1991 Price Waterhouse report, "the adjustments in 1985 occurred in the period 25-28 June when amounts totalling $191 million were drawn down in the names of Khalil [and others]" and were paid to "Z.A.Akbar ($142 million) to adjust various Treasury pool accounts." Price Waterhouse Report, June 22, 1991, p.30.
30. For example, the account was to be in his name; accounts were opened in the name of his wife; BCCI Visa cards were issued to him, his wife and their children, and the bills were paid from the BCCI accounts.
31. Account Opening Forms, dated 24 August 1982. Correspondence was to be sent to Amjad Awan, BCCI Branch Manager in Panama.
32. ¹⁵⁸⁶26 July 1988 Letter from Subhan Siddiqui to BCCI Luxembourg.
33. Throughout the course of these events, "Finley International Ltd." is alternatively spelled "Findlays," "Finlay," "Finley International Co.," or "Finleys International Ltd." The account numbers and transfer letters of the various banks leave no doubt that all the names refer to Finley International Ltd., a Capcom customer. Finley International Ltd. is a company registered in Liberia whose only two officers are S. Z. Akbar and G. R. Khan. Akbar served as its chairman and treasurer.
34. 26 July 1988 Letter from Noriega to the manager of BCCI Luxembourg.
35. 8 September 1988 Letter from Eva de Teran of Banco Nacionale de Panama to Middle East Bank (to the attention of Amanullah Khan).
36. Complaint, Republic of Panama v. BCCI Holdings, et al., Case No. 90-2913-CIV-RYSKAMP (D.C. Fla.), dated 18 January 1991, at 6.
37. 13 September 1988 Letter from Eva de Teran of Banco Nacionale de Panama to Middle East Bank (to the attention of Amanullah Khan).
38. Akbar claimed that the $23 million received by Finley were remitted by a real estate investor named Al Fathi Tawfik who died in 1988. Akbar denied that any connection existed between the Finley deposits and Noriega. Ian Glendinning Watt, a Chartered Accountant of Peat, Marwick appointed to investigate Capcom's trading, found Akbar's explanations on this and every other matter to be "unsatisfactory," Affidavit of Ian Glendinning Watt dated 20 January 1989, at 44, "deficien[t]," id. at 45, "most curious," "illogical," and "not capable of corroboration." Id. at 46.
39. Among various papers in Mr. Akbar's desk at the time of his arrest was a schedule indicating that an account with the code name ARKY [presumed to be A.R. Khalil] earned profits of $53 million between October 1984 and September 1985." "The owner of account GOOD is El Rayan, an Islamic Investment Company based in Cairo...Egyptian authorities closed El Rayan in November,s 1988." "...it may have lost $90,000,000." The closing of El Rayan was the month following Akbar's indictment for drug money-laundering, October 19, 1988. Numerous fax transmissions from Romrell to Khalil at the "Kamal Adham Office" in Jeddah are inscribed "Code: GOOD".
40. Watt Affidavit, p 18. Reprinted in S. Hrg. 102-350, Pt. 6.
41. The company behind the GESS account is General Securities, registered in Panama. Watt Affidavit at 20.
42. See, e.g., Watt Affidavit, at 38, 40, and 42.
43. The Finley account at Middle East Bank. See 13 September 1988 Letter from Akbar and Khan (on Finley letterhead) to Middle East Bank. Akbar admitted that he controlled the GESS account, see Watt Affidavit at 20, denied having any control over the GOOD account, id. at 38, and offered no explanation for the $2.5 million transfer to the Red Roses Account at the Trade Development Bank in Zurich. Id. at 42.
44. Staff Review of Capcom client list, provided by the Commodities Futures Exchange Commission. The Subcommittee would like to thank the staff of the Commodities Futures Exchange Commission which has provided important assistance to the Subcommittee.
45. The Price Waterhouse Report stated that Adham's exposure of losses at BCCI as of December 29, 1990, was $249,000,000; estimated losses were $199,000,000. Price Waterhouse Report, June 22, 1991, p.6
46. Transcript, Federal Reserve Board Hearing, April 23, 1981, p.65.
47. Khalil also had known Powell for several years prior to the creation of Capcom, although Powell was not connected, as far as the Subcommittee knows, to any communications business.
48. Letter, Romrell to Akbar, November 17, 1981.
49. Answers of Larry Romrell to questions from Subcommittee, July 3, 1992, questions 28.

50. "89225 1 BCCLNA G.

    TCI ENGL

    6/9/83

    Attn. Mr. Akbar

    At the TCI Stockholders meeting this morning it was announced there would be a one for one stock split of TCI stock, effective date 6/24/83.

    Best regards,

    Larry Romrell. (Telex, 6/9/83)

51. Letter, Romrell to Akbar, April 2, 1984, WTCI letterhead
    
    Further in the same letter: Magness and I are most anxious to visit with you with regard to the business opportunity we discussed in Chicago or New York." The opportunity referred to in the letter appears to be the founding of Capcom.
52. Letter, March 19, 1984, draft of Telex to Akbar.
53. staff interview with Romrell, 6/16/92. In his written response, provided under oath, Romrell stated: "In 1984 following the spin-off of WTCI, the stock might become available on the market. I contacted Mr. Akbar to inquire whether BCCI would lend money with which I could purchase shares. In that conversation, I understood that Mr. Akbar agreed to establish a line of credit for me, and that he was also interested in purchasing stock. There was no discussion of any joint line of credit, or even of how Mr, Akbar might finance his purchase. The March 19, 1984 reflects that understanding. However, I never received a response from Mr. Akbar. I never received the line of credit mentioned, I never put Akbar in touch with my broker, and, to my knowledge, Mr. Akbar never invested in TCI or WTCI." Affidavit, Larry Romrell, July 3, 1992, answer 40.
54. Letter, November 14, 1984, Romrell to Akbar at BCCI, London.
55. Letter, Betram Perkel, Law Offices of Jerome Kern, February 11, 1992. p.2, Reprinted in S. Hrg. 102-350. Pt.6.
56. Letter, February 27, 1984
57. Undated note on Western TCI note paper, styled Romrell.
    
    Akbar's representation, as recorded by Romrell, is further evidence that from the beginning Akbar contemplated a BCCI link since there could not possibly be any other means for earning such commissions in a start-up company.
58. Telex, May 27, 1984.
59. Magness Affidavit, 5/19/92, p.3.
60. Id, p.3.
61. While Magness was already a wealthy man, this must be considered a significant investment on the part of Romrell who was at that time a salaried employee making $38,000.00.
62. Note for file, 11.9.84, hand-written.
63. Letter, February 6, 1985, Romrell to Mr. Ajay Puri, Capcom, London.
64. Letter, November 7, 1984, Larry Romrell to Mr. Ajay Puri, Capital Commodities Dealers, Ltd, London, attached.
65. Letter, November 7, 1984, Larry Romrell to Mr. Ajay Puri, Capital Commodities Dealers, Ltd, London.
66. Letter and loan documents attached, June 11, 1985, Letter from Romrell to Mr. Ajay Puri, Capcom.
67. Written responses from Larry Romrell, July 3, 1992, answer 53.
68. Staff interview with Larry Romrell, June 5, 1992.
69. Letter, August 22, 1986, Romrell to Akbar.
70. Letter, Romrell to Khalil, Adham, July 27, 1987.
71. The loan documents specified: "(a) that the total liability of the borrower in the repayment of the loan and all its accrued interests is strictly limited to the value of his shares in Capcom Financial Services, Ltd..." Paten loan agreement ("old and new loans"), signed, Romrell, June 30 1987.
72. Signed Larry Romrell et al, letter March 28, 1988, Capcom to Arthur Anderson, London, emphasis added.
73. Written responses from Larry Romrell, July 3, 1992, answer 58.
74. Letter, July 20, 1987, L.E. Romrell to Sheik Abdul Raouf H. Khalil, Sheik Kamal Adham, Mr. El Ghary, emphasis added.
75. Letter, July 25, 1987, L.E. Romrell to Sheikh Abdul Raouf H. Khalil, H.E. Sheikh Kamal Adham, El Sayed E. El Jawhary.
76. Mazur tape 150N, 9/20/88, p.9, line 1.
77. Affidavit, Robert E. Powell, July 8, 1992, p.5. Reprinted in S. Hrg. 102-350, Pt. 6.
78. Letter, Harry H. Schneider, Department of the Air Force, "To Whom it may Concern," January 3, 1977.
79. Affidavit, Robert E. Powell, July 8, 1992, p. 1. Reprinted in S. Hrg. 102-350, Pt. 6.
80. Affidavit, Robert E. Powell, August 2, 1992, p.1. Reprinted in S. Hrg. 102-350, Pt.6.
81. Affidavit, Robert E. Powell, June 21, 1992, answer to question 17. Reprinted in S. Hrg. 102 -350, Pt. 6.
82. Id., answer to question 19.
83. Affidavit, Robert E. Powell, August 2, 1992, p.2. Reprinted in S. Hrg. 102- 350, Pt. 6.
84. Affidavit, Robert E. Powell, June 21, 1992 answer to question 23. Reprinted in S. Hrg. 102- 350., Pt.6.
85. Id. answer to question 24.
86. Fox has acknowledged to the Subcommittee that he maintained a top secret clearance during this period because he worked with sophisticated electronics components in Saudi Arabia for Martin Marietta and Rockwell International.
    
    Romrell told the Subcommittee that Fox once worked for ARAMCO — the middle east oil concern. Staff interview with Romrell, June 5, 1992.
87. Letter, Fox to Jamil Khan, BCCI Overseas, Cayman Islands, April 22, 1987.
88. Statement of Witness, Kerry Fox, September 19, 1990
89. Interview with Larry Romrell, June 5, 1992.
90. Letter, June 28, 1982, Fox to Richard Bowman and Statement of Witness, September 19, 1990.
91. Id.
92. Id.
93. Id, p.2.
94. Statement of Witness, Kerry Fox, September 19, 1990.
95. Staff interview with Larry Romrell, June 5, 1992.
96. Documents show that "the Lake House", Rockwall, Texas, was purchased "with or through BCCI...Khalil bought the house in 1981, but immediately conveyed the property to BCCI in full satisfaction of debt to Khalil Investment and Trading Co., Panama. Letter, Fox to Khan, August 23, 1989.
97. Letter, Fox to Akbar, February 2, 1982. In 1984, Romrell's annual salary was approximately $38,000.00. Staff interview with Larry Romrell, June 5, 1992.
98. Letter, Lynn H. Cole, lawyer for Kerry Fox, to David McKean, July 27, 1992.
99. Letter from S. Walker and Co., October 4, 1985.
    
    The "Advisor" to the Fund was Futures Advisory Services, an Akbar controlled company. The Administrator for the Fund was Cayhaven Corporate Services, Cayman Islands. The broker for the Fund was Capcom, London. Letter attached to Capital Fund prospectus, October 11, 1985. he main U.S. bank for the FUND was Bank of America International, New York. Authorized share capital in October, 1985 was $900,000. Account 2-04-19489 / BOA, Cayman Islands.
100. Letter, Puri to Fox, December 4, 1985.
101. Watt Affidavit, p.25. Reprinted in S. Hrg. 102-350, Pt.6.
102. Id.
103. Note to File, Fox, December, 1988.
104. Fox affidavit, September 18, 1990.
105. Resolution of Board of Directors of Capcom Financial Services, Ltd, July 30, 1987; letter, December 22, 1987, Saghir to Romrell.
106. S. Hrg. 102-350, Pt.6, p.15.
107. Id.
108. Id.
109. Price Waterhouse Report, June 22, 1991, p.18.
110. S. Hrg. 102- 305, Pt. 1, p.30.
111. Peat Marwick McLintock Audit of Capcom for CBOT, May 4, 1989, p.21(b).
112. Id p. 21(b).
113. Mazur tape, 150N, 9/20/88, 11:20 a.m., p.57, lines 6-18.
114. Peat Marwick McLintock audit for CBOT, May 4, 1989.
115. Capcom Futures Inc. was not named in the original indictment. See 11/23/88 letter from Robert E. Powis of Interpass, Ltd., to Gerald E. Beyer of the Chicago Mercantile Exchange. Nor was it named in the second superseding indictment. See Second Superseding Indictment, United States District Court, Middle District of Florida, case no. 88-330-Cr-T-13(B).
116. Specifically, the indictment charged that the defendants had violated the following provisions of the United States Code: 21 U.S.C. s.846, the Attempt and Conspiracy section of the Drug Abuse Prevention Act; 18 U.S.C. s.371, the general provision regarding criminal conspiracy, and 18 U.S.C. s.1956, regarding the laundering of monetary instruments.
117. See, e.g., the Affidavit of Ian Glendinning Watt, dated 01/20/89, at 1.
118. 118. Romrell office diary. To January 18, 1889. p. 6.
119. Id.
120. See Second Superseding Indictment, dated _______, United States District Court, Middle District of Florida, case no. 88-330-Cr-T-13(B).
121. See "Superseding Indictment Still Names Capcom Financial Services," Securities Week, 05/15/89, at 6.
122. Memorandum, 11 October 1988, signed by L. Romrell and J.C.F. Parry.
123. S. Hrg. 102-350, Pt.6, p.7.
124. S. Hrg. 102-350, Pt.6,p.8.
125. CFTC Chairperson Wendy Gramm did not indicate who the owner of the account was, but rather testified that "S.Z.A. Akbar had a power of attorney to direct trading in this account." S. Hrg. 102-350, Pt. 6, p.11.
126. S. Hrg. 102-350, Pt.6, p.12.
127. Id.
128. S. Hrg. 1-2-350. Pt.6, p.11.
129. Affidavit, Larry Romrell, July 3, 1992. Answer to question 61.
130. S. Hrg. 102-350, Pt. 6, p12.
131. In response to questions from the CME staff, Capcom characterized Mr. Zaheer as "a self-employed auto dealer with a dealership in Karachi, Pakistan."
132. S. Hrg. 102-350, Pt.6, p.658.
133. S. Hrg. 102-350, Pt.6, p.647.
134. S. Hrg. 102-350. Pt.6, p.7.
135. Independent, 18.8.91, p.6.
136. S. Hrg. 102-350, Pt.6, p.660.
137. Letter, Romrell to Akbar, October 27, 1982.
138. Letter, Mr. J. Barnathan, ABC, N.Y., April 29, 1982.
139. Letter, Romrell to Akbar, January 6, 1983.
140. Telex, Romrell to Akbar, December 17, 1982
141. Telex, Romrell to Akbar.
142. Letter, Romrell to Akbar, March 30, 1983.
143. Memo, Bob Saffel, August 17, 1983.
144. Letter, Romrell to Akbar, December 16, 1983.
145. Romrell to Puri, January 5, 1984.
146. Letter, Romrell to Akbar, [Personal guarantees given by Magness, Romrell to BCCI], April 18, 1984.
147. Letter, June 8, 1984, Romrell to Akbar.
148. Letter, Romrell to Akbar, December 18, 1984.
149. Letter, June 4, 1985, Romrell to Akbar.
150. Letter, January 17, 1986, Romrell to Akbar.
151. Letter, January 17, 1986, Romrell to Akbar.
152. Letter, July 7, 1987.
153. Letter, April 13, 1988, Romrell to Akbar, while at FAS, Ltd, after he left BCCI indicating continued interaction.
154. Letter, July 27, 1987, Romrell to Puri, emphasis added.
155. Letter, February 10, 1983 from Romrell to Fox.
156. Letter, July 7, 1987, Romrell to Ehrlich
157. Price Waterhouse Report, June 22, 1991
158. ¹⁷¹²Letter, December 4, 1985, Puri to Fox.
159. Watt Affidavit, p.25.
160. Arthur Anderson Special Audit Prepared for Counsel of Association of Futures Brokers and Dealers, Ltd, London, 5/10/89, p.22.
161. Watt Affidavit, p.22.
162. Letter, January 17, 1986, Romrell to Akbar.
163. September 11, 1991, "The Fraud of the Century", Bandung Productions, 53-79 highgate Road, London.
164. Peat Marwick McLintock audit of Capcom for CBOT, May 4, 1989, p.22(c).
165. Peat Marwick McLintock audit of Capcom for CBOT, May 4, 1989.
166. WATT Affidavit, supporting documents, Exhibit 20 (iii).
167. Price Waterhouse Report, June 22, 1991, p.20.
168. Price Waterhouse Report, June 22, 1991, p.21.
169. April 16, 1987, Joint Unanimous Resolution of Capcom Futures, Inc, Board of Directors.

< Prev.

Next >