Saudi bank chief charged with dollars 300m BCCI fraud

THE CHIEF operating officer of Saudi Arabia's largest commercial bank and an associate based in Britain were charged in New York yesterday with defrauding more than dollars 300m from depositors in the collpased Bank of Credit & Commerce International.

Sheikh Khalid bin Mahfouz, a member of the influential family that owns the National Commercial Bank of Saudi Arabia, conspired with BCCI executives in shifting more than dollars 1bn between the two banks between 1986 and 1991 to help create a false impression of BCCI's financial health, Robert Morgenthau, the Manhattan district attorney said.

The Sheikh injected almost dollars 900m into the BCCI and its subsidiaries in 1986, becoming a principal shareholder and director. then secretly sold his BCCI shares back to the bank in 1988 for a profit of almost dollars 140m.

At least dollars 300m of the sale proceeds came directly out of BCCI depositors' accounts, and was recorded as a loan on BCCI's books instead of a payment, Mr Morgenthau said. When the Bank of England closed down BCCI worldwide a year ago, the Saudi bank was desperately trying to redeem the last dollars 300m owed to the Sheikh by BCCI.

Haroon Kahlon, the Sheikh's London-based agent for the investment, received more than dollars 2m from the sale of shares in BCCI's US subsidiary, Mr Morgenthau said. Mr Kahlon, originally from Pakistan, worked for BCCI until 1981 before joining the Saudi National Commercial Bank as an adviser.

While Britain's Serious Fraud Office co-operated with the US investigation, Mr Kahlon has not been arrested. US officials hope to convince him to come to New York voluntarily, so avoiding complicated extradition procedures.

Sheikh Mahfouz, a Saudi resident, and Mr Kahlon face four years in prison and fines of as much as dollars 600m if they are found guilty of the charges. Lawyers for the Sheikh had no comment on the charges, while Mr Kahlon failed to return calls to his home in Belgravia, London.

The National Commercial Bank, which was not named in the charges, maintains an important branch in New York, with assets of at least dollars 500m. Mr Morgenthau said he might attempt to have its assets frozen. On Tuesday the London branch of the bank closed its doors to the public, following a decision taken several months ago to withdraw from London.

A spokesman said there was no connection between the indictment and the London closure. He said the decision had been taken following 'very substantial' losses last year in its lending to the British commercial property sector.

BCCI and its executives have already pleaded guilty to charges filed by Mr Morgenthau's office, and paid fines totalling dollars 550m to the federal authorities. Half of this will be returned to depositors in the US and abroad who were cheated by the bank. But Mr Morgenthau said the investigation 'if anything, is getting bigger in total dollar terms'.

'The BCCI scandal may be even bigger than we originally anticipated,' he said. 'Many central banks defrauded by BCCI have been reluctant to come forward.'