Appendix — Khalil v. BCCI Holdings (Luxembourg) S. A.
Supreme Court brief2000
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IN THE
Supreme Court of the Anite
CLERK
Tere
ABDUL RAOUF HASAN KHALIL,
Petitioner,
Vv.
BCCI HOLDINGS (LUXEMBOURG), S.A..,
BANK OF CREDIT AND COMMERCE INTERNATIONAL, S.A..,
BANK OF CREDIT AND COMMERCE INTERNATIONAL
(OVERSEAS) LIMITED, INTERNATIONAL CREDIT AND
INVESTMENT COMPANY (OVERSEAS) LIMITED,
ICIC HOLDINGS LIMITED, AND
CREDIT AND FINANCE COMPANY LIMITED,
Respondents.
Petition for Writ of Certiorari to the
United States Court of Appeals for the
District of Columbia Circuit
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
JAMES P. LINN
STEPHEN R. JOHNSON *
LINN & NEVILLE, P.C.
1200 Bank of Oklahoma Plaza
20! Robert S. Kerr Avenue
Oklahoma City, OK 73102-4289
(405) 239-6781
Counsel for Petitioner
August 28, 2000 * Counsel of Record
TLE TS IS EE TET NS BEY ne EEC ESTEE LET
WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001
ZOO?
APPENDIX TABLE OF CONTENTS
. Opinion of the United States Court of Appeals for
the District of Columbia Circuit, Filed May 30,
. Opinion and Order of the United States District
Court for the District of Columbia, Filed June 23,
. Sections 1962(a) through (d) of the Racketeer
Influenced and Corrupt Organizations Act, 18
ack eee 1 MU i sinciakieahinsciniiasnaniniiseinchibsesvastiniined
. Respondents' Complaint against Petitioner, Filed
ik a eaehitaaiehpieicailersnadicseoehiianccaiecstlaaeentceeindie
. Excerpts of testimony of Swaleh Naqvi taken
SONNEI Tic. 1 ITED siiasintcireuetihainssisenialeadtdesianbateincscasmuiceninainbions
. Judgments of the United States District Court for
the District of Columbia, Entered July 15, 1999......
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APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 27, 2000 Decided May 30, 2000
No. 99-7171
BCCI HOLDINGs (LUXEMBOURG), S.A.., et al.,
Appellees
V.
ABDUL RAOUF HASAN KHALIL,
Appellant
Appeal from the United States District Court
for the District of Columbia
(No. 95cv01252)
Stephen R. Johnson argued the cause for appellant. With
him on the briefs were James P. Linn and T. Jay Barrymore.
Eric L. Lewis argued the cause for appellees. With him on
the brief was A Katherine Toomey.
Before: EDWARDS, Chief Judge, HENDERSON and ROGERS,
Circuit Judges.
Opinion for the Court filed by Chief Judge EDWARDS.
EDWARDS, Chief Judge: This case involves a civil action
resting on the Racketeer Influenced and Corrupt Organiza-
tion Act (“RICO”), 18 U.S.C. §§ 1961, et seg. (1994),
common law fraud, unjust enrichment, and conversion. The
lawsuit was brought by appellees, fiduciaries appointed on
behalf of the Bank of Credit and Commerce International
(“BCCI”) to liquidate the principal BCCI holdings and
2a
recover assets on behalf of depositors and innocent creditors,
against appellant, Abdul Raouf Hasan Khalil, and three co-
conspirators. The District Court found Mr. Khalil liable on
many, but not all, of the claims arising under RICO, common
law fraud, unjust enrichment, and conversion. The total non-
duplicative amount of actual damages entered in favor of
appellees against Mr. Khalil was $388,402,534. The District
Court trebled this amount pursuant to 18 U.S.C. § 1964(c)
(1994), for a total judgment of $1,165,207,602 against Mr.
Khalil.
On appeal, Mr. Khalil raises two principal issues: First, Mr.
Khalil claims that the District Court erred under Federal
Rules of Civil Procedure 39(b) in denying his late request for
a jury trial; second, Mr. Khalil contends that the District
Court erred in holding that appelliant’s alleged RICO and
common law tort violations were the legal cause of BCCI’s
losses. With one exception, we find no merit in Mr. Khalil’s
arguments.
Appellant’s disputed motion for a jury trial was filed more
than a year late, after discovery had been concluded and after
a trial date had been set. The trial judge denied the motion
because of prejudice to the plaintiff, who had prepared for a
bench trial. The trial judge also noted that expediency would
be served in holding to the existing trial schedule, to avoid
undue delay and potential complications with other trials
involving related issues. In short, the District Court found that
counsel’s inexcusable neglect in failing to request a jury trial
in a timely fashion waived defendant’s right to a jury trial.
We find no error in this judgment, for the trial judge acted
within the discretion afforded him under Rule 39(b).
We also affirm most of the District Court’s judgments on
the merits. As the court’s opinion indicates, see BCCI Hold-
ings (Luxembourg), Societe Anonyme v. Khalil (“Khalil” ), 56
F. Supp. 2d 14 (D.D.C. 1999), there is ample evidence in the
+ eka ne ie
3a
record to show but-for and proximate causation, supporting
most of the judgments on the RICO and the common law tort
claims. We can find no record evidence, however, to support
the District Court’s finding that Mr. Khalil is liable to BCCI
for damages in the amount of $62,021,193 for certain silver
and copper trading losses.
We reverse the District Court’s judgment for damages
resting on the silver and copper trading losses. We affirm the
District Court’s judgment on all other points. The case will
be remanded for the District Court to recalculate the damages
that are due to appellees.
I. FACTS
This lawsuit was spawned by BCCI’s international
collapse, which was the largest international bank failure in
history. See Khalil, 56 F. Supp. 2d at 20. BCCI’s court-
appointed liquidators filed a complaint on July 3, 1995 to
recover damages suffered by BCCI as a result of Mr. Khalil’s
alleged violations of RICO, common law fraud, unjust
enrichment, and conversion. The liquidators charged that Mr.
Khalil participated in a conspiracy with BCCI’s management
that allowed BCCI secretly to acquire ownership and
maintain control of First American Corporation and First
American Bankshares, Inc. (collectively “First American”).
This illegal scheme operated through the use of nominee
shareholders—like Mr. Khalil—who allowed BCCI to hide
financial losses from bank regulators.
Mr. Khalil is a wealthy Saudi Arabian businessman and
former government official who deposited large amounts of
money in BCCI. He may have been BCCI’s largest deposi-
tor. See id. at 21. In their complaint, the liquidators claimed
that, in the late 1970s and 1980s, BCCI’s former management
sought out Mr. Khalil and paid him large sums of money in
exchange for the use of his name and prestige to disguise
three schemes: (1) Mr. Khalil agreed to act as a nominee
4a
shareholder of First American Bank’s parent corporation to
disguise BCCI’s illegal acquisition of an American bank
without required regulatory approval; (2) Mr. Khalil agreed to
serve as a nominee shareholder of BCCI Holdings to disguise
the truth about BCCI’s artificially and misleadingly inflated
Capital resources and support; and (3) Mr. Khalil agreed to
allow BCCI to use his name, both individually and on behalf
of his corporations, to disguise risky investments and to
create the false impression that BCCI was servicing large
loans that were actually in default. See id. The liquidators
contended that Mr. Khalil’s assent to these schemes
prevented BCCI’s true financial condition from becoming
apparent much earlier, stopped BCCI from closing down
much sooner, and thus precipitated significant financial losses
for thousands of creditors and depositors.
Not all of the liquidators’ claims against Mr. Khalil rested
on a passive view of Mr. Khalil’s relationship with BCCI.
The liquidators also asserted that Mr. Khalil and Mr. Syed
Ziauddin Ali Akbar conspired to loot BCCI’s assets so that
they could create and fund a commodities brokerage that they
called Capcom UK. Mr. Akbar, who was a BCCI officer from
1976 to 1986 and was in charge of BCCI’s Treasury Division
from 1982 to 1986, created loans in BCCI’s books to Mr.
Khalil and his companies. Mr. Akbar never intended,
however, for these loans to be repaid. In particular, between
October 1984 and December 1984, Mr. Akbar transferred
$100,000,000 to Capcom that was not authorized by Mr.
Akbar’s superiors. Mr. Akbar also transferred $25,000,000 to
Capcom in June 1985 and $136,000,000 to Capcom between
January and April 1986. See id. at 42-43. For his part, on
August 20, 1985, Mr. Khalili negotiated a $12.5 million check
from BCCI as a payment for his share of the “profits” from
the trading operations, received a $15 million “parting gift”
on July 3, 1987 that he had cajoled when he withdrew his
deposits from BCCI, and, on June 25, 1987, coaxed a
Sa
$17,000,000 “loan” from BCCI to General Securities Corp., a
company co-owned by Mr. Khalil and Mr. Akbar that had an
account at Capcom. See id. at 43-45.
Mr. Khalil does not disavow this general characterization
of the facts. And he does not claim that he was innocent. His
appeal is based on two much more narrow grounds. The first
ground centers on the District Court’s denial of Mr. Khalil’s
request for a' jury trial. The liquidators filed their complaint
on July 3, 1995, and Mr. Khalil filed his answer on February
10, 1997. Subsequently, on April 21, 1998, the parties had a
status conference and agreed to schedule a bench trial to
begin on January 25, 1999. On April 24, 1998, Mr. Khalil’s
attorney filed a motion for a jury trial, claiming that counsel
had inadvertently omitted a jury demand from Mr. Khalil’s
answer to the complaint. Under FED. R. Civ. P. 38(b), the
jury demand was over a year late; it was therefore deemed
“waived” under FED. R. Civ. P. 38(d). Mr. Khalil’s attorney
argued, however, that the tardy demand for a jury trial could
be granted by the District Court under FED R. CIv. P. 39(b).
On October 8, 1998, guided by the Supreme Court’s deci-
sion in Pierce v. Underwood, 487 U.S. 552, 562 (1988), the
District Court denied Mr. Khalil’s motion for a jury trial. The
court found that (1) Mr. Khalil’s lawyer’s claimed inad-
vertent omission was not excusable, given that counsel had
taken so long to‘discover the omission, discovery was com-
plete, the deadline for motions had passed, and the court and
the opposing party had prepared for a bench trial; (2)
plaintiffs would be significantly prejudiced if the court were
to grant Mr. Khalil’s tardy request for a jury trial, because
plaintiffs had premised many of their decisions in discovery
upon their understanding that there would be a bench trial; (3)
a bench trial would be much more efficient than a jury trial;
(4) granting Mr. Khalil’s motion would translate into delays
for other litigants awaiting trial; (5) given Mr. Khalil’s poor
health, the court would be ill-advised to delay Mr. Khalil’s
6a
case pending resolution of the other cases; and (6) there was
no real threat of bias or prejudice, even though the court had
presided over related criminal and civil cases. See BCCI
Holdings (Luxembourg), Societe Anonyme v. Khalil, Civ. Act.
No. 95-1252, Mem. Op. (D.D.C. Oct. 8, 1998) (“Mem. Op.”),
reprinted in Joint Appendix (“J.A.”) 277.
The issues on the merits raised by Mr. Khalil focus on the
District Court’s award of damages and the underlying find-
ings of causation. The District Court generally agreed: with
the liquidators that Mr. Khalil was liable for receiving money
for his participation in the various nominee schemes, though
the trial court did not accept all of the liquidator’s claims. In
particular, the court found that Mr. Khalil was liable for
$27,500,000 that he received as direct payments from BCCI
for his participation in the nominee schemes, $15,249,283
that BCCI paid for Mr. Khalil’s expenses, $47,069,808 that
BCCI paid to Mr. Khalil’s companies, an additional
$236,562,250 that BCCI sent to Capcom, and $62,021,193
that represented the losses that BCCI suffered from silver and
copper trading that involved and was facilitated by accounts
in Mr. Khalil’s name. The final result was that the liquidators
were awarded damages of $388,402,534, which were tripled
to $1,165,207,602 pursuant to 18 U.S.C. § 1964(c). See
Khalil, 56 F. Supp. 2d at 66-69. This appeal followed.
II. DISCUSSION
A. Standard of Review
The parties agree that the standard of review covering the
District Court’s denial of Mr. Khalil’s Rule 39(b) motion for
a jury trial is abuse of discretion. The parties also agree that
the findings on the claims based on common law fraud, unjust
enrichment, and conversion are reviewed under the clearly
erroneous standard, The parties disagree, however, over the
standard of review covering the findings of proximate cause
under RICO.
Ta
On this last point, we find the Supreme Court’s decision in
Exxon Co., U.S.A. v. Sofec, Inc., 517 U.S. 830, 840-41
(1996), to be persuasive. In Sofec, the Court explained that
“[t]he issues of proximate causation and superseding cause
involve application of law to fact, which is left to the
factfinder, subject to limited review.” Jd. Mr. Khalil argues
that Sofec is inapposite, because the standard enunciated there
is limited to admiralty cases. There is nothing in the Court’s
opinion, however, that so narrows its applicability. It seems
clear here, just as in Sofec, that findings on proximate
causation involve mixed questions of law and fact subject to
limited review. In any event, even if we were to engage in de
novo review, as Mr. Khalil suggests, our judgments on the
matters in issue would not change.
B. The Jury Issue
Mr. Khalil’s jury-demand argument is specious. Mr. Khalil
did not file a jury demand either when the liquidators filed
their complaint on July 3, 1995 or when he filed his answer to
the complaint on February 10, 1997. It took almost three
years from the filing of the complaint and more than a year
after the filing of the answer for Mr. Khalil to bring it to the
District Court’s attention that he wanted a jury trial. By then,
the trial court had scheduled the case for a bench trial,
discovery had been extended and closed, and the deadline for
motions had already passed.
Federal Rule of Civil Procedure 38 is clear that a party
waives his right to a trial by jury if he does not “(1) serv[e]
upon the other parties a demand therefor in writing at any
time after the commencement of the action and not later than
10 days after the service of the last pleading directed to such
issue, and (2) fil[e] the demand as required by Rule 5(d).”
FED R. Civ. P. 38. A party who fails to make a timely request
for a jury trial may avoid waiver and secure a jury trial only if
the District Court “in its discretion” acts favorably on such a
request. FED. R. Civ. P. 39(b).
8a
Under Rule 39, a trial court may abuse its discretion in
denying a late request for a jury trial. This does not mean,
however, that a trial court must indulge a presumption in
favor of the neglectful party when faced with a late demand.
Thus, a trial court is not required to grant a Rule 39(b) request
based on nothing but inadvertence, because, “[t]hough the
court might, in its discretion, have ordered jury trial, it [is]
under no obligation to do so.” May v. Melvin, 141 F.2d 22
(D.C. Cir. 1944); see also Wall v. National R.R. Passenger
Corp., 718 F.2d 906, 910 (9th Cir. 1983) (“The record does
not demonstrate any reason, other than _ counsel’s
inadvertence, for the failure to comply with rule 38(b). The
district judge did not abuse his discretion.”); Rhodes v.
Amarillo Hosp. Dist., 654 F.2d 1148, 1154 (Sth Cir. Unit A
1981) (finding even under a presumption in favor of granting
untimely jury demands that “[iJt is not an abuse of discretion
by a District Judge to deny a Rule 39(b) motion . . . when the
failure to make a timely demand for a jury trial results from
mere inadvertence on the part of the moving party”);
Paramount Pictures Corp. v. Thompson Theatres, Inc., 621
F.2d 1088, 1090 (10th Cir. 1980) (“By failing to make a
timely demand defendants waived their rights. The trial court
then has the discretion, upon motion, to order trial by jury.
That discretion is broad, and the court’s exercise, either to
grant or to deny a jury trial, is reversible only if it appears
from all of the facts and circumstances that the court abused, x
its discretion.” (internal citations omitted)).
In this case, mere inadvertence is the only leg upon which iia
Mr. Khalil can stand, and it is at best a very weak base. Mr.
Khalil does not deny that he waived his right to a jury.
Rather, he claims that despite his mistake, the burden should
be on the opposing party to present strong and compelling
reasons why the late demand for a jury trial should not be
granted. This is not what Rule 39 says, however. The rule
merely states that, upon motion from a party like Mr. Khalil,
9a
the District Court “may” (not shall) “in its discretion” order
a trial by jury. Absent an abuse of discretion by the trial court,
a defaulting party who has already waived the right to a jury
trial under Rule 38(d) has no viable claim. This does not
mean that a trial court can simply ignore a Rule 39(b) motion
or whimsically deny it for no good reason. But trial courts
have wide latitude under the abuse of discretion standard to
weigh the merits of late demands for jury trials.
The District Court’s judgment in this case easily survives
review under the abuse of discretion standard. The District
Court reasonably considered the factors enunciated by the
Supreme Court in Pierce v. Underwood, 487 U.S. 552. In
Pierce, the Court noted that,
[o]ver the years, appellate courts have consistently up-
held the trial judges in allowing or refusing late-
demanded jury trials, but in doing so have laid down two
guidelines for exercise of the discretionary power. The
products of cumulative experience, these guidelines re-
late to the justifiability of the tardy litigant’s delay and
the absence of prejudice to his adversary.
Id. at 562. Following the Pierce Court’s lead, the District
Court found that Mr. Khalil’s delay was not justified, because
it was the product of mere inadvertence, and “where the
length of time to discover the error is as long as here, where
discovery is complete and the motions’ deadline has passed,
and where the Court and the opposing party have come to
rely on a bench trial, this factor weighs against granting a trial
by jury.” Mem. Op. at 8, reprinted in J.A. 284. The trial court
also reasonably found that BCCI had made a “plausible and
specific enough showing of prejudice.” /d. at 9, reprinted in
J.A. 285. In short, we have no basis upon which to second-
guess the judgment of the District Court.
10a
C. Proximate Causation
On the merits of this case, Mr. Khalil first posits that the
District Court’s standard of proximate cause under RICO was
too lax. He argues that “a RICO claimant must prove that he
was the ‘intended target’ of the RICO scheme and that the
alleged injury was the ‘preconceived purpose’ of the RICO
activity.” Br. of Appellant at 35. In our view, appellant’s
argument on this point is simply wrong.
In Holmes v. Securities Investor Protection Corp., 503 U.S.
258 (1992), which involved a civil action under RICO, the
Court considered the meaning of the statutory phrase—
“[a]ny person injured in his business or property by reason of
a [RICO] violation’—found in 18 U.S.C. § 1964(c). The
Court’s discussion is illuminating:
This language [18 U.S.C. § 1964(c)] can, of course, be
read to mean that a plaintiff is injured “by reason of” a
RICO violation, and therefore may recover, simply on
showing that the defendant violated § 1962, the plaintiff
was injured, and the defendant’s violation was a “but
for” cause of plaintiff's injury. This construction is
hardly compelled, however, and the very unlikelihood
that Congress meant to allow all factually injured
plaintiffs to recover persuades us that RICO should not
get such an expansive reading.
. Congress modeled § 1964(c) on the civil-action
provision of the federal antitrust laws, § 4 of the Clayton
Act.
. [W]e [have] held that a plaintiff’s right to sue
under §4 required a showing that the defendant’s
violation not only was a “but for” cause of his injury, but
was the proximate cause as well.
The reasoning applies just as readily to § 1964(c)....
Proximate cause is thus required [under RICO].
Id. at 265-68.
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The Court in Holmes defined proximate cause as essen-
tially reflecting “ideas of what justice demands, or of what
is administratively possible and convenient.” /d. at 268.
Proximate cause exists to ensure that a random third party
who suffers “merely from the misfortunes visited upon [him]
by the defendant’s acts” does not recover. /d. It also ensures
that courts do not get ensnared in administratively complex
questions over factual causation and apportionments of dam-
ages. The Court reasoned that a proximate cause requirement
would sufficiently deter injurious conduct, because “directly
injured victims can generally be counted on to vindicate the
law as private attorneys general, without any of the problems
attendant upon suits by plaintiffs injured more remotely.” /d.
at 269-70. The Court never suggests, however, that the only
or best way to prove proximate cause is for a plaintiff to
prove he was the “intended target” and that the injury was the
“preconceived purpose” of the RICO activity. We therefore
reject appellant’s highly restrictive reading of RICO.
With one exception, the record in this case offers ample
evidence to support the District Court’s findings that Mr.
Khalil was the proximate cause of RICO injuries suffered by
BCCI, as well as the District Court’s findings of common law
violations. The District Court’s judgments on these points are
well-explained in its published opinion; that opinion needs no
revision, save for one point.
The one exception centers on the $62,021,193 in silver and
copper trading losses that the District Court found were
directly linked to the use of Mr. Khalil’s name. Unlike the
other payments, which are directly traceable to Mr. Khalil’s
fees for participating in the nominee scheme, the silver and
copper trading losses are much more contingent on other
factors. Without much other analysis, the trial court reasoned
that, “[a]lthough market conditions played an important role
in bringing those losses about, the use of Khalil’s name
remained a substantial factor causing those losses. These
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losses can be traced directly to the fraudulent use of Khalil-
owned companies.” Khalil, 56 F. Supp. 2d at 61. The District
Court and appellees seem to claim that the bank’s losses
would have been prevented or reduced had the bank known
about the futures trading at issue. In particular, they suggest
that the Board of Directors had placed limits on investments
and that Khalil. facilitated the avoidance of these limits by
lending his name to fraudulent endeavors, thus causing the
bank to suffer losses. We can find no record evidence
demonstrating that this specific set of losses is directly
traceable to the ability of the perpetrators to hide the losses in
Mr. Khalil’s name. We therefore reverse the judgment against
Mr. Khalil resting on the disputed silver and copper trading
losses.
Ill. CONCLUSION
We reverse the judgment of the District Court resting on
the silver and copper trading losses. We affirm the judgment
of the District Court in favor of appellees on all other points.
The case is hereby remanded to the District Court to
recalculate the damages that are due tc appellees.
So ordered.
13a
APPENDIX B
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Filed Jun 23, 1999]
Civil Action No. 95-1252 (JHG)
BCCI HOLDINGS (LUXEMBOURG),
SOCIETE ANONYME, et al.,
Plaintiffs,
Wx
ABDUL RAOUF HASAN KHALIL, et al.,
Defendants.
OPINION AND C? DER
In July 1991, banking regulators around the world seized
the corporations collectively known as the Bank of Credit and
Commerce International (“BCCI”), uncovering the largest
international. bank failure in history. Eight years later, the
effort to determine how the BCCI debacle happened 1nd who
is responsible for the fraud remains ongoing. This lawsuit,
brought by the court-appointed Liquidators of the BCCI
Group emerged out of that process. '
' ‘The “BCCI Group” and “BCCI,” as used herein, refer collectively
to BCCI Holdings (Luxembourg) S.A. (“BCCI Holdings”), its two
operating subsidiaries, Bank of Credit and Commerce International S.A.
(“BCCI S.A.”), Bank of Credit and Commerce International (Overseas)
Limited, (“BCCI Overseas”), and three affiliate companies, ICIC
Holdings Limited (“ICIC Holdings”), International Credit and Investment
Company (Overseas) Limited (“ICIC Overseas”), and Credit and Finance
Company Limited (“CFC”).
As is discussed more fully below, after BCCI’s operations were brought
to a halt, the courts in the United Kingdom, Luxembourg, and the Cayman
Islands with supervisory authority over the various BCCI Group entities
l4a
The defendants are two individuals, Abdul Raouf Hasan
Khalil (“Khalil”) and Syed Ziauddin Ali Akbar (“Akbar”),
and two companies owned and controlled by Khalil and
Akbar—Capcom Financial Services Limited (“Capcom
UK”), and Capcom Futures Inc. (“Capcom US”). Only Khalil
contested this suit; Akbar and the corporations have
defaulted. 3
Khalil is extremely wealthy, and was perhaps the largest -
depositor in BCCI. In 1987, Khalil withdrew nearly $100
million in deposits and interest from BCCI. The Liquidators
did not contest Khalil’s right to the deposited funds. What the
Liquidators do claim is that in the late 1970s and early 1980s,
BCCI’s former management approached Khalil, offering to
pay him handsomely for the use of his name and prestige to
disguise three fraudulent schemes. According to the
Liquidators, Khalil agreed to:
(1) act as a nominee shareholder of the parent corporation
of First American Bank—once the largest bank in
Washington, D.C.—to disguise the fact that BCCI had
illegally acquired an American bank without proper
regulatory approval;
(2) act as a nominee shareholder of BCCI Holdings to
disguise the fact that BCCI had considerably less
appointed Liquidators to wind up the affairs of the corporations. The
Liquidators of BCCI Holdings, BCCI SA, BCCI Overseas, ICIC
Overseas, ICIC Holdings and CFC are sometimes referred to, collectively,
as the Court Appointed Fiduciaries. The plaintiffs in this lawsuit are the
corporations, but for the sake of convenience the Court will refer to the
plaintiffs as the “Liquidators.” Cf. United States v. BCCI Holdings
(Luxembourg) S.A., 48 F.3d 551, 554 (D.C. Cir. 1995) (“bank liquida-
tor . . . stands in the shoes of the bank it represents .. . “), aff g, 833 F.
Supp. 22 (D.D.C. 1993). The legal claims asserted in this lawsuit
represent “assets” of the corporations in the view of the Liquidators. This
lawsuit was brought to “liquidate” those assets. _
1Sa
capital and support than was represented to depositors,
regulators, and the public; and
(3) allow his name, and that of his companies, to be used
by BCCI’s investment arm to disguise BCCI’s risky
investments and to give the appearance that certain
sizable loans were being serviced when, in truth, they
were in default.
The Liquidators further alleged that BCCI directly paid Khalil
nearly $30 million for this use of his name and that he reaped
substantially more by less direct means. The Liquidators
alleged that if Khalil had not allowed his name and prestige to
be used to disguise BCCI’s true financial condition, the bank
would have been closed down much sooner, preventing
significant financial losses to thousands of creditors and
depositors.
Separately, the Liquidators also alleged that Khalil
conspired with Akbar—a BCCI insider who managed the
bulk of BCCI’s assets until 1986—to create a commodities
brokerage, Capcom, through which Khalil and Akbar further
siphoned substantial BCCI assets.’
* The Liquidators sought to establish Khalil’s liability for these
schemes under seven legal theories. Count I alleges racketeering under
RICO based upon Khalil’s acquisition of a nominee interest in First
American. The predicate acts constituting the pattern of racketeering
include wire and mail fraud, violations of the Travel Act, financial
institution fraud and money laundering. Count II also is a civil RICO
count, alleging racketeering in connection with the capitalization and
operation of the BCCI Group through manipulation of BCCI balance
sheets, including fraudulent transactions using U.S. bank accounts and
U.S. wires. Counts III and IV allege RICO violations based upon the
defendants’ investment in and operation of the Capcom entities, which
was accomplished through the diversion of funds from the BCCI Group to
Khalil and Akbar through wire and mail fraud, money laundering and
violations of the Travel Act. Counts V, VI and VII allege common law
fraud, unjust enrichment, and conversion, respectively.
16a
Shortly after the complaint was filed, Khalil moved for
dismissal. That motion was denied. See BCCI Holdings
(Luxembourg) S.A. v. Khalil, 20 F. Supp.2d 1, 7 (D.D.C.
1997). After lengthy discovery this case was set down for a
bench trial. Khalil moved for trial by jury under Rule 39(b) of
the Federal Rules of Civil Procedure. That motion also was
denied. See BCCI Holdings (Luxembourg) S.A. v. Khalil, 182
F.R.D. 335, 340 (D.D.C. 1998). Trial to the Court
commenced on January 25, 1999 and continued on January
27, January 28, February 1 and February 11, 1999.
This Opinion and Order constitute the Court’s findings of
fact and conclusions of law as required by Rule 52(a) of the
Federal Rules of Civil Procedure.’ Any conclusions of law
> The findings of fact herein are subject to differing standards of proof.
As to the civil RICO counts, it appears that facts are to be proven by a
preponderance of the evidence. See Sedima, S.P.R.L. v. Imrex Co., 473
U.S. 479, 491 (1985) (appearing to endorse a preponderance standard);
Richards v. Combined Ins. Co. of Am., 55 F.3d 247, 249 (7th Cir. 1995)
(preponderance standard applies to all elements of a civil RICO claim); cf.
H.R. 1717, 102d Cong., Ist Sess. § 4-6 (1991) (proposed legislation
requiring clear-and-convincing standard for civil RICO claims). However,
the Liquidators’ claim of common law fraud in Count V requires clear and
convincing evidence. See Hercules & Co., Lid. v. Shama Restaurant
Corp., 613 A.2d 916, 923 (D.C. 1992).
In this case, the difference in standards is immaterial as all of the
findings of fact herein are supported by clear and convincing evidence.
The Liquidators and-Khalil agreed on many of the “contextual facts.” For
instance, they agreed that former management of BCCI engaged in
massive fraud, and that defendant Akbar played a pivotal role in that
fraud. The central issues at trial focused on what Khalil knew about the
fraud and the extent to which he participated in its perpetration. The
Liquidators presented substantial documentary and testimonial evidence
demonstrating that Khalil was a knowing and willing participant in the
fraudulent schemes alleged. Khalil responded to many of the central
allegations with only his own testimony, unsupported by documents that
he claims once existed. Khalil’s testimony was discredited in critical
66 steal y tbat Tae Oe Sahay
17a
that constitute findings of fact or findings of fact that
constitute conclusions of law shall be considered as having
been determined accordingly. Having considered all the
evidence, arguments, the parties’ proposed findings of fact
and conclusions of law, and the entire record in this matter,
the Court will enter judgment in the amount of $388,402,534,
not including attorneys’ fees or costs, in favor of the
Liquidators on Counts I, Il, Il, V, VI, and VII. The
Liquidators did not meet their burden on Count IV. Pursuant
to 18 U.S.C. § 1964(c), the damages are trebled to
$1,165,207,602.
I. DRAMATIS PERSONAE
A. Agha Hasan Abedi
BCCI was the brainchild of Agha Hasan Abedi (“Abedi’’),
who, in 1972, established what he hoped would become an
international Islamic bank. Initially, BCCI grew according to
plan. Until taken under control by authorities around the
respects by internal inconsistencies and by substantial contradictory
evidence from other sources.
On a separate note, a great deal of the testimony in this case consisted
of designated portions of deposition testimony. The Court received full
transcripts marked to show where designations begin and end. In certain
instances, one or both parties’ designations begin with questions and
answers that follow on from the immediately preceding question and
answer. The Court asked the parties to consider whether she could treat as
evidence those peripheral questions and answers “which ought in fairness
to be considered with the part introduced.” Cf. FED. R. Civ. P. 32(a)(4).
The parties responded, correctly, that they ought to have the opportunity
to know precisely which portions of undesignated testimony the Court had
in mind, and an opportunity to be heard, before such testimony could be
treated as evidence. Because the importance of the peripheral questions
and answers was itself peripheral, the Court relied only on those portions
of testimony admitted into evidence when reaching her findings of fact
and conclusions of law.
18a
world on July 5, 1991, the BCCI Group operated a
coordinated international banking network, which at its peak
had more than 400 branches in approximately 70 countries.
Tlie BCCI Group consisted of a number of corporate entities,
including the corporate plaintiffs enumerated herein.’ The
BCCI Group’s international banking network included offices
_ in several of the United States, including the State of New
York. Abedi served as the top corporate officer of the BCCI
Group from 1973 until 1988, when he suffered a heart attack.
Abedi did not testify in this trial. Indeed, the Court heard
evidence that Abedi is deceased. See Trial Transcript (“Tr.’’)
(Testimony of Christopher Morris, UK-appointed Liquidator)
at 136-37.° |
B. Swaleh Naqvi
Abedi’s chief lieutenant in the bank was Saiyid
Mohammad Swaleh Naqvi (“Naqvi’’), who succeeded Abedi
in 1988. Naqvi remained in the senior executive position in
the BCCI Group until 1990, when control of the BCCI Group
formally passed to the sovereigns of Abu Dhabi. Naqvi
served time in prison in Abu Dhabi before coming to the
United States to plead guilty to charges here. He presently is
“BCCI Holdings was at relevant times a holding company
incorporated under the laws of Luxembourg. BCCI SA was at relevant
times a banking corporation organized under the laws of Luxembourg.
BCCI Overseas was at relevant times a banking corporation organized
under the laws of the Cayman Islands. ICIC Overseas was at relevant
times a banking corporation organized under the laws of the Cayman
Islands. ICIC Holdings was at relevant times a corporation organized
under the laws of the Cayman Islands. CFC was at relevant times a
banking corporation organized under the laws of the Cayman Islands.
* In a separate, criminal case pending in this Court, United States v.
BCCI Holdings (Luxembourg) S.A., Crim. No. 91-0655 (Def. No. 5)
(D.D.C.), charges against Abedi remain/pending because the United States
has not been able to determine for sure whether he is deceased.
19a
incarcerated in FCI Allenwood, Pennsylvania. As part of his
plea agreement, Naqvi agreed to cooperate with regulatory
and law enforcement authorities attempting to unravel the
intricacies of the rise and fall of BCCI, As with most of the
fact witnesses in this case, Naqvi testified by deposition. See
Fed. R. Civ. P. 32(a)(3) (listing circumstances in which
deposition testimony may substitute for live testimony at
trial).° Naqvi was deposed in this case and in the First
American case willingly; he did not understand that his plea
agreement required him to testify in either case.
C. Imran Imam
Scrivener to the fraud was Imran Mohammed Ahmad
Imam (“Imam”). Imam was a BCCI officer who assisted
Naqvi from 1977 to 1991. Imam’s principal assignment was
to maintain records of transactions. For example, BCCI
extended loans to the individuals who became the record
shareholders of First American’s parent corporation. Some of
these loans were genuine extensions of credit, secured only
by the shares; other “loans” were created: to disguise BCCI’s
direct equity investment in First American. Imam kept
detailed records of these transactions. Financing for the
record shareholders of BCCI Holdings was done in similar
fashion, and Imam kept records concerning the holdings of
both the genuine investors and the nominees. Imam testified
* Naqvi’s testimony came in through his deposition in this case, and his
deposition in a separate case brought by First American Corporation in
which Khalil also was a defendant. See generally First American Corp. v.
Al-Nahyan, 17 F. Supp.2d 10 (D.D.C. 1998) [That case is referenced
herein as “First American” or “FAC.’]. Due to tne overlapping
allegations, many of the witnesses in this case also were deposed in First
American. Shortly before the jury trial in First American was set to
commence on October 5, 1998, all but two defendants had settled. The
claims against Khalil and the remaining defendant were dismissed,
obviating the need for trial.
20a
through deposition in this case. Khalil’s counsel declined the
opportunity to attend and cross-examine him.
AOSV UkE 4 ALU
Defendant Akbar was a BCCI officer from approximately
1976 to 1986 and was in charge of BCCI’s Treasury Division
from 1982 to 1986. As head of the Treasury Division, Akbar
was responsible for managing and investing BCCI’s funds.
Additionally, Akbar was the account officer for certain major
customers of BCCI, including Khalil. At trial, Khalil and the
Liquidators agreed that Akbar was central to most of the
schemes alleged in the complaint, a rogue extraordinaire
principally responsible for establishing shell corporations to
engage in sham transactions so as to misrepresent BCCI’s
economic situation to the world, gambling BCCI’s assets in
the commodities markets and disguising losses therefrom,
transferring large sums of money in and out of shell
corporations in which he had an undisclosed interest, and
other illegal activities. After huge losses in the Treasury
operations came to light internally, Akbar left BCCI in 1986.
He continued to receive a salary for some time thereafter.
After leaving BCCI, Akbar engaged principally in
managing investment and financial trading businesses, acting
as both the behind-the-scenes manager of Capcom—his joint
venture with Khalil—as well as manager of his own London-
based Futures Advisory Services (“FAS”).
In 1988, authorities in the United States arrested Akbar in
connection with allegations that General Manuel Noriega’s
drug money was being laundered through BCCI and Capcom.
Although other BCCI employees were convicted in connec-
tion with those allegations, it appears that Akbar and Capcom
US were cleared. However, in September 1993, after BCCI
had been seized, Akbar pled guilty to 16 counts of false
accounting in the United Kingdom,
}
/
2la
Akbar was released from prison in the United Kingdom
during the pendency of this litigation and returned to
Pakistan. Akbar was deposed in Pakistan in both this case and
in First American. Those deposition transcripts were
in First American. Those deposition transcripts were
introduced at trial.’
"In his depositions, Akbar was laconic. The Liquidators sought to
embellish Akbar’s deposition testimony with statements he made to the
London Police’s Serious Fraud Office (“SFO”) in 1993. -Akbar’s
statements in these interview sessions were not sworn, but the interview
was taped and transcribed. At the time Akbar gave this interview, it
appears that he had been granted limited immunity for statements made
during the interview by prosecuting officials in the United Kingdom, but
not by federal and New York prosecutors in the United States, who also
attended and participated in the SFO interview sessions.
Prior to trial, Khalil moved in limine to prevent the Liquidators from
introducing any of Akbar’s statements to the SFO as inadmissible hearsay.
The Liquidators opposed the motion on the theory that Akbar had
incorporated some of these statements into his deposition testimony. The
Court rejected that theory of admissibility, see Khalil, 184 F.R.D. 3, 8
(D.D.C. 1999), but left open the possibility that some statements may be
admissible as recorded recollections under Rule 803(5) of the Federal
Rules of Evidence. See id. Embracing the Court’s suggestion, the
Liquidators proffered a limited number of Akbar’s statements to the SFO
to be admitted as recorded recollections. Over Khalil’s objection the Court
ruled these statements would be admissible. See Mem. Op. and Order of
Jan. 21, 1999 at 4. In the January 21, 1999 Order, the Court also provided
Khalil with an opportunity to counterdesignate any portions of the same
SFO statements that he thought, in fairness, should be included to put
those portions proffered by the Liquidators in context. Cf. Fed. R. Civ. P.
32(a)(4) (allowing for counterdesignation of deposition testimony at trial).
Going far beyond contextualization, Khalil’s counsel proffered
numerous portions of Akbar’s SFO statements from different interview
sessions on different topics. Most of these statements were hearsay,
falling considerably outside the recorded recollections proffered by the
Liquidators. At the opening of trial, the Court observed that Khalil’s
proffer would be taken in as evidence in his case rather than as an
enhancement of the evidence offered by the Liquidators. See Tr. at 2-3.
22a
E. Abdul Khalil
Defendant Khalil is a citizen and resident of Saudi Arabia.
He has been married for 36 years to Taheya Badeeb, with
whom he lives in Jeddah, Saudi Arabia along with their two
sons, daughter, and grandchildren. Khalil was educated in
Saudi Arabia and Cairo, Egypt, where he studied history.
Khalil developed a passion for museums and antiquities
which he has pursued throughout his adult life.
When growing up, Khalil stood out as one of the brightest
students in his class. After he completed school, he was one
of a select group recruited to be trained in electronics and air
traffic control at Dharan Air Force Base in Saudi Arabia.
While at the base, Khalil alone was selected to work with
United States Air Force personnel. Through that contact,
Khalil learned English.*
The Liquidators chose not to object to Khalil’s proffer on hearsay
grounds, asking only to be allowed to counterdesignate from the interview
sessions proffered by Khalil. The Court granted that request.
Rule 803(5) requires that recorded recollections be read into the record
rather than received in documentary form, regardless of whether trial is to
a jury or to the Court. That was done. As a result, citations to the trial
transcript referring to Akbar’s testimony reference ese SFO statements.
By opting to introduce numerous hearsay statements by Akbar to the
SFO, the Court finds that Khalil did not preserve his hearsay objection to
the Liquidators’ original proffer. But even if he had, Akbar’s SFO
statements were unnecessary to the findings herein. Although some of
those statements have been cited below, independent evidence supports all
of the Court’s findings and conclusions, all of which would be the same
even if none of Akbar’s SFO statements had been admitted. Given
Akbar’s obvious biases and his role at the center of the fraud, the Court
gave little weight to any of his testimony.
* At the time his deposition was taken in this case, Khalil demonstrated
a working command of English, although he occasionally sought clarifi-
cation from an interpreter.
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23a
Upon completion of his training, Khalil served as an air
traffic controller for the Civil Aviation Department of Saudi
Arabia and an instructor of air traffic control. He also was
recruited to perform air traffic control duties during Saudi
Arabia’s war with Yemen. After 22 years of service, Khalil
retired and entered the real estate business. For reasons not
entirely clear from the record, the real estate market in Saudi
Arabia surged in such a way as to allow phenomenal
profits—such as a 400 million riyal return on a 14 million
riyal investment (plus the cost of improvements) within a
short period. Through such dealings, Khalil became
extremely wealthy.
As is detailed below, Khalil deposited millions of dollars,
in various currencies, in BCCI in the late 1970s and early
1980s. He withdrew those deposits, plus interest, in 1987, but
he maintained contact with BCCI beyond that period. After
BCCI was seized, Khalil came to London voluntarily to be
interviewed by the SFO in connection with its investigation
of Akbar. Unlike most of the other persons closely associated
with BCCI, Khalil was not criminally charged, either in the
United Kingdom or the United States. However, the Board of
Governors of the Federal Reserve did bring an administrative
enforcement action against Khalil in connection with his
record shareholding in the parent corporation of First
American. Although, in September 1992, Khalil granted
Federal Reserve investigators an interview in his home in
Saudi Arabia, and although, in June 1997, Khalil did travel to
the United States to be deposed in First American, Khalil has
not formally been served with the Federal Reserve’s admin-
istrative charges, which remain pending.
At present, Khalil is in poor health. He spends considerable
time working on his projects, including a huge museum filled
with more than 60,000 antiquities, which he and his family
have donated to the poor. Another project, Altayebat City,
24a
consists of classrooms, shops and 20 different museums to
train, educate, clothe and feed the poor.
Due to poor health, Khalil’s deposition in this case was
postponed, and was taken well after discovery had closed.
Because it appeared likely that Khalil would be unable to
appear at trial, the Liquidators videotaped the deposition to
allow the Court to see, hear and observe Khalil’s demeanor.
Most of the 800-page transcript was admitted into evidence,
along with the videotaped version in CD-ROM format.’ The
Court regrets that Mr. Khalil was unable to testify in person at
trial.
F. Kamal Adham and Sayed Jawhary
Khalil’s success in school and in the civil service brought
him to the attention of Sheikh Kamal Adham (“Adham’’).
Adham had been an advisor to, and was a relative of, King
Faisal. Adham came to work for the King’s son, Prince Turki,
who served as chief of the Foreign Liaison Bureau and Chief
of Intelligence. Adham recruited Khalil to work in the
Foreign Liaison Bureau as Adham’s personal assistant,
gathering and analyzing news media articles from other
countries regarding Saudi Arabia."’ Khalil also started his
* The CD-ROM format is indexed by deposition pages and lines,
allowing the viewer to quickly find a desired portion of testimony, In
addition, the presentation uses a split screen, displaying the video portion
on the left and the transcript on the right. The Court was able to see and
hear Khalil’s testimony, judge his demeanor, and, on occasion, refer to the
transcript on the screen when Khalil’s English pronunciation was imme-
diately intelligible.
'° The complaint alleges that Adham was Chief of Intelligence and that
Khalil was his deputy. Some evidence and argument supports this
allegation. See, e.g., Jawhary Dep. (BCCI) at 191 (“Mr. Khalil is a
security man, not an accountant, .. . “); see also Tr. at 21 (Mr. Linn’s
opening argument). Because the exact nature of Khalil’s role in the
Foreign Liaison Bureau is immaterial to this dispute, the Court leaves the
issue open.
25a
own communications company designing satellite communi-
cations systems for the government of Saudi Arabia while
working at the Foreign Liaison Bureau. Khalil worked in the
Saudi Government with Adham for 16 years.
Another close associate of Adham and Khalil was Sayed
Jawhary (“Jawhary”).'' Jawhary is a resident of Saudi Arabia,
who has worked for Adham as a financial advisor since 1957.
At relevant times, Jawhary also provided financial advice to
BCCI, for which he was well compensated. Jawhary did not
disclose the existence or terms of this side arrangement to
either Adham or Khalil.
Adham, Khalil, and Jawhary had a number of business
dealings in common. On occasion, Khalil undertook real
estate transactions on Adham’s behalf. The three kept each
other apprised of investment opportunities. It was Adham
who suggested to Khalil that he deposit money with BCCI.
Also at Adham’s invitation, Adham, Khalil and Jawhary
became record shareholders of Credit and Commerce
American Holdings, N.V. (“CCAH”), the ultimate parent
corporation of First American Bank.'? First American
'' Subsequent to many of the relevant events, Jawhary changed the
English spelling of his name. In many documents he is referred to as “E.
E. Eljawhary.” or as “Mr. Gohary.”
'2 CCAH is a Netherlands Antilles Corporation, which was a bank
holding company pursuant to the Bank Holding Company Act, 12 U.S.C.
§ 1841 et seg. Credit and Commerce American Investment B.V. (“CCAI”)
is a Netherlands corporation and was a wholly-owned subsidiary of
CCAH. CCAI was also a bank holding company pursuant to the Bank
Holding Company Act. CCAH and CCAI were formed in i978 to acquire
control and ownership of Financial General Bankshares Inc. (“FGB”), a
Virginia corporation and a bank holding company within the meaning of
the Bank Holding Company Act. The acquisition was completed in 1982
when CCAI acquired First American Corporation (“FAC”), a Virginia
corporation, which in turn acquired FGB, which was subsequently
renamed First American Bankshares, Inc. (“FAB”).
26a
operated in multiple states in the United States, with its
principal place of business being the District of Columbia.
G. Capcom
Khalil, through Akbar, invited Adham and Jawhary to
become record shareholders in defendant Capcom UK, a
United Kingdom corporation incorporated in 1984 which was
at all relevant times a broker-dealer in futures, options and
commodities. In addition to being a shareholder, Khalil also
was a director of Capcom UK.
Capcom UK formed a subsidiary in the United States,
Capcom US, to trade on the Chicago Board of Trade. Capcom
US is an Illinois corporation incorporated in 1985, which was
at all relevant times a broker-dealer in futures, options and
commodities. At relevant times, defendant Capcom UK was
the registered owner of 82 percent of the shares of Capcom
US. Capcom UK also formed another wholly-owned subsid-
iary, Brenchase Limited, which was incorporated in the
United Kingdom.
After the collapse of BCCI, Adham and Jawhary pled
guilty to charges brought by the United States and the State of
New York for their respective roles as nominee shareholders
in BCCI’s acquisition of First American. In lieu of incar-
ceration, Adham agreed to pay a fine of $105 million and
Adham and Jawhary agreed to cooperate with law
enforcement authorities in their investigations of BCCI’s
collapse.
H. The BCCI Liquidators
On July 5, 1991, banking regulators in the United
Kingdom, Luxembourg, and the United States froze assets
owned or controlled by BCCI Holdings, BCCI SA, BCCI
Overseas, and ICIC Overseas. By the end of July 1991,
27a
officials in 44 countries had closed down BCCI branches and
operations in their jurisdictions.'’ Commencing in January
1992, the various plaintiff companies were placed into full
liquidation and the Court Appointed Fiduciaries were
appointed. BCCI Holdings was placed into liquidation in June
1992. ICIC Overseas was placed into liquidation in April
1992 and ICIC Holdings was placed into liquidation in July
1993."
'* On or about July 5, 1991 in England, the Secretary of State for Trade
and Industry appointed provisional liquidators over the United Kingdom
branches of BCCI SA, subject to the supervision of the High Court of
Justice in England. On or about July 8, 1991, in Luxembourg, at the
petition of the Institute Monetaire Luxembourgeois (“IML”), the
Luxembourg court placed BCCI S.A. into “gestion controllee” (controlled
management) and appointed a commissaire (commissioner). On or about
July 22, 1991 in the Cayman Istands, the Grand Court of the Cayman
Islands appointed provisional liquidators over BCCI Overseas and certain
Cayman entities, including ICIC Overseas and ICIC Holdings. On or
about August 1, 1991, in Luxembourg, at the petition of the IML, the
Luxembourg court also placed BCCI Holdings into “gestion controllee”
and appointed commissaires. Provisional liquidation and “gestion
controllee” are interim insolvency procedures that enable the assets of an
entity to be protected pending the hearing of the application to wind up or
liquidate the company.
'* The liquidations of the plaintiff corporations are closely interrelated.
A Board of Liquidators, consisting of the Liquidators appointed by the
Courts in England, the Cayman Islands, and Luxembourg, coordinates
global asset recovery efforts. The activities of the Board of Liquidators are
conducted pursuant to various agreements, including pooling agreements,
which provide for the pooling of assets of the BCCI Group and the ICIC
entities to ensure that all admitted creditors of any BCCI Group or ICIC
entity receive an equal pro rata dividend.
The liquidation structure, which is implemented pursuant to the
supervision and authority of the appointing courts, reflects the
interrelationship of the various BCCI Group entities. Throughout its
existence, the BCCI Group operated under the overall management and
28a
In denying Khalil’s motion to dismiss, this Court
recognized the validity of the Liquidators’ appointments and
their powers to act on behalf of the plaintiff corporations in
this case. See Khalil, 20 F. Supp.2d at 4-5. For the reasons
previously cited, and for those advanced by the Liquidators at
trial, the Court holds that the Liquidators have standing to
bring this action.
I. Additional Witnesses
The Court also received deposition testimony from a
number of former officers, directors, or employees of
Capcom. Khalil also presented deposition testimony from
prosecutors in the United Kingdom concerning their opinion
of Khalil’s and Akbar’s relative culpability.
The Court also received live testimony from Christopher
Morris, one of the English Liquidators; John Gilkes, an
English forensic accountant assisting the Liquidators; Dr.
Audrey Giles, the Liquidators’ expert in forensic document
examination; Richard Small, Assistant Director of Banking
Supervision and Regulation for the Board of Governors of the
Federal Reserve System; and Irving Beimler, the Liquidators’
expert in credit and lending.
J. Documentary Evidence
To prove their case, the Liquidators relied at trial on
BCCI’s records documenting Khalil’s relationship with the
bank. Although the corrupt former management of BCCI
used the bank to carry out fraudulent schemes from an early
point in its history, in many other respects BCCI operated as a
normal business. Account ledgers were maintained. Deposits,
withdrawals, wire transfers, and other transactions were
documented in the normal course of business. The BCCI
authority of a single group of senior officers with common boards of
directors and centralized operations.
29a
Group followed industry custom in its numerous dealings
with banks in the United States and around the world. Large,
prestigious accounting firms audited the records of the
various BCCI entities, and certified to the public for many
years that all was above board. Indeed, among other reasons,
it is because BCCI operated as a normal business in so many
respects that it took banking regulators around the world so
long to discover the massive fraud that was masked by the
surface normalcy.
Some of BCCI’s records concerning Khalil, and Khalil-
owned companies, document real transactions as they
occurred. The parties agree that many other BCCI records
concerning Khalil evidence sham transactions. It appears that
the former management of BCCI relied primarily on use of
Khalil’s name and the names of Khalil-owned companies to
disguise fraudulent transactions in the Treasury Division. On
documents reflecting false transactions, and occasionally on
those reflecting real transactions, Khalil’s name was often
signed by Akbar or another BCCI employee. At trial Khalil
objected on authenticity grounds to most of the Liquidators’
exhibits. The Court admitted the exhibits into evidence
provisionally on condition that the Liquidators lay a
foundation for their admission. That was done.
To distinguish appearances from economic reality, the
Liquidators relied on two experts. Dr. Audrey Giles (“Giles”)
\estified as to which signatures on key documents appeared to
be Khalil’s genuine signature. Khalil did not offer a
competing expert, and the Court finds Dr. Giles’ testimony to
be credible and unrebutted.'° The Court finds that all of the
'SIn essence, Khalil testified as his own opinion witness as to
handwriting. On repeated occasions, when Khalil was asked whether or
not he had signed a document, he either soliloquized on a different topic,
or asked to see the original signature to decide how closely it resembled
his signature. Only in rare instances would he testify as to whether he
30a
signatures Dr. Giles testified to have been more likely
Khalil’s than not, were in fact Khalil’s signatures. The
Liquidators also relied on John Gilkes (“Gilkes”), who sifted
through numerous documents recovered from BCCI and
checked these against available outside sources to separate
fact from fiction in the story told by the BCCI documents.
II. KHALIL’S DEPOSIT RELATIONSHIP WITH BCCI
In or about 1975, Sheik Adham told Khalil he had a “very
good bank” in England, and suggested to Khalil that he put
his money in BCCI because the real estate market in Saudi
Arabia was “quiet.” Khalil’s practice up to that point, like
many living in Saudi Arabia, had been to keep his substantial
wealth in cash, primarily in Saudi currency, locked in a strong
room inside his house. Khalil testified that one reason that
Saudis generally do not use banks is that the Koran places
restrictions on followers of Islam from keeping interest
earned on deposits. In any event, in or about 1977, Khalil
began his banking relationship with BCCI. While in London,
Khalil signed account opening forms, but did not deposit any
funds at that time. Approximately three weeks later, repre-
sentatives of BCCI came to Khalil’s house in Jeddah to
collect the first deposit.
The details of how much Khalil deposited with BCCI are
of critical importance. The Liquidators alleged that Khalil
took from BCCI far more than that to which he was entitled.
Khalil countered that his relationship with BCCI was
economically detrimental, and that money he admits
receiving from BCCI—nearly $100 million in deposits and
remembered seeing and/or signing the document. With respect to
signatures that he claimed were forgeries, Khalil gave names to the
different styles that he identified. See, e.g., Khalil Dep. (BCCI) at 664
(classifying allegedly forged signatures as “face, flying alone, flying with
underline . . . copying black ink . . black ink with dash . . . and flying
face”).
adeiowseks cae amare
3la
$27.5 million in direct payments-was due and owing to him.
At the root of this dispute is a disagreement over the amount
Khalil initially placed with BCCI and where it was kept.
On this important point, Khalil’s recollection of the details
changed between his deposition in the First American case
and his deposition in this case. In this case, Khalil testified
that a representative of BCCI who worked in Adham’s office
in Jeddah came to pick up his first deposit:
Q: So you give a gentleman from the representative
office in Jeddah?
; Je.
10 suitcases?
10 suitcases.
Saudi riyal cash?
50 million more or less, total.
Did you count the money before you put it in the
suitcases?
A: It is there. Always when I sell something I take money
from the people so I do accounting. I have three different
suitcase. If this is the big—
THE INTERPRETER: 150 notes.
A: If this big one, you know, you don’t have big size,
maybe you can put $10 million, maybe 50 maybe I can put 7
million. Maybe if it’s smaller I put five million in the
suitcase, because it takes size like that. So I already count it.
It is there. He’s been most of the day counting the money
there.
Q: Were you with him when he counted the money?
A: Oh, yes, oh, yes.
Khalil Dep. (BCCI), Nov. 16, 1998, at 22-23."°
Ore ror
'°This quotation, and all others herein, are verbatim from the
transcripts. Spelling, grammatical, and syntactical errors are as presented
in the transcripts.
32a
In his First American deposition, taken 18 months earlier,
Khalil had testified that it was Akbar who came to take the
first deposit, that the money was not pre-packed, but put into
Samsonite suitcases in Akbar’s presence, that there were 11
Suitcases instead of 10, and that he would have deposited
more, but he ran out of suitcases. E.g., Khalil Dep. (FAC),
June 4, 1997, at 11, 28, 41, 44-48, 69-70, 73-76. Khalil
testified that he made one or two comparably large deposits
via suitcase, along with periodic deposits in smaller amounts.
E.g., Khalil Dep. (BCCI) at 100-01. There are some
discrepancies between his two depositions regarding these
additional deposits.
In other respects, Khalil’s testimony concerning his
deposits was largely the same in both depositions. For
example, Khalil testified that although all the cash deposited
came from money in his house, some of it belonged to
partners whose identity he could not reveal. See, e.g., Khalil
Dep. (BCCI), Nov. 16, 1998, at 30-33. Khalil stated that
money placed in term deposit accounts was jointly owned by
these unnamed partners, and that money placed in current
accounts belonged solely to Khalil. Whether these partners in
fact existed is immaterial because in any event Khalil had
sole authority to transact business with these funds.
Also, in both depositions Khalil testified that his first
deposit was to be divided to pay for BCCI shares he had
agreed to purchase, to be placed in term deposits (a.k.a.
deposit accounts), and a substantial sum to be placed “in the
hand” of Akbar, which would be immediately available to
pay expenses as Khalil may from time to time direct.
At trial, Khalil acknowledged through his counsel that the
BCCI documents reflecting the total amounts deposited by
Khalil show his deposits falling far short of the amount Khalil
withdrew and received from BCCI. Khalil’s first line of
defense was that the Court should disregard those records as
in lib aa PY ore
ee eee we " "
33a
being fabricated, falsified, and incomplete. Along these lines,
Khalil asserted that he had deposited more with BCCI than
the records reflect. The only evidence offered to support this
assertion was his own testimony.
The Court cannot agree with Khalil’s assertion. It is telling
that Khalil’s counsel, when offering Khalil’s version of how
much he placed with the bank, was forced to argue from stray
recollections by Naqvi and Akbar, e.g., Khalil’s Prop.
Findings § 13, because Khalil—who well remembered sums
involved in real estate transactions more than 20 years past—
testified as to having only a vague recollection and no
independent records to establish that he had placed more with
BCCI than is shown in the records on which plaintiffs rely.
The Court finds that at the time Khalil handed over
suitcases of cash, he received a receipt. See Khalil Dep.
(FAC), June 4, 1997, at 69-70. The Court also finds that
Khalil kept his own record of the amount deposited. Before
the money was turned over, it was counted in a day-long
exercise. Even if there had been no receipt, Khalil knew
precisely how much he had placed with BCCI. That amount
was reflected on the account statements Khalil received from
BCCI, which he closely monitored. Although on certain
occasions, Khalil complained that the amount he had depos-
ited, or the amount of interest credited to his account, was not
accurately reflected, the statements were adjusted at or near
the time Khalil made such complaints.
When Khalil withdrew his deposits from BCCI, he
presented his account statements to Naqvi. Naqvi suspected
that the account statements, which had been prepared at
Akbar’s direction, overstated the amount Khalil had with the
bank, but Naqvi was in no position to argue with Khalil. See
Naqvi Dep., Mar. 27, 1998, at 74-76; Tr. (Akbar) at 456-58.
Instead, Naqvi directed that Khalil receive the amount
reflected on the account statements Khalil had presented to
34a
Naqvi. There was no unaccounted-for surplus. See also Tr.
(Akbar) at 470.
Realizing the Court may find that many of the BCCI
documents bear sufficient indicia of reliability to be both
admissible and entitled to evidentiary weight—as has been
done here—Khalil’s fall back defense was that even if the
Liquidators’ numbers were accurate, those figures do not
account for the fund Khalil placed “in the hand” of Akbar,
which, according to Khalil’s counsel, was a sizable fund kept
outside BCCI.
Khalil’s testimony was quite inconsistent on this critical
point. On a few occasions, Khalil presented testimony sug-
gesting that the money in Akbar’s hand was kept outside
BCCI. For example, when asked about a document he
penned:
Q: .... Does that refresh your recollection, sir, that in
fact you had current accounts at BCCI?
A: Just a moment. I don’t have current account.!'”! |
have money with Mr. Akbar. And this is now he’s not
putting—because he’s not putting the money in the
BCCI. He’s putting the money outside the BCCI....
Khalil Dep. (BCCI) at 212; see also id. at 214 (“[T]his is my
money with Mr. Akbar putting in another bank.”). ~ 3
However, on closer inspection, this issue was a red herring.
Most portions of Khalil’s testimony demonstrate that he knew
the money “in Akbar’s hand” was kept in BCCI current
accounts.'* For example:
'7 But see Khalil Dep. (FAC) at 26 (“The difference in the money, I
don’t remember how much at that time to my account, my current
account, no problem.”).
'® Most of Khalil’s testimony concerning the funds in Akbar’s hand
sought to differentiate those funds from the funds in the deposit accounts.
According to Khalil, the funds in the deposit accounts were pooled funds
35a
Q: .... Now, the first time that you put money in the
bank somebody came to your home, collected suitcases
and put all that money in deposit accounts at BCCI?
A: .... They do like this. They put little deposit. They
pay for the shares of the BCCI. They open account from
the money in the hand of Mr. Akbar, okay. Because he
needs to pay the expenses.
Khalil Dep. (BCCI) at 52.
*x* * * kK
What did [Akbar] do with that money?
Which money?
The money that he came and took?
He took it to the bank. He took it and he divide it,
some in the deposit, some in his hand.
Id at 54."
Not only did Khalil testify that all of his money was
deposited in BCCI, but he also did not introduce any records
of his own, or from any bank other than BCCI, showing that
rOPr
belonging to him and his partners, and it was important that Akbar not
“break the deposit” (i.e. pay a penalty for early withdrawal) when paying
Khalil’s expenses. According to Khalil, the money in Akbar’s hand
belonged to Khalil alone, and was to be — liquid so that Khalil could
call upon it at a moment’s notice.
'? See also id. at 41 (“The only money have in whole world in two
places, my- house and BCCI.”); id. at 410 (“Oh yeah, I don’t have money
except with BCCI.”); id. at 593 (“[W]hen [Akbar] start at the beginning,
when he took the money, he opened I think a — from my money in one of
the branches for expenses . . . .”); see also id. at 170 (acknowledging that
a $915,000 debit to one of his genuine current accounts with BCCI
reflected a jewelry purchase taken from money in Akbar’s hand); id. at
590 (“I have all something nearly again 50 million Saudi riyals, far away
from any deposit account, from we call it current account, it means pay 2
million today, until tomorrow, put 3 million, 5 million, just like that,
because I don’t like to break the deposit account.”).
36a
the money “in the hand” of Akbar was kept outside BCCI. It
also is highly improbable that Khalil would have entrusted
Akbar with funds to be kept somewhere other than BCCI
when Khalil was hardly acquainted with Akbar at the time he
made his first deposit with BCCI. On the contrary, Khalil
understood that BCCI was his agent and that Akbar worked
for BCCI, at least as to funds in his deposit and current
accounts. See Khalil Dep. (BCCI) at 80.
On balance, the Court finds that Khalil’s references to
money “in the hand” of Akbar refer to funds kept in current
accounts at BCCI. The memorandum accounts kept by Akbar
at BCCI accurately tracked Khalil’s actual deposits with
BCCI. There was no fund kept outside BCCI.
Ill. KHALIL’S NOMINEE OWNERSHIP OF BCCI SHARES
The Court also cannot credit Khalil’s testimony that he
actually paid for any of the BCCI shares registered in his
name. BCCI shares were not publicly traded, they were sold
through private placements on an invitation-only basis. In the
late 1970s, Abedi sought new shareholders in BCCI to
finance the bank’s expansion. Abedi approached his friend
Adham to help recruit investors. Adham presented the
“investment” opportunity to Khalil, who agreed in principle
to invest.
Abedi sought genuine capital infusions, but he also needed
some investors to act as nominee purchasers of BCCI shares.
Abedi wanted to give the appearance of new capital being
placed with BCCI without diluting his control. Abedi
envisioned that ultimately only a large institutional investor
would be able to provide for BCCI’s continued viability.
Naqvi explained the “special arrangements” that BCCI
offered to prospective shareholders such as Khalil until such
time as an institutional investor could be found:
ee
37a
Mr. Abedi wanted to make sure that a significant
percentage of the shares is held by such holders who
would be willing to sell those shares or transfer those
shares to this new structure, whenever it takes place.
So he wanted to have special arrangements with some
of the shareholders to ensure that a good sized block of
shares remain available to him for the purpose of this
restructuring. And in one of those reviews, Mr. Abedi
asked me [Naqvi] that if we will find out from Mr.
Raouf Khalil whether he will hold part of his-part of the
shares in his name under an arrangement which is like
this nominee arrangement you have described.
Naqvi Dep. at 19. Naqvi deputized Akbar to discuss the
nominee proposal with Khalil. Khalil knowingly agreed to
serve, and did serve, as a nominee in conspiracy with senior
officers of BCCI to act as a registered shareholder of BCCI
Holdings.
The Court finds that when Khalil first deposited money
with BCCI, Khalil had an understanding with Adham that
some of his funds would be used to purchase BCCI Holdings
shares. However, the Court infers from the evidence that
shortly thereafter, Akbar approached Khalil with the nominee
proposal. Khalil, Akbar, and Abedi reached an agreement by
which BCCI would advance Khalil loans on a non-recourse
basis to finance the purchase of those BCCI Holdings shares
that Khalil was to own beneficially and, in addition, Khalil
would allow BCCI to “purchase” additional shares in his
name in which he would have no beneficial interest. This
agreement was entered into before any of Khalil’s genuine
accounts had been debited for the purchase of BCCI Holdings
shares. At no time were Khalil’s funds used for the purchase
of the BCCI Holdings shares owned beneficially by Khalil.
Although shares were accounted for in BCCI’s books as
either “beneficially” owned by Khalil or nominee shares,
38a
BCCI funded all of the share purchases in Khalil’s name and
Khalil had no commercial risk with respect to any of the
shares. Naqvi subsequently learned of this new financing
arrangement and accepted it as consistent with his and
Abedi’s overall agreement with Khalil. At no time did Khalil
repay the loans taken in his name to pay for his beneficial
BCCI Holdings shares.
Khalil became a record shareholder of BCCI Holcings in
1979. Senior management made its first designated nominee
purchase of BCCI Holdings shares in Khalil’s name in June
1980. Thereafter, periodically during the 1980s, BCCI
management purchased additional shares in Khalil’s name.
Imam recorded some of these as “beneficial” shares and
others as nominee shares. In or around May 1985, Khalil and
Akbar each signed a schedule which listed the “beneficial”
and nominee purchases, and the loans taken out against each
portion. See Naqvi Dep. 27-33 & Pls.’ Ex. 1489; Tr. (Giles) at
62-64; Pls.’ Ex. 1489A.
Shares were purchased in the name of Khalil on the
following occasions in the following amounts:
Date # of Shares Share Price Principal Cost
Oct. 11,1979 20,000.0 $125.00 — $2,500,000
Dec. 21,1979 4,000.0 $125.00 $ 500,000
June 27, 1980 40,000.0 $125.00 $ 5,000,000
Dec. 29, 1980 10,315.8 $125.00 $1,289,475
Dec. 31, 1981 10,526.3 $200.00 $2,105,260
Dec. 31,1981 6,666.6 $200.00 $1,333,320
Dec. 29, 1982 21,054.0 $40.00 $842,160
Dec. 29, 1982 13,334.0 $40.00 $ 533,360
Dec. 27, 1984 34,386.0 $40.00 $1,375,440
Dec. 27, 1985 51,579.0 $40.00 $2,063,160
April 14, 1989 57,748.0 $40.00 $2,309,920
TOTAL $19,852,095
pre, ae ee
39a
To make these purchases appear real, senior management
of BCCI created loans from BCCI Group companies for both
the “beneficial” and nominee share purchases. The
accounting for these share purchases as loans was false.
These were paper transactions, backed by transfers of funds
from one part of the BCCI Group to another. To effect the
share purchases, funds were transferred by wire from
accounts in the Cayman Islands to accounts in the United
States, and were then transferred to accounts in Luxembourg.
The Court credits Gilkes’ testimony demonstrating that these
transfers were accomplished using wire transfer facilities in
the United States. In addition, instructions related to the
transfers were sent by wire and United States mail.
Khalil incurred no genuine, collectible debt in relation to
the “loans” used to finance his share purchases, and BCCI
obtained no genuine, collectible right to payment on the
“loans” created to finance these share purchases. With respect
to the nominee shares, Khalil had no obligation to repay the
loans. With respect to the beneficial shares, BCCI could not
collect on the loans financing those shares, but Khalil agreed
that the profit he would take from the proceeds of any sale of
such shares would be only the difference between the share
price and the loan amounts as to those beneficial shares.
However, if at the time of sale the share price was less than
the outstanding loan amount, Khalil would not be obliged to
repay the difference.
Khalil signed documents which gave all rights over both
the “beneficial” and nominee shares to ICIC, and which
applied the proceeds of any sale to pay off the outstanding
loans. Khalil also signed transfer deeds in blank.
The effect of Khalil’s service as a nominee was to inflate
falsely the share capital of BCCI. By agreeing to act as a
nominee, Khalil understood that he was enabling BCCI to
misrepresent to regulators, auditors and prospective
40a
depositors that BCCI Holdings had support through the
investment of share capital by a wealthy investor when in fact
that investment had not been made and the share capital,
which supported the banking activity of the group, was in fact
fictitious. BCCI records gave the appearance that Khalil had
borrowed $19,852,095 from BCCI to purchase his BCCI
Holdings shares.
IV. TRANSACTIONS DONE IN KHALIL’S NAME
Shortly after Khalil agreed to hold BCCI Holdings shares
aS a nominee, his agreement with BCCI management
expanded. Abedi still sought new sources of capital to fund
the bank’s expansion. One potential source of income was to
increase the bank’s trading operations. New financial
instruments, certain kinds of futures and options, had been
introduced into the London markets. Akbar, as a senior
officer in BCCI’s Treasury operations had become the bank’s
lead trader. From the evidence, the Court infers that Akbar
had met with early success in the markets, and he was eager
to manage a larger pool of funds for trading purposes. He also
was eager to share in some of the returns he was providing to
the bank.
Akbar proposed that BCCI management approach certain
customers. As Naqvi testified, “the basic arrangement was
that . . . the customers may be asked to permit the bank to
trade in their name, the bank will provide all the funds, and
the bank will take all the risks.” Naqvi Dep. at 36. With
Naqvi and Abedi’s authorization, Akbar approached Khalil to
discuss this proposal.
The Court finds that Akbar did approach Khalil, but with
two proposals. The first was the nominee arrangement
outlined in Nagqvi’s testimony. The second proposal was
Akbar’s own. He proposed that he and Khalil form a
partnership to invest the funds in Khalil’s current accounts,
the funds put in his hand, in commodities, futures, and
4la
options. With great assurance, Akbar promised Khalil returns
ranging from double to triple the interest that he could earn
from BCCI. Khalil was interested in both arrangements, but
he did not want to assume any of the risk.
A. The Khalil-Akbar Partnership
As to the Akbar-Khalil partnership, each agreed that Akbar
could trade with Khalil’s funds, profits would be split evenly
between the two of them, and Khalil’s capital would be
guaranteed. Khalil was attracted to Akbar’s entrepreneurial
energy but recognized the risks of allowing him too free a
rein. Shortly after he had agreed to both the Treasury
nominee arrangement and the Khalil-Akbar partnership,
Khalil consulted with Abedi and Naqvi concerning Akbar’s
trustworthiness. They told Khalil to trust Akbar “more than
the bank.” And, as it turned out, he did. The Khalil-Akbar
partnership became incorporated as Capcom UK in 1984. As
will be seen, Akbar, with Khalil’s knowledge and agreement,
siphoned virtually all the start-up capital from BCCI, and
Akbar managed Capcom UK’s affairs from behind the scenes
until 1987.
Akbar did not fully disclose the terms of the Khalil-Akbar
partnership to Naqvi and Abedi.” Akbar was a schemer on
par with Abedi himself. Akbar sensed that down the line
Khalil could be a willing patron to finance Akbar’s grander
schemes. To disguise the extent of the profits he had earned
with Khalil’s funds, Akbar told Naqvi that Khalil was
demanding an increase in his fee for acting as a nominee for
the Treasury trading. Naqvi agreed that Akbar should pay
Khalil off. See Naqvi Dep. at 55.
When Khalil mentioned the “partnership” to Naqvi, Naqvi
understood it to refer only to the nominee arrangement for BCCI
Treasury, but Khalil’s remark covered both agreements. See Naqvi Dep. at
aT, A
42a
The Liquidators sought to show that a total of $1,261,968,
divided into three payments, was deposited in Khalil’s
accounts in 1980 and 1981 as a pay-off. However, Gilkes was
only able to document that two of the three payments were
made, and he referred to no documents showing that these
funds had come from BCCI assets. In the absence of such
evidence, the Court finds that the $1.2 million Khalil received
actually came from trading profits. See Tr. (Akbar) at 496-97.
B. The Treasury Nominee Scheme
As to the BCCI Treasury proposal, Khalil agreed to, and
did, serve as a nominee for transactions undertaken by the
BCCI Treasury Division. Naqvi and Abedi guaranteed that
Khalil’s deposits would not be at risk. Khalil and Akbar
agreed that as to BCCI Treasury trading done in the name of
Khalil or Khalil-owned companies, Khalil would receive
approximately one percent of the total amount invested in his
name as a nominee fee. Naqvi and Abedi later ratified this
agreement.
C. Khalil-Owned Companies and Unreimbursed Expense
Outlays
A number of the fraudulent transactions undertaken by
Treasury were done either in Khalil’s name or in the name of
a company owned by him. Capcom UK was the formal
incorporation of the Khalil-Akbar parternship. Additional
companies, wholly owned by Khalil, came into being as a tax
vehicle for Khalil to purchase real property. For example, not
long after Khalil began his banking relationship with BCCI,
he decided to purchase a home in London known as
Moncorvo Close. As part of what Khalil termed the “VIP
service” offered to important customers of the bank, BCCI
assisted Khalil in the purchase by providing a lawyer to
handle the closing and an inspection company to inspect the
premises.
43a
In addition, Akbar arranged transportation to and from the
airport, made hotel reservations for Khalil and his family, and
paid Khalil’s staff and utility bills for the new residence. At
Khalil’s direction, Akbar had furnished and decorated
Moncorvo Close so that the house would be inhabitable when
Khalil and his family arrived.”!
There is no dispute that Khalil authorized Akbar to set up
an offshore company, Maram Trading Company (“Maram’”’),
to hold title to Moncorvo Close for tax purposes. Maram was
a Cayman Islands corporation owned by Khalil and named
for his daughter.
Khalil subsequently purchased three other homes in the
same manner. Another company, Khalil Investment and
Trading Company, a Panamanian corporation, was incorpo-
rated by Akbar at the request of Khalil. Of the three
additional homes, Sunningdale in Berkshire, England and
Lakeside Village in Rockwall, Texas, were purchased in the
name of Khalil Investment and Trading Co. (/d. at 46, 69, 71,
292, 295). Seadunes, a home in New Smyrna Beach, Florida,
was purchased in the name of Maram Trading Company.
Khalil also acquired an interest in a property called Potato
Patch in Vail, Colorado. For that acquisition he used a
company, owned by him, called KINTRA Universal
Company, Limited.
As to his first acquisition, Moncorvo Close, Khalil paid the
bulk of the actual purchase price from his own funds.
However, as part of the “VIP service” for acting as a
2! Akbar, not familiar with Khalil’s affinity for things of exquisite
beauty and expense, spent very modest sums on the furnishings. Upon
arrival, Khalil was aghast, but he said nothing to Akbar. Within the next
few days, after a trip to Harrods and elsewhere, Khalil redecorated. The
record is not clear as to whether the costs of redecorating were reflected
on the credit card bills paid for by BCCI.
44a
nominee, BCCI paid a small portion of the purchase price and
the ancillary expenses. As Khalil’s leverage over the bank
increased, BCCI came to pay nearly all costs related to the
subsequent transactions. See generally Tr. (Gilkes) at 214-28
& exhibits referenced therein. In all, BCCI advanced
$2,249,352 of its own funds in connection with these property
transactions as payment to Khalil for his services as a
nominee. Khalil did not repay this sum because he had no
obligation to repay. —
Building on these real estate transactions in which Khalil
had a beneficial interest, BCCI Treasury also used companies
nominally owned by Khalil to purchase properties from BCCI
at inflated prices. For example, in 1981, BCCI sold a Hong
Kong property it had acquired on December 15th for
$1,833,890 to a company nominally owned by Khalil for
$3,962,580. The resulting $2.1 million was recorded as a
profit in BCCI’s 1981 year-end. books. These transactions
were accomplished through the use of international and
United States wire facilities.
D. Commodities Trading
As is the case with most gamblers, Akbar’s lucky streak in
the markets ran out. In 1983, at Akbar’s direction, BCCI’s
Treasury division acquired significant positions in-silver and
copper on the belief that prices of the metals would continue
to rise. In fact, prices dropped, and BCCI was forced to take
delivery of significant amounts of metal at above-market
prices. Under normal business practices, if BCCI had been
holding this metal at the end of the year, or had sold it at
market price during the year, it would have recorded
tremendous losses. Doing so would have shaken the
confidence of the bank’s real investors and almost certainly
would have invited increased regulatory scrutiny that would
have led to the bank’s closure.
45a
Rather than record these losses, BCCI transferred the silver
at above-market prices to two entities, Euro Commodities
Limited and Notan Trading, which were controlled by. Akbar .
and wholly-funded from BCCI’s Khalil-related nominee
accounts. Although all of the funds for these “purchases”
came from internal BCCI sources, the transactions were
recorded as sales. Consequently, at the close of 1983, BCCI’s
books showed a much smaller loss than the bank had actually
suffered.
E. Circular Transactions
~ In addition, Gilkes testified as to how the BCCI Treasury
division carried out a number of other fraudulent transactions
done in the name of Khalil, or one of his companies. One type
of transaction was a circular routing. transaction done to
disguise the fact that BCCI was servicing many of its own
loans, giving the appearance that non-performing loans were
viable assets. As an example:
(1) On June 26, 1985, BCCI created two loans on its
books and transferred a total of $82 million to
Capcom UK’s subsidiary, Brenchase, by means of
two U.S. dollar checks;
(2) that same day Brenchase placed the money with its
parent company Capcom UK;
(3) the next day, June 27, the $82 million plus interest
was returned by Capcom UK to Brenchase;
(4) Brenchase then divided the money into two parts: $42
million was sent back to Capcom UK by U.S. dollar
check, which then paid the money to BCCI, thus
giving the appearance that non-BCCI finds were
coming into the bank;
(5) the $40 million which remained at Brenchase was
then transferred by international and United States
wire to BCCI;
46a
(6) the $42 million sent from Capcom UK to BCCI was
used to service an account at BCCI that had been
previously used to forward money to Capcom UK that
was never repaid;
(7) the $40 million that was transferred from Brenchase to
BCCI was used to create that false impression that
substantial commercial loans were performing when
they were not.
See Tr. (Gilkes) at 286-88; Pls.’ Exs. 1514-22, 2409-11,
2429-30, 2436-39, 2444-45 BCCI engaged in similar circular
routing transactions with the Bank of India and the State
Bank of India. Each such transaction had the effect of hiding
non-performing assets and creating false profits on the books
of BCCI. See Tr. (Gilkes) at 289-96; Pls.’ Exs. 17-18.
F, Akbar’s Authority
A great deal of testimony was devoted to whether Khalil
had authorized Akbar to undertake any of these activities, and
if so, the extent of that authority. Khalil maintained that he
gave Akbar only a formal power of attorney in relation to the
creation of companies for the purpose of purchasing real
property for Khalil’s own use and to finalize such purchases.
Akbar certainly had apparent authority to transact a far wider
range of business in the name of Khalil and Khalil-owned
companies, both with BCCI’s funds and with Khalil’s funds.
It may well be that some of the “power of attorney” forms
bearing Khalil’s name that were introduced into evidence
were in fact signed by Akbar. This does not lead to the legal
conclusion that these documents were “forged.”
On the contrary, the Court finds that in or about 1980
Khalil authorized Akbar, in both his capacity as a BCCI
employee and as Khalil’s partner, to undertake a broad range
of activities in Khalil’s name, and in the name of Khalil-
owned companies, see, e.g., Jawhary Dep. (FAC) at 914-15.
47a
This authority included, but was not limited to, creating BCCI
accounts in Khalil’s name and the name of his companies in
which Khalil had no beneficial interest or obligation, and
using such accounts to engage in fraudulent wire and mail
transfers, to purchase and sell real property, and to trade in
commodities, futures, and options. Akbar was further
authorized to sign such documents in Khalil’s name as Akbar
deemed necessary to carry out these activities.
Akbar kept Khalil apprised of the progress of the overall
scheme. Contrary to Khalil’s testimony that he could never
find Akbar when he needed him, the Court finds that Akbar
consulted with Khalil by telephone on a frequent basis. See
Deposition of Lorna Wisdom at 20-21. However, unlike with
his deposits, in which Khalil’s own funds were at issue,
Khalil willfully and deliberately kept himself ignorant of the
details as to how Akbar exercised that authority. E.g., Khalil
Dep. (FAC) at 5-6, 102-03, 119; Tr. (Akbar) at 462, 489-90,
496. His capital had been guaranteed, and he knew that he
would be held harmless if any of the transactions turned out
to be to BCCI’s detriment. The scale of these transactions
increased steadily. E.g., Tr. (Akbar) at 477. Over time, Khalil
was paid millions of dollars pursuant to this agreement.
V. FIRST AMERICAN SHARE NOMINEE ARRANGEMENTS
Khalil also was instrumental in facilitating another aspect
of Abedi’s grand design. Abedi badly wanted BCCI to
provide banking services in the United States. He wanted to
tap into the profitability of the United States market, and he
believed entry into the United States would allow him to
ultimately regularize and legitimize BCCI’s operations
worldwide. Abedi expected that some day he would allow the
bank to come under a respected regulatory authority. He
hoped that BCCI could acquire a controlling interest in an
American bank and then come to an arrangement with the
Federal Reserve.
48a
However, in the late 1970s and early 1980s, Abedi
believed that BCCI was not in a position to seek and obtain
Federal Reserve approval to purchase a significant interest in
an American bank. Consequently, Abedi and Naqvi
concocted a nominee scheme to take over what was later
named First American Corporation, a regional bank holding
company that controlled what was once the largest bank in
the Washington, D.C. area. Under the nominee scheme,
wealthy individuals from the Middle East would purport to
own the shares of CCAH, the shell corporation that became
First American’s parent. Some of these investors, such as
Adham, would beneficially own some shares—often through
loans supplied by BCCI—and also own additional shares as a
nominee for BCCI.
Sometime in late 1980 or early 1981, Abedi again asked
Adham to help recruit investors. Adham again approached
Khalil. As part of his agreement to serve as a nominee for
BCCI for a variety of purposes, Khalil also agreed to serve as
a nominee in the acquisition and maintenance of control of
the shares of CCAH. Khalil was one of several nominees who
participated in the scheme.
To carry out the scheme, BCCI created CCAH, which
wholly owned CCAI, also a shell. CCAI came to own First
American Corporation, which, in turn owned First American
Bank, which owned the retail banks with whom many
residents and businesses in the Washington, D.C.
metropolitan area did their banking. Ownership of CCAH
meant ownership of First American.
In order for CCAH to gain ownership of First American,
approval of the Federal Reserve Board was necessary. In
April 1981, some of the proposed owners, including Khalil,
flew to Washington, D.C. to testify before the Board. Prior to
testifying, Khalil had done no due diligence concerning his
“investment.” The parties agree that Khalil knew very little
49a
about First American when he appeared at the Federal
Reserve hearing:
Khalil’s own testimony as to the circumstances of his
acquisition of First American shares confirms his nominee
status. Financial information on Khalil had previously been
supplied to United States regulators through BCCI, although
Khalil asserts that he did not know financial information was
filed on his behalf. Khalil testified in this case that he knew
virtually nothing about the bank he was purporting to acquire
an interest in when he appeared in Washington in 1981 . He
did not know what percentage of the bank he was acquiring
or precisely how much he was supposed to be investing. See
Khalil Dep. (BCCI) at 379-84, 400, 407, 417. Khalil asserts
that he gave Abedi discretion, within a specified range, to
decide how much would be invested on his behalf and what
percentage would be acquired.
Khalil understood that the CCAH shares BCCI was
purchasing in his name were being counted on to form the
majority interest in First American, although Khalil testified
that he heard it from Adham instead of a BCCI officer. Khalil
did not negotiate or discuss a voting trust or some other form
of shared control by which “his” shares would be used to
consolidate control. Moreover, Khalil knew that this transfer
of control required regulatory approval, which is why he flew
to Washington.
Khalil flew to Washington with Akbar. On the eve of his
Federal Reserve testimony, Khalil met with Clark Clifford
and Robert Altman, partners in the law firm of Clifford &
Warnke. From the record in this case, it is unclear whom
Clifford and Altman represented in their dealings with Khalil.
Khalil testified that when he arrived at Clifford & Warnke’s
offices, he waited while Adham met with Clifford and
Altman. Then, Khalil was given a prepared statement to read
to the Federal Reserve. Khalil was asked to rehearse the
50a
statement with Clifford, who coached Khalil on his delivery.
Khalil read the statement and did not claim that it was
inaccurate in any way. Khalil delivered the statement, as
prepared, to the Federal Reserve. ”
On the basis of the testimony of Khalil and the other
nominees, along with documentation supplied by BCCI, the
Federal Reserve approved the sale of First American. The
Federal Reserve was unaware that BCCI would be the
beneficial owner of a controlling interest in First American.
Had the Federal Reserve known that BCCI was behind the
takeover of First American, transfer of control would not
have been approved.
* Khalil’s telling of these events is more colorful:
Q: So you get to Washington, and what happens next?
A:.... When [Adham] finished the meeting he said look, this is—
he was minister I think of defense. Now he’s the man, he has a
lawyer office like this, he’s the man who will be responsible for the
buyer because regulation, as he said, work like this.
Q: He was talking about Mr. Clifford?
A: Clifford.
Q: He had been meeting with Mr. Clifford?
A: Yeah, too, and Altman inside. After he said this is Altman, that is
the son of Mr. Clifford, like that. First word after how do you do
everything, how is your English language? I said it’s not perfect.
That means that somebody told him and he knows me, I am not
Shakespeare, but I’m trying to explain whatever I know . . . He said
no, we prepared everything for you. Just I would like to read in front
of you and Jawhary, please repeat it again tomorrow. And . . . he
read, when you have point, stop like. He want me to do it with very
prestigious way. I cannot. This is not my way.....
Q: Who rehearsed you through this, through your lines, was that
Mr.—
A: Mr. Clifford.
Khalil Dep. (BCCI) at 385-87.
Sla
The initial transfer of CCAH shares took place in 1982.
Khalil tells an improbable tale to explain how he actually
purchased his shares. According to Khalil, he authorized
Abedi to buy between $5 million and $8 million of CCAH
stock. Khaiil testified that after the initial purchase, he
received a statement from BCCI showing that $14,832,000
had been taken from his accounts to purchase between 4 and
5 percent of CCAH. Khalil testified that he was angry that
Abedi had greatly exceeded the authorized amount. However,
Khalil did not introduce this bank statement into evidence,
nor did any witness who spoke with Khalil at the time testify
that Khalil was upset. On the contrary, on the return flight
from Washington in April 1981, Khalil acknowledged his
nominee status to Akbar. At later times Khalil again
acknowledged his nominee status with respect to CCAH
shares in his name to both Akbar and Naqvi.
The documentary record also demonstrates that Khalil was
a nominee for BCCI. Three blocks of shares were purchased
in Khalil’s name. There was an initial purchase of 8,240
shares in the tender offer of March 1982, and rights shares
purchases of 1,667 shares in August 1982 and 3,343 shares in
November 1983, amounting to a total purchase of 13,250
shares registered in Khalil’s name. None of the memorandum
account statements kept by Akbar that were introduced, nor
any of the account statements produced by Khalil, show that
any of his deposit or current accounts were debited to pay for
any of these purchases. Rather, the documents show that
BCCI created false loans from BCCI Group entities to carry
out the nominee purchases. The nominees, including Khalil,
had no obligation to repay the loans; BCCI’s investment was
concealed through the nominee lending. The total amount of
BCCI’s direct investment in the shares of First American
through the nominee scheme was $556,108,245.
For the initial purchase, BCCI routed funds for the shares
purchased in Khalil’s name through the Swiss bank account
52a
of another nominee shareholder, Sayed Jawhary. BCCI
created a false $30 million loan to Khalil in BCCI Overseas,
Grand Cayman. Those funds were then sent to a false current
account in Khalil’s name at BCCI, S.A., London. Most of
these funds were subsequently transferred by wire from BCCI
to United Overseas Bank, Geneva, to the credit of Adham’s.
and Jawhary’s actual accounts. The ‘funds sent to United
Overseas Bank were then returned by wire to BCCI where
they were pooled with funds for other nominees as well as
beneficial shareholders and transferred to the ICIC Call
Deposit Account, which was the collection account for the
First American tender offer at BCCI Overseas. These funds
were then remitted by wire to BCCI Overseas’ account at
Bank of New York and then to First American’s account at
Chase Manhattan. There was no commercial purpose for such
a roundabout routing of funds, which concealed from the
auditors and regulators the fact that the BCCI Group had
supplied the funds for the purchase of shares in Khalil’s and
others’ names.”
Khalil knew that the funds for purchase of the shares in his
name had been routed through the Swiss account. Jawhary
testified that he told Khalil that Jawhary’s Swiss account had
been used to route funds and that “Khalil said fine.” Jawhary
Dep. (BCC) at 12-13.
BCCI management carried out the second and third
nominee purchases in Khalil’s name in similar fashion. The
second purchase of shares in the name of Khalil occurred in
August 1982. A loan of $12,060,000 was drawn down in the
name of another nominee at BCCI Overseas, Grand Cayman.
The funds were transferred from BCCI Overseas by wire to
First American’s account at Chase Manhattan Bank in New
3 As is evident, this routing transaction to conceal the source of funds
to purchase Khalil’s shares was effected through the use of international
and United States wires.
53a
York in August 1982. The transfer included $3,000,600 for
shares in the name of Khalil and $9,059,400 for other
nominees. Again, United States and international wires were
used to effect the transaction. The third purchase of shares in
Khalil’s name occurred in November 1983. A loan of
$6,368,415 was drawn down in the name of Khalil at ICIC
Overseas, Grand Cayman, which was aggregated with other
loans drawn down at ICIC in the name of other nominees and
remitted by wire io First American’s account at State Bank of
Albany in New York.
In total, $24,201,015 was paid by the BCCI Group to
finance nominee shares for Khalil. These transactions were
all recorded in BCCI’s books as loans. BCCI documented its
Ownership interest in First American in detail. With
immaculate penmanship, Imam tracked on a regular basis
BCCI’s internal carrying costs on these nominee loans.™* The
accounting for these nominee purchases as loans was false;
the financing did not represent genuine and collectible loans
made to Khalil, and the purported loans were never repaid by
Khalil.
In support of his claim that he was the beneficial owner of
his CCAH shares, Khalil testified concerning a 1984 trip he
made to Washington, D.C. area, where Khalil’s son, Khalid,
4 At Nagvi’s direction, Imam kept detailed records of CCAH
shareholding. Almost all the CCAH shares were purchased with loans
from BCCI. Some of these loans were false and were created to disguise
BCCI’s direct equity investment in First American. Other of these loans
were, at least in some respects, real extensions of credit. To distinguish
between the two, Imam listed the nominee shareholders as “Group I.”
This group was not obliged to repay the “loans” advanced for the purchase
of their shares. See Imam Dep. at 42. By contrast, Group II shareholders
were expected to repay their loans. /d. at 48-49. Some CCAH
shareholders, such as Adham, were listed in both Groups I and II because
they held some shares as nominees and other shares beneficially. At all
relevant times, Khalil was a Group I shareholder; a nominee.
54a
lived. Khalil entered a First American branch in Falls Church,
Virginia and attempted to cash $100,000 in travelers checks.
The teller explained that he only had permission to cash up to
$3,000, and that authorization from a supervisor would be
required. Khalil stated that he was a shareholder of the bank.
The branch manager telephoned Altman, who authorized the
transaction. See Khalil Dep. (BCCI) at 352. Within the same
week, Khalil visited Altman in his office to hear a report on
First American’s progress. Khalil testified that during the
meeting Altman showed him his CCAH share certificates but
told Khalil that the certificates could not be delivered to him
for another 18 months.
The evidence does not support this version of events. The
Court finds that Khalil did travel to Washington, D.C. in
1984, and that he did meet with Altman. Although Khalil was
a nominee owner of First American, he expected First
American to extend to him the same “VIP service” he
received from BCCI. Khalil sought information concerning
First American’s success so that he could value his service to
BCCI as a nominee. Altman did not have the CCAH share
certificates; Imam did. See Imam Dep. at 74-75; cf. Khalil
Dep. (BCCI) at 835 (testifying in regard to Capcom share
certificates that “if you have the real shares why you give it to
other people.”’).
It was illegal for the BCCI Group to acquire or maintain its
beneficial interest in First American without approval by the
Federal Reserve. By participating in the nominee scheme,
through which BCCI acquired a controlling interest in
violation of United States banking laws, Khalil and his co-
conspirators subjected BCCI to criminal liability and
substantial financial loss.
VI. TERM DEPOSITS
Khalil closely watched BCCI’s treatment of his term
deposits. He had instructed BCCI to roll over his term
se Cheb ee
55a
deposits and to find him the best interest rates available. He
expected BCCI to provide him with above-market rates. E.¢.,
Khalil Dep. (BCCI) at 137, 209-10. Early on he detected
problems with his account statements. He found that the
interest payments were not as great as expected or not at the
agreed-upon rate. In his terms, BCCI staff was “playing with
the interest” or doing “monkey business.”” Although Khalil
appears to have been aware of all such discrepancies, he
chose to point out only the more egregious to Akbar, who
grudgingly had them corrected. E.g. , Khalil Dep. (BCCI) at
90-91, 197-98. He purported to cancel his previous
instructions to Akbar, but in fact, his relations with the bank
remained unchanged.
The Court finds this conduct to be further corroboration of
Khalil’s nominee status. Khalil understood that the BCCI
Group needed him more than he needed them, and that by
acting as nominee, Khalil had additional leverage over the
bank. As a result he expected to receive above-market interest
on his genuine deposits, and he expected to receive additional
*> According to Khalil, this was a reflection of national character.
Q: I’m sorry, you were talking about BCCI being run by
Pakistanis?
A: Yes. They type of the people that are dealing millions and
millions, they’re not from rich country, they’re from poor
country and they are from poor very inside the country. When
you put all this liquidity in their hand I think he’s not an angel
coming from the sky, he’s a person. He need to play. I am not
concerned about BCCI and the people, no, all we face that in
Saudi Arabia. In our banks, in our companies, you see, in our
relation with any contract building like this, always like that,
always.
Q: Always what?
A: Always they cheat, they play.
Khalil Dep. (BCCI) at 215; see also id. at 478-79.
56a
payments and profits for his service as a nominee. Had Khalil
been only a genuine depositor, he certainly would have
withdrawn his money from BCCI rather than tolerate regular
discrepancies in his account statements. However, the fact
that Akbar and others tried to cheat on their agreement by
providing less interest than had been agreed troubled Khalil,
but did not cause him to leave the bank. The potential pay-
offs of staying outweighed the annoyance of having to
monitor Akbar and bring him back into line from time to
time.
VII. GROWTH OF CAPCOM
In the mid-1980s, a number of events transpired that
changed Khalil’s relationship with BCCI. These began in
1984 and were triggered by Akbar’s deteriorating relations
with Abedi and Naqvi. Akbar consulted with Naqvi on a daily
basis, but Naqvi began to lose trust in Akbar. Naqvi’s
suspicions were well founded.
The newest development was the founding of Capcom UK
(initially named Hourcharm Ltd.) in April 1984. When Khalil
and Akbar agreed to start Capcom UK, they agreed to siphon
funds from the BCCI Group to capitalize and support the new
venture. Khalil testified that he and Akbar, as partners,
controlled 67 percent of Capcom UK shares, though that was
not reflected in the records of Capcom. Akbar did not become
a registered shareholder of Capcom until 1987, but he
nevertheless created and controlled the operations of Capcom
UK from “behind the curtains.” Khalil was a director of
Capcom UK and consulted regularly with Akbar concerning
the company.
In furtherance of this conspiracy, Akbar—as head of
treasury for the BCCI Group—created loans in the books of
BCCI in the name of Khalil and Khalil-related companies,
including Maram Trading Company. These funds were
transferred from BCCI accounts (at times using U.S. bank
accounts and using international and United States wire
57a
facilities) to Capcom UK as capital and as trading funds.
These funds were converted to the use of Capcom UK and
were not repaid to the BCCI Group.
Capcom began trading in September 1984. To the surprise
of many in the London trading community, it appeared as if
Capcom had become a large presence in the market almost
overnight. At Akbar’s direction, BCCI used Capcom
extensively as a broker. In addition, between October 1984
and December 1984 Akbar caused BCCI to transfer a total of
$100 million to Capcom UK. Neither Naqvi nor Abedi
authorized these transfers. These funds were initially debited
to an overdraft account in the name of Khalil at BCCI
Overseas, Grand Cayman. The debits to this account falsely
represented that Khalil was liable to repay the amounts
advanced. In fact, he was held harmless as to any debits to the
account and the accounting for the transfers therefore falsified
the books and records of the BCCI Group. The funds were
transferred to Capcom by BCCI Overseas using international
and United States wire facilities and United States bank
accounts. In addition, the transfers were confirmed using
international and United States wire facilities and the United
States mail. The liability for these transfers was subsequently
transferred from the Khalil overdraft account to a loan
account in the name of a Khalil-owned company, Maram
Trading Company.
Flush with cash, Capcom UK expanded into the growing
commodities futures market at the Chicago Board of Trade by
incorporating Capcom US in May 1985. Capcom UK was the
record shareholder of 82 percent of Capcom US stock. One
month later, Akbar caused BCCI to transfer approximately
$25 million to Capcom UK, debiting an account in the name
of Maram Trading Company. These funds were transferred to
Capcom UK by wire using United States bank accounts and
international and United States wire facilities. Akbar
disguised the true nature of this transfer by making it appear
58a
as if Paten Holding Company—a Panamanian shell company
that Akbar had set up through a Swiss lawyer—had advanced
the funds as non-recourse loans to the shareholders of
Capcom UK. Khalil executed a loan agreement and
memorandum of deposit purportedly evidencing a loan from
Paten Holding to him secured by shares in Capcom UK.
Jawhary and Adham also executed loan agreements in favor
of Paten Holding. When received, the funds were accounted
for by Capcom UK as share capital.
VIII. THE $12.5 MILLION PAYMENT TO KHALIL
Around this same period, mid-1985, while Akbar was
literally looting the BCCI treasury, Naqvi first became aware
of sizable losses Akbar had been incurring in the Treasury
operations. Akbar warned Khalil that Akbar’s position with
the bank had become shaky. Whatever allegiances Akbar may
have had for BCCI were quickly evaporating, and Akbar
placed a higher premium on his lucrative partnership with
Khalil. Khalil understood that many of BCCI’s Treasury
losses had occurred in connection with accounts in his name.
BCCI was scrambling to find a way to disguise these losses
from its external auditors. This gave Khalil additional
leverage over the bank. At the same time, Khalil had become
nervous about the safety of his deposits. Akbar had revealed
to Khalil that in addition to the Treasury losses and the large
amounts being diverted to Capcom, BCCI also was faced
with enormous non-performing loans that had been advanced
to the Gokal brothers in India.
Khalil told Akbar that he wanted to close out his accounts
at BCCI and that he expected to be paid his share of the
“profits” from the trading operations, notwithstanding his
knowledge of the serious losses that BCCI’s Treasury had
experienced. Akbar found himseif caught in the middle. His
position with BCCI would erode considerably if he did not
59a
have Khalil’s accounts to manage. However, it was more
important to him to keep Khalil happy.
Akbar approached Naqvi and advised him of Khalil’s
intention to close his accounts and receive an unspecified
amount of “profit.” Naqvi recognized the bank’s vul-
nerability. With the losses in Treasury, the additional loss of
significant deposits would leave the bank with precarious
liquidity. Moreover, as to the issue of Khalil’s desire for
“profits” from BCCI’s trading in Khalil’s name, Naqvi
explained that “because there was no written agreement with
Mr. Khalil of my earlier understanding that the compensation
would be about 1 percent of the amount invested, it became
an open issue.” Naqvi Dep. at 59.
Suspicious of Akbar’s divided loyalties, Naqvi nonetheless
deputized Akbar to find-a way to keep Khalil as a depositor
and to settle the “profit” issue. To prevent Khalil from
exploiting the uncertainty concerning Khalil’s share of
trading profits in the future, Akbar was directed to
memorialize any settlement agreement with Khalil. Akbar
and Khalil negotiated the sum of $12.5 million. By letter from
Akbar to Khalil dated August 16, 1985, and countersigned by
Khalil, the $12.5 million payment would represent $2.5
million in realized trading profits and $10 million “from the
future profits of trading account (50%) and-ef-prefits-on-your
BCC} heldings-shares(Capital-Gain}— See Pls.’ Exs. 1546,
1547. The portion of that line struck out was done so at
Khalil’s direction. He expressly reserved the issue of payment
for his nominee service with respect to BCCI Holdings shares
for a separate negotiation.
Akbar had also drafted a line in the letter that read: “For
the purpose of trading, I am taking time to time, a loan from
the Bank in your name which will be adjusted at the close of
the trading business. This is for your information only.” It is
undisputed that Khalil signed the letter with this line left
60a
intact. Pls.’ Ex. 1546. It is further undisputed that during the
course of the meeting with Akbar, after signing the letter,
Khalil directed that the line referencing loans taken in his
name also be struck out. Pls.’ Ex. 1547.
Akbar, being a double agent in this negotiation, quickly
acquiesced to both edits. When Akbar informed Naqvi of the
outcome, Naqvi was staggered by the sum. He testified that
he considered the payment to be “extortion,” but he félt he
_ had no choice but to ratify the agreement. See Naqvi Dep. at
70. On August 20, 1985, BCCI issued a check in the amount
of $12,500,000 in favor of Mr. Abdul Raouf Khalil.
Khalil admits that he directed that portions of Akbar’s
August 16, 1985 letter be crossed out, he admits that he
signed the letter, and he admits that he received a check for
$12.5 million. Khalil’s characterization of this transaction,
however, is quite improbable. See Khalil Dep. (BCCI) at 300-
21. For example, Khalil testified that this $12.5 million
payment was for the BCCI Holdings shares in his name,
notwithstanding his admission that he directed that the
reference to BCCI shares be struck out. Even on small points
his testimony is internally inconsistent. He did not dispute
that his meeting with Akbar occurred on August 16th, the
date of the letter. Yet, he testified that he received the check
during his meeting with Akbar, even though the check was
not issued until August 20th. The Court finds that this $12.5
million was payment to Khalil from BCCI for Khalil’s
service as an all-purpose nominee.
IX. KHALIL WITHDRAWS MOST OF HIS DEPOSITS FROM
BCCI
The spring of 1986 was the breaking point on a number of
fronts. Akbar made his last raid on the BCCI treasury.
Between January and April 1986, funds in the amount of
$136 million were transferred from BCCI to Capcom by
6la
United States wire using United States bank accounts. These
funds were never returned to BCCI.
At that same time, Naqvi came to appreciate the full extent
of the losses in Treasury. Naqvi did not realize that some of
these “losses” were funds Akbar had embezzled through
Capcom, but it was clear that the bank was hemorrhaging
funds at an unsustainable rate. Naqvi knew he had to rein in
Akbar without doing so in a way that would lead Akbar to
expose the bank’s true financial condition to the world. See
Naqvi Dep. at 179. Instead, Akbar left BCCI on his own
accord.
Shortly thereafter, Akbar resurfaced at his own brokerage
company, Futures Advisory Services (“FAS”), located down
the hall from Capcom UK’s offices. Akbar recruited his
secretary, Lorna Wisdom, and other BCCI Treasury
personnel to join him either at FAS or Capcom. Akbar
directed Capcom’s affairs from his FAS office. Akbar
continued to collect a salary from BCCI until 1987.
Akbar’s departure from BCCI spurred Khalil into action. In
May 1986, with his partner and account manager out of the
bank, and with the bank appearing to be in serious fmancial
trouble, Khalil decided to withdraw his deposits from BCCI.
Because Akbar was gone, Khalil dealt directly with Naqvi.
Naqvi tried, but failed, to persuade Khalil to stay with the
bank. Khalil presented Naqvi with his most recent account
statements and demanded that nearly all the funds be paid to
him: Khalil agreed to keep approximately 10 million Saudi
riyals in a BCCI account. Khalil directed that $87 million and
£3 million be transferred to Khalil’s new accounts at
Adham’s bank, Allied Arab Bank. See Pls.’ Ex. 1745. Khalil
also raised with Naqvi the issue ofthe BCCI shares in Khalil’s
name.
Without access to Akbar’s records, Naqvi agreed to pay out.
the amount reflected on the account statements presented by
62a
Khalil. However, to protect against a subsequent approach by
Khalil to collect more in the way of deposits, Naqvi drafted
language by which Khalil agreed that these payments, along
with the instructions eoncerning the 10 million riyals,
represented a full accounting of Khalil’s deposits with BCCI.
See Naqvi Dep. at 82 & Pls.’ Ex. 1737.
- When Naqvi and Khalil took up the subject of BCCI
shares, Khalil was primarily concerned with getting the
shares out of his name. Khalil had become concerned about
his public association with the bank, whose financial straits
were becoming more apparent. Naqvi explained that it would
take time. Khalil agreed to allow BCCI to keep the shares in
his name for another 18 months. Khalil signed transfer deeds
in blank and an agreement with ICIC authorizing the sale of
shares in his name at any price ICIC may direct. See Pls.’
Exs. 43 & 1747.
X. THE $15 MILLION PAYMENT TO KHALIL/THE $17
MILLION “LOAN”
A. $15 Million Payment
The summer of 1987 again brought a flurry of activity.
Khalil requested another meeting with Naqvi. They met first
on June 25, 1987. In that meeting, Khalil announced that he
was withdrawing his remaining deposits and that he expected
to receive another substantial paymeént—a parting gift, as it
were—for his service as a nominee. Khalil also wanted
assurance that the loan accounts in relation to both the BCCI
and CCAH shares in his name would be closed. According to
Naqvi, Khalil “was there to explore and exploit the situation
at the time of his total separation of relationship with BCCI.”
Naqvi Dep. at 90. Naqvi elaborated:
[T]here were so many other parties who were exploiting
and blackmailing BCCI that I had become familiar of the
manner, the tone, the approach, which underlies an
63a
extortion claim. And this was the situation which I was
facing with Mr. Raouf Khalil the second time, sir.
Id. at 97.
Naqvi inferred, and the Court finds, that Khalil had been
briefed by Akbar in preparation for this meeting, and that
Akbar conspired with Khalil regarding the amount that Khalil
should seek to extract from Naqvi. See Naqvi Dep. at 89-92.
After some negotiation, Naqvi agreed to make a flat payment
of $15 million in full and final settlement of all investments
in Khalil’s name. Under the agreement, Khalil waived any
right to additional profits from the BCCI Holdings shares that
had been treated as “beneficial” shares in the books and
records of BCCI. Acknowledging Naqvi’s request for
additional time to transfer both the BCCI and CCAH shares,
Khalil agreed that these could be kept in his name for an
additional two years. Khalil also agreed to sign audit
confirmations to assist Naqvi with the auditors.
A follow-up meeting took place on July 2, 1987 for the
purpose of documenting the $15 million agreement. Imam
corroborated the timing of the July 1987 meeting and his
preparations to assist Naqvi in discussing the loans and
investments held in Khalil’s name. Documents signed by
Naqvi and Khalil during the July 1987 meeting corroborate
that the $15 million was a fixed payment in respect of both
First American and BCCI Holdings shares held in Khalil’s
name. Imam prepared the documents relating to the
transaction and brought them into the meeting between Naqvi
and Khalil. Khalil signed the documents during the meeting
and they were returned to Imam shortly thereafter. Dr. Giles
authenticated Khalil’s signature on these documents.
Khalil signed an instruction letter directing that the $15
million be paid, via New York bank accounts and wires, to
his account in the name Tahia Trust at Libra Bank. On July 3,
64a
1987, the $15 million payment was wired from BCCI
Overseas, Grand Cayman via bank accounts in New York.
Advice of the payment was communicated from New York to
Grand Cayman by United States mail. Khalil conceded that
payment was made to the account designated in Pls.’ Ex.
1891, and that the account was his.
B. $17 Million “Loan”
In the June 1987 meeting, Khalil also addressed a separate
issue. Previously, because of pressure from the auditors,
BCCI had stopped using Capcom as its broker. Prior to the
June 1987 meeting, Akbar had been contacting BCCI,
seeking a $17 million loan for one of his companies. BCCI
had resisted. At the June 25, 1987 meeting, Khalil asked that
BCCI renew its relationship with Capcom. Naqvi explained
that he could not authorize that. Khalil then pressed Naqvi to
extend the loan Akbar had been seeking. Naqvi agreed to
advance $17 million from BCCI to General Securities
Corporation (“GESS”), a corporation owned jointly by Khalil
and Akbar, which had an account at Capcom. The $17 million
payment was made on June 25, 1987.
XI. RESTRUCTURING OF CAPCOM US SHAREHOLDING
Khalil was acutely aware of Naqvi’s vulnerabilities in their
meetings in the summer of 1987 because Khalil faced his own
exposure with Capcom. Khalil’s trust in Akbar, such as it
was, was on the wane. Khalil had agreed to the opening of
Capcom US in 1985. Akbar reported to Khalil on a regular
basis, but many of the day-to-day detail of Capcom’s business
had been left to Akbar.
The opening of Capcom US had invited scrutiny from the
Chicago Board of Trade and other regulators in the United
States. The Board of Trade had found that Capcom UK’s
ownership of Capcom US did not provide sufficient security.
“Dh shi: Mtatihctnde
65a
Either Capcom UK would have to increase its share capital or
any shareholder with a 5 percent or greater stake in Capcom
US would need to provide a personal guarantee. Khalil did
not want to provide such a guarantee. At the same time,
circumventing such a regulation by using nominee share-
holders troubled him. Many of the Capcom shareholders
already were nominees, including Jawhary and Adham.
Having just used his own nominee status to extract a $15
million pay-off from BCCI, Khalil knew exactly how a
nominee might exploit that position with him.
Moreover, at this time of increased scrutiny, Khalil met
with evasive responses from Akbar when he sought specifics
about the various real and fictitious arrangements that Akbar
had made regarding Capcom. The Court infers that Jawhary
also advised Khalil that if regulators were ever to investigate
Capcom’s internal affairs, the records should reflect that
directors, such as Khalil, had sought to bring the company
under control.
Thus, when Khalil visited London in June 1987 to meet
with Naqvi, he also had a separate meeting in Capcom UK’s
headquarters with Akbar, Khalil, and Jawhary. Khalil focused
attention on the ownership of Paten Holding, which, on paper,
had advanced $17 million to the Capcom UK shareholders on
a non-recourse basis to fund a capital increase. In this case,
Khalil testified that he and Akbar were equal owners of
Paten. But the evidence is clear that in June 1987, Khalil was
“furious” with Akbar, see Jawhary Dep. (BCCI) at 158, and
wanted the record to reflect that he was the sole owner of
Paten. Akbar protested; Jawhary simply wanted the matter
resolved. Minutes of this meeting were prepared and signed
by the participants, including Khalil. See Pls.’ Ex. 1878. At
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the meeting it was agreed that Khalil was the sole beneficial
owner of Patent Holding.”
Another topic discussed was restructuring the shareholding
in Capcom US. Time was running out to meet the Board of
Trade’s requirements. The option to increase Capcom UK’s
share capital was rejected. With Akbar no longer in a position
to siphon funds from the BCCI treasury, Khalil had no
interest in investing his own funds in Capcom. Khalil had
also made it clear that he would not provide a personal
guarantee. Akbar, however, was willing to sign a guarantee.
Khalil, Jawhary, and Akbar tentatively agreed to a new
arrangement in which Akbar would become the largest
shareholder of Capcom US, at least on paper, with a 28
percent stake. However, Jawhary proposed that they explore
other restructuring options to use additional nominees.
Some further discussions clearly took place. Khalil had
traveled to Chicago to discuss with shareholders, Akbar, and
attorneys the restructuring of Capcom UK’s shareholding in
Capcom US. On August 6, 1987, The Capcom Board sent
Capcom US’s Chicago counsel a letter announcing the new
shareholding structure of Capcom US. See Pls.’ Ex. 1945.
Under the final structure, three shareholders would each hold
in excess of 5 percent and would provide personal-guarantees.
Akbar’s share had dropped to 14 percent, and the largest
shareholder became Wadia Sayed Khalil, Khalil’s brother,
who purportedly bought 39 percent of Capcom US. On
August 19, 1987, the Capcom UK Board formally ratified the
new shareholding arrangement. Wadia Khalil did not testify
in this case, and, from the evidence, the Court can only
conclude that Khalil had found a nominee he could trust;
*° Subsequently, Khalil, Akbar, and Jawhary traveled to Geneva, where
the lawyer who had incorporated Paten, and who acted as Paten’s
registered agent, resided. Khalil revised the power of attorney forms to
restrict Akbar from freely using Paten without Khalil’s knowledge.
67a
~ Khalil beneficially owned the 39 percent of Capcom US held
in his brother’s name.
Concern over Akbar’s trustworthiness and_ increased
regulatory interest in Capcom US led Khalil to believe that he
should disassociate himself from Capcom altogether—on
paper. Separation from Capcom also meant divesting himself
of Paten Holding, which was tied to Capcom on _ paper
through the false loan agreements. During the autumn of
1987, Khalil had repeatedly requested reports from Capcom
UK staff detailing the company’s finances. Many of these
demands were designed to pressure Akbar to be more
forthcoming with Khalil in the conduct of their partnership.
However, having received no satisfactory response, Khalil
called for an extraordinary shareholders meeting, which was
scheduled for February 5, 1988. Khalil’s pressure tactics
finally drew a response from Akbar, who agreed to a fixed
payment to assuage Khalil’s concerns regarding Akbar’s
embezzling from their jointly-owned companies and to allow
Khalil to formally disassociate himself from Capcom and
Paten Holding.
Two days before the shareholders meeting, February 3,
1988, Khalil signed documents purporting to transfer his
shares in Capcom and Paten Holding to Akbar for £4 million.
Khalil would now be a silent partner. Khalil took no steps to
record the sale of his shares or to make other interested
parties aware that he had sold his shares.
On the contrary, Khalil neither attended the February 5,
1998 shareholders meeting to announce the “sale” of his
interest, nor did he advise any of the other shareholders as to
the reason for his absence. Indeed, Khalil affirmatively
concealed the paper sale of his shares from Jawhary and from
other principals and directors of Capcom. In November 1988,
long after Khalil had purported to have no further interest in
Capcom, Khalil executed a proxy in favor of Jawhary for an
extraordinary general shareholders meeting for Capcom UK.
68a
XII. KHALIL’S RECORD SHAREHOLDING: BCCI, CCAH,
CAPCOM
Khalil asserts that by the late 1980s, he had successfully
withdrawn from his dealings with BCCI, CCAH, Capcom,
and Akbar. The Court finds otherwise. Khalil took no steps to
‘ assure that the BCCI Holdings shares were ever taken out of
his name. Although he had agreed with Naqvi that the shares
could remain registered in his name until December 31, 1988
(itself an illegal nominee agreement), Khalil learned from
Naqvi in 1989 that the shares still remained in his name.
Indeed, in April 1989, another block of BCCI Holdings
shares had been registered in Khalil’s name. Khalil was never
thereafter informed that the BCCI shares in his name were
transferred to another owner, and he took no affirmative
action to remedy the situation. In fact, all of the shares
remained registered in the name of Khalil until April 1990,
when the bulk of the shares were transferred to another
shareholder. At the time BCCI was seized in 1991, a total of
57,748 shares remained registered in Khalil’s name. Those
BCCI Holdings shares remained in Khalil’s name until the
proceeds from the sale of the nominee interests were forfeited
to the United States in December 1994.
As to the CCAH shares in Khalil’s name, Khalil was a
nominee shareholder in the illegal acquisition and main-
tenance of control of First American from March 1982
onwards. Khalil told Jawhary that he had sold his interest in
First American, see Jawhary Dep. (BCCI) at 124-25, but
Khalil took no affirmative steps to have the CCAH shares
taken out of his name. In addition, Capcom shares remained
registered in Khalil’s name until at least July 1994. Khalil
continued to receive Capcom shareholder materials until at
least 1993 and made no request to have his name removed
from the share register.
FEF Cee ee eee ee ee ' " a hen
69a
Indeed, to show that he was never, or at least no longer, a
member of a conspiracy with BCCI management, Khalil
introduced evidence of a meeting between himself, Adham’s
attorneys, and Jawhary in 1992. At that time, the United
States Department of Justice (“DOJ”) and the District
Attorney of New York were investigating the circumstances
of CCAH’s nominal acquisition of First American. DOJ
officials sought statements from the record shareholders of
CCAH concerning the source of the funds for their nominal
investment. The meeting was held to discuss possible
responses to the DOJ request. At the meeting, Khalil
discussed a cover story explaining that the money for the first
investment in CCAH came from a real estate transaction
brokered by Khalil. See Jawhary Dep. (BCCI) at 135-44, 146-
49. Shortly before pleading guilty, Adham and Jawhary
submitted a signed statement with the cover story to the DOJ.
Khalil, on the other hand, refused to sign. The Court finds
that, at the meeting, in which his counsel was not present,
Khalil had been instrumental in creating the cover story.
However, after the meeting, Khalil conferred with his
counsel, and he subsequently refused to sign and submit a
statement with the cover story to the DOJ.
Contrary to Khalil’s intent in introducing this evidence, the
Court finds that Khalil was again a willing co-conspirator in
the cover story plot, but that he was more shrewd than his co-
conspirators in assessing the risks of submitting such a tale to
the DOJ. The evidence of Khalil’s participation in this
conspiracy lends further credence to the evidence
demonstrating Khalil’s participation in the nominee scheme
and the Capcom conspiracy with Akbar.
XIII. SEPARATE PAYMENTS TO AKBAR
On the theory that a conspirator is liable for the acts of co-
conspirators in furtherance of the conspiracy, the Liquidators
also sought to hold Khalil liable for payments made by BCCI
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separately to Akbar. For example, in August 1988, Akbar
traveled. to Washington to meet with a Senate investigator
about BCCI and First American. Following his meeting with
the Senate investigator, Akbar sent a facsimile from
Washington to London indicating that he believed that
Capcom’s continued success would require him to disclose
harmful facts about BCCI (including the First American
nominee scheme and frauds involving the Khalil accounts) to
the Senate. In exchange for his silence, Akbar demanded $15
million from BCCI. Naqvi instructed CFC to make the
payment by wire using United States bank accounts, to
Capcom UK.
Although Akbar funneled this and other direct payments
through Capcom, the Court finds that Akbar was operating
outside the scope of his conspiracy with Khalil regarding
these payments. Akbar is personally liable for these payments
to BCCI; Khalil is not.
DISCUSSION
In his answer to the complaint, Khalil asserted thirteen
affirmative defenses, some of which, if accepted, would have
prevented the Court from reaching the merits of this dispute.
See Khalil, 20 F. Supp.2d at 4-7 (discussing some of these).
However, at trial Khalil focused only on the merits, leaving
his affirmative defenses unattended and unaddressed. For
example, Khalil’s counsel made no mention of the statute of
limitations, imputation, or standing in his closing argument.
Moreover, in Khalil’s Proposed Findings of Fact and
Conclusions of Law—which, in a party’s best-case scenario,
could be adopted as the opinion of the Court—no mention is
made of any affirmative defense other than the defense as to
proximate cause.”” As a matter of caution, the Liquidators
7 In fact, that defense is not “affirmative” in that plaintiffs bear the
burden to prove that their losses were proximately caused by Khalil’s
ee a re ee ee Tw
ON Ee A ee Oe POR ee Se ES ER ORS eee Se ea. Teese eee Cee
AD, eagle ater wel 4S
Tla
addressed issues such as imputation, adverse domination, and
fraudulent concealment in their Proposed Findings and
Conclusions, and Khalil did respond to those proposals.” But
it is not up to plaintiffs to preserve defendant’s affirmative
defenses.
The Court finds that Khalil waived his affirmative defenses
with the exception of defenses 6 and 9 related to causatiori.”
Moreover, even if Khalil had preserved these issues, the
Court would have found that the Liquidators are entitled to
relief largely for the reasons they advance. See Pls.’ Prop.
Findings of Fact and Concl. of Law pp 112-140, 171-185.
Ultimately, the Court would have found that the
Liquidators’ claims accrued in April 1994. In addition to the
reasons advanced by the Liquidators, discussion of the
Supreme Court’s opinion in Klehr v. A.O. Smith Corp., 521
U.S. 179 (1997), would have been required.” The Supreme
Court in Klehr strongly implied that some discovery rule
applies to the civil RICO limitations period but was less
conduct.
** The Court gave each party an opportunity to file a response to the
other’s Proposed Findings and Conclusions.
” See United States v. Indiana Bonding and Surely Co., 625 F.2d 26,
29 (Sth Cir. 1980); Christen G. v. Lower Merion School Dist., 919 F.
Supp. 793, 799 (E.D. Pa. 1996); Turley v. Union Carbide Corp. , 618 F.
Supp. 1438, 1441 (S.D. W. Va. 1985); Planells v. Howard Univ., 1983
WL 594 *11 (D.D.C. 1983); cf. United States v. Republic Marine, Inc.,
829 F.2d 1399, 1401-03 (7th Cir. 1987); Aviation Development Co. v.
C&S Acquisition Corp. , 1999 WL 123718 *5 (S.D.N.Y. Mar. 8, 1999);
Long v. Methodist Hosp. of Indiana, 699 N.E.2d 1164, 1166 (Ind. 1998).
™ For the civil RICO claims, a four-year limitations applies. /d. at 183.
Moreover, that period can be tolled if the plaintiff shows that she
exercised due diligence but that defendants fraudulently concealed the
facts of an alleged RICO violation. /d. at 195-96. Finally, K/ehr left open
the question of when a civil RICO claim accrues. See id. at 191.
72a
certain as to what information the plaintiff must discover to
trigger the limitations period. See Klehr, 521 U.S. at 185-86,
191-93. In this Circuit it has been assumed, but not decided,
that the four-year limitations period for a civil RICO claim
begins to run when the plaintiff discovered, or should have
discovered, his injury. See Riddell v. Riddell Washington
Corp., 866 F.2d 1480, 1489-90 (D.C. Cir. 1989). Had it been
necessary, the Court would have held that even under the
most restrictive of the discovery rules left intact by Klehr, on
the facts of this case, the Liquidators’ suit was timely filed.
As to the merits, the Liquidators allege that Khalil is liable
under the civil RICO provision, 18 U.S.C. § 1964(c). Count I
covers Khalil’s role in BCCI’s acquisition of First American;
Count II covers Khalil’s role as a nominee on BCCI’s shares
and for the BCCI Treasury; Count III covers Khalil’s role in
the operation of Capcom; and Count IV covers Khalil’s use of
funds from BCCI to capitalize Capcom. In addition, Khalil
asserted three common law counts covering the same
conduct: Count V alleges common law fraud; Count VI is for
unjust enrichment; and Count VII is for conversion.
OVERVIEW OF CIVIL RICO
RICO reaches higher-level criminal organisms that have
evolved beyond simple schemes and single criminal acts. The
operative criminal provision is 18 U.S.C. § 1962, which
creates four distinct offenses. Common to each offense is “a
pattern of racketeering activity.”
The phrase ‘racketeering activity’ is a term of art
defined in terms of activity that violates other laws,
including more than 50 specifically mentioned federal
statutes, which forbid, for example . . . extortion, and
various kinds of fraud. § 1961(1). The word ‘pattern’
is also a term of art defined to require ‘at least two
acts of racketeering activity . . . the last of which
73a
occurred within ten years after the commission of a
prior act of racketeering activity.’ § 1961(5).
Klehr, 521 U.S. at 183. Also common is some relation
between the “pattern of racketeering activity” and an
“enterprise,” a defined term that includes corporations. See 18
U.S.C. § 1961(4).
Subsection (a) renders unlawful the acquisition of ary
interest in or the establishment or operation of an
‘enterprise’ . . . with the proceeds of a ‘pattern of
racketeering activity.” . . . . Subsection (b) outlaws
acquiring or maintaining an interest in or control of an
enterprise ‘through a pattern of racketeering activity.’
. . . . Subsection (c), the subsection most litigated,
outlaws the conduct of affairs of an enterprise (under
circumstances outlined in the statute) ‘through a
pattern of racketeering activity.” Subsection (d) adds
nothing substantive to the law. Rather, it makes it
unlawful to conspire to violate any of the preceding
three sections.
Danielsen v. Burnside-Ott Aviation Training Ctr, 941 F.2d
1220, 1224 (D.C. Cir. 1991).
A special RICO provision—commonly known as civil
RICO—permits ‘[a]ny person injured in his business
or property by reason of a violation’ of RICO’s
criminal provisions to recover treble damages and
attorneys fees. § 1964(c).
Klehr, 521 U.S. at 183 (emphasis added).
COUNT I: ACQUISITION OF FIRST AMERICAN
Count I alleges that Khalil conspired to, and did, cause
injury by agreeing to hold CCAH shares as a nominee, and by
undertaking certain overt acts in furtherance of that
agreement. The Liquidators allege that the injuries for which
74a
they seek to recover were proximately caused by Khalil’s
- violation of 18 U.S.C. § 1962(b). That section provides:
It shall be unlawful for any person through a pattern of
racketeering activity o, through collection of an
unlawful debt to acquire or maintain, directly or
indirectly, any interest in or control of any enterprise
which is engaged in, or the activities of which affect,
interstate or foreign commerce.
18 U.S.C. § 1962(b) (emphasis added). To recover on this
claim the Liquidators must have proven: (1) that First
American was an “enterprise”; (2) that Khalil acquired or
maintained an interest in First American; (3) that such
acquisition or maintenance involved violations of two or
more specified federal laws within 10 years; (4) that those
violations were related and continuous; and (5) that the BCCI
corporate entities were injured “by reason of” (1) - (4). The
Liquidators also allege in Count I that Khalil conspired with
former BCCI management to acquire an interest in First
American in violation of § 1962(b) and that the conspiracy
also proximately caused the BCCI Group harm.
A. First American is an “Enterprise”
A RICO “enterprise” includes “any individual, partnership,
corporation, association, or other legal entity, and any union
or group of individuals associated in fact although not a legal
entity.” 18 U.S.C. § 1961(4). An enterprise is established by a
common purpose among the participants, organization, and
continuity. United States v. Richardson, 167 F.3d 621, 625
(D.C. Cir. 1999). An enterprise is engaged in interstate and
foreign commerce when it is “directly engaged in the
production, distribution, or acquisition of goods and services
in interstate commerce.” United States v. Robertson, 514 U.S.
669, 672 (1995) (citations omitted). The interstate commerce
requirement is met if either the activity of the enterprise or
75a
the predicate acts of racketeering affect interstate commerce.
R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1353 (5th Cir.
1985). First American was a multistate banking group—an
enterprise—routinely engaged in interstate and foreign
commerce.
B. Whether Khalil Directly or Indirectly “Acquired or
Maintained” an “Interest In” or “Control Of’ of First
American
The Liquidators argue that Khalil can be held to have
violated § 1962(b) so long as he “participated in a pattern of
racketeering activity to acquire and maintain an interest in or
control of First American.” See Pls.’ Prop. Findings and
Concl. J 211. This statement conflates their claims in Count I
against Khalil for directly violating § 1962(b) and conspiring
to assist BCCI in violating § 1962(b). For Khalil to have
violated § 1962(b), it is necessary that he acquired an interest
in or control of First American.
The Liquidators proved that Khalil directly acquired a
nominal interest in First American by becoming a record
shareholder of CCAH. But, according to the evidence, Khaiil
did not acquire a beneficial interest in First American. BCCI,
by contrast, acquired both a beneficial interest in, and control
of, First American indirectly, through the nominees.
Acquiring beneficial stock ownership in a corporation
undoubtedly is “acquisition” of “an interest in” an “en-
terprise” within the meaning of 18 U.S.C. § 1962(b). E.g¢.,
Whaley v. Auto Club Ins. Ass’n, 891 F. Supp. 1237, 1240-41
(E.D. Mich. 1995); Moffatt Enter., Inc. v. Borden, Inc., 763 F.
Supp. 143, 147 (W.D. Pa. 1990); cf. Teague v. Bakker, 35
F.3d 978, 994-95 n.23 (4th Cir. 1994). Accordingly, BCCI, as
the beneficial owner of the CCAH shares in Khalil’s name,
acquired an interest in First American, and, as is discussed
below, Khalil conspired with BCCI management to facilitate
T6a
BCCI’s acquisition of that interest through a pattern of
racketeering activity.
- The harder question is whether Khalil, as the nominal
owner of the stock beneficially owned by BCCI, can also be
held liable under § 1964(c) for directly violating § 1962(b). A
§ 1962(b) “interest” in an enterprise is a proprietary one:
The common or dictionary definition of [“interest’’]
includes ‘right, title or legal share in something;
participation in advantage, profit and responsibility.’
. ... It has also been defined as ‘(t)he most general
term that can be employed to denote a right, claim,
title, or legal share in something.’ . . . . So defined,
‘interest’ in fact encompasses all ‘property rights’ in a
business enterprise.
United States v. Martino, 691 F.2d 110, 112-13 (2d Cir.
1982) (per curiam)”; see also Keystone Helicopter v. Textron,
Inc., 1997 WL 786453 *2 (E.D. Pa. Dec. 2, 1997); Nafta v.
Feniks Int’l House of Trade, 932 F. Supp. 422, 428 (E.D.N.Y.
1996).
Adopting this broad understanding of “interest,” this Court
finds that holding legal title to corporate stock that is
beneficially owned by another is a sufficient “interest” in an
enterprise to incur liability under § 1962(b).
[T]he law recognizes the general principle that the
legal title to shares may be in one person; that is, the
holder of the stock certificate, whereas equitable
ownership of all the shares, or a portion thereof, may
be in another person. The whole beneficial interest in
*' Reading the provisions of RICO in pan materia, Martino interpreted
“interest” as used in § 1962(b) as the Fifth Circuit interpreted the term
“interest” in the RICO forfeiture provision, § 1963. See United States v.
Martino, 681 F.2d 952 at 954, 955-56 (Former 5th Cir. 1982) (en banc).
77a
the shares may belong to others, or others may be
beneficially interested with the registered owner or
certificate holder... .
Blanton v. Austin, 392 S.W.2d 140, 143 (Tex. Ct. Civ. App.
1965). Both the holder of legal title and the beneficial owner
have proprietary interests in the corporation. Cf. Student Loan
Marketing Ass'n v. Riley, 104 F.3d 397, 407 (D.C. Cir. 1997)
(ownership of legal title alone is a proprietary interest in the
student loan coniext). The holder of title has the power to
exercise the rights over the property. Failure to do so in
accord with the wishes of the beneficiary may expose the title
holder to separate liability, but the nominal owner is
empowered to exercise proprietary rights nonetheless. This
power is a sufficient to be considered an “interest in” the
corporation within the ambit of § 1962(b). See Martino, 691
F.2d at 113.
In addition, on these facts, Khalil indirectly exercised
control over First American. Khalil’s considerable economic
‘leverage over BCCI allowed him to control BCCI in certain
respects. As Naqvi testified, BCCI had little choice other than
to meet Khalil’s demands for payment as a nominee. Because
BCCI had actual control over First American, Khalil’s power
to control BCCI gave him derivative control over First
American. Cf. In re Am. Honda Motor Co., Inc. Dealerships
Relations Litig., 958 F. Supp. 1045, 1054-55 (D. Md. 1997).
For example, in 1984, Robert Altman authorized special
treatment for Khalil when Khalil sought to cash his travelers
checks. More importantly, Altman gave Khalil a briefing on
First American’s prospects in recognition of Khalil’s power
to demand such information. This is sufficient control for
purposes of § 1962(b).
C. Khalil’s Pattern of Racketeering Activity
The Liquidators have also proven that Khalil’s conduct in
relation to BCCI’s illegal acquisition of First American was
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part of a “pattern of racketeering activity.” That element
requires (1) at least two predicate acts of racketeering within
ten years which are (2) related; and (3) have continuity. H./.,
Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989);
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985).
1. Predicate Acts
The predicate acts of racketeering in defendants’ acqui-
sition of First American included multiple acts of (1) wire and
mail fraud in violation of 18 U.S.C. §§ 1341 and 1343; (2)
bank fraud in violation of 18 U.S.C. § 1344; (3) travel and
transportation in aid of racketeering in violation of 18 U.S.C.
§ 1952; (4) money laundering in violation ui 18 U.S.C.
§ 1956; and (5) extortion in violation of 18 U.S.C.
§ 1951(b)(2).
(a) Wire Fraud/Mail Fraud
Wire and mail fraud require a “scheme to defraud” and the
use of wires in interstate or foreign commerce, or of the
United States mail, to further that scheme. United States v.
Lemire, 720 F.2d 1327, 1334-35 (D.C. Cir. 1983).° To
establish a violation of the wire and mail fraud statutes, proof
is required only of a scheme to defraud, not the commission
of the fraud itself. United States v. Reid, 533 F.2d 1255, 1264
(D.C. Cir. 1976). In addition, “[a]ll that is required is that
[defendant] have knowingly and willfully participated in the
scheme; she need not have performed every key act herself.”
* The requisite elements of “scheme to defraud” under the wire fraud
statute, 18 U.S.C. § 1343 and the mail fraud statute, 18 U.S.C. § 1341, are
identical. Thus, cases construing mail fraud apply to wire fraud as well.
See United States v. Maxwell, 920 F.2d 1028, 1035 n.8 (D.C. Cir. 1990).
In 1988, Congress enacted 18 U.S.C. § 1346, which ratified Lemire’s
holding that the object of a scheme to defraud could be deprivation of
intangible property interests. See 18 U.S.C. § 1346; Lemire, 720 F.2d at
1336.
79a
United States v. Maxwell, 920 F.2d 1028, 1035 (D.C. Cir.
1990).
A wire or mailing is in furtherance of an alleged scheme if
it is “incident to an essential part of the scheme, or a step in
the plot.” Schmuck v. United States, 489 U.S. 705, 710-11
(1989) (citations and internal quotations omitted).
Communications need not be fraudulent in themselves to
serve as RICO predicates, as long as they further a fraudulent
scheme. United States v. Pemberton, 121 F.3d 1157, 1170-71
(8th Cir. 1997); Reid, 553 F.2d at 1265. Nor is it required that
a defendant be shown specifically to have intended to use the
wires or mail service if their use was reasonably foreseeable.
United States v. Ross, 131 F.3d 970, 981 (11th Cir. 1997),
cert. denied, 113 S. Ct. 258 (1998).
A person commits wire or mail fraud if he causes an
interstate or international wire communication or mailing to
be made; it is not necessary that the person actually make the
communication or even personally instruct that the
communication be made. United States v. Rogers, 9 F.3d
1025, 1030 (2d Cir. 1993). Under the wire fraud statute, ‘“‘an
act [can be] caused not simply when it is a physical
consequence of the person’s conduct but when, in addition,
the actor either knew the consequence would occur or its
occurrence was reasonably foreseeable.” /d. (citation and
internal quotations omitted). A defendant may cause an
interstate or international wire communication by placing an
intrastate wire communication which foreseeably leads the
financial institution with which the defendant is dealing to in
tum place an interstate or international communication.
United States v. De Biasi, 712 F.2d 785, 791 (2d Cir. 1983).
As set forth above, numerous specific acts constituting use
of interstate and international wires and United States mail,
such as wire transfers of U.S. dollars cleared through
financial institutions in the United States, took place in
80a
furtherance of the scheme to fraudulently acquire First
American. These uses of wires and the United States mail
were vital to the scheme to defraud because they authorized
and effected the transfer of funds for the illegal acquisition of
First American. Khalil authorized this use of wires and
United States mail when he agreed that BCCI could take
whatever actions it deemed necessary to purchase CCAH
shares in his name. Use of United States mail and
international wires was clearly foreseeable.
(b) Travel Act
Violation of the Travel Act requires; (1) travel in interstate
or foreign commerce or use of a facility in foreign or
interstate commerce; (2) with the intent to promote an
unlawful activity; and (3) the performance or attempted
performance or the facilitation of the performance of an overt
act in furtherance of the unlawful activity. United States v.
Childress, 58 F.3d 693, 719 (D.C. Cir. 1995): (citations
omitted). Congress targeted the Travel Act not toward
“sporadic, casual involvement [in the predicate offenses], but
rather toward a continuous course of conduct sufficient for it
to be termed a business enterprise.” United States v.
Auerbach, 913 F.2d 407, 411 (7th Cir. 1990). However, one
instance of interstate travel is sufficient to establish interstate
racketeering if defendant travels to further an illegal activity.
United States v. Vanichromanee, 742 F.2d 340, 349 (7th Cir.
1984). And, in the case of a conspiracy, it is immaterial
whether defendant personally caused or knew of interstate
travel because, as‘a co-conspirator, he is liable for other
participants’ acts in furtherance of the conspiracy.”
3 See Auerbach, 913 F.2d at 410-11 & n.2; see also Annotation,
Interstate Travel As Element Of Offense Established By Travel Act, 69
A.L.R. FED. 251 § 8 (1984 & 1998 Supp.); see generally Steven G.
Shapiro, Travel Act in Project, White Collar Crime: Fourth Survey of Law
8la
The “use of a facility in commerce” includes use of the
United States mails, United States v. Heacock, 31 F.3d 249,
255 (Sth Cir. 1994); the making of interstate telephone calls
and telegraphs, United States v. Jenkins, 943 F.2d 167, 172-
73 (2d Cir. 1991); and the interstate wire transfer of funds,
United States v. Antonick, 481 F.2d 935, 938 (9th Cir. 1973).
In furtherance of their scheme to acquire nominal interests
in First American for the benefit of BCCI, Khalil and Akbar
violated 18 U.S.C. § 1952(a) by traveling ii interstate and
foreign commerce with the intent of furthcring unlawful
activity and thereafter engaging in such unlawful activity. For
example, in 1981, Khalil, Akbar and others traveled from
London to the District of Columbia for purposes of meeting
with other nominee shareholders: of the First American
enterprise, consulting with attorneys, and testifying in front of
the Federal Reserve with regard to the proposed purchase of
the First American enterprise.
Additionally, Khalil was responsible for the use of a
facility in commerce in furtherance of the scheme to defraud.
In the course of this scheme, Khalil and Akbar, acting singly
and in concert with Abedi and Naqvi, transferred the funds
used to purchase shares in First American from accounts
abroad to the United States and from the United States to
accounts abroad with the intent to promote the carrying of
their fraudulent ownership and management scheme and to
conceal or disguise the nature, the location, the source, the
ownership, and the control of the proceeds of their unlawful
activity, in violation of 18 U.S.C. § 1952(a).
Subsequent to his 1981 trip to Washington, D.C., Khalil
signed transfer deeds in blank and undertook other overt acts
in furtherance of the scheme by which he had acquired a
nominal interest in First American.
of Substantive Crimes, 24 AM. CRIM. L. REV. 735 (1987).
82a
(c) Money laundering
The requirements to prove money laundering in violation
of 18 U.S.C. § 1956 differ depending on whether the offense
is domestic or international. See United States v. Piervinanzi,
23 F.3d 670, 680 (2d Cir. 1994); Barrett Atwood & Molly
McConville, Money Laundering in Project, Fourteenth
Survey of White Collar Crime, 36 AM. CRIM. L. REv. 901,
904 (1999) [hereafter Mail Fraud].
Illegal money laundering within the United States requires
that the defendants knowingly conducted a financial
transaction or transferred funds which were the proceeds of
illegal activity to promote the illegal activity or to disguise
the nature, location, source or control of the proceeds. 18
U.S.C. § 1956(a)(1); United States v. Wynn, 61 F.3d 921, 924
(D.C. Cir. 1995). In a complex routing transaction, each
transfer of funds, if it affects interstate or foreign commerce,
can be a separate § 1956(a)(1) violation. See Atwood &
McConville, Mail Fraud at 916-17. But the defendant must
know that the proceeds with which he conducts the financial
transaction are tainted. United States v. Quintero, 165 F.3d
831, 838 (11th Cir. 1999); Piervinanzi, 23 F.3d at 680.
By contrast, international money laundering in violation of
§ 1956(a)(2) does not require that “proceeds” first be gen-
erated by illegal activity, followed by a financial transaction
with those proceeds. Instead it penalizes an overseas transfer
“with the intent to promote the carrying on of specified
unlawful activity.” Piervinanzi, 23 F.3d at 680 (quoting
§ 1956(a)(2)(A)); see also Quintero, 165 F.3d at 838.
There is some circularity in considering international
money laundering as a predicate “racketeering activity” under
RICO as defined in 18 U.S.C. § 1961(1). This is because
the “specified unlawful activities” that are predicates
for an international money laundering violation under
Re er ee nie
83a
§ 1956(a)(2)(A) also are those offenses listed in §1961(1).
See 18 U.S.C. § 1956(c)(7)(A).
Khalil violated § 1956(a)(2) when he agreed to the transfer
of funds to the United States to purchase CCAH shares in his
name so as to further BCCI’s fraudulent takeover of First
American through BCCI’s nominees.
(d) Extortion
Khalil also engaged in the RICO predicate act of extortion,
defined as the “obtaining of property from another with his
consent, induced by wrongful use of actual or threatened
force, violence, or fear, or under color of official right.” 18
U.S.C. § 1951(b)(2). Fear of economic, rather than physical
harm, is sufficient to establish an extortion claim under §
1951. United States v. Tomblin, 46 F.3d 1369, 1382 (Sth Cir.
1995). The required effect on interstate commerce is de
minimis. Id. at 1383-84; United States v. Debs, 949 F.2d 199,
202 (6th Cir. 1991). Extortion under D.C. CODE ANN.
§ 22-3851 is similarly defined.
In the course of the scheme to acquire and maintain
controlling interest in First American, Khalil demanded
payment from the BCCI Group in exchange for his agreement
not to disclose the scheme and to continue his services as a
nominee shareholder. Disclosure of the scheme would have
substantially injured the BCCI Group, exposing it to financial
loss and criminal prosecution. Payment of the extortion, at
least the $15 million payment, affected foreign and interstate
commerce. Khalil’s threats in exchange for payment
constituted extortion in violation of 18 U.S.C. § 1951.
(e) Financial institution fraud
Finally, Khalil also conspired to, and did, commit bank
fraud in violation of 18 U.S.C. § 1344. That section prohibits
engaging in or attempting to engage in a pattern or course of
conduct designed to deceive a federally chartered or insured
84a
financial institution into releasing property with intent to
victimize the instit
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