On March 9, 1989, old Abdul Hadi Chalabi, Ahmad’s father, passed away in London; his body was loaded onto a Royal Jordanian jet, which lifted off to Syria for burial in a Shiite cemetery. The death of the old man — and the flight of his remains to the Middle East — was a kind of marker for the family, for it heralded the beginning of a spiral of collapse, as if he was the only thing holding their businesses together.
Just a month and a half after his death, in the morning hours of April 27, 1989, a group of somberly dressed accountants and lawyers stepped into the foyer of 100 Rue de Rhone in Geneva, where the Chalabi family businesses in Switzerland were headquartered. The lawyers and accountants were polite but firm. For all their businesslike appearance and formality, however, they were the financial equivalent of the Grim Reaper, implacable and stolid, sent by the venerable Swiss Federal Banking Commission. The commission notified MEBCO that its banking license had been revoked. “This is the way it is done,” said one of the Swiss lawyers who went in that day. “We had to go in and tell them, ‘Your bank has been closed. We are the liquidators.’”
Perhaps it was a good thing for the old man that he died when he did, because MEBCO Geneva, run by Hazem Chalabi, was just the first to fall in the long and painful collapse of the Chalabi enterprises worldwide. Petra Bank, in Amman, would be taken over in August, and after that Socofi in Geneva went down, and still later MEBCO in Beirut, all caught in a whirlpool that sucked away the life savings of a large number of investors. What’s more, criminal investigations would hound the Chalabis in Switzerland, Lebanon, and Jordan.
In later years, Ahmad Chalabi blamed the governments of Iraq and Jordan for the collapse of his Petra Bank. It was a frame-up, he convinced his followers, including powerful members of the U.S. political establishment. According to Chalabi, he was the victim of a massive, politically motivated conspiracy to destroy his successful operation. The real story is far more complex and disturbing, involving mysterious business deals, fraud, embezzlement, an executive’s love affair gone wrong, and secretive companies located in offshore tax havens like the Cayman Islands.
Unusual business associate
To chronicle the collapse of Petra Bank and its sister banks, it’s best to start with a look at the circle of people the Chalabis were doing business with. The most unusual of the Chalabis’ business associates was an American named Wayne Drizin. Back in the 1980s, when he met the Chalabis, he was operating in Lugano, Switzerland. Drizin would travel the world first-class, accompanied, sources say, by a small lapdog. He carried on business through a company called Welfin S.A., and he would later boast, in securities filings, that he “orchestrated the sale of Welfin S.A. to (a) Swiss-based multinational banking group indirectly wholly owned by the Chalabi Family, including Mr. Ahmed Chalabi.”
Drizin seems like a mismatch as a Chalabi business partner. He first surfaces in public record in the summer of 1980 in connection with the legalized prostitution industry in Nevada. He and a well-known madam announced they were about to purchase the famous Mustang Ranch brothel in Nevada. The brothel, a large pink structure, was home to sixty or seventy prostitutes, and was owned by the notorious Joe Conforte, an alleged mob associate. The deal attracted attention across the country, from Los Angeles to New York. Drizin said he had financing from London for the transaction, and he wasn’t shy about publicity about his grandiose plans for the infamous brothel. Drizin said he planned to buy the facility, hire an additional seventy prostitutes, and build an airstrip so that the “johns” could fly in to the place to attend to their desires. It would become a massive enterprise, if the publicity was to be believed. But the deal fell through. Still, Drizin quickly pushed to open another brothel, clearly enthralled by the business. County commissioners balked at granting him a license, and he lambasted them. “They seem to be more interested in stopping competitive brothels than helping the county,” he told a reporter, in a unique take on the need for competition in the prostitution industry.
Drizin would later blame a series of legal troubles on various government conspiracies against him. He was charged with a felony for bouncing a check in Broward County in 1982, and that same year, records show, the Florida Bar Association disbarred him. He had bounced a check for $75,000 to one person, a check for $125,000 to another, and then a check for $18,000 to yet a third. Years later, he would face serious trouble with the law: a federal jury in Arizona found him guilty of wire fraud in 2003.
Drizin brought the Chalabis into ventures that suggest they had a penchant for high-risk schemes rather than conservative banking. One was a 300-foot ship called the Nissilios, supposedly being built at the shipbuilding port in Piraeus, Greece. It was to be an ultraluxurious cruise liner, more elaborate than anything ever built, a concept that fed off the conspicuous consumption of the Reagan years. It would boast massive staterooms designed for the extremely rich, who would shell out $7,000 a week for them. Like so many other shipping schemes, it turned out that it was like pouring money into a hole in the water.
On Aug. 7, 1989, in the dark of night, Ahmad Chalabi fled Amman, Jordan. He took few possessions with him, a sign either that he thought he would return soon or that the urgency of his departure left him no time to pack. He drove north, which would take him through the hills on the outskirts of the city and then toward the Syrian border. The wrath of Jordan would follow him as he left because Petra Bank, more than any other Chalabi family enterprise, left the most damage in its wake.
Back in the winter and spring of that year, Ahmad Chalabi, at his office in Wadi Saqri, had done his best to weather the storm after his father died. The problem was this: just as the Chalabi family businesses were coming apart at the seams, and the web of insider dealings was about to become exposed, the façade of health in the Jordanian economy was also shattered. Dubbed the Gucci Kingdom for its lavish and stylish ways, the place was in turmoil: hunger, food riots, bank runs and inflation. For months the Central Bank authorities were trying to prevent the collapse of the local currency, taking a variety of restrictive monetary steps. The Jordanian government put the brakes on spending, skidding the economy into tough times as it sought to curtail waste. It was an awful mixture just when Ahmad Chalabi needed liquidity the most.
It was nothing exceptional in the scheme of things: the loose practices of the Reagan years were coming to an end, and economies seemed to be collapsing everywhere. Savings and loans were going bust in the United States. U.S. Attorney Rudy Giuliani indicted the king of Wall Street, Michael Milken. In the spring of1989, the king of Jordan brought Mohammed Said Nabulsi back into the Central Bank to try to rein in the economic havoc of the country. The diminutive economist, who had actually helped get Petra its banking license in the first place in 1978, had chaired the Central Bank from 1972 to 1985 and then worked for the United Nations in Iraq. Once Nabulsi returned to Jordan, his first job was to prop up its crumbling currency. The dinar was under attack, and he needed to go to war to defend it or the nation’s paper money would be worthless. Ahmad Chalabi mistrusted Nabulsi and viewed him as his nemesis. First, Nabulsi dropped the artificial price of the dinar and let it float a bit. Then, the Central Bank’s currency reserves were completely depleted, so he ordered all banks to help him. They were commanded to deposit, with interest, a share of their foreign funds into the Central Bank. He had that authority according to the laws of the country. So in May 1989, the Central Bank of Jordan ordered all banks to deposit 35 percent of their foreign currency in the bank. This fact is undisputed.
‘He said, "We are working on it"'
It was Chalabi’s response — or lack thereof — that ended up exposing the extent of Petra Bank’s problems, according to Nabulsi, who says Petra Bank was the only bank to deposit nothing in the Central Bank. “What happened is that all banks did it, except Petra,” he explains. Chalabi’s supporters say that Nabulsi had always had a bitter relationship with Ahmad Chalabi, and that the new Cabinet in Jordan was less friendly to him than the last. Nabulsi says he was perplexed and disturbed. Personal dislikes aside, Nabulsi says, he called Chalabi up and Chalabi tried to allay his concerns over the phone. “He said, ‘We are working on it!’” recalled Nabulsi.
Who can say what Ahmad Chalabi was thinking at this point? For some men of wealth and status, the idea that everything can come unglued is like getting suffocated, almost intolerable. There seems to be no way out. The collapse, the possibility of poverty -- they are all horrors. But worst of all is the fear of possible shame and exposure, the sense that one may look ridiculous and petty. Did Ahmad Chalabi feel these things? It’s possible. But perhaps he was immune to the psychological pressures of impending bank failure. Perhaps he did not realize just how tenuous his economic situation was. Possibly he believed he had done nothing wrong. In fact, at that time there were no public allegations of criminal misdoings by Chalabi. There may have been questions, but there were no specific allegations until several months later. On the contrary, back then, everyone assumed it was all just an accounting issue. No one knew about the various interlaced loans between the Chalabi banks.
Whatever Chalabi was thinking, Nabulsi admits that by this time he was getting concerned. The second-largest bank in Amman was not responding to his command as governor of the Central Bank. “I started to doubt the whole situation. Why is he not giving the Central Bank anything?” Nabulsi wondered. So he summoned Ahmad Chalabi to his office at the Central Bank. The two men faced each other across his desk awkwardly. Nabulsi said Chalabi, as usual, was playing with a pocketknife as if it were a set of worry beads. And then, he says, Chalabi gave him an unusual explanation. “He claimed that all the foreign currency he was supposed to have had been redeposited in certain companies or banks.” Nabulsi was upset. “I said, ‘Look, Ahmad, this is not legal! You should be able to give me immediately something of your deposits.’”
A lawyer for Chalabi admits that Chalabi resisted depositing funds in the Central Bank as ordered, but he cannot explain why. Certainly Petra Bank had engaged in some public relations stunts to prove it had foreign currency. It once stacked U.S. currency in its lobby, for example, to show that it had reserves on hand.
Extent of crisis becomes clear
By early 1990, the scope of Petra Bank’s crisis was becoming clear. Some of the first devastating news came from a January 15,1990, audit the Jordanians commissioned to examine the bank’s balance sheet on the day before it had been taken over — a financial snapshot in time. The auditors from Arthur Andersen found the Petra Bank books were a massive compilation of lies or mistakes. They found enormous losses: 40 percent of the bank’s outstanding loans, about 126 million dinars ($176 million), were not being paid back, they said. The euphemism they used was “non performing.” Instead of 104 million dinars ($140 million) in cash on hand, as its books claimed, Petra had only 8.6 million dinars (about $12 million).
The auditors said the bank was undercapitalized for its size. While there were 30 million dinars in capital at the bank, or $42 million, the auditors said that was short to the tune of about 157 million dinars, or $220 million. Another interesting thing the audit found was very similar to what the auditors would find at Socofi: a vast web of insider deals. Forty-four million dinars had been lent to what was dryly called “related parties,” meaning borrowers connected to the Petra management. Meanwhile, there was a morass of deposits crossing over between Petra, Socofi and MEBCO.
By that time Ahmad Chalabi had already fled to London. At the age of forty-five, he found himself in exile for the second time in his life. There is no way to get inside his head, but there is ample evidence that he appeared to believe the story that he would so compellingly present to the receptive audiences he found in the West: that he was the victim of persecution, the target of an elaborate conspiracy, which could almost always be traced back to his original nemesis, Saddam Hussein in Iraq.