FEW today would remember that 40 years ago, Agha Hasan Abedi set up the Bank of Commerce and Credit International, better known by its initials BCCI.

Within a decade, it was operating in 78 countries with some 400 branches worldwide, and a million accounts. But less than two decades after its birth, BCCI was shut down for fraud, money laundering and buying influence, among a long list of other charges. In the report prepared for the US Congress by senators John Kerry and Hank Brown in 1992, the bank was accused of “laundering drug money, bribery, support of terrorism, arms trafficking….”

Although BCCI recruited widely, much of its upper echelon was manned by Pakistanis. And Pakistanis in the diaspora flocked to its branches to bank their savings with what they saw as a desi bank. So when BCCI collapsed, the shock waves were most intensely felt in Pakistan.

The internal narrative then was that the bank had been singled out by Western regulators because its phenomenal success posed a threat to American and British banks. Conspiracy theorists insisted that charges of money laundering could be laid against any bank, but BCCI had been specially targeted.

Few Pakistanis were prepared to accept the reality that some senior members of the bank staff were engaging in criminality. The allegation was that the corporate structure of the bank had been deliberately devised to escape regulatory scrutiny. Its lending practises verged on the suicidal: it lent $1.5bn to the Gokal shipping group alone with virtually no collateral.

It reportedly counted among its list of clients such luminaries as Saddam Hussein, Manuel Noriega, the Panamanian dictator, Abu Nidal, the Palestinian militant, and Medellin, the Colombian drug cartel. But probably its biggest client was the CIA which operated multiple accounts to finance a drug and arms network stretching from Afghanistan to Nicaragua. Mujahideen and Contras were armed and paid from these accounts. Oliver North, the American agent later jailed for his role in the infamous Iran Contra affair, maintained several accounts with BCCI.

I was working with the media in Pakistan’s embassy in Washington in 1989 when I first became aware of the scale of the bank’s problems. A couple of well-known investigative reporters asked searching questions about the bank and its top executives. A year earlier, the US Internal Revenue Service had run a sting operation in Tampa and arrested several BCCI staff working for the bank in Panama on charges of money laundering for Noriega.

The embassy was following the case as a couple of the bankers were well-connected back home. In his indictment, the prosecutor in Tampa said the bank’s approach of going for accounts without asking questions about where the money came from was a “corporate strategy” at BCCI. The defence attorney asked, with some irony: “Don’t all banks follow this strategy?”

Soon, a number of leaked accounts appeared in the media, alleging a wide number of financial irregularities. The late Eqbal Ahmed came to stay with me in Washington for a few days and naturally enough, conversation turned to the BCCI case. “You know, Irfan,” I recall him saying. “When you are operating on somebody else’s turf, you need to follow the rules to the letter.” Clearly, BCCI failed to observe this cardinal rule.

But the ultimate sin BCCI committed in US legislators’ eyes was to take over a major American bank, Financial General Bankshares (and renamed First American Bank), using Arab proxies. This was a violation of an undertaking that BCCI would have nothing to do with the running of the bank. To allay suspicions Clark Clifford, adviser to five US presidents, was named chairman. However, it soon became clear that BCCI was very much in charge. This, combined with the Tampa case, led to a major campaign to prevent BCCI from operating in the US.

Winding down BCCI has taken as long as the bank lasted: it was only earlier this year that the books on the whole affair were closed in London. Liquidation costs have added up to a staggering $1.7bn as lawyers and accountants in several countries milked the process for all it was worth. Nevertheless, the liquidators recovered around 90 per cent of what was owed the creditors.

Abedi began several philanthropic operations in Pakistan that are active to this day, and doing excellent work. Among them is the National University for Science and Technology (NUST) and the Foundation for the Advancement of Science and Technology (FAST). The now renamed BCCI Foundation also helped scores of writers and artists.

To the beneficiaries of those institutions perhaps Abedi did some good to offset the illegalities some members of the bank committed. But how is the BCCI saga relevant today? It teaches us how quickly we forget the greed that drives the corporate beast: 21 years after BCCI’s spectacular collapse, banks have taken the world to the edge of economic Armageddon.

The difference is that now, banks in the US and Britain are bailed out by governments, not shut down. Take the latest banking scandal surrounding HSBC, Europe’s biggest bank, as an example of frenzied corporate greed. It faces a possible billion-dollar fine after a US Senate panel slammed it for — you guessed it — laundering drug money and helping terrorist groups move money to other countries.

The fact that HSBC has not been shut down while BCCI was made to face the ultimate sanction will be grist to the mills of Pakistanis who regard the outside world with suspicion. Other banks have, or will, escape with fines as well. We go back to Eqbal Ahmed’s observation about operating on somebody else’s turf. Also, banks such as HSBC are so deeply entrenched in European banking that to shut it down would risk a major financial meltdown.

The last two decades have witnessed less, not more, regulations governing banking activities. Politicians have been dazzled by the prospects of the kind of spectacular growth the financial sector has seen in London. Even now that the boom is long over, bankers award themselves with eye-watering bonuses.

Even leaders such Obama and David Cameron have not dared to impose controls on rogue banks. Not a single banker has been arrested for all the various scandals that are being widely covered and condemned in the media. But as a hedge funder observed, “Until they hear the sound of handcuffs clinking in the boardrooms of banks, this behaviour will continue.”

The lesson here is not that life is unfair: we knew that already. But stay out of trouble, especially when you are far from home.

The writer is the author of Fatal Faultlines: Pakistan, Islam and the West.

Irfan.husain@gmail.com