The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Monday, Soviet officials said they were ready to match the proposed U.S. defense cuts. New government reports showed U.S. education levels improving but still behind other countries. Democratic Sen. Bob Kerrey of Nebraska declared his candidacy for President. We'll have the details in our News Summary in a moment. Judy Woodruff's in Washington tonight. Judy.

MS. WOODRUFF: On the NewsHour tonight, we get Soviet reaction to the President's arms cuts announcement firsthand in an exclusive interview with Mikhail Gorbachev's foreign minister, Boris Pankin. Then we resume our series of conversations about the BBCI international bank scandal. And finally, remembering a genius of American jazz, Miles Davis. NEWS SUMMARY

MR. MacNeil: Soviet officials said today they were prepared to respond in kind to proposed U.S. cuts in nuclear arms. In Moscow, Soviet foreign ministry officials said an envoy would go to Washington to open a dialogue on the cuts. The officials said they would even consider some unilateral cuts in arms. In New York, Soviet Foreign Minister Boris Pankin pledged his country's full support for arms talks with the U.S. He spoke in an interview with the NewsHour.

BORIS PANKIN: [Speaking through Interpreter] There's not a single type of weapon which is going to become a hostage or a stumbling block or an excuse for slowing down our joint actions. We're going to try and look for solutions.

MR. MacNeil: Pankin said the Washington talks would begin October 9th. We'll have the full interview after the News Summary. President Bush welcomed the Soviet response to his arms proposals. He spoke during a trip to Florida today.

PRES. BUSH: I've been very pleased with the reaction from all around the world. I was pleased at the Soviet reaction. I fully expect that they will cooperate fully and I think it's a good thing for the young people around the world and in this country, and I would say that all the reaction from all different corners of the earth has been positive so far. And the international reaction I think shows the world's thirst for peace, and what I propose will preserve our own leadership, our own strength, and guarantee our own national security, but will significantly reduce nuclear weapons, and again for the young people the fear of nuclear weapons.

MR. MacNeil: The President said he would do whatever it takes to make progress on the U.S.-Soviet arms cuts, but he said it was too early for a face-to-face meeting with Mikhail Gorbachev on the issue. Judy.

MS. WOODRUFF: The state of the U.S. educational system may be improving, but reports out today say much more progress is needed for the country to remain competitive. The National Education Goals Panel, made up of several governors, members of Congress, and the Bush administration, cited examples of the mixed progress. They included improved scores in science and math, especially among minorities. But the scores remained below those of students in other countries. The high school completion rate and adult literacy rate both improved, but the report found fewer adults able to perform more complex literacy tasks. Sec. of Education Lamar Alexander summed up the situation in a Washington news conference, saying, children today know about as much as their parents did at the same age.

LAMAR ALEXANDER, Secretary of Education: The problem does not seem to be that we know less today, that children know less today than they did 20 years ago. That does not seem to be the problem that we've discovered. The problem seems to be that what we knew in 1970 is not nearly good enough for 1990, and that the gap between what we know in 1990 and what we need to know is so large that it is almost a shocking gap.

MS. WOODRUFF: The panel's report also criticized what it called a misplaced sense of self-satisfaction in the country. It said, "American students, whose mathematics performance ranks among the lowest in the industrialized world, nevertheless, rate themselves good at math, and their parents more often than the general public or parents of foreign students give high marks to their local schools."

MR. MacNeil: Nebraska Sen. Bob Kerrey today formally entered the race to become theDemocratic nominee for President. He made the announcement outside the Lincoln, Nebraska state house, where he served one term as governor before being elected to the U.S. Senate three years ago. The 48 year old Vietnam veteran said the 1980s were dominated by policies of unchecked selfishness and greed. He said he was running for President because America urgently needs better, bolder leadership.

MS. WOODRUFF: A new billion dollar settlement was announced today in the Exxon Valdez oil spill. It differs only slightly from an earlier agreement which was rejected by a federal judge and Alaska legislators earlier this year. Under the new agreement, Exxon will pay $25 million more in criminal fines than under the earlier deal. Exxon agreed to $150 million criminal fine, of which 125 million is suspended because of clean-up actions the company has already taken. It will also pay $900 million over the next decade to settle civil claims in the 1989 spill, the nation's largest ever. The agreement must be approved by the U.S. District Court in Anchorage, the same court which rejected the earlier offer.

MR. MacNeil: The United Nations said today the Iraqi documents its inspectors seized provide the first evidence that Iraq was studying nuclear detonation. The inspectors arrived in Bahrain today from Baghdad, where they were detained for five days after taking the documents from an Iraqi government building. U.N. officials said the documents refute Iraq's claims it had no interest in developing nuclear weapons. The documents are on the way to Vienna, where they will be analyzed by the U.N.'s International Atomic Energy Agency.

MS. WOODRUFF: In Yugoslavia today, convoys of federal army tanks moved toward the Croatian border after a weekend of renewed fighting. The two sides agreed to a cease-fire a week ago, but violations were reported on both sides. European community ministers meeting in Brussels, Belgium, postponed a decision on sending troops to enforce the cease-fire. The Republic of Croatia is trying to secede from Yugoslavia. More than 600 people have died in three months of fighting.

MR. MacNeil: The residents of Haitian President Jean Bertrand Aristide was fired on today during a rebellion by mutinous soldiers. At least 26 people were reported killed and 200 injured in the fighting that ensued. Aristide was reported to be unharmed. The attack was the first serious challenge to Aristide, who took office earlier this year as Haiti's first freely elected leader.

MS. WOODRUFF: That ends our summary of the day's top stories. Just ahead on the NewsHour, the Soviet response to the Bush arms control proposals, the BCCI scandal, and Miles Davis remembered. NEWSMAKER

MR. MacNeil: We begin tonight with the official Soviet response to Pres. Bush's nuclear strategy speech, and we get it directly from the Soviet foreign minister, Boris Pankin. Mr. Pankin has been in New York for the United Nations General Assembly, and addressed that body last week. His appearance on the world stage was a direct product of the failed August coup. Then Ambassador to Czechoslovakia, he was one of the few Soviet diplomats to speak publicly and forcefully against the coup and to line himself up unequivocally with President Gorbachev. I talked with him earlier today at the Soviet Mission to the U.N. in New York. Mr. Foreign Minister, thank you for joining us. Given the history of the cold war, how would you describe the importance of the initiative Mr. Bush announced on Friday?

BORIS PANKIN, Foreign Minister, Soviet Union: [Speaking through Interpreter] Well, I think that this initiative is important, first of all, in terms of its sheer volume, what it encompasses in terms of the nuclear weapons which it affects. But, secondly, which may be no less important, is the fact that this is a unilateral act. I think that now in our time a unilateral act is a motor force of progress in the field of disarmament and in the area of political detente as well. That's why this is a genuine, peaceful challenge on the part of President Bush. At the same time, it is also a response to that peaceful, political challenge which other people put forth when we began perestroika, when we did away with a push and when we embarked irreversibly on the path of democratic development.

MR. MacNeil: Have you decided yet what unilateral steps you will take to match the Bush proposals?

MR. PANKIN: [Speaking through Interpreter] Well, now already this morning, our ambassador met in Washington with representatives on a high level of the department in order to reach agreement as to when will begin our consultations, our practical consultations on this question. I think that they will begin on the 9th of October in Washington on the level of deputy minister of foreign affairs and the assistant secretary of state of the U.S.

MR. MacNeil: So does that mean that the Soviet Union before then is not going unilaterally to withdraw some of its own tactical nuclear weapons?

MR. PANKIN: [Speaking through Interpreter] No, no, that doesn't mean that. We most probably will undertake unilateral measures, all the more so since at our very recent meetings, when James Baker met with Gorbachev and met with me in Moscow and in Washington, we insisted on the beginning of negotiations on technical nuclear weapons, intending to get a third zero. So, of course, we will undertake unilateral steps in this area. But there are a whole number of measures which have been proposed by the President which require mutually agreed upon decisions. And we will be holding consultations on these questions in Washington, the conservation to which I just referred.

MR. MacNeil: Do you need in the central government to coordinate these decisions with some of the republics like the Ukraine and Kazhakistan, where parts of your nuclear arsenal are based on?

MR. PANKIN: [Speaking through Interpreter] If we're going to talk basing ourselves on the facts now, not on legal realities, as is well known, both President Gorbachev and the President of Russia, Yeltsin, in fact, and just today the President of the Ukraine, Mr. Krevshuk, from the roster of the United Nations, gave a very positive assessment of this historic step taken by President Bush, I am sure that the leaders of all of our republics have the same opinion. So here there are not going to be any obstacles. In principle, as we have stated on many occasions, during the period after the congress of people's deputies, control of nuclear weapons, both strategic and tactical, is centralized in our country, and is in the hands of the highest level representatives of executive power, that is, the President of the U.S.S.R., who at the same time is also the commander in chief of our armed forces. That is within his competence, but, of course, in terms of simply conducting our work, it is clear that, of course, he consults and will continue to consult with the heads of those republics on whose territory nuclear weapons are located. And in particular, since in our country now, we have a new institution that is in the state council, which is chaired by the president of the union, and which includes the presidents of all the sovereign union republics.

MR. MacNeil: Because one has noticed that some people in the republics, for instance, the mayor of LeVoff, has argued that the Ukraine should not relinquish control over nuclear weapons to the central government, and you see no obstacles in the present physical reality of where they are to, to making decisions centrally to eliminate some or negotiate away some, no obstacles.

MR. PANKIN: [Speaking through Interpreter] No. You see, as far as the statement is concerned, well, we're living in a free world now, in an era of pluralism. So, of course, in principle, everyone can declare anything he pleases, but there is a system of decision making; there's a system of control. And that's the system I just described to you. So here I see absolutely no obstacles to our taking a measure in response. And that, in fact, was stated by all of the leading officials of the country and the republics, and I've already spoken to that.

MR. MacNeil: Does the fact that you've now initiated new discussions with the United States mean that this is the start of more long, drawn out nuclear negotiations, which can take years, as we've seen?

MR. PANKIN: [Speaking through Interpreter] Well, that depends on both sides. I think that right now conditions are such that we can conduct these negotiations much faster and much more effectively. Incidentally, we also spoke about this, I spoke about this with James Baker here in Washington and in Moscow.

MR. MacNeil: What about the, the Bush proposal that land-based multiple warhead ballistic missiles be eliminated? That is the area in which you have advantage in numbers, whereas, there is no mention of the U.S. submarine-based missiles, which is something Mr. Gorbachev has pointed to. Will you insist that the submarine-based missiles be part of such negotiations?

MR. PANKIN: [Speaking through Interpreter] In our country, it's true that there is a certain asymmetry in our strategic nuclear weapons, one side stronger in one way and the other side is stronger in other terms, so, of course, that will be taken into account during the negotiations. But right now, to get into details, something I don't think is necessary, let the experts sit down and take a look at that question. In any case, here there's not a single type of weapon which is going to become a hostage or a stumbling block or an excuse for slowing down our joint actions. We're going to try and look for solutions.

MR. MacNeil: Mr. Pankin, how did you feel personally, just as a Soviet citizen, on learning on Friday night or Saturday, your time, that the strategic air command was no longer for the first time in the cold war on full alert with its B-52s aimed at your country, how did you feel just personally about that?

MR. PANKIN: [Speaking through Interpreter] I think that this is a very good gesture not only from the point of view of the military and political elements, but also from the point of view of the psychological elements, because this situation of being on full alert, of course, had enormous psychological pressure on the citizens of our country.

MR. MacNeil: One comment here has been that even after the recent coup attempt Mr. Gorbachev's, as it's described, hard line negotiating team on disarmament led by Viktor Karpov, is still in office, you said there will be no weapons -- no weapons system will be held hostage, but will there not be, in your own bureaucracy and disarmament, arms negotiating bureaucracy, some conservative influences hostile to the idea of very radical nuclear disarmament?

MR. PANKIN: [Speaking through Interpreter] I think that will not happen. I think that political will will have its say, political decisions will win out, and the competence of those people who will be conducting the negotiations, if you look back at the recent past, you see that what was slowing things down was not bureaucracy as such, not bureaucratic drudgery, but a hidden wish and intention, a desire to slow down the negotiations, to block disarmament, including nuclear disarmament. Right now we can already say that this trend was incarnated by those officials who were members of that so-called "committee" on the emergency situation.

MR. MacNeil: How far can you go? Mr. Gorbachev has said in the past that deterrence could be achieved with just a few hundred, instead of many thousand, nuclear weapons on either side. I mean, how far are you prepared to go at the moment?

MR. PANKIN: [Speaking through Interpreter] You see, I think that we're living in a century now such that so- called "deterrence" no longer has -- that is, nuclear deterrence -- no longer has any real bases, so in my first comments in connection with the statements made by President Bush, I said that it's time to say farewell to so-called "nuclear deterrence." So on that level, I think we can go in any direction. We could go very far, of course, on the basis of reciprocity, reciprocity and given conditions in which other nuclear powers also adhere to this. Incidentally, here I see an encouraging element because during our meetings on the ministerial level here in New York, we spoke and dealt with the initiative of President Mitterrand. In particular, I talked about this with Foreign Minister DuMans and with James Baker as to having a meeting on some level, perhaps even on the highest level, of the leaders of the four powers, so that we could talk about prospects for nuclear disarmament and so that the dialogue at this stage should become a quartet.

MR. MacNeil: So you would look favorably on the summit, possibly a summit meeting of Britain, France, the Soviet Union, and the United States on this?

MR. PANKIN: [Speaking through Interpreter] Yes. Yes.

MR. MacNeil: Do you see any hope of getting the Chinese as part of such a -- make it a quintet?

MR. PANKIN: [Speaking through Interpreter] No. Of course, they will be invited. Of course, logic requires that in that case, all five permanent members of the Security Council sit down at the table and talk on this subject. I think that the time for this has come.

MR. MacNeil: Can we turn to Cuba. Since the -- in the events since the coup attempt, has that accelerated decisions to change the Soviet relationship with Cuba and to reduce aid further?

MR. PANKIN: [Speaking through Interpreter] Well, sometime ago, in fact, even before the coup, we had begun to establish normal relations with Cuba and with other countries as well, that is, we began rejecting double standards so that these relations should be suitable appropriate to us and be a threat to no one else. A lot had been done here earlier, including economic relations on an equal footing, et cetera, and in just the same way now, this measure was being worked on which, in fact, also is rather symbolic, I think, in nature, because we have very few troops there. So I think that measure was also put forward. Now we're planning in October sometime to begin negotiations concerning the practical side of the withdrawal of our brigades from Cuba. I must say that in the last analysis I hope that our Cuban partner will show understanding here, because there's nothing so extraordinary in this, but I think that during the negotiations with the American side and when we inform them about our measures, we call on them also to promote the establishment of a climate of trust and confidence in this region around Cuba. In particular, the question arises concerning the usefulness of the continuation at this moment of an economic blockade. There's hardly any need for that. The question arises, naturally, concerning further use of the Guantanamo Base, various kinds of military maneuvers there, and other exercises around Cuba. I think that in that sense here our measure of withdrawal also is a kind of unilateral step.

MR. MacNeil: I read a statement by Viktor Kremeniuk of the U.S.- Canada Institute, deputy director of the U.S.-Canada Institute. He said, "Cuba is for the moment a totalitarian regime where human rights are not observed. How could we continue the old policy?" Would you agree with that statement?

MR. PANKIN: [Speaking through Interpreter] Well, I didn't read that statement, but I know this era of pluralism that I mentioned to you, our scholars, particularly young ones, sometimes like to shout longer than anybody else and show off to each other with these kinds of radical statements. But what is permissible for young scholars, and that includes my son, my son is one of those too, well, the way you've told it I think the answer would be yes, yes. But I've said that those principles of cooperation which we're proposing to Cuba will fully ensure normal relations between our countries, the possibility not to exert pressure on each other. And as for that type of government which exists or should exist in Cuba, let the Cuban people, themselves, decide on that the way we decided on it, the way under the influence of perestroika, the Eastern European countries decided. As you know, we did not interfere in these processes and now we're establishing relations with them on the basis of full equality and full non-interference in each other's affairs. We're planning to sign a state treaty of a new type. I think the same holds true for Cuba. The same holds true for Afghanistan, for example.

MR. MacNeil: Do you think that there is among many people here in the West, certainly, a sense of inevitability about the demise of totalitarian imposed Communism in Eastern Europe, now in your own country? Is there a historical inevitability to it ending in Cuba too, do you think?

MR. PANKIN: [Speaking through Interpreter] I would say that where totalitarian exists now, its hour has struck. This is a historic imperative of our time. I am glad that my country after the route of the Puch managed even more energetically to march forward without looking back.

MR. MacNeil: Turning to Japan, are you close to negotiating an agreement with Japan on the Correal Islands?

MR. PANKIN: [Speaking through Interpreter] We are close to it. We are conducting negotiations on all of our bilateral relations, including that of concluding a peace treaty. We had meetings here in New York with the minister of foreign affairs Nakayama and in talks with Mr. Nakayama and somewhere in mid October, he will come to Moscow, where, of course, I'll continue my dialogue with him, and I think that he will be received by President Gorbachev, by the President of Russia, Mr. Yeltsin, so I think that here we'll have a big step forward toward resolving all of the questions existing between us.

MR. MacNeil: Can you see that being resolved within the next few months, actually signing a peace treaty soon?

MR. PANKIN: [Speaking through Interpreter] You know, in my situation, it's hard, it's dangerous to engage in predictions. But I think that we're headed in the right direction.

MR. MacNeil: On the Soviet economy, and first of all, the relations with the International Monetary Fund, since the United States resists the idea of full membership at the moment in the International Monetary Fund, are you about to apply for associate membership?

MR. PANKIN: [Speaking through Interpreter] Yes. We are ready to apply to the International Monetary Fund and to the World Bank. I would not even exclude that during my absence perhaps those applications have already been done. I know that these decisions were already taken.

MR. MacNeil: Gregorie Yavlinsky, the economist who's planning the market economy, says that your gold reserves, he discovers, are worth only $3 billion. That's a story today in the New York Times. That is a lot less than the West assumed was there. That raises fears about the Soviet ability to pay the interest on its $70 billion in foreign loans. What is your comment on that? Is that a sudden discovery? Can you confirm it?

MR. PANKIN: [Speaking through Interpreter] I just read that statement in the newspapers. It's hard for me to comment on it. But gold is not the only thing that our country has. It's not its only source of wealth. I think that we always were reliable in paying back our debts. We always fulfilled our commitments after the Congress. It was stated that we continued to bear responsibility, the central government continues to bear responsibility for all our commitments. Negotiations are being conducted on this question. I think here we will find a correct decision. We're not going to let our partners down and they won't let us down.

MR. MacNeil: What is your assessment of the food situation for this winter? One reads that the distribution system is getting even worse, some republics are holding back food and refusing to ship across their borders, that the distribution system is becoming weaker and weaker. What is your assessment of the problem, crisis, whatever it is, facing the Soviet Union this fall and winter?

MR. PANKIN: [Speaking through Interpreter] The problem exists. It, indeed, is very critical. First of all, the harvest this year was somewhat less than last year. Second, as a result of all of these politically favorable decisions and processes, at the same time as is characteristic of a transition period, there is a certain kind of disorganization in carrying out practical functions. That's why I'm afraid that we lost more than we usually did in the harvest, while harvesting and in other spheres. There is another element to that, because of the gigantic inflation that we have, that the ruble has lost its value. Many of our collective farms and organizations are holding bread back. They are not selling it. They don't see the point of selling it to the state, to the state granaries. That also is an inevitable phenomenon. That is why all in all, of course, this is a very serious problem. On the one hand -- I was at a meeting of the state council just before I left for New York -- on the one hand, major internal economic and financial measures are being taken in order to get those who are holding the grains and food process interested and to get all this out onto the market and to take measures to preserve everything that we've harvested. On the other hand, of course, in these conditions, we are very strongly banking on support from the international community. We do not find it awkward to ask for such help, because the period which our country is experiencing is such that it assumes this kind of international solidarity. As one of the people I was talking to said to me, an American, he said, we today are helping you because tomorrow we'll need you. I think that's a very good formulation. I think that answers the question.

MR. MacNeil: Can I ask you a final question, a personal question again. As somebody who was a critic of the system from within and a reformer for a long time, since the days of the Kruschev era, do you think a better country is going to emerge from recent events, or is, are the events of August and the failed coup, are they going to be a prelude to more turmoil, as in 1917, the March Revolution was the prelude to the October Revolution?

MR. PANKIN: [Speaking through Interpreter] You know, I see the better side of this in the future, in the far future. I think that light did appear at the end of the tunnel after that blatant attempt to turn history back was crushed. But I repeat that on the way to that, we, ourselves, need to make great efforts and the world around us, in particular the West, which has more possibilities, has to give very serious thought to how to help us here. In fact, a significant part of my work here consists in helping the West to understand how it can help us. I think what we're doing here now, you and I, I think that is also part of it.

MR. MacNeil: Well, in --

MR. PANKIN: [Speaking through Interpreter] That's part of my function.

MR. MacNeil: In succinct terms, if that is your function here, how can the West best help you now, in a few sentences, practical terms?

MR. PANKIN: [Speaking through Interpreter] The West now must as quickly as possible put into effect all machinery, on the one hand, for humanitarian assistance, on the other, medium-term assistance for credits which we're requesting, and help not only in moving goods, but in establishing a system of distribution, becoming involved in close interaction with our plans and structures, and at the same time, give thought to mass economic advancement, economic steps which can be taken when very, very soon, prospects will open up for an economic program, when it will be clear that, in fact, we are already moving toward a market economy. But we need to keep all of that within our field of vision.

MR. MacNeil: Well, Mr. Pankin, thank you very much for joining us.

MR. PANKIN: [Speaking through Interpreter] Thank you.

MS. WOODRUFF: Tomorrow, we will explore what impact the President's nuclear proposals will have on the arms debate here at home. Still ahead tonight, the BCCI scandal and a tribute to Miles Davis. SERIES - TANGLED WEB

MS. WOODRUFF: Next, we continue our series of conversations about the ongoing BCCI scandal. This week, we get the view from London. In the United States, questions about the Bank of Credit & Commerce International are focusing on how that bank managed illegally to gain control of Washington, D.C.-based First American Bankshares. In Britain, an even more fundamental question of bank regulation and operation is at stake. Charlayne Hunter-Gault has the story.

MS. HUNTER-GAULT: [technical difficulty] -- where BCCI maintained its worldwide operational headquarters, and that's where a lot of the pain is now being felt by small businesses and other depositors, most of whom are of Asian descent. Since July, when BCCI was shut down by the British, the web of intrigue has expanded to a tale of a bank within a bank that practiced fraud and corruption around the world. Allegations include tiesto dictators who used BCCI to raid their national treasuries and enrich themselves, terrorists, such as Abu Nidal, who is said to have kept an account in a London branch, and intelligence organizations, including the CIA, which is said to have used the bank to move funds. In Britain, criticism for poor oversight has focused on the Bank of England, Britain's chief regulatory agency, and its head, Robin Leigh-Pemberton, who recently explained to a parliamentary committee why the bank remained open until this year.

ROBIN LEIGH-PEMBERTON, Bank of England: And there was a lot of talk about this bank and it was well known, it was suspicioned maybe, it was certainly not information on which the Bank of England could necessarily act, needless to say.

MS. HUNTER-GAULT: BCCI's founder, Aga Hassan Abedi, started the bank in Pakistan in the early 1970s and for the next two decades, he befriended influential people around the world, always portraying his bank as a force for good for poorer people and nations in the third world. One of those who's followed the BCCI story the longest is Tariq Ali, a Pakistani born journalist who now lives and works in London. This summer, Ali prepared a documentary on BCCI for Britain's Channel 4. I spoke to Tariq Ali recently in London and asked him to describe BCCI's founder.

TARIQ ALI, Journalist: Aga Hassan Abedi is a self-made man. His father used to be a cook on the estates of a feudal landlord in undivided India during the days of British rule and British occupation. And this landlord was quite a benevolent figure. He saw that the boy had talent and he paid for him to be educated and helped him a lot. And Abedi grew up as a talented young banker. He's very intelligent, there's no two ways about that, but he also developed increasingly, once he set up the BCCI, a streak of megalomania. He became like one of those gurus of the cults which proliferated in the '60s and '70s, inspired that sort of loyalty, and had very mystical notions about how to run the bank. For instance, he devised a thing called "the concept," which was a sort of nonsensical rule which made no sense, except to give him total control over every aspect of the bank. And he ran the bank like a total dictator. He knew everything that was going on. To heads of state, to people of influence and power, he had another face. This was the face of a humble man. There is a character in one of Charles Dickens's novels, David Copperfield, the character of Uriah Heath, who always pleads that he's humble. So Abedi was also a bit of that.

MS. HUNTER-GAULT: Was BCCI bad from the very beginning?

MR. ALI: In my opinion, it was. I think that the bank was set up very very clearly to make money illegally. I think that was the aim of the operation. I think that the people that were involved in setting up the bank were intent on bending the rules in order to make money. And I think the very way the bank was set up was an indication that something was crooked. In 1980, I received a telephone call; it was someone I didn't know before. It was someone who was a banker and who came to me highly recommended from other contacts. I met this person in a remote suburb, and he said to me, have you heard of a bank called BCCI, and I said, yes, because they were already becoming well known and well established, and he said, well, I'm going to tell you the whole story of how this bank was set up. This was Abedi's, one of his associates who later on became a banker in another country and doesn't want to be identified. And the story I heard for about eight hours that night was so incredible that I took detailed notes and later, I wrote it up. And the story was that when Mr. Abedi was working for the United Bank Limited in Pakistan, he was head of their foreign exchange reserves and on the board of directors. What Abedi did was, he used his position to give a loan to four people, a loan I am told in the region of 2.5 million pounds. With this loan money, his four friends went and set up the ICIC, the holding company which launched the BCCI on the Cayman Islands. This money, which he had taken from the UBLS loans, was then written off as bad debts. And if my informant was correct -- and so far, no one has denied this story -- then the very beginnings of the BCCI were murky. So that's how the bank began. And the aim of Abedi was to set up a multinational third world bank which could cross frontiers with ease and which could help transfer black money and illegal money and criminal money from one part of the world to another. I am convinced that this was the aim of the bank from its very inception.

MS. HUNTER-GAULT: Not as an instrument to help third world peoples, as it was proclaimed?

MR. ALI: No, I do not believe that the bank had any idea of helping third world people, except in a very marginal, limited sense, that its employees were largely from the Indian subcontinent, mainly from Pakistan and some from Bangladesh, but that help only went to a very tiny number of people. Apart from that, I don't believe in any of this demagogy which is coming out that we're a third world bank, that's why we are being victimized by the West, et cetera, which is the predominant line. I don't believe that.

MS. HUNTER-GAULT: So are you saying that what is being called the black network, or the bank within the bank, which is the criminal enterprise, was the real motivating entity?

MR. ALI: I think that it was that network which set up the bank. Without that network, the bank wouldn't have come into being. And I am very, very dubious about those people high up in the bank who claim that they did not know that these things were going on. Maybe they didn't. If they didn't, all I can say is that they were very naive.

MS. HUNTER-GAULT: How was Abedi treated in Pakistan, and what was his relationship to the government?

MR. ALI: Initially, of course, he was treated like any other banker, but soon, he developed a very close relationship with Gen. Zayre Olhuk, who was a military dictator in Pakistan from 1977 to 1987, '88, when he was blown up, and Abedi's plane would arrive at Islamabav Airport and the president's car would sweep him onto the tarmac, take him from his plane, and take him straight to the president's house without any formalities. Essentially, Abedi ran a state inside a state. He had every possible privilege. He took over the country's oil industry. He had the country's entire rice crop mortgaged. He gave loans to top generals, to top civil servants He bought the country. And when the country was taken over by the heroin mafia, a lot of the heroin money came out to the West through the BCCI.

MS. HUNTER-GAULT: Give me, tell me a little bit about that.

MR. ALI: All the top drug enforces from the United States knew that heroin was being used to finance some of the Afghan rebels. They were very worried about it. They complained. But nothing was done. Gradually, Gen. Zayre and the Pakistani generals, whose initial reaction was, we don't care about heroin, our people don't take it, it goes to the United States and it goes to the West, that's their problem, but gradually what happened is that Pakistan, which had 56 registered heroin addicts in 1977, when Gen. Zayre took over, in 10 years time had 1.25 million registered addicts officially and unofficially, the figure was higher. So a heroin mafia developed, a massive amount of money was made, and this money was used to pay off politicians, generals, civil servants. And by and large, they wanted the money kept abroad. In order to get the money abroad, they needed a bank. A bank which was very useful was the BCCI, because that bank could transfer money anywhere. So there'll be lots of very, very disturbed and depressed faces amongst the Pakistani elite because the bank has now been closed up.

MS. HUNTER-GAULT: Were there any legitimate enterprises that BCCI was involved with?

MR. ALI: Yes. I think they operated as a bank, they tried to operate as a bank as well they could. Lots of small investors of Asian background used to invest or put their money in for one reason because it was a friendly bank, for another reason, if you're a small shopkeeper and you're taking say for a month, have amounted to save let's say $20,000 or more, $200,000, you don't want to declare all this to be land revenue; you go into the bank and the bank says you can put it in but you can tell the Inland Revenue that you only banked $100,000, rather than $200,000, so they were useful even on the small level to people in circumventing laws. They then organized, sort of attempted to organize a media empire. They launched South Magazine. They launched Third World Quarterly. They were very heavily involved in financing some pages in the Guardian Newspaper in this country, which, I mean, they were legal enterprises, but they were always used as fronts to ease the way for the bank to enter more and more countries.

MS. HUNTER-GAULT: In what way?

MR. ALI: Well, the editor of South, who was earlier chief editor of the Guardian's Third World Review, would turn up in Nigeria. He would interview the Nigerian head of state, give him a fantastic interview, a PR job, totally uncritical. This would be published in the Guardian, or later this would be published in South Magazine. And then the bank would turn up the following week, using him as a contact, saying, Mr. So and So, we interviewed you, sir, and we are the people who fund that magazine, and establish a whole network of contacts. They did this in Nigeria. They did this in Kenya. They did this in South Africa, in Swatsiland. So everywhere they offered services which other banks were more careful about or just refused to have anything to do with. And they used that publicity to show that they were a third world bank, they were in favor of a third world, they were in favor of black people, they were in favor of this, in favor of that, and kept their operation going, and some people were genuinely taken in.

MS. HUNTER-GAULT: One of the -- the chief financial officer says that the bank was solvent and that there were just a few officials at the top who were corrupt. You've referred to that before. What do you think about that?

MR. ALI: I don't believe it. I do not believe that the junior officers in the bank, branch managers or people employed, or people who, journalists who worked for South Magazine were corrupt or knew any of this. They were people doing a job. But I think all those who were at the upper reaches of the bank knew it was a corrupt and crook organization. I mean, 10 years ago, I used to met bankers working for BCCI who over a glass of beer, or, you know, a glass of whiskey would say, oh, you know, what we have referred to the bank, Inside Banks of Crooks and Cheats, Incorporated. So in other words, this culture was known inside the bank to its own employees.

MS. HUNTER-GAULT: Well, how did -- I mean, you knew about this, you wrote about this in 1981 -- how did this go on for so long?

MR. ALI: I think that they paid lots of people in order to stay open as a bank. For a long time, the Bank of England did not give them the license to trade as a bank. They were known as licensed deposit takers. Then the laws were changed for other reasons and they began to trade as a bank. My own feeling is that a lot of money exchanged hands. We know how they operated in the third world. They bribed everyone. And they helped people, let's put it like that, to be more euphemistic, in their favorite causes, but you might say it's not a bribe for people to go buy a yacht or a private plane, but it amounts to the same thing, in my opinion, accepting money from a bank. Favors are expected in return.

MS. HUNTER-GAULT: What about the regulatory authorities here, in Pakistan, do you have any information on those?

MR. ALI: Well, in Pakistan, Abedi had the president and leading generals and politicians and civil servants in his pocket and regulation is not a strong point for the Pakistani financial establishment. It's largely a sort of society which cannot be regulated. No one takes regulation seriously. Britain is a much more serious matter. The question I ask myself, when people like me, you know, knew and a few other journalists knew, when people inside the bank knew, is it seriously possible that Price Waterhouse, the main regulators, the aristocracy of the English financial establishment, was so dumb that they went into this bank and they didn't know what was going on?

MS. HUNTER-GAULT: Did you go to them and say with your evidence?

MR. ALI: We certainly did. When we made our program for Channel 4 Television, we sent them a list of fifteen or twenty questions and said if you don't wish to appear, at least answer these questions.

MS. HUNTER-GAULT: And they were questions like --

MR. ALI: They were questions like the one I posed. How is it possible that you didn't know? I mean, they have not so far replied to it. They claimed lots of files were missing. We then proved or demonstrated that the files were here, that the files were in their bank, the headquarters of the BCCI in the city of London for a long, long time. But no one asked to see them.

MS. HUNTER-GAULT: Tell me briefly about the Abudabi connection because there were a number of bank officials arrested in Abudabi recently, including Mr. Nakfe, who was one of the top people in the bank.

MR. ALI: The Abudabi connection started in the late '70s, early '80s, when Mr. Abedi persuaded the sheikh of Abudabi to invest his money in the BCCI and stop investing it in a local bank, and he assured him that his bank would make more money, they'd look after his money, they would be his guardians. And the sheikh was convinced by Abedi, he was quite a convincing talker. And so the sheikh's money went in, and then increasingly, the sheikh began to look at the bank more closely and finally he was told that the Abedi and Nakfe were up to no good, and he fired them. But he couldn't totally clean up the operation. So it's a link which goes back a long way. I mean, if the sheikh of Abudabi hadn't put any money in or hadn't saved the bank when it ran into trouble in the '80s, the bank would have collapsed a long time ago.

MS. HUNTER-GAULT: Where do you see all of this going?

MR. ALI: I think it could go two ways. It already has become the financialscandal of the 20th century. It could -- there could either now be a gigantic cover-up, because the people they bribed, Abedi and Nakfe, kept detailed lists, and they have the proof of all the people who took money from them. They have these lists. Where these lists are kept, in which safe, when they will be brought out into the open, I do not know. Which is why Mr. Nakfe's arrest in Abudabi is very important. If he is extradited to the states, he could tell some stories which would shock financial establishments and rock the city.

MS. HUNTER-GAULT: Well, Tariq Ali, thank you.

MR. ALI: Thank you.

MR. MacNeil: For the record, Price Waterhouse says that BCCI withheld key files from the accounting firm's audits. Price Waterhouse adds that it expressed concerns about BCCI to British regulators well before the July shutdown. FINALLY - MAN WITH A HORN

MS. WOODRUFF: Finally tonight, Miles Davis. More than a trumpeter and composer, Davis was considered one of the innovator's of modern jazz. He died Saturday at age 65. We remember him now with an excerpt from a 1986 concert in New Orleans. ["HUMAN NATURE" -- MUSIC EXCERPT FROM 1986 CONCERT] RECAP

MR. MacNeil: Again, the main stories of this Monday, Soviet officials pledged their readiness to match proposed U.S. defense cuts. New government reports showed American schoolchildren making some gains, but still far behind students from other countries. Nebraska's Democratic Senator, Bob Kerrey, declared his candidacy for President. And the Associated Press reported tonight that Haitian President Jean Bertrand Aristide has been arrested. The action came after a violent day long uprising by rebel soldiers. Aristide is the Caribbean nation's first freely elected President. Good night, Judy.

MS. WOODRUFF: Good night, Robin. That's our NewsHour for tonight. We'll be back tomorrow night with a report on key testimony in the confirmation hearings of Robert Gates to become head of the CIA. I'm Judy Woodruff. Thank you and good night.