The Crimes of Mena:
by the Staff of the OZARK GAZETTE
(Originally Published, 1995 -- Reprinted
with permission - Mark Swaney)
Activists seeking documentation that
would support claims that the state of Arkansas was involved
with money laundering on a massive scale may have found
the missing link in their three year search. Documents obtained
by the Arkansas Committee show that the Arkansas Development
and Finance Authority, a Bill Clinton signature project,
was involved in a highly questionable, and possibly illegal,
sixty-million dollar deal in which ADFA borrowed 5 million
dollars from a Japanese bank in order to buy stock in a
Barbados insurance company. The stock was not registered
with the Securities and Exchange Commission.
The state of Arkansas was the lead investor in a deal which
poured sixty million dollars through a Barbados company,
Coral Reinsurance, which is currently under investigation
by insurance regulators in New York, Pennsylvania, and Delaware
as well as by Manhattan District Attorney Robert Morgenthau,
lead prosecutor in the BCCI scandal. Additionally, the Ozark
Gazette has recently been told that as a result of the release
of the Coral documents the independent counsel, Kenneth
Starr, is also investigating the deal.
Persons involved in the deal, which began in 1987 and ended
in 1991, include Bob Nash, then president of ADFA and now
Personnel Director of the White House, Robert Rubin, then
president of Goldman Sachs investment bank and now Secretary
of the Treasury, and Maurice Greenburg, president of American
International Group, and a candidate in 1995 to be Director
of Central Intelligence.
The American International Group is a 100-billion dollar,
multi-national insurance company which founded Coral Reinsurance
Company in 1987. The fact that AIG founded Coral was hidden
from insurance regulators for at least 3 years and was only
recently proven by the reluctant release by ADFA of the
original stock placement memorandum. Maurice Greenburg as
president of AIG is a very well connected businessman and
a player in international politics. He serves as the chairman
of the US-China Business Council and lobbied hard (and successfully)
for the Clinton administration to sever the link between
China's human rights record and renewal of China's most-favored-nation
trade status. Members of the board of directors of AIG include
Martin Feldstein, Harvard University economics professor
and former chairman of the President's Council of Economic
Advisors and Carla Hills, former U.S. trade representative.
AIG's international advisory board is headed by Henry A.
The original deal was pitched to ADFA by Goldman-Sachs,
a New York based securities firm which played an important
role in the transaction. Goldman-Sachs had pledged to sell
the stock for Coral and in addition pledged to buy the stock
if for any reason the other investors could not hold it
and were forced to sell. Goldman's president at the time
was Robert Rubin, later appointed by the Clinton administration
to succeed Lloyd Bentsen as the Secretary of the Treasury.
Founded in 1990 as a student organization at the University
of Arkansas, the Arkansas Committee's major focus was on
Arkansas' involvement with the mysterious activities at
the Mena airport during the 1980's. The Committee spent
two years unsuccessfully trying to convince the state government
to investigate links between major drug smuggler Barry Seal
(also a government informant), who worked out of the Mena,
Arkansas airport, and the U. S. Intelligence community.
Recently, two very respected investigative journalists,
Roger Morris and Sally Denton, have published the most authoritative
and highly documented account to date of events at the Mena
airport between 1982 and 1986. Based on over 2,000 documents
including the previously unpublished personal papers of
Barry Seal, their article "The Crimes of Mena" in the July
issue of Penthouse Magazine reveals the government's protection,
and cover up of drug smuggling, gun running and money laundering.
Realizing that personal accounts were not sufficient to
convince skeptics, in the summer of 1992 the Committee began
what would become its most difficult journey - finding enough
hard evidence to convince the media (the court of last resort,
the government having rebuffed two years of pleas to do
the job itself) to investigate and write about Mena. And
so they began trying to locate the long buried paper trail,
armed only with the Freedom of Information Act and determination.
But what sort of hard documentation could they reasonably
hope to find? The Committee's sources had on more than one
occasion indicated that up to ten million dollars a week
in illegal cash was going through Arkansas at the height
of the Mena operation. Therefore the most logical course
seemed to be to the hoary old cliche, follow the money.
For two important reasons, the Committee decided to look
into the Arkansas Development Finance Authority (ADFA).
First, some admittedly circumstantial evidence linked ADFA
to the Mena operations. Secondly, as a state agency, ADFA
was subject to Arkansas's Freedom of Information Act, and
so documents could be extracted from what was hoped would
be an important source of information. Throughout 1992,
the Arkansas Committee contacted numerous sources in their
search for evidence that ADFA may have been involved in
money laundering operations. Several people assured them
that ADFA was indeed involved, knowingly or otherwise, with
laundering many millions of dollars.
ADFA sells bonds as a state bonding agency, and it was alleged
that many of the bonds were bought with drug money. But
this meant that even if the bonds were purchased with black
money, ADFA would still be in the clear, since ADFA could
claim that they had no knowledge of the sources of the money
used to purchase their bonds. Additionally, ADFA does not
sell it's own bonds directly to the public, but instead
uses a middleman - a bond underwriter - the perfect deniable
link. Committee member Mark Swaney suspected that it was
possible that ADFA had become involved in money laundering
directly, so he began searching for other ways in which
black money may have been moved with ADFA's involvement.
In August of 1992, Swaney received what he felt was his
first real break, when a source told him to look for ADFA's
involvement with an insurance company.
HITS PAY DIRT
Life not being like the movies, it took two years before
the Committee was able to find any such link. In 1994, Swaney
and the Arkansas Committee (in thus far their last official
act as a group) sued ADFA for their auditor's working papers,
after the documents were not forthcoming. The lack of interest
on the part of the main stream press had not changed and
the only attendees at the press conference announcing the
suit were one reporter, and a camera crew from a public
access television station. In a recent Arkansas Supreme
Court ruling that has extended the power of the state's
freedom of information act, Swaney and the Arkansas Committee
were handed a unanimous victory when the court overturned
the original decision by Judge Kim Smith. The new ruling
places the burden of obtaining public documents held by
private companies on the relevant state agency. The decision
means that state agencies cannot circumvent the freedom
of information act by insuring that they are not in possession
of sensitive documents. (Oh, we don't have "physical possession"
of that document - because we gave it to our lawyer to keep...)
The Committee reasoned that the public audits of ADFA were
unlikely to provide any useful information, however the
working papers of the auditors should yield a much more
complete and detailed picture of ADFA's dealings. Because
the Committee members were not financial experts they decided
to locate someone well versed in accounting and/or auditing
to review the papers when and if they could obtain them.
To this end, Swaney teamed up with well-known independent
financial analyst and ADFA critic, Roy Drew.
In a conversation about their collaboration, Drew told Swaney
that he had found evidence of ADFA's involvement in a very
strange deal with a certain Coral Reinsurance Company. Roy
Drew had been reading the minutes of ADFA's board of directors
meetings and found one paragraph (in thousands of pages)
describing a deal where ADFA would borrow 5 million dollars
from the Sanwa bank's Chicago branch to buy stock in Coral
Reinsurance. Additionally, the minutes revealed that according
to the terms of the loan ADFA did not have to repay the
loan if it did not make as much money in dividends on the
stock as it owed in interest on the loan. To the Committee,
this seemed to be the long sought after link between ADFA
and an insurance company, especially since there was no
known connection to any other insurance business.
After finally obtaining an opportunity to examine the ADFA
auditor's working papers, the Committee asked ADFA for copies
of all documents relating to the Coral insurance deal. Derek
Rose, PR man for ADFA, readily agreed to make the Coral
documents available. On December 2, 1994 ADFA's auditors
(Deloitte & Touche) allowed Swaney and Drew limited
access to the working papers. On the same day Swaney visited
ADFA and copied the entire Coral file that Rose had retrieved
for him. While Swaney was copying the documents, Rose was
apparently seeing the material for the first time. It quickly
become obvious to Swaney that several documents contained
in the file where very sensitive inter-office ADFA memos.
One of the memos, apparently written in a panic by Bob Nash,
indicated that he had been questioned about the Coral deal
in 1992, and had been shaken by it. In addition, a letter
written to ADFA by the Delaware Department of Insurance
requested information concerning ADFA's involvement with
Coral Reinsurance, and strongly suggested that they were
investigating Coral Reinsurance.
After returning to Fayetteville, Swaney and the Committee
began to study the documents in detail. Several facts were
especially interesting given the background of the search.
First, Coral Reinsurance was incorporated in the tiny Caribbean
island of Barbados - a notorious haven for money launderers
due to it's very lax banking regulations, and tight corporate
secrecy laws. If someone wanted to launder cash, this was
a good place to do it. Second, the deal was structured in
such a way as to prevent the reporting of the ownership
of the stock to the IRS. Third, the stock certificate plainly
stated that "these securities have not been registered under
the Securities and Exchange Commission act of 1933". The
deal had all the earmarks of a clandestine arrangement designed
to conceal the true ownership of Coral Reinsurance.
Further information gleaned from the documents showed that
ADFA's role in the deal was unique. There were several other
investors, none of whom had any visible government connection.
Also, ADFA's share of the stock was larger than any other
investor, and ADFA had signed a "put agreement" with Goldman
Sach's in which they obligated themselves to buy the stock
of any other investor in the case that the investor found
that they could no longer hold the stock, and Goldman could
find no other qualified investor. Finally, in case ADFA
couldn't hold the stock, Goldman Sachs would buy it. In
no case was the Sanwa Bank ever to own the stock.
The total amount of stock in the deal was 1,000 shares at
$60,000 per share for a total of 60 million dollars. ADFA's
portion was 84 shares for a total of $5.04 million. Another
very interesting fact was that the money apparently never
left the Sanwa Bank. The whole transaction was conducted
on paper. Sanwa loaned the $60 million to the investors,
who used it to buy the stock in Coral, which then redeposited
the money back in the Sanwa bank in the form of a certificate
of deposit. Also mentioned in the documents was the American
International Group, a huge insurance company with international
business and political connections. The documents indicated
that Coral was going to re-insure AIG as part of its business.
Taken together, these facts indicated that this deal was
indeed very strange. ADFA took no risk, since the loan with
Sanwa guaranteed it a profit, and was secured solely by
ADFA did nothing more than sign papers, in exchange for
a profit of $58,000. At first glance, any intelligent person
would question a deal that promised something for nothing
(indeed, it was later revealed that one of ADFA's legal
advisors - John Selig of the Mitchell firm - did ask the
crucial questions, "what's in it for AIG? why pay us for
nothing?"). Swaney and Drew could not help wondering whether
or not ADFA's role was to provide the appearance of legitimacy
and liquidity so that the other investors would not be fearful
of getting involved.
Roy Drew and Mark Swaney wanted to learn all that they could
about the Coral deal before releasing the documents to the
media, so that further information could be obtained before
media involvement stirred up the situation. Roy Drew contacted
the Delaware Department of Insurance to find out what their
original interest in Coral had been and to see if they were
still interested in obtaining the ADFA documents.
The Delaware Department of Insurance was in fact very interested
in the documents and a series of strange phone conversations
took place between Drew and his contact at the DDI.
Drew was told that ADFA had never responded to the DDI's
request for information, so that they had no documentation
on the Coral-ADFA deal. Initially the DDI was very suspicious
of Roy Drew, not being sure with whom they were dealing.
They requested assurance from him that he was not a member
of any official US government agency and that he was not
working for ADFA or Coral.
Shortly after these initial exchanges Drew's original contact
at the DDI was taken off the case and his superiors informed
Drew that his contact had been instructed not to say anything
more to anyone about case. Seeing no point in trying to
get further information from Delaware about the case, Swaney
and Drew decided to release the story to the media. A reporter
for the business section of the New York Post, John Crudele,
had been following the progress of the Committee's efforts
and in early January, 1995, Swaney mailed him the Coral
Things began to get even stranger on January 6, 1995. That
day John Crudele of the New York Post published a column
which called attention to whole deal involving Coral, ADFA
and AIG. The story was only on streets in New York for a
few hours when Swaney received a call from a man who told
Swaney he had been conducting his own investigation of Coral
Insurance and AIG but had not realized until then that the
connections led to people now in the White House. When Swaney
asked him to identify himself, he declined to do so, for
fear of retaliation.
We will call him Mr. Anonymous. It seems that Mr. Anonymous
is an insurance man in New York City - a competitor of AIG
- and at sometime in the last two years he became very suspicious
of AIG because its affiliates were offering insurance at
premiums way below market rates. Mr. Anonymous told Swaney
that he could not believe that a legitimate insurance company
could stay in business offering such low rates. Mr. Anonymous
suspected that he was in competition with an illegal enterprise,
and began poking around in the affairs of AIG. At some point
after that, Mr. Anonymous became frightened, and dropped
his investigation, because he believed that the repercussions
were damaging his own business. Mr. Anonymous also told
Swaney (and John Crudele of the New York Post) that AIG
and it's relationship with Coral Reinsurance was under investigation
by the insurance regulators of Pennsylvania and New York.
Mr. Anonymous had discovered that AIG was doing a lot of
business through the island nation Bermuda. He then flew
to Bermuda to examine the records of AIG's business dealings.
In conversation with Swaney, Mr. Anonymous said that one
of the companies that he believed to be underwriting policies
issued by AIG had given a Fort Smith, Arkansas address.
When Swaney asked for the name of the company, Mr. Anonymous
told him it was Beverly Indemnity.
Intrigued by the new connections to Arkansas, Swaney requested,
and received, copies of the documents that Mr. Anonymous
had obtained in Bermuda. The documents for Beverly Indemnity
of Bermuda contained the names of two of its officers, Robert
Pommerville, and Ronald C. Kayne. Swaney suspected that
Beverly Indemnity was controlled by the well-known Beverly
Enterprises of Fort Smith, AR - a call to Beverly Enterprises
revealed that Pommerville did indeed work for Beverly Enterprises.
Pommerville was later identified as the General Counsel
for Beverly Enterprises. At the time of the Coral Insurance
deal, Beverly Enterprises was owned and controlled by Stephens,
In a telephone interview Mr. Pommerville stated that Beverly
Enterprises has an ongoing relationship with one of AIG's
affiliates. The National Union Fire and Home Insurance company
of Pittsburgh, Pennsylvania insures the Beverly Enterprises
nursing homes. In turn, Beverly Indemnity, Inc. reinsures
National Union. Mr. Pommerville stated that the arrangement
was a step toward Beverly Enterprises becoming self-insured.
Beverly Enterprises has a current connection with ADFA though
Bobby Stephens (no relation to Stephens Inc.) who is a member
of the board of directors of both ADFA and Beverly Enterprises.
The minutes of the board of directors meeting at which the
board members voted to buy the Coral Reinsurance stock show
that Bobby Stephens was absent.
Beverly Enterprises has an intriguing past association with
ADFA. Those with long memories will recall that in the year
after the Coral deal, a controversy erupted involving Beverly
Enterprises, ADFA and former Arkansas Attorney General Steve
Clark. At that time ADFA was considering a deal involving
a bond issue which would have benefited Beverly Enterprises.
Clark interrupted the public ADFA meeting involving the
issuance of the bonds and claimed that the Stephens family,
then the principal owners of Beverly Enterprises, had offered
him a $100,000 campaign contribution (translated- bribe)
if he would remain neutral on the deal involving ADFA and
Beverly Enterprises. Other observers of state politics have
claimed that Clark's later problems originated with his
grandstand announcement "in front of God and everybody"
at the ADFA meeting.
Soon after the columns by John Crudele appeared in the New
York Post, other media began to be interested in the Coral
Reinsurance deal. Business Insurance magazine reported on
the Coral deal. An AIG spokesperson denied that AIG had
organized Coral Reinsurance. Other industry sources told
John Crudele that $450 million dollars had suddenly appeared
in Coral's account in just the last two weeks of 1987. Investigators
have been unable toidentify the source of the cash infusion.
Further columns on the story by John Crudele indicated that
AIG was attempting to distance itself from Coral and would
only say that Coral wrote reinsurance policies for AIG -
investigators for insurance regulators wanted to know if
AIG actually in fact owned Coral. This is the reason that
the Delaware Department of Insurance originally contacted
ADFA in 1992. The DDI wanted to see the stock placement
memoranda because such memoranda usually include information
on who is starting the company, what the nature of the business
is, and with whom it intends to do business.
In mid December Swaney had written another FOIA request
to ADFA, asking for copies of documents relating to the
Coral deal which were not in the original file obtained
on the second of December. Two of the documents requested
1) the confidential stock placement memoranda. 2) the written
legal opinion promised by ADFA to Coral which was supposed
to state that ADFA had legal authority to buy the stock
in first place.
ADFA responded to the FOIA by stating that all of the Coral
documents in ADFA's possession had already been copied by
By the middle of February 1995 it was determined that ADFA's
response, while technically true, was simply a dodge since
the requested documents were in fact in the possession of
one of ADFA's attorneys, Ann Ritchie-Parker of the Mitchell
Firm, a prestigious Little Rock law firm.
When the long sought after memorandum was finally obtained'
it revealed that indeed, AIG had founded Coral Reinsurance.
While all of these facts were in themselves very interesting,
an event in the latter part of February, 1995 added yet
another twist to this bizarre story. In an article in February
20 issue US News & World Report it was revealed that
Maurice Greenburg was being promoted by Senator Arlen Specter
as the successor to Woolsey as Director of Central Intelligence.
Jack Wheeler, writing in the February 22 issue of Strategic
Investment Newsletter, stated that the Clinton administration
had sent up a "trial balloon" in January on the possibility
of nominating Greenburg as the new Director of Central Intelligence.
There was very little support for a Greenburg nomination.
Did the newly published details of the Coral-ADFA deal deflate
At about the same time Bob Nash, author of the "panic" memo,
and former President of ADFA was made the director of White
House personnel by Clinton. On February the fifth, Lloyd
Bentsten, former Secretary of the Treasury was appointed
to the board of directors of AIG.
Bentsten's successor at the treasury was Robert Rubin, the
President of Goldman Sachs at the time of the Coral/ADFA
By the middle of February the stories written by Crudele
were attracting attention in the Arkansas press. Andrea
Harter of the Democrat Gazette began a month long investigation
into the Coral deal. The story appeared March 5, 1995 and
revealed even more extensive connections between AIG/ADFA.
In the year preceding the purchase of Coral stock by ADFA,
an AIG affiliate had managed over one billion dollars worth
of ADFA's bonds. Having been founded in 1985 and starting
business in 1986, by early 1987 ADFA had only been in business
a little over a year. AIG's involvement with that much of
their bonds so early in ADFA's history indicates a very
strong relationship. Once again, considering that the Arkansas
Committee had been told that US Intelligence had indeed
laundered money through ADFA, and that the sale of ADFA's
bonds was one such vehicle for doing so, Maurice Greenburg's
connections to international politics and intelligence was
As a result of Andrea Harter's investigation it was determined
that the written legal opinion referred to in the Coral/ADFA
documents did not exist. Ms. Ann Parker-Ritchie claimed
that "everyone agreed at the time that it was legal for
ADFA to purchase the stock" so the opinion was never written
down. Although this point was not challenged by Harter in
the Democrat Gazette article, John Haman noted in the following
weeks edition of the Arkansas Times that Article 12, Section
7 of the Arkansas State Constitution flatly prohibits the
state of Arkansas from owning any stock. Thus it would appear
that ADFA's purchase of the Coral stock was illegal. Mark
Swaney comments "no wonder they didn't write the opinion
down on paper!"
Aside from the cloak-and-dagger aspects of the Coral Reinsurance
deal, the Arkansas Committee's investigation of ADFA reveals
some interesting points concerning this center of financial
power in Arkansas. First is the fact that ADFA's dealings
do not have to have anything to do with helping the economy
of Arkansas directly. Aside from a small profit of $58,000
on a 5 million dollar loan, who in Arkansas benefited from
the Coral deal? Who in Arkansas benefits from the billions
of dollars in bonds which ADFA sells? Certainly the bond
daddies of Stephens and other underwriters. Roy Drew has
studied the dealings of ADFA and calls the agency "an unregulated
savings and loan". ADFA has claimed that they have oversight
in the form of independent auditors. In fact, the legislation
that created ADFA in 1985 specifically prohibited ADFA from
using the Joint Legislative Auditing Agency - the state's
public auditors. Was this an attempt to circumvent the Freedom
of Information Act? Documents obtained by the Arkansas Committee
from Deloitte & Touche (ADFA's auditors) show at least
one example of the auditors covering up for ADFA and was
reported in the February 17, 1995 issue of the Arkansas
Auditing firms are noted for being more than willing to
please their customers, as in the infamous Silverado Savings
and Loan case.
The auditor's papers also showed that the board of directors
of ADFA on four occasions approved loans in spite of their
own staff's recommendations that the companies not receive
the loans. Two of the loans have since defaulted. In three
of the four cases, the companies were owned by people who
were friends of the members of the board of directors. In
one of the four cases, $400,000 was loaned to the husband
of a long time ADFA employee, and former secretary to Bob
Considering that the board is entirely appointed by the
governor, the possibilities for political corruption are
obvious. Consider that the flow of billions of dollars is
controlled essentially by one man. Consider the unaccountable
power which flows to the person who can decide which underwriters
get to slop at the trough.
Regardless of the outcome of the five separate investigations
into AIG-Coral and ADFA, the results of the investigations
of the Arkansas Committee have revealed a source of unaccountable
power which is inconsistent with a democratic government.
For Committee members (such as Mark Swaney, Charlie Reed,
Carol Conger, and John Benedict) it means that they may
at last receive attention for what they have been trying
to point out, and not how it might affect anyone's political
For those who may only get their information from daily
newspapers, here is a brief background of what became known
as the Mena Connection. In 1982, the near legendary drug
smuggler, turned DEA informant, Barry Seal relocated his
operations from Louisiana to the small town of Mena, Arkansas.
Shortly thereafter, locals began to notice strange occurrences
at the airport.
Over the next two years, local law enforcement officials
heard stories of drug smuggling, gun running, illegal aircraft
modifications, money laundering, and paramilitary training
in the surrounding hills. Police began an investigation,
only to have it taken over by the federal government. After
two more years, through 1986, local and federal investigators
had what they believed to be solid evidence of these crimes,
only to see the United States Attorney refuse to present
their evidence to the eventual grand jury.
Later, these investigators, and members of the grand jury
themselves, complained loudly to the press that the case
had been mishandled. When in October of 1986, Barry Seal's
airplane was shot down over Nicaragua (the opening chapter
of the infamous Iran/Contra affair) it became obvious to
some observers that there had in fact been a cover-up of
the alleged activities at the Mena airport.
Reasoning that even if the federal government had covered
up what had occurred at Mena, it was still possible for
the state government to investigate the situation, the Arkansas
Committee's early strategy was to press for state investigation
of Mena. From 1990 through early 1992, the Committee wrote
letters, organized demonstrations, visited the offices of
state officials, collected evidence and held press conferences,
all in an attempt to pressure officials into reopening the
case at the state level.
Failing to persuade officials to act, the Committee could
not help but wonder why. Soon, they were faced with a previously
unthinkable conclusion - it was as much an inside job as
Suspecting that Governor Bill Clinton had reason to hide
such state involvement, the Committee decided to go public.
Up to this point the Committee had been treated fairly and
on occasion, even praised by the local media. However, now
that the Committee was pointing an accusing finger at the
local hero, the media began to turn against the people who
were asking for simple justice.
At every step of the way, it has been an uphill battle.
They have been accused of being dupes of the Republicans,
of being cat's-paws of dark political forces. Mark Swaney,
the leader of the group, has vivid memories of being angrily
accosted by the editor of a liberal newspaper, zealously
defending Bill Clinton against these infidels. The veracity
of the accusations, that Clinton may have had knowledge
of CIA involvement with Mena was not the point, the editor
insisted. If we don t have Clinton, who do we have?
They found themselves in the uncomfortable position of being
praised by right-wingers, who had their own agendas, and
vilified by liberals, who feared that any serious criticism
of the shining hope of the Democratic party might mean four
more years of George Bush. In few instances was the truth
ever the issue, but merely how the facts might affect the
political fortunes of Arkansas' favorite son.
Information the group supplied became the basis for articles
in The Nation, The Washington Times and Village Voice, as
well as providing groundwork for exposes on television programs
such as "A Current Affair," and 'Now It Can Be Told."
However, in May 1992, the efforts to tell the truth about
Mena slid off-track when Time magazine, attempting discredit
the allegations, printed a major story purporting to tell
the truth about the events in Arkansas, especially regarding
connections to Bill Clinton, who was beginning his rapid
ascent to the White House. The direction of the story was
that it was much ado about nothing.