Gilded Lily (22 page)

Edmond also offered up the usual excuses for wanting to get rid of the bank—he was tired of the pace, he wanted to spend more time with Lily and the grandchildren. These would all have been quite normal reasons for wanting to lighten his business load, but Edmond was not a normal businessman. From the age of eight, when he followed his father into the souks of Beirut, banking had been his life. Besides, what would his clients say? Many of these people banked with him because they trusted his family. Now he was selling the crucial Swiss arm of his business
and
his loyal clientele to a huge American company that did not understand the old ways, that would not provide the same kind of personal attention to their needs that Edmond had
done over the years. Of course, Edmond did try to reassure them, reminding his best clients that he would still be their point of reference as chief of American Express's international banking division. No, everything would work out fine, he had said. There was nothing to worry about.

In the end, it was Jeffrey Keil, the keen young treasurer at the Republic National Bank of New York, who helped persuade Edmond to sign on with American Express. Keil, along with former Republic executive Peter Cohen, now himself part of the American Express group, felt that incorporating Trade Development Bank within the massive American Express structure would boost the declining fortunes of the company's own bank—the American Express Bank—and offer the TDB a safe haven.

After weeks of discussions with Keil and Cohen, Edmond seemed convinced by their arguments and signed the deal. He waited until the stroke of midnight on January 18, 1983, because 18—the numerological value of the
chai
, the Hebrew symbol for life—was considered good luck among some Jews. The TDB sale hit the front pages of business papers around the world with American Express executives gushing in print that they had added one of the most brilliant banking minds to their team.

Although they listed his accomplishments and his banking lineage, many of the reporters covering the story also noted that Edmond would not be taking up his new appointment as chief of American Express's International Banking Corporation for at least a year, citing unspecified “complications,” a reference to his delicate tax situation. Although none of his aides voiced this openly at the time, there was some concern that an absent new chief executive might not get the respect he deserved.

A year later, when his U.S. tax issues were resolved, the
New York Times
formally announced Edmond's appointment, noting that he would be taking over his new duties in New York on March 1, 1984. Jim Robinson III, the chairman and CEO of American Express, was
quick to point out that Edmond had not been idle since the deal was signed in January 1983. He had been doing a lot of work, integrating TDB into the larger company's framework.

“Over the course of last year, since we completed the combination of American Express International Banking Corporation and Trade Development Bank, Edmond Safra has worked very closely with senior management of the bank and the entire American Express Company,” he said. “Clearly we are fortunate to have a business leader with his banking experience and stature.”

But Robinson's statements to the press couldn't have been further from the truth. In the year that Edmond was forced to stay in Europe, relations between American Express and the TDB deteriorated rapidly. As Gutfreund and others predicted, American executives did not appreciate Edmond's Old World banking style, which clashed with the massive American Express bureaucracy. Even before Edmond formally took over the post, American Express executives assigned to review the day-to-day operations of Trade Development Bank shook their heads in disbelief—they simply could not figure out how it functioned.

“TDB ran like nothing we'd ever seen,” said one American Express official. “It ran like an extended family. The management style was just Edmond, who knew everyone. It was very loose, there was no documentation, and only Edmond knew the structure. If someone wanted to talk to him, they simply picked up a phone and called him. It was about as different from a McKinsey model as you could find. Our attitude was, well, we'll show these guys how to run a company.”

Another executive who was close to the company noted, “Safra's a brilliant guy, but he needs to do everything himself. He's not used to a bureaucracy. He insisted on approving every loan. It began to grate on both sides.”

But while American Express executives shook their heads in frustration at having spent so much money on a bank whose methods
seemed a throwback to the nineteenth century, Edmond was growing increasingly frustrated with the way he was being treated by the company hierarchy. Used to being in firm control at his banks, he was finding out about American Express business ventures and losses after the fact. After the sale of TDB to the company, Edmond was its biggest shareholder, and he considered it a huge slap in the face every time he found out about the company's dealings in the press. Shouldn't Robinson and his associates be consulting
him
about what was going on in the company? For instance, Edmond learned from a Dow Jones wire story about American Express's plans to pay $1 billion for a Minneapolis-based financial services company. He was also stunned when he learned from news reports just before Christmas 1983 that the Fireman's Fund, the company's California-based insurance company, would post a pretax loss of $242 million, dragging down American Express's total earnings for the year.

Edmond was livid. To make matters worse, American Express was now reaching out to its newly acquired private banking customers in Europe—the TDB clients—and they were sent all sorts of promotions for other services that the company offered in the mail. For this select group of deposit holders to suddenly be receiving a barrage of mail and promotional material was too much for Edmond. These were people who had banked with him out of a need for utter discretion; now they were on the American Express mailing list!

He worried; he lost sleep; he couldn't relax. How could they treat him and his customers like this? In retaliation, Edmond decided to dump almost all of his American Express stock—a slap in the face to his new bosses that ended up costing him more than $100 million in losses. Now, Edmond openly threatened to resign; he even offered to buy back the Trade Development Bank. American Express refused, saying his offering price was too low.

But Edmond simply couldn't continue to feel like a hostage of the global conglomerate, and in October 1984 American Express formally announced that Edmond would be resigning as the head of interna
tional banking, although he would be made a director on the company's board. The deal allowed him to buy back several foreign banking operations that he had sold to American Express the previous year. As an article in the
Wall Street Journal
noted, “Mr. Safra, a private sometimes eccentric 52-year-old billionaire whose holdings include Republic National Bank in New York, apparently didn't fit well into American Express's more bureaucratic style of management.” But a year later, the break became final when Edmond simply could no longer abide the American way of doing business at the company.

After he decided to rid himself of the American Express albatross, Edmond felt like a different man. He threw a party for Lily's fiftieth birthday at Annabel's in London, inviting the Gutfreunds, the Erteguns, and many of the others who had attended Claudio's wedding. Edmond arranged for the restaurant to be decorated in “pillars of white and pink tuberoses,” and the menu featured eggs with caviar and Becheyelle '70 at intimate tables of eight and ten. The party earned Lily one of her first mentions in
Women's Wear Daily
, which described Edmond, Lily, and their guests as “the international camera-shy money-doesn't-talk set.” Later, on a whim, Edmond and Lily flew from New York to Rio de Janeiro for a much-needed vacation. “For the first time in my life I left New York without telling my secretary where I will be,” said Edmond to his friend Albert Nasser as the two men settled into a backgammon game at Nasser's luxurious beachfront Ipanema apartment. “I feel as free as a bird and I am very happy to be this way.”

As soon as he had broken ties with American Express, Edmond set about building another bank—a Swiss extension of his Republic National Bank of New York. But as per his original and very complex contract with American Express, Edmond was forbidden from luring away his former employees, and had to agree that he would not start a competing bank for three years—until March 1, 1988—after his final departure from the company in 1985. However, Edmond was anxious to save face and recoup his losses, and demanded that his lawyers find
a loophole in his original contract with American Express to allow him to get away with it. The loophole came in the form of a small clause that stated that his relationship with the company would not affect his dealings with Republic National Bank of New York, his other “child.”

“Nothing in this agreement shall impose any restriction on the conduct of the business and affairs of Republic or any of [its] subsidiaries,” noted the contract, which Edmond's lawyers quickly interpreted as carte blanche to hire back their top TDB people for the new Republic Bank that they were planning to open in Geneva.

It was a bit of a legal ruse, to be sure, and it disingenuously assumed that American Express's senior executives simply wouldn't notice when all of Edmond's top people started leaving TDB in droves. American Express executives saw their chance to get even with Edmond when they suspected one of his old TDB employees of stealing irreplaceable internal bank information system information, known as IBIS files, which contain a bank's entire administrative system. American Express rapidly launched a criminal probe of Edmond in Geneva. The March 1987 complaint, which was kept secret as per Swiss law, also accused Edmond of unfair competition and raiding American Express employees.

Edmond was a wreck when he found out about the Swiss investigation, which one of his aides discovered quite by chance. To make matters even worse, American Express then tried to block Republic's application for a Swiss banking license that would allow the new entity to accept deposits in Switzerland. American Express asked the Swiss federal banking authority to turn down Edmond's request and demanded a full inquiry.

Soon there would be no way to avoid media scrutiny. Edmond and his aides knew that American Express had a huge publicity machine, and they braced themselves for the terrible months ahead.

The American Express smear campaign against Edmond Safra began quietly enough with small articles appearing in relatively un
known newspapers in Europe and Latin America, beginning in the late summer of 1988. Sporadic articles about Edmond and his banking empire began to appear in the right-wing Parisian newspaper
Minute
, the Peruvian paper
Hoy
, the Mexican
Uno Más Uno
, and Toulouse's
Dépêche de Midi
. The tone of all the articles was the same: They tried to portray Edmond as a shadowy financier who had links to organized crime, the Medellín cocaine cartel, and the Iran-Contra scandal. The articles were also anti-Semitic in tone, noting at every opportunity that Edmond was “a Lebanese Jew” who wielded formidable power.

For Edmond and his brothers in Brazil, the articles could prove devastating for business. What if the wealthy Halabim and other clients started to ask about the articles? What if they started to get nervous about the prospects of looming investigations of their banks? Edmond knew he had to act, but in the early days he and his aides didn't quite know how to go about it.

In August 1988,
Minute
published an article linking Edmond with Willard Zucker, the Geneva-based American lawyer whose specialty was setting up shell companies in tax havens such as Panama and the Cayman Islands. In April 1987, a U.S. congressional committee investigating the Iran-Contra affair had named Zucker as the financier who had helped set up some of the shell companies involved in the Reagan administration's secret transfers of funds from the clandestine sale of arms to Iran. The proceeds were geared towards encouraging the release of U.S. hostages in the Middle East and the financing of the Nicaraguan Contra rebels who were trying to overthrow the democratically elected Marxist government of Daniel Ortega. Zucker had set up shell companies for his client Albert Hakim, an Iranian-born middleman who was, in turn, working with a retired U.S. Air Force major general named Richard Secord and Lt. Colonel Oliver North—both of them major figures at the center of the scandal. Hakim, who had important contacts in the Iranian military, sold weapons at inflated prices to Iran and funneled the profits into secret government deals. Zucker was his man in Switzerland—“a discreet,
efficient and rapid channel for moving money.” Later, when he was named in the investigation, Zucker agreed to cooperate with American prosecutors in exchange for immunity from prosecution.

In the past, of course, both Edmond and Lily had sought out Zucker's valuable expertise in setting up offshore companies to protect their own assets. Zucker, who in the 1970s headed up the Compagnie de Services Fiduciaires S.A. on the rue Charles-Bonnet in Geneva, had set up the shell company through which Lily bought her home in Vallauris with Samuel Bendahan in 1972. A year earlier, Zucker worked with Jayme Bastian Pinto, Lily's Brazilian lawyer, to help sort out the various legal and tax issues that dogged her after Alfredo's death. In a letter dated December 13, 1971, Zucker wrote to Lily's British attorney seeking advice on “Mrs. L. Monteverde's potential liability for income tax in certain jurisdictions.” In the letter, Zucker suggested that Lily avoid declaring income in Britain and “carefully segregate her accounts abroad.” This way, if she were served in conjunction with the Monteverde lawsuit or questioned in a British court she could truthfully say that she was not a resident of the United Kingdom. With a fortune valued at nearly $300 million it was of paramount importance to Lily that she avoid paying high taxes in the UK. At the same time, she didn't want to jeopardize her long-term ability to gain residency in the UK. The country is a tax haven for UK residents of “foreign domicile” who pay a nominal levy on their non-UK income.