Edition: U.S. / Global

American Express Apologizes

Published: July 29, 1989

The American Express Company said yesterday that people acting on its behalf had conducted a campaign of disinformation that led to defamatory news articles involving Edmund J. Safra, a former company executive who founded a competing bank. The articles linked Mr. Safra and banks he controls to drug trafficking, organized crime and the Iran-contra affair.

American Express said that it would pay $1 million each to four charities named by Mr. Safra as an apology. Mr. Safra, who left his position as chairman and chief executive of the American Express International Banking Corporation in October 1984, controls Safra Republic Holdings S.A. and the Republic New York Corporation, the parent company to Republic National Bank of New York.

The charities named were the United Way of America, the Anti-Defamation League of B'nai B'rith, Hopital Cantonal de Geneve, and the International Red Cross. Letters Exchanged

The campaign was the subject of letters exchanged between James D. Robinson 3d, the chairman of American Express, and Mr. Safra on Monday that the companies made public yesterday.

In his letter, Mr. Robinson wrote that people acting on behalf of American Express ''began an unauthorized and shameful effort to use the media to malign you and Republic National Bank of New York.'' Mr. Robinson added that he considered the reports ''untrue and defamatory.''

People familiar with the situation said that the false reports had been provided over three years, and that Mr. Robinson was first made aware of them by Mr. Safra in June. American Express conducted an internal investigation, which led to the release of yesterday's apology.

Responding to questions from The New York Times, Mr. Robinson said: ''Our first priority was to stop the problem, which we did. Our second was to apologize, which we also did. Our third was to communicate to our people what is expected of them, and I circulated a strongly worded statement to senior officers and to all employees, reminding them that only the highest integrity is acceptable at American Express.''

Regarding possible disciplinary measures against the company's employees, Mr. Robinson said, ''When mistakes are made, people are entitled to a fair hearing; the matter is being looked into, and I am not about to say anything that would prejudice the process.'' Services to the Very Rich Mr. Safra is best known for providing banking services to the very rich. He is descended from a family that has been in banking for five generations, having got its start providing financial services to the Ottoman Empire.

According to the sources, the misinformation was developed by a European investigator hired by American Express to uncover information that might help American Express compete with Mr. Safra's growing operations. The sources said that portions of the investigator's reports that had not been confirmed were provided by American Express employees to reporters in Europe and in Latin America.

Mr. Safra, a native of Lebanon, made his name in banking circles with the extraordinary growth of the Trade Development Bank, which he founded in the 1950's. The bank was sold to American Express for $520 million in 1983 with the understanding that Mr. Safra would continue to direct its operations as well as those of the American Express bank.

But Mr. Safra left within two years amid rumors that he had trouble delegating authority and that strains had developed in his relationship with the New York-based company's top management. Mr. Safra was allowed to buy back portions of his bank as part of the separation agreement. They formed the nucleus of his current banking operations. Inquiry Requested

However, a person involved in the situation said that shortly after Mr. Safra left American Express, the company began to worry that he was hiring employees away in violation of a non-compete agreement. That led to the request by American Express for the inquiry into his activities.

Among the tips that were said to have been provided to foreign journalists was information linking Mr. Safra's banks to money laundering and an international drug cartel.

In addition, sources close to both Mr. Safra and American Express pointed to reports in 1986 that said that Republic had purchased the aircraft that was used to fly Robert C. McFarlane, the former national security adviser to President Reagan, to Teheran as part of the arms-for-hostages negotiations between the Reagan Administration and officials in the Iranian Government.

At the time, officials with Republic emphatically denied the report, which was first published by European papers, and then picked up by American newspapers, including The Times. Intense Competitive Pressures

People familiar with the situation said that employees in the two banking groups were under intense competitive pressures for wealthy private clients, and that as information - much of it unconfirmed - was developed by the European investigator, it was passed to reporters.

These sources said that both the investigator and employees of the company were said to have provided the information to reporters. At times, that information was provided through other parties, which the sources declined to identify.

Officials at both American Express and Republic declined to identify the investigator, or say whether any senior company officials were involved.