An internatonal legal battle over who is to blame for the collaspe of a small bank in the Bahamas had led to a multimillion-dollar lawsuit against one of Washington's richest and most powerful businessmen, the company he controls and his associates.

The lawsuit -- latest of a series now in the courts of three countries -- seeks to blame the Bahamian bank's failue on Gen. George Olmsted, chairman of International Bank of Washington, other executives of the firm, and its auditors.

International Bank owned two-thirds of Mercantile Bank & Trust Company, the Bahamas bank that closed its doors in 1977 owing almost $25 million to creditors.

Almost $20 million of the bank's assets were drained off through phony loans to companies controlled by the people who owned the other one-third of the Bahamian bank, the complaint charges.

Olmsted and others at International Bank were involved in the scheme and contributed to it through conspiracy, according to the complaint filed in U.S. District Court here by the liquidators of the Bahamian bank.

Each count of the 11-count complaint asks for multimillion-dollar damages against some of the persons involved in the bank collaspe. The count accusing Olmsted and his company of conspiracy to defraud asks $35 million damages from the company and $1 million each from Olmsted and two International Bank senior vice presidents, W. Hugh McNaughton and Henry W. N. Conway, Jr. Nine of the 10 other counts also ask at least $25 million damages.

International Bank isued a statement yesterday saying it "unequivocally denies those charges."

International Bank earlier filed a $10 million lawsuit of its own, blaming the failure of the Bahamian bank on Price Waterhouse & Company, the auditors who were supposed to be checking the bank's books.

Surprisingly both complaints agree that million of dollars were milked from the Bahamian bank through schemes that involved nearly worthless Florida real estate, shell corporations and companies in a dozen countries.

What the courts will have to answer is the classic question posed by the Watergate hearings: What did he know and when did he know it?

The lawsuit filed against Olmsted claims that International Bank officials knew when they bought the Bahamian bank in 1973 that it was in shakey financial condition because of questionable loans to insiders.

International Bank's complaints, in contrast, says it new nothing of the true nature of the Bahamian bank's finances because the auditors put out misleading reports.

Pinning down the role of International Bank, Olmsted, the auditors and the others involved in the bank failure could take years, lawyers handling the cases admit.

That job is complicated by Bahamian bank secrecy laws which are as restrictive as those of Switzerland in protecting the privacy of banking transactions.

International Bank lawyers were in court in the Bahamas yesterday arguing for the release of secret bank data wanted for their lawsuit. Another legal fight is under way in Canada, where creditors of the Bahamian bank are suing to try to get their money back.

Whatever the outcome of the cases they will reveal never-before-known details of the operations of Olmsted and his companies.

Headquartered in the Olmsted building at 1701 Pennsylvania Avenue, International Bank calls itself, "America's leading merchant bank." It is not a bank in the usual sense, but a corporate holding company patterned on the merchant banks of Europe, which invest funds in many businesses.

IB, as the company is known, owns interests in insurance companies, light and heavy manufacturing firms, finance and leasing businesses.

IB once controlled Financial General Bankshares, the holding company that owns Union First National Bank of Washington and several other banks. Olmsted was forced out of the U.S. banking business several years ago by the Federal Reserve Board, which put severe restrictions on the non-banking acivities of banking companies. Rather than dispose of his non-bank businesses, Olmsted simply sold his bank.

Olmsted is the largest shareholders of International Bank, whose shares are traded in the over-the-counter market. He founded and built the company. Even though past the normal retirement age, Olmsted continues to run IB like the World War II general he once was.

International Bank got into the banking business in the Bahamas in 1973 when it purchased two-thirds of the stock of Mercantile Bank from companies controlled by Mercantile's founder, I. Gordon Mosvold. IB issued 77,000 shares of its common stock, then worth about $543,000 on the open market, to acquire its share of Mercantile.

At that time, Olmsted, Conway, McNaughton and another IB executive took seats on the board of Mrcantile and Mosvold joined IB's board of directors.

The lawsuit filed here recently against Olmsted and company claims they were altered to Mercantile's financial problem shortly after they took control of the bank. International Bank's lawsuit against the auditors claims otherwise.

Both cases however, detail a series of transactions between Mercantile and a group of companies associated with Mosvold and other officers of the bank.

Citing records of the Bahamaian liquidation proceedings, the latest complaint more than $20 million to the bank when it closed its doors. That was 80 percent of the bank's assets at the time and none of the money has been repaid, the liquidators claim.

Mercantile Bank began making large loans to companies affiliated with it several years before the Washington connection began, the various lawsuits claim. When one company owing money to the bank was unable to pay its loan, the company sold its entire business to another company, which financed the purchase with a new loan from Mercantile.

The result, the complaints contend, was that the bank's books showed that an old loan had been paid off and a new one made, when in fact the same loan was simply refinanced in a new name.

The practice allegedly was repeated several times, using shell companies incorporated in the United States, Africa and the Caribbean.

As directors of Mercantile, Olmsted and others at International Bank allegedly knew or should have nown about the transactions, the complaint contends. None of the lawsuits claims the Washington businessmen benefitted directly from the loans to Mosvold's companies.

Mercantile Bank also allegedly inflated its profits by creating phony transactions, valued the collateral on some loans at several times its true value and showed that interest on loans had been paid when it had not been.

The lawsuit filed by the liquidators claims the fraudulent practices began in the early 1970s and continued until the bank was declared insolvent in 1977. The liquidators also are suing Mosvold and several of his associates.