Bank of England in dock over BCCI
The Bank of England will begin defending itself in court on Tuesday against allegations of foul play in the collapse of the Bank of Credit and Commerce International (BCCI).
No one has successfully sued the Bank of England, but that has not stopped liquidators Deloitte and Touche, who accuse central bank officials of turning a blind eye to the misdeeds at BCCI.
The Bank of England denies the allegations.
The case is the culmination of a decade of efforts by Deloitte to win compensation for BCCI’s 6000 British depositors.
Some lost their life savings when the bank collapsed in 1991, with debts of $10 billion in what Britain’s Serious Fraud Office (SFO) described as “the biggest fraud in banking history”.
The Bank of England was Britain’s financial regulator at the time.
Reputation on line
At stake is more than just money: the legal case, which could drag on for a year or more, has put the reputation of the ”Old Lady” of Threadneedle Street on the line.
Even more explosive revelations could potentially seep out about the role of British authorities.
Among the many whispers about BCCI, which was set up in the 1970s by a group of high-ranking Pakistanis including its head, Agha Hasan Abedi, is that it was used by Britain’s security services to pay sources and operatives around the world.
However, suing the central bank is not an easy task, mainly because it enjoys immunity for all claims against negligence.
The liquidators’ lawyers must therefore show that the central bank is guilty of “misfeasance”, meaning that it knew it was acting illegally.
Confident
The Bank of England refused to comment officially on the case, but is understood to be confident it will be cleared of any dishonesty.
At the heart of the liquidators’ case is a charge the Bank of England was aware that BCCI’s main place of business was London – giving it a duty to regulate the bank – even though BCCI was officially based in Luxembourg.
They argue that BCCI had just a two-strong team and a brass plaque in Luxembourg, while in London it had 1000 employees, a huge office and 49 British branches.
BCCI collapsed after making a number of big, risky loans.
It secretly channelled many millions of dollars into Gulf Group, a Geneva-based shipping giant, even though the senior management of both companies knew that Gulf Group was insolvent, according to the Serious Fraud Office.