The liquidators of Bank of Credit & Commerce International (BCCI), which was closed in July 1991, finally accepted the inevitable and dropped their£850 million ($1,479 million) case against the Bank of England on 2 November. The central bank's governor, Mervyn King, immediately declared that 'there had never been a shred of evidence' to support allegations that the bank and 22 of its present and former employees had acted in bad faith or dishonestly and knowingly failed to protect BCCI depositors.
Lord Justice Tomlinson, who was hearing the case in the London courts, said that the allegations were without foundation. The news for the liquidators gets worse. The Bank of England has announced that it will seek indemnity costs of £70 million ($122 million) from BCCI creditors, who are already facing their own legal costs of £38 million ($66 million). So it looks like total defeat for those seeking redress for the BCCI disaster. It is also a stinging result for the government of Abu Dhabi, the principal BCCI creditor and its majority owner. Happily, it can easily meet its share of the costs. This cannot be said about other BCCI creditors. But is the outcome quite so clear cut? The liquidators faced an uphill struggle from the moment it became clear that they could not sue the bank for negligence and had to opt for a case alleging misfeasance in public office. This is a stronger claim requiring proof of conscious wrongdoing. Settlement The liquidators say they withdrew because the Bank of England, backed by unlimited public funds, was not prepared to negotiate a settlement. Further litigation would have taken years and cost millions more. My memory of what happened in 1991 is a further factor. BCCI's shareholders had reached an agreement with the Bank of England for BCCI's operational head office in London to be transferred to another jurisdiction as part of a restructuring plan devised following Abu Dhabi's acquisition of 70 per cent of the bank in April 1990. This was, incidentally, long after the alleged BCCI misfeasance took place. At that time, the talk was of BCCI reincorporating in Abu Dhabi or Singapore. But investigations that started in 1990 in New York and Washington about criminal activities at BCCI were coming to a climax. A lawsuit against BCCI seemed likely in the summer of 1991 that would have led to a run on the bank. This hot potato would have dropped into the lap of the Bank of England. So it seems there was a quick change of mind in Threadneedle Street, and a decision was taken to close BCCI. Without informing Abu Dhabi or other shareholders, the bank together with six other regulators froze BCCI's activities on the morning of 5 July. We now know that BCCI was in fact then in a better financial condition than most UK clearing banks. Allegations A couple of days later, a Bank of England spokesman told me that the bank had known about fraud alleged in an auditor's report well before 5 July. This contradicted thesubsequent Bank of England account that it acted as soon as that report had been delivered. Not long after, a senior bank executive told me over lunch that 'I will not talk about BCCI and never will'. One conclusion that could be drawn is that the Bank of England realised as 1991 proceeded that its attempt to save BCCI would fail embarrassingly because of developments in America. in this scenario, the bank switched policies in order to save its own reputation. Its decision to avoid telling Abu Dhabi about its plans would have been motivated by the need to present a fait accompli. But was there Bank of England wrongdoing? My answer has always been no. This opinion has been confirmed by the courts. I believe, however, there was supervisory failure. I will continue to hold to that opinion u
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