The creditors will probably recall the details better than most, but an obscure ruling on a dusty piece of English law has dragged up old memories of Bank of Credit and Commerce International (BCCI), and the largest case of fraud the world has ever seen. For some, including the Bank of England, there might be a lingering hope that memories have been dulled by the passage of time, and that the impending pieces of litigation will meander on, difficult to prove.

For the creditors, the process is entering the endgame. In late May, the liquidators announced the imminent disbursement of a third payment, worth over $1,000 million, and have fixed their sights on two major recoveries before the payment of a final dividend.

It might be some way off, but the full extent of their work is beginning to emerge.

When BCCI was closed, at 1.15 pm on Friday 5 July 1991, it had, on paper, assets worth about $20,000 million and was one of the largest and best-known emerging market banks. But, as with so many other things associated with BCCI, the balance sheet was more a work of fiction than fact. The claims from creditors flooded in, eventually coming to stand at around $9,000 million, dwarfing the more recent cases of fraud to have rocked the global financial system: Nick Leeson, the celebrated rogue trader of Singapore, brought down Barings with, by comparison, a paltry $1,250 million worth of fraudulent trading.

The big names involved with the BCCI scandal are either dead, jailed or in hiding. The founder of the bank in the early 1970s, Agha Hassan Abedi - viewed by many as the chief culprit - was driven by ill health into retirement in Pakistan in the late 1980s and died before the bank was closed. The Gokal family, headed by Abbas and his brothers Mustafa and Murtaza, by far the largest debtors to the bank, have been pursued across continents and through the courts. Abbas resides in jail with fines to pay and his brothers have been convicted in absentia and face a $750 million judgement if they ever resurface. Khalid bin Mahfouz waived his claim to $630 million and reached a $425 million settlement in the US. He no longer has a prominent role in Saudi banking. The list goes on and on, littered with familiar names such as Ghaith Rashad Pharaon and Abdul Raouf Khalil.

There are only a few big fish left in the pool for the liquidators to net. They concede that only a small proportion of the bank's original assets remain to be recovered and the focus now lies on proving that the institutions involved should carry some responsibility for the losses incurred. At the top of the list, and the target of recent and ongoing litigation, is the Bank of England. 'The issue is whether the Bank of England knew that losses were probable, not just in the run up to the closure - though the question of whether the bank acted quickly enough is important - but also at an earlier stage, ' says one of the lawyers acting for the liquidators. 'Should BCCI have been issued a licence at all when there were reasons to believe it was being run by crooks?'

Licensing issues

Certainly, there seem to be questions to be answered. Under the UK's Banking Act of 1979, which obliged foreign banks in London to obtain licences, BCCI was far from a bluechip candidate. The Bank of England itself issued guidelines to the effect that no bank should have exposure to a single debtor exceeding 10 per cent of capital: BCCI's exposure to the Gokal-lead Gulf Group exceeded 200 per cent of the bank's capital. Equally, extensive investigations in the US, which revolved around the Tampa indictments of BCCI officials for fraud and the secretive and illegal acquisitions of stakes in First America Bank and Independence Bank in the mid1980s, might reasonably have triggered detailed investigations. 'It seems the Bank of England knew all along and did nothing, ' says the lawyer. 'The whole purpose of regulation is to protect the depositor.'

The judgement delivered by the law lords on 18 May in a preliminary hearing has kept the issue very much alive. Still reeling, the Bank of England is off one hook, but it seems it might be caught fast on another and the danger of a difficult trial remains. Protected from charges of negligence by the Banking Act of 1986, the Bank of England remains open to the accusations of misfeasance in public office levelled by the liquidators. 'This is an unusual claim, but by coming at it from a different angle to negligence, the Bank of England is not able to hide behind the Banking Act, ' says Steve Akers, a partner at Deloitte & Touche, the major liquidators of BCCI. 'We thought long and hard before bringing this claim.'

They also sought the advice and assistance of some of the biggest legal hitters in the land: Lord Neill, chairman of the Committee on Standards in Public Life, is acting as the lead QC; and the vice-chancellor has also given them authority to proceed with the action.

Legal arguments

The complexity of the legal arguments deployed by both sides is such that the judgement passed down by the law lords has been hailed by both the Bank of England and the BCCI liquidators as a victory. One part of the ruling is clear: the case will not be referred to European courts and, given their record of rulings against state organs, the Bank of England's reaction is understandable. 'The Bank is very pleased that the House of Lords have held that the liquidators of BCCI have no European law claim against the bank, ' it says in a statement.

The law lords also clarified the legal tests for misfeasance. The liquidator 's lawyers welcomed a relaxation of the burden of proof. The crucial issue of whether the trial should proceed was delayed. Diaries should be cleared in October, when, in a four-day hearing, the law lords will reconvene to decide the matter.

If the case does go to full trial a number of difficult questions will have to be answered.

Not only will the Bank of England have to explain its actions - or lack of them - in the 1980s, a period when BCCI was readily described as the Bank of Crooks and Criminals International, but also its moves in the months before the bank's closure.

In particular, the central bank's dealings with the authorities in Abu Dhabi seem far from coherent. On the one hand, it was sufficiently aware of BCCI's balance sheet anomalies to encourage a radical restructuring of the bank in 1990 - including the movement of its headquarters to Abu Dhabi and a massive recapitalisation programme. But on the other hand it was seemingly unwilling to appraise the authorities in Abu Dhabi of its impending actions. 'Clearly Abu Dhabi was trying to solve the problems it was uncovering, and clearly it was prepared to spend heavily to do so, ' says Akers. The fact that money was actually in transit from Abu Dhabi on the day the bank was closed suggests the regulators had not been entirely transparent with the Abu Dhabians, who were clearly acting in good faith.

For the liquidators, the case represents one of the best opportunities to boost its cash pile before a final dividend is paid to BCCI creditors. For the Bank of England, much more than £500 million ($742 million) is at stake.

Not only would a precedent be set, exposing it to a potential raft of fresh claims, but some of its senior staff could have their reputations tarnished. At the time of the closure of BCCI, Robin Leigh-Pemberton was the governor of the bank, and Eddie George, now the governor, was his deputy with an overarching responsibility for bank supervision. The chances of seeing George in the dock might be slim, but it remains a possibility.

The long-running and convoluted misfeasance case is not the only piece of heavyweight litigation the liquidators are warming up for. A potential $4,000 million suit against Bank of America (BoA) is also under preparation. The accusations are relatively straightforward.

BoA was among the earliest shareholders in the institution following its foundation in the early 1970s, it had directors on the bank's board and provided senior management through secondment programmes. The liquidators assert that BoA sold its stake in the bank when irregularities were uncovered, that it profited from the sale and that it continued to do business with BCCI after the sale in the full knowledge of ongoing corruption.

'Certainly, if this was the case, any failure of disclosure would have brought a delay to BCCI's closure, and the authenticity gained from having BoA associations would have effectively contributed to the creditors losses, ' says Akers. 'If convicted, BoA will be liable for a substantial part of the $4,000 million still unrecovered.' BoA has already lost two appeals in the preliminary legal action and a trial date of January 2002 has been set.

'This may sound a long way off, but in legal terms it marks a considerable acceleration of the process, ' says Akers.

Chasing assets

Even at this comparatively late stage of the game, the liquidators are not confining their actions to the major court cases. Although they concede the recovery of assets from the original fraudulent activities is becoming increasingly difficult, it is still being pursued.

'We are aware that there will be a point at which the law of diminishing returns will come into play, and the costs of recovery will eventually exceed the monies found, but we've not arrived at that point yet, ' says Akers. He points to the $750 million civil judgement passed down on Mustafa and Murtaza Gokal last December. 'They are still at large, and they still have some assets, ' says Akers. 'Their location is uncertain - some say Mustafa is in Canada and there is reason to believe Murtaza is in Iran - but we are aggressively chasing them. We have a dedicated forensic team that is very experienced in these matters.'

The performance of the liquidators has already been impressive, and their recoveries and payments to creditors have far exceeded initial expectations. 'When we were originally appointed we thought we'd be doing well to return 5-10 per cent to the creditors, ' says Akers. When the recently announced third dividend, worth 14 per cent, is paid, a total of 60 per cent of claims made by creditors will have been met. As the major legal action has shown, the process is not to stop here. It is expected that a further interim dividend will be paid, and the final return could be around 75 per cent of the claims.

If such a target is reached, it will be a remarkable achievement, and worthy of the sort of superlatives that have littered the story. The largest liquidation, the UK's longest fraud trial, the biggest settlement of its kind against the auditors, PriceWaterhouseCoopers and Ernst & Young - the list is already long.

Pinning the misfeasance charge to the Bank of England would not only induce a further flurry of superlatives, it would herald, in some quarters, a storm of expletives.