http://www.stewwebb.com13 January 2004BCCI Bank of Commerce and Credit InternationalBank of England officials 'turned blind eye to fraud'http://news.independent.co.uk/business/news/story.jspstory=480826By Mike Taylor and Stephen Howard, PA News13 January 2004
Bank of England regulators "shut their eyes and turned away" from the fraudulent activities of BCCI so that they could not be blamed for what was happening, it was alleged in the High Court today. Officials did not want to know how bad the situation was at the Bank of Credit and Commerce International because they did not want to do anything about it, claimed Gordon Pollock QC. The "Orwellian logic" behind their attitude was: If I haven't seen what was going on at BCCI, you can't blame me. Mr Pollock was opening a £1 billion damages action against the Bank by the liquidators of BCCI, which collapsed in 1991 with debts of £10 billion. He told Mr Justice Tomlinson the case, alleging "misfeasance in public office", was being fought "in a fairly brutal fashion". Misfeasance cases were rare, he said, and this one was even rarer because it was brought against "what was once - and I emphasise once - one of the most revered and respected public institutions in this country". In a hearing set to last well over a year, Bank officials are accused of "knowingly or recklessly" failing properly to supervise the rogue bank's activities. The Old Lady of Threadneedle Street is legally immune from being sued for negligence, and the liquidators - accountants Deloitte Touche Tohmatsu - are aiming to prove "bad faith" on the part of supervisory staff. The liquidators are seeking to add £1 billion on behalf of 6,500 UK depositors to the £3.1 billion so far recovered for creditors worldwide in the massive and unprecedented lawsuit. BCCI was founded in 1972 by Pakistani financier Agha Hasan Abedi. Backed by Arab sheikhs and, for a time, a major shareholding by Bank of America, he built it into a worldwide operation with 14,000 employees at 400 branches in 73 countries. Incorporated in Luxembourg but based in London, the rapidly-expanding BCCI was licensed as a deposit taker, without full banking powers, by the Bank in 1980 - allegedly in the face of dire warnings about its lack of financial prudence. Over the next eight years, evidence emerged of BCCI's links with terrorist organisations, arms shipments to Arab states and South American drug cartels. Yet its licence was not withdrawn by the Bank until 1991. Apart from ordinary individual depositors, many from the Asian community, the UK losers included Western Isles Council, which lost £24 million, and other local authorities. The Bank's role as supervisor of the banking sector was transferred to the Financial Services Authority in 1997. Mr Pollock, at the start of an opening address expected to last two months, said he would seek to prove that officials in the supervisory department ignored their duty to protect BCCI's depositors or simply did not care. They either foresaw the likelihood of loss being suffered by those they were supposed to protect, or were reckless and uncaring as to whether it happened. Over a considerable period, the Bank "deliberately ran away from seeking to find out sufficient information about BCCI because it didn't want to be drawn into the role of supervisor," said Mr Pollock. This was the state of mind of a regulator who knew there was a risk but did not want to know how bad it was because it did not want to do anything. He accused the Bank of misfeasance, stopping short of dishonesty, it its decision to grant BCCI a licence in the first place and its failure to supervise thereafter. The Bank says the action is "not only misconceived, but outrageous". It says that to accuse 22 supervisory officials and staff of a massive cover-up over 11 years and of deliberately misleading the Bank's governors and others was to compare them with crooks and fraudsters. In any event, there would be no point in trying to cover up something which was bound to emerge eventually when the bank collapsed. Mr Pollock said that although none of the Bank's officials were said to have acted corruptly, they did act, or fail to act, in a way that they knew was in breach of the Bank's duty. He said officials knew in 1979 and 1980 that a licence to operate had been granted to BCCI although the section of the Banking Act relied on to grant it did not apply to BCCI. Secondly, the Bank knew it had a duty to supervise BCCI once it had granted a licence but instead "consistently and deliberately ran away from that duty", said Mr Pollock. Although the Bank officials were not accepting bribes to behave in the way they did, this did not mean that they could not be criticised for being "spineless, weak and self-interested". Mr Pollock said there was a tendency to think that Bank officials could never behave in a way that could be described as malfeasance and they would always adhere to the "highest ethical standards" because they were "paragons of virtue". "Bankers are as human as the rest of us," he said. They were just as open to human failings as any other well-off, educated people. "The allegation is that they bent the rules and having bent the rules they found themselves going down the slippery slope." He said they were people well versed in the arts of banking and known to be competent. "But as regards integrity they had no more or less than the vast swathe of people of a similar type." Mr Pollock went on: "The Bank of England is a bureaucracy and the first rule is self preservation and advancement of its own interests." He said when there was a conflict of interests between the BCCI depositors and the Bank of England, it was the latter that was preferred. "One thing that stands out a mile was how old-fashioned and hierarchical the Bank of England was.". He said that when "clever and sophisticated people" committed the same errors over and over again, they should not be seen as errors but as "a course of action taken deliberately". Mr Pollock said Bank officials knew that it was dangerous not to supervise BCCI and knew there was an "unquantified but obvious risk". "They knew that BCCI was a disaster waiting to happen. It was the SS Titanic. Investing in BCCI was described as like trying to cross a busy motorway on foot." He added: "Despite the fact that the Bank recognised time and again that the only satisfactory route was for them to undertake proper supervision, that was an absolute determination never to become responsible for the overall supervision of BCCI SA." Bank officials themselves had estimated that a minimum of 25 full-time trained investigators would be necessary to carry out the task, said Mr Pollock. Although this would be a massive drain on its resources, the Bank knew no one else could carry out such supervision, he said. "Luxembourg - that chocolate-box Ruritania - was never going to do it." He said the Bank of England knew very well that Luxembourg would never have the resources for such a task. "The protection of depositors was the prime duty. They simply ran away from that duty." Mr Pollock said that BCCI began to be known as the Bank of
Criminals, Conmen International. "We now see that all this was justified."
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