The United States and BCCI

Developments in the United States formed an important part of the environment in which the Bank of England moved from supporting BCCI’s restructuring to organising coordinated closure action.

There is no direct evidence establishing that the United States caused or instructed the Bank of England to abandon the restructuring.

The Bingham Report does, however, record that US authorities were in communication with the Bank of England, expressed increasing opposition to the restructuring and conveyed their intention to take enforcement action during the final weeks of June 1991.

The Bank of England’s decision therefore cannot be understood solely by reference to the draft Section 41 report. The beliefs, intentions and anticipated actions of the US authorities were also material to its reassessment.

The central question is:

How far did pressure and anticipated action from the United States influence the Bank of England’s rapid movement from an agreed restructuring towards closure?

BCCI’s position in the United States

BCCI operated in the United States through branches in New York, Miami, San Francisco and Los Angeles. It also maintained a representative office in Washington.

BCCI was further alleged to have exercised concealed ownership or control over US banking institutions, most importantly First American Bankshares.

Other institutions, including Independence Bank and the National Bank of Georgia, were considered principally in connection with allegations that BCCI had concealed an ownership interest or exercised influence through nominees or associated parties.

These allegations became a major focus of:

the Federal Reserve;
the Federal Reserve Bank of New York;
federal and state prosecutors;
the New York District Attorney;
congressional investigations; and
the American press.

The allegations concerning indirect control were legally and politically important because US banking laws restricted the acquisition and control of American banks without regulatory approval and full disclosure.

Earlier criminal and regulatory pressure

Before the events of June 1991, BCCI had already faced the Tampa money-laundering prosecution arising from a US undercover operation.

The case concerned transactions undertaken by particular BCCI officers following approaches from undercover US agents posing as drug traffickers. BCCI ultimately entered a corporate guilty plea, partly on the legal basis that the conduct of employees acting within their employment could be attributed to the institution.

BCCI maintained that the plea was entered as a commercial decision to avoid the cost, uncertainty and damage of prolonged litigation. That was BCCI’s stated explanation and should be presented as such, rather than as an independently established reason for the plea.

The guilty plea nevertheless became highly damaging to BCCI’s reputation. It was subsequently used to support a much broader public description of the entire international Bank as a money-laundering institution.

The circumstances of the undercover operation, including allegations that agents induced or encouraged transactions, are examined separately on this website. Whatever view is taken of those circumstances, the prosecution increased regulatory, political and media scrutiny of BCCI in the United States.

Corporate settlements and guilty pleas are not unique to BCCI. In later years, major international banks - including Credit Suisse and BNP Paribas - entered corporate guilty pleas in the United States in cases involving serious and prolonged misconduct. Those institutions paid substantial penalties, changed their operations and continued trading.

The circumstances were not identical, and the later cases do not determine whether BCCI’s plea or subsequent treatment was justified. They demonstrate, however, that a corporate guilty plea does not automatically require the closure of an entire international banking group.

By 1990 and 1991, the Tampa case, the investigations concerning First American and other US inquiries had created a separate and growing source of pressure on BCCI.

The restructuring and US opposition

The Abu Dhabi-backed restructuring proposed three separately capitalised and regulated successor banks centred on London, Abu Dhabi and Hong Kong.

It provided for:

new boards and senior management;
substantial additional capital;
stronger national supervision;
separation of viable banking operations from problem loans and other impaired assets; and
an orderly replacement of BCCI’s existing international structure.

The programme depended upon cooperation between the relevant regulators and acceptance that viable operations could continue under new ownership, management and supervision.

The Bank of England was conscious that action in the United States could affect the restructuring.

As late as 6 June 1991, it was still considering approval in principle for the proposed new UK bank. Its position nevertheless took account of what might emerge from US investigations and whether American proceedings could seriously damage the restructuring.

The Abu Dhabi majority shareholders were not told that anticipated US action or the confidential Section 41 investigation might cause the Bank of England to abandon the programme.

Meetings in New York, 23 - 25 June 1991

Price Waterhouse delivered its draft Section 41 report to the Bank of England on the night of Saturday, 22 June 1991.

Between 23 and 25 June, Bank of England officials visited New York and held discussions with US regulators and prosecutors.

According to Bingham, the officials returned substantially more concerned about the seriousness of the US authorities’ beliefs and their intention to act.

A distinction should be made between:

documentary evidence actually provided to the Bank of England;
allegations or beliefs communicated by US officials;
intended regulatory or prosecutorial action; and
the effect those communications had upon the Bank of England’s assessment.

The Bingham Report indicates that relatively little material capable of immediate regulatory use may have been supplied during the meetings. Nevertheless, the strength of the US authorities’ views and their stated intention to act significantly affected the British officials’ assessment.

Bingham concluded that it was impossible to determine what effect the American information would have had if it had stood alone. He nevertheless found that knowledge of the beliefs and intended actions of the US authorities, when added to the draft Section 41 report, helped turn the balance decisively towards the action eventually taken.

What influence did the United States have?

The documented position supports several important conclusions:

the draft Section 41 report was not the only factor considered;
intended US regulatory and prosecutorial action was material;
the Bank of England was concerned about the consequences of unilateral American action;
the New York discussions occurred immediately before the Bank of England changed course;
the Bank of England wished to preserve effective cooperation with the US regulatory authorities; and
the relative weight given to the Section 41 draft and US developments is not fully disclosed in the published record.

These matters justify further examination of whether the urgency and timing of the British response were influenced by a desire to act before American proceedings produced damaging disclosures, unilateral intervention or public criticism of the regulators.

It may also be relevant that the Bank of England wished to maintain effective relations with the Federal Reserve and other US authorities. That is different from alleging that the closure resulted from a broader political desire by the British Government to preserve good relations with the United States.

The available record supports examination of the regulatory relationship. It does not presently establish that wider British–American political relations determined the decision.

First American and the question of ownership

The allegations concerning First American Bankshares were central to the US investigations.

The issue was not simply that BCCI had business dealings with First American. The allegation was that BCCI had financed or controlled interests which had been presented to US regulators as being independently owned by Middle Eastern investors.

This raised serious questions about regulatory disclosure and compliance with US banking law.

However, the allegation of concealed ownership should be distinguished from the separate question of who held the underlying economic interest.

If the shares were acquired with BCCI funds, held through nominees or pledged to BCCI as security for financing, BCCI may have possessed the beneficial economic interest even though that interest had not been properly disclosed to the US authorities.

The assets associated with the alleged concealed ownership should not therefore be discussed as though they necessarily belonged personally to the named investors or as though their value had simply disappeared from BCCI.

The relevant questions include:

who provided the purchase money;
who bore the financial risk;
who received any economic benefit;
whether the named shareholders acted independently or as nominees;
whether BCCI controlled voting or management decisions;
whether the shares were pledged to BCCI; and
whether the resulting assets properly belonged to BCCI.

The transactions might therefore have involved concealed ownership by BCCI, improper regulatory disclosure, misuse of nominee arrangements, loss to BCCI, or some combination of those matters.

A proper assessment requires these separate questions not to be treated as though they were all the same allegation.

Independence Bank and the National Bank of Georgia

Independence Bank and the National Bank of Georgia were also examined mainly because of their alleged relationship with BCCI.

They were not independent examples introduced to demonstrate unrelated wrongdoing by BCCI. They formed part of the wider US allegation that BCCI had acquired or influenced American banking interests without making the required disclosures.

Where BCCI funds financed an acquisition or supported the institution, the ownership and value of the resulting assets should be traced carefully and considered as assets of BCCCI.

Political and congressional pressure

Congressional interest and public criticism increased the pressure surrounding BCCI.

Senator John Kerry and others pursued investigations into BCCI’s activities, its relationships with influential political figures and the response of US regulators.

These investigations raised important questions about:

First American;
the conduct of US regulators;
BCCI’s political relationships;
criminal investigations;
intelligence connections; and
whether influential individuals had protected BCCI or delayed official action.

Political and congressional interest does not itself establish that the closure was politically directed. It formed part of an environment in which regulators and prosecutors were under increasing pressure to demonstrate that they were acting effectively.

The possibility that US authorities would proceed independently also created a practical problem for the Bank of England. Unilateral American action could damage the restructuring, generate intense adverse publicity and expose British regulators to criticism for continuing to support BCCI.

Intelligence agencies and politically sensitive clients

BCCI was later associated in public accounts with intelligence agencies, arms transactions, General Manuel Noriega and other politically sensitive clients.

These matters require careful separation between:

established documentary evidence;
official findings;
evidence relating to particular accounts or individuals;
allegations that were never tested;
intelligence relationships that may have been known to Western governments; and
later interpretations applied to BCCI as a whole.

Evidence that an intelligence agency used, encountered or maintained a relationship with BCCI does not by itself establish that the Bank was controlled by that agency or that its worldwide operations served an intelligence purpose.

Similarly, the existence of accounts belonging to controversial political figures does not establish that every transaction in those accounts was unlawful or that the wider Bank knew of or approved any misconduct.

These subjects should therefore be examined separately rather than combined into a single general allegation against BCCI.

The change in the Bank of England’s position

The chronology is important:

22 June: Price Waterhouse delivered its draft Section 41 report.
23 - 25 June: Bank of England officials met US authorities in New York.
24 June: the Bank of England discussed the draft with Price Waterhouse.
27 - 28 June: the Bank of England moved decisively from restructuring towards closure.
By 1 July: coordinated regulatory action led by the Bank of England was being organised without the knowledge of Abu Dhabi.

The close timing does not establish that the United States caused the Bank of England’s decision.

It does show that the decision followed the combined impact of:

the cumulative presentation in the draft Section 41 report;
the prospect of further accounting difficulties;
the strength of US regulatory and prosecutorial concerns;
the stated intention of US authorities to act; and
the Bank of England’s concern about the effect of American action on the restructuring and on US relations.

The relative importance attached to each factor is not fully explained in the published record.

Records to be examined

A full assessment requires disclosure of:

communications between the Bank of England and the Federal Reserve;
records of the New York meetings of 23–25 June 1991;
communications with the Federal Reserve Bank of New York;
communications with the New York District Attorney and other prosecutors;
information supplied to the Bank of England about intended US action;
records showing what supporting evidence accompanied those communications;
internal Bank of England assessments of the consequences for restructuring;
communications showing whether US authorities opposed the three-bank proposal and on what grounds;
records of any warnings about unilateral American action; and
communications with the British Government concerning the US investigations and their possible consequences.

Information and disclosure requests have been or may be made to the relevant British and American authorities for these records.

The central question

The central issue is not whether US authorities had legitimate matters to investigate. Serious allegations concerning money laundering, First American and other US banking interests plainly required investigation.

The more specific question is:

Did anticipated American regulatory and prosecutorial action materially accelerate the Bank of England’s abandonment of a substantially funded restructuring, and has the importance of that influence been sufficiently explained in the established accounts of BCCI’s closure?

The presently available record confirms that US beliefs and intended actions influenced the Bank of England’s reassessment. It does not yet disclose precisely how much weight they carried, what supporting evidence was supplied or whether the Bank of England would have abandoned restructuring at that time in their absence.

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Research Note

This analysis reflects the documentary record available at the time of writing. Where further official records remain subject to information and disclosure requests, the conclusions should be read as provisional and capable of revision in light of new evidence.