The closure of the Bank of Credit and Commerce International on 5 July 1991 is generally explained as the consequence of serious irregularities disclosed in the confidential report prepared by Price Waterhouse under section 41 of the Banking Act 1987.
The subsequent Bingham Inquiry examined the supervision of BCCI by the Bank of England and concluded that the action ultimately taken by the UK authorities was appropriate.
There remains, however, a separate historical question which deserves closer examination: why was closure chosen instead of allowing the restructuring of BCCI, already under way with the knowledge of the international supervisory authorities and with the financial backing of the Abu Dhabi majority shareholders, to proceed?
By 1990-91, BCCI's financial difficulties, problem loans and management weaknesses were already the subject of extensive investigation. Senior management had been changed, the majority ownership had passed to Abu Dhabi interests, substantial financial support had been provided, and a comprehensive restructuring programme was being developed in consultation with the supervisory authorities. The proposed restructuring envisaged the replacement of the existing BCCI structure by separately capitalised and independently supervised regional banks.
The significance of the later section 41 report therefore needs to be considered in this context. It undoubtedly contained extremely serious allegations. But an important question is how much of the underlying financial problem was genuinely new, as distinct from matters already known to the Bank of England, Price Waterhouse, the shareholders and other supervisors and which were being investigated or addressed within the restructuring programme.
The circumstances in which the restructuring process was suddenly abandoned also merit further consideration. In Parliament shortly after the closure, Keith Vaz MP drew attention to the fact that a further meeting concerning the finalised restructuring plan had been expected on 5 July 1991 itself. He also referred to earlier correspondence indicating that the College of Regulators regarded the proposed framework as an acceptable basis for restructuring. The closure brought that process abruptly to an end.
The Scope of the Bingham Inquiry
Public concern following the closure led the Government to establish the inquiry conducted by Lord Justice Bingham. Its terms of reference were:
- To enquire into the supervision of BCCI under the Banking Acts; to consider whether the action taken by all the United Kingdom authorities was appropriate and timely; and to make recommendations.
The Bingham Report remains the principal official examination of the Bank of England's handling of BCCI and documented substantial shortcomings in its supervision, famously describing the later period as a “tragedy of errors, misunderstandings and failures of communication”.
Its terms of reference, however, were primarily framed around supervision. This raises a legitimate question about whether the Inquiry provided a sufficiently independent and detailed examination of the different issue of closure versus restructuring.
In particular, further examination is warranted of:
- why the restructuring programme was abandoned;
- whether the section 41 report disclosed matters that could not have been addressed within that programme;
- whether the Abu Dhabi shareholders should have been given an opportunity to respond to the report and complete the proposed restructuring;
- whether additional management changes, tighter supervisory conditions, an orderly run-down or separation of viable operations were practicable alternatives; and
- whether immediate worldwide closure was proportionate to the circumstances facing the different parts of the BCCI group.
These questions do not require acceptance of a conspiracy theory. They arise from the documented sequence of events and from the necessarily limited scope of an inquiry whose principal subject was regulatory supervision.
There is also an institutional issue deserving consideration. The Bank of England was itself the principal authority whose conduct was under examination. It is therefore relevant to consider how the Inquiry's terms of reference were determined, what evidence and questions were placed before it, and whether the process sufficiently tested the Bank's explanation for abandoning a restructuring programme with which it had previously been engaged.
The United States Dimension
A second area requiring separate examination concerns developments in the United States.
By 1990-91 BCCI was facing increasing regulatory, prosecutorial and political pressure in America arising from the Tampa money-laundering case, questions surrounding the ownership of First American Bankshares and other investigations. These developments were known to the Bank of England and formed part of the increasingly difficult international regulatory environment surrounding BCCI.
The question is not simply whether the United States “caused” the closure. Such a conclusion would go beyond the evidence presently established.
The more relevant question is whether growing American pressure - including the possibility of further enforcement action against BCCI and disclosures concerning its US activities - influenced the timing or urgency of the Bank of England's decision, and whether the British authorities considered that continuing with the restructuring might leave them exposed to criticism if further allegations subsequently emerged in the United States.
The Bingham Report should therefore be examined closely alongside US regulatory records, congressional investigations, correspondence between supervisory authorities and the chronology of American investigations during the months immediately preceding 5 July 1991.
Questions That Remain
The purpose of this section is not to minimise the serious irregularities that had occurred within parts of BCCI, nor to argue that regulatory intervention was unnecessary. It is to distinguish two questions that are too often treated as if they were the same:
Were there serious problems within BCCI requiring radical corrective action? and Did those problems make the immediate closure of the entire international banking group the only reasonable course available in July 1991?
The first question has been examined extensively.
The second deserves closer attention.
The following sections therefore reconsider the events leading to 5 July 1991 from two related perspectives:
The United Kingdom - From Restructuring to Closure
An examination of the Bank of England, the section 41 report, the abandonment of the restructuring programme, the Bingham Inquiry and the unanswered questions surrounding the decision to close.
The United States - Investigation, Regulatory Pressure and Influence
An examination of US investigations and regulatory action, the First American issue, relations between American and British authorities and whether developments in the United States influenced the timing or character of the UK decision.
This section therefore examines two closely related areas requiring further consideration: first, the circumstances in which the United Kingdom authorities moved from supporting or participating in a restructuring process to the immediate closure of BCCI; and second, the extent to which regulatory, prosecutorial and political developments in the United States may have influenced the timing and course of that decision. These questions provide an important background to the broader alternative perspectives on BCCI's closure considered in the following section.
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