Questions of Bad Faith - Was Closure Already Predetermined?

Bad faith in this context does not simply mean that the Bank of England made the wrong decision. The question is whether regulators continued to deal with BCCI and its Abu Dhabi majority shareholders as though restructuring remained a genuine possibility when, internally, they had already decided that closure would proceed.

The documentary record does not by itself prove dishonesty or conspiracy. However, the sequence of events in the final days before closure raises serious questions about intent, openness and fair dealing.

The question of bad faith goes beyond whether the Bank of England made the right or wrong decision.

The issue is whether the Bank of England and other European regulators continued to deal with BCCI, its Abu Dhabi majority shareholders and the UAE Central Bank as though restructuring remained a genuine possibility when, internally, the move towards closure had already begun.

The documentary record does not by itself prove dishonesty or conspiracy. Lord Justice Bingham rejected allegations of bad faith and found no deliberate conspiracy or cover-up.

However, the chronology of the final days raises important questions about openness, intention and fair dealing.

Was restructuring still being presented as a genuine option?

During the first half of 1991, BCCI’s restructuring programme continued to develop.

The Abu Dhabi majority shareholders had committed substantial financial support. Plans were being prepared for three separately capitalised and regulated banks in London, Abu Dhabi and Hong Kong, while impaired and problem assets were to be separated into recovery entities.

The Bank of England had been closely involved in discussions over the proposed structure.

Final restructuring plans were submitted to the relevant regulators during May and June 1991, and the latest composite plan was sent to the Bank of England and Luxembourg Monetary Institute on 3 July 1991, at their request.

Yet by then, the Bank of England and other European regulators were already moving towards coordinated closure.

This raises a basic question:

Was restructuring still genuinely being considered, or was it being allowed to continue outwardly after the decision-making process had already moved in another direction?

When had the move to closure actually begun?

BCCI was publicly closed on 5 July 1991, but the decision-making process had started earlier.

By 1 July, the Bank of England was already moving towards coordinated regulatory action with other European members of the College of Regulators. Preparations were made for action that could lead to the freezing and closure of BCCI’s operations.

By 4 July, the position appears to have hardened further. Price Waterhouse itself considered approaching the Governor of the Bank of England to object to what it regarded as precipitate and prejudicial action, but did not proceed because it believed that the decision had already effectively been made.

The question is therefore not simply when closure was publicly announced.

It is:

At what point had the Bank of England internally decided that restructuring would no longer be allowed to proceed?

Why continue seeking financial support?

This is one of the most difficult questions arising from the chronology.

Abu Dhabi had already committed very substantial financial support to BCCI.

A further US$650 million was then allowed to be transferred on 4 July 1991 as part of those support arrangements.

At that point, the Abu Dhabi shareholders had not been told that the move towards closure was already under way.

This raises a much sharper question:

Were the Abu Dhabi shareholders not informed that the move towards closure had already been decided so that the further US$650 million transfer on 4 July - representing part of their commitment under the financial support arrangements - could first be secured?

The timing is especially important because BCCI was closed the following day.

After closure was announced, Abu Dhabi immediately recalled the US$650 million transfer. The shareholders also took steps to prevent uncashed promissory notes forming part of their wider support package from being used in the liquidation.

Why was the UAE Central Bank kept outside the closure discussions?

The UAE Central Bank was a member of the College of Regulators.

It was also the regulator most directly concerned with the proposed new Abu Dhabi bank and with the majority shareholders who were providing the financial support.

Yet it was excluded from the decisive European discussions leading to closure.

This raises another important question:

Was the UAE Central Bank deliberately kept outside the closure discussions because the European regulators feared that disclosure to Abu Dhabi could lead the majority shareholders to withdraw or withhold their financial support before closure was carried out?

If that was the concern, it raises a further issue about whether the Abu Dhabi authorities and shareholders were being dealt with openly while the final closure arrangements were being prepared.

Was Section 41 used to justify abandoning restructuring?

The Price Waterhouse investigation under Section 41 of the Banking Act 1987 became central to the Bank of England’s decision.

The draft report contained serious findings concerning false accounting, concealed losses and liabilities, problem lending, nominee arrangements and other irregularities.

Those findings were serious.

But many of the underlying financial problems and irregularities were already known, under investigation, or being addressed through the restructuring programme.

As examined separately in Bank of England and BCCI - From Supervision to Closure, the central question is therefore not whether problems existed.

They did.

The more difficult question is:

Was Section 41 commissioned privately to simply establish the full facts, or did the report subsequently become the documentary basis needed to justify abandoning a restructuring programme that regulators had previously been prepared to support?

That distinction is important because the Bank of England’s position changed very quickly after the draft Section 41 report was received.

Were the Section 41 findings genuinely new?

The draft Section 41 report brought together a broad range of serious concerns.

But the existence of substantial problem loans, concealed losses, weaknesses in internal controls, nominee arrangements and other financial irregularities had not appeared for the first time in late June 1991.

Earlier Price Waterhouse work, BCCI’s internal Task Force and investigations involving Abu Dhabi had already brought many of these issues to light.

The restructuring programme itself was designed to address precisely these kinds of problems through:

new management
fresh capital
separation of impaired assets
stronger regulatory control
separately capitalised successor banks

The question therefore becomes:

What materially new information in the Section 41 report made those remedies suddenly unacceptable?

And if much of the underlying problem was already known:

Why was the report treated as decisive evidence for closure rather than as further evidence to be addressed within the restructuring already under way?

Was there still a serious intention to allow restructuring to succeed?

This may be the central issue.

The Abu Dhabi shareholders had committed billions of dollars.

They had agreed to new management, capital support, asset separation and structural change.

The final restructuring plans had been submitted to regulators.

Further capital was still being provided.

Yet the move towards closure was taking place in secret.

This creates a direct question of intent:

Did the Bank of England still have a serious intention to allow the restructuring to succeed, or had the Section 41 report become the basis for bringing that process to an end?

If closure had already become the preferred outcome, the continuing requests for financial support and restructuring documents require explanation.

What did Lord Justice Bingham conclude?

Lord Justice Bingham later examined the supervision of BCCI and the conduct of the UK authorities.

He rejected allegations that the Bank of England had acted dishonestly or in bad faith.

He also concluded that closure was an appropriate course of action, although the Bank of England’s own later summary records that it was not the only possible option.

That conclusion is important and should not be ignored.

But another question remains:

Why did Lord Justice Bingham not examine the restructuring alternatives more closely before concluding that the Bank of England’s decision to close BCCI was appropriate, without setting out a detailed comparison of those alternatives or explaining why they were rejected?

The issue is not simply whether Bingham reached the wrong conclusion.

It is whether the Inquiry fully tested the Bank of England’s own explanation for moving from a funded restructuring programme to worldwide closure within a matter of days.

What can reasonably be concluded?

The evidence does not by itself prove bad faith.

But it does raise questions that cannot easily be dismissed:

Was restructuring still being presented as viable after closure had effectively been chosen?
Were Abu Dhabi shareholders kept uninformed so that further financial support could first be secured?
Was the UAE Central Bank excluded because regulators feared that disclosure might cause Abu Dhabi to withdraw its support?
Was the Section 41 report used as the principal justification for abandoning a restructuring programme already well advanced?
Were the findings in that report sufficiently new to justify such a dramatic change of course?
Did Lord Justice Bingham test these questions fully enough before accepting closure as appropriate?

These are questions about intent, openness and good faith, not simply about whether BCCI had serious problems.

Those problems were real.

The more difficult issue is whether the authorities continued to deal with the shareholders and regulators supporting BCCI’s restructuring in a fair and open manner once the decision-making process had begun moving towards closure.

That is why the question of bad faith remains relevant.

The evidence should be examined carefully, and readers should reach their own conclusions.

This section, together with the Key Events & Closure and Restructuring Programme pages, is intended to support a more informed and balanced understanding of these issues, enabling readers to consider the available material and form their own conclusions.