The abrupt closure of the Bank of Credit and Commerce International was a severe blow to hundreds of thousands of depositors all over the world. It was against that background that Lord Justice Bingham was asked by the Chancellor of Exchequer United Kingdom, with the Governor of the Bank of England, to carry out a full and rigorous inquiry into the conduct of the authorities that supervised BCCI.
Lord Justice's 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.
Lord Justice Bingham's report does not attempt to describe the full story of BCCI's activities, nor does it seek to judge how overseas authorities, the directors of the companies, or the auditors, carried out their duties. What the report does provide is a clear and thorough account of the role of every official United Kingdom authority which had any involvement in the affairs of BCCI.
Lord Justice Bingham was critical of a number of judgments made by the Bank of England (the Bank) over the years. He argued that the Bank was slow to impose on BCCI an appropriate supervisory regime, and concludes that the Bank continued for too long to rely on the Luxembourg authorities to play the leading role.
The report concluded that communication between supervisors, auditors, and shareholders was not as good as it should have been. The Bank did not grasp the scale of the fraud that the majority shareholders and auditors had uncovered until it received Price Waterhouse's report in June last year. The report came as a surprise to the Bank, but Lord Justice Bingham argued that it should not have done.
He concludes that it would not have come as a surprise had Price Waterhouse more plainly and comprehensively brought the various elements of the fraud to the notice of the Bank as they emerged or had the majority shareholders made a full and timely disclosure of all the facts known to them. But Lord Justice Bingham also concluded that the Bank itself should have been more alive to the significance of those messages it did receive and that it should have pursued more vigorously the leads it was given.
Lord Justice Bingham's report showed that there was no duplicity or bad faith; that the Bank was party to no conspiracy or cover-up.
None the less, Lord Justice Bingham concluded that mistakes were made and that in certain respects the Bank's supervision was deficient. The Report said the Bank of England supervision of BCCI was "in its later stages, a tragedy of errors, misunderstandings and failures of communications."
BCC closure
On the events leading to the BCC's closure on 5 July 1991, Lord Justice Bingham set out in detail the discussions that Bank of England officials had with President Mr Agha Hasan Abedi, other BCC senior management officials and BCC's Abu Dhabi majority shareholders on the restructuring of the banking group, and injection of additional capital to make good the deficit known to BCC's auditors, Price Waterhouse.
Notwithstanding, that there was agreement by the Abu Dhabi shareholders, both to restructuring and injecting further capital, (and guaranteeing customer deposits) the Bank of England appears to have already made up its mind on 1 July 1991, with other members present, to close BCC but chose not to convey this to Abu Dhabi. However, in a proposed plan of action discussed on 4 July 1991 Mr Ganin Mazrui, Director the representing the majority shareholders, would be informed at a Board meeting to be held the next day, on 5 July 1991, in Luxembourg, about the decision to seek an orderly winding down of BCCI, following that meeting the Luxemburg Monetary Authority (IML), the Bank of England, he College of Regulators and the US supervisors would take legal and regulatory action to close down BCCA SA and BCCI Overseas, freezing all assets and liabilities.
