The Report concerns the Inquiry into the Supervision of the Bank of Credit and Commerce International, commonly known as the Bingham Inquiry.
Lord Justice Bingham’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.
These terms required a detailed examination of the manner in which BCCI had been supervised by the Bank of England and other United Kingdom authorities. They did not, however, expressly require a separate and comprehensive inquiry into the decision to close BCCI on 5 July 1991, the alternatives to closure, or the consequences of that decision for depositors, creditors and employees.
Background
The abrupt closure of BCCI on 5 July 1991 had a profound impact on hundreds of thousands of depositors, creditors and employees across the world. The coordinated action was taken principally by the European supervisory authorities represented in the College of Supervisors (Regulators) and was led, according to the Bingham Report, by the Bank of England.
The closure occurred while an extensive restructuring programme was being developed and partly implemented. That programme envisaged the establishment of three separately regulated banks, based in London, Abu Dhabi and Hong Kong, to assume BCCI’s viable international operations. A fourth institution was proposed to hold and recover the problem loans and impaired assets inherited from the existing Group.
The restructuring was supported by the Abu Dhabi majority shareholders, who had already committed very substantial financial resources. By June 1991, a support package of approximately US$5.1 billion had been signed, and further support that could have increased the total commitment to approximately US$7 billion was under consideration.
The chronology recorded in the Bingham Report may support the view that the Abu Dhabi shareholders were permitted - and, in practical terms, encouraged - to continue committing substantial resources on the understanding that the Bank of England’s remaining concerns were primarily technical, financial and regulatory. They were not informed that the proposed restructuring might ultimately depend upon the outcome of the section 41 investigation being conducted by Price Waterhouse on behalf of the Bank of England.
The UAE Central Bank was a member of the College of Supervisors but was not included in the decisive discussions that led to the coordinated closure. This omission is particularly significant because the proposed successor bank in Abu Dhabi would have required its authorisation and supervision.
The closure gave rise to widespread public concern and protests. Questions were raised in Parliament, including by Keith Vaz MP, calling for public scrutiny of the circumstances surrounding the closure. Against this background, the UK Chancellor of the Exchequer, in consultation with the Governor of the Bank of England, appointed Lord Justice Bingham to conduct an independent inquiry. His findings were published in October 1992 and became widely known as the Bingham Report.
Appointment of the Inquiry and its Limited Scope
The concern is not that the Bingham Inquiry was invalid or unlawfully constituted. Rather, the concern is that its restricted terms of reference may have limited the extent to which the position of BCCI’s depositors, creditors and former employees could be examined.
The Inquiry was principally directed towards the supervision of BCCI under the Banking Acts and whether the conduct of the United Kingdom authorities had been appropriate and timely. Although the Report provides a detailed narrative of the events immediately preceding 5 July 1991, it did not undertake a separate inquiry into:
- the Bank of England’s decision to abandon the restructuring;
- the extent to which the draft section 41 report provided new information;
- whether the shareholders should have been given an opportunity to respond;
-
whether further management changes or conditions would have addressed the concerns;
- whether an orderly run-down or transitional arrangement was practicable; or
- whether closure was proportionate to the risks faced by the viable regional operations.
The section 41 report commissioned by the Bank of England from BCCI’s external auditors, Price Waterhouse brought together extremely serious matters, including problem loans, concealed liabilities, falsified accounting records and the use of external companies and nominee arrangements.
However, much of the underlying financial difficulty had already been identified by Price Waterhouse and through BCCI’s internal investigations. The Abu Dhabi majority shareholders had been informed of the principal financial and management problems and had nevertheless elected to continue supporting BCCI, investigate the impaired assets, replace senior management and implement a major restructuring programme.
The Report records that the draft section 41 report was delivered to the Bank of England on the evening of Saturday, 22 June 1991. It was handed to a security guard because it had been delivered outside normal working hours. It remained a draft because Price Waterhouse expected to discuss its contents, scope and provisional conclusions with the Bank before finalising it.
Price Waterhouse believed that the report might require changes to the structure, management and conditions of the proposed new banks. It did not anticipate that the report would result in the immediate closure of BCCI.
Representation of Depositors and Former Employees
Although the Inquiry received letters and other material from depositors and former employees, they were not formally represented as affected constituencies. No counsel was appointed to present and test their case concerning the closure or its consequences.
Lord Justice Bingham expressly stated that he had not considered it appropriate for the Inquiry to become involved in the plight of depositors, whether individually or collectively.
The House of Lords subsequently observed in Three Rivers District Council v Governor and Company of the Bank of England that the depositors who later pursued proceedings (initiated and conducted by the BCCI liquidators) were not represented before the Inquiry and that the case against the Bank had not been presented by counsel.
The absence of formal representation may have limited the Inquiry’s ability to examine the closure from the perspective of those who suffered its most immediate financial, professional and personal consequences. Depositors and employees had called not merely for an inquiry into the historical supervision of BCCI, but for examination of the decision to close the Bank and the total rejection of the restructuring proposals.
The Governor’s Association with the Appointment of the Inquiry
The Governor of the Bank of England’s association with the establishment of the Inquiry did not, without more, establish a legal conflict of interest, actual bias or a lack of independence on the part of Lord Justice Bingham.
It did, however, create the appearance of a potential institutional conflict. The head of the authority whose conduct required examination participated in commissioning an Inquiry whose terms were principally confined to supervision and did not expressly require a full investigation into the Bank of England’s own decision to initiate and coordinate BCCI’s closure.
This issue becomes more significant when considered alongside:
- the absence of formal representation for depositors and former employees;
- the failure to investigate separately the rejection of the restructuring;
- the treatment of Price Waterhouse’s opposition to closure;
- the exclusion of the UAE Central Bank from the decisive regulatory discussions; and
- the limited consideration given to the subsequent High Court proceedings.
When these matters are viewed together, they may reasonably raise questions about whether the structure and terms of reference of the Inquiry prevented the closure decision from receiving sufficiently independent, balanced and comprehensive examination.
Price Waterhouse’s Objections to Closure
It would not be accurate to suggest that the Bingham Report ignored Price Waterhouse’s objections. The Report records those objections in considerable detail.
Price Waterhouse informed Bank officials that closure was not in the interests of depositors. It emphasised that the Abu Dhabi shareholders had already provided substantial support, appeared willing to provide further funds and were implementing extensive changes to the management and structure of the Group.
The auditors warned that liquidation would be disorderly, generate competing claims in numerous jurisdictions and lead to prolonged and expensive litigation. On 4 July 1991, Price Waterhouse described liquidation as a “nightmare scenario” and considered the proposed action precipitate and prejudicial.
Price Waterhouse considered requesting an urgent meeting with the Governor of the Bank of England but decided against doing so because it believed that the decision had already been made and would not be reversed.
The relevant criticism is therefore not that the Bingham Report failed to record Price Waterhouse’s objections. Rather, it is that the Inquiry’s terms of reference-settled by the Chancellor of the Exchequer in consultation with the Governor of the Bank of England - did not require a separate and independent assessment of the rationale for closure, the conduct of Bank officials in reaching and implementing that decision, or the reliance placed upon the draft section 41 report, much of which concerned matters already under consideration within the restructuring process. This may reasonably raise the question whether the restricted scope had the effect of deflecting detailed scrutiny from the Bank of England and its officials in relation to the closure decision, even if it cannot be established that this was the deliberate purpose for which the terms of reference were framed.
The Inquiry’s terms of reference - settled by the Chancellor of the Exchequer in consultation with the Governor of the Bank of England - did not require a separate and independent assessment of:
- whether Price Waterhouse’s objections to closure had been adequately evaluated;
- whether the closure decision had effectively become irreversible before all available alternatives were considered;
- whether Price Waterhouse was given a proper opportunity to explain, discuss and finalise its draft section 41 report;
- whether the Abu Dhabi majority shareholders should have been shown the material allegations and invited to respond;
-
whether additional financial support, management changes or regulatory conditions would have addressed the concerns identified;
- whether the matters described in the draft section 41 report had already been recognised and were being dealt with through the restructuring programme; and
- whether a controlled restructuring, transitional arrangement or orderly run-down could have produced a less damaging outcome for depositors, creditors and employees.
The restricted terms of reference may therefore be said to have had the effect of directing scrutiny towards the historical supervision of BCCI, while avoiding a separate and comprehensive examination of the Bank of England’s rationale for abandoning the restructuring and proceeding with immediate closure. This raises a legitimate question as to whether the scope of the Inquiry deflected criticism from the Bank and its officials, even though the available material does not establish that this was the deliberate purpose for which the terms of reference were framed.
The High Court Proceedings after Closure
The restricted scope of the Inquiry also meant that limited attention was given to the significant High Court proceedings that followed the closure.
On 30 July 1991, the Vice-Chancellor, Sir Nicolas Browne-Wilkinson, adjourned the winding-up petition for four months. The purpose of the adjournment was to give the Abu Dhabi majority shareholders time to investigate whether the BCCI Group could still be restructured.
This was not a judicial finding that restructuring would necessarily succeed. It was nevertheless an important recognition that, even after the closure, the possibility of restructuring had not been conclusively exhausted and warranted further investigation.
The subsequent liquidators’ report confirmed both the four-month adjournment and its purpose.
A fuller inquiry into the closure might therefore have considered whether the High Court’s willingness to allow further time was consistent with the earlier regulatory conclusion that immediate closure and liquidation represented the only practicable response. It might also have examined the efforts of creditors, former employees and the majority shareholders to preserve viable operations and develop an alternative to liquidation.
The Move to Close BCCI
A central question is whether the Bank of England commissioned the section 41 investigation solely to establish and clarify facts - many of which were already known and being addressed through the restructuring process - or whether it was also intended, or subsequently used, to provide the principal basis for abandoning the restructuring and closing BCCI.
The report consolidated evidence of falsified accounting records, substantial problem loans, concealed liabilities, misuse of external companies, nominee arrangements, Treasury losses and other serious deficiencies within the Group.
The timing of the closure nevertheless requires close examination because many of the underlying problems had already been recognised and were being addressed through BCCI’s internal Task Force, Price Waterhouse’s earlier reports, the Abu Dhabi investigation and the restructuring programme.
In its covering communication of 4 July 1991, Price Waterhouse indicated that the principal matters described in the draft report had been known to the Government of Abu Dhabi before the financial assurances given to the Luxembourg Monetary Institute and the Bank of England in April 1990.
The proposed restructuring envisaged three new and separately regulated banks to assume BCCI’s viable operations. Problem loans and impaired assets would be transferred to a fourth specialist institution responsible for their management and recovery.
The purpose was to separate the impaired assets and past management failures from the continuing banking businesses, allowing the three successor institutions to commence operations with new boards, new management, additional capital and stronger regulatory oversight.
This also raises the question whether the Bank of England gave genuine and adequate consideration to the restructuring and financial support proposals, or whether it proceeded with immediate closure primarily because of the cumulative presentation of matters in the draft section 41 report, notwithstanding that the principal financial problems had already been recognised and were being addressed by BCCI and its Abu Dhabi majority shareholders.
No Finding of Dishonesty or Bad Faith
Lord Justice Bingham rejected allegations that the Bank of England had acted dishonestly or in bad faith. He found no conspiracy, deliberate duplicity or cover-up.
However, that conclusion must be understood within the terms of reference and the material examined by the Inquiry. It does not resolve every question concerning whether the restructuring was given sufficient consideration, whether the Abu Dhabi government was treated fairly and whether other supervisory options were realistically available.
The events immediately preceding closure occupy an important part of the Report. Lord Justice Bingham records discussions between the Bank of England, BCCI’s management, Price Waterhouse and the Abu Dhabi shareholders concerning the restructuring and the additional financial support required to remedy the capital deficiencies.
The Bingham Report also records that the Abu Dhabi agreed to inject further capital, provide guarantees, replace unrecorded deposits where liabilities were established and proceed with a comprehensive restructuring programme.
The chronology nevertheless raises important issues. By 1 July 1991, the Bank of England had moved towards coordinated action leading to closure. The UAE Central Bank was exclused from the decisive discussions, notwithstanding it was a member of the College of Regulators that included other European Central Banks.
On 4 July, while Abu Dhabi representatives still believed that discussions concerning restructuring and support were continuing, an additional US$650 million was transferred as part of the support arrangements.
On 5 July 1991, the Bank of England called a meeting in Luxembourg with Abu Dhabi's representative to inform about the decision to close BCCI and seek an orderly liquidation. Following consultations in Abu Dhabi after the announcement, that transfer was immediately recalled. Proceedings were reportedly also commenced in the Abu Dhabi courts to prevent the uncashed promissory notes held there from being removed or used as part of the US$5.1 billion financial support package resulting in the BCCI liquidators negotiating an agreement with Abu Dhabi for US$2.1 or US$1.9 billion.
Lord Justice Bingham had access to substantial confidential material. However, because of the Inquiry’s restricted terms, the Report did not separately determine whether it was appropriate to continue encouraging discussions and financial commitments after the Bank had begun moving towards closure.
Nor did it fully assess:
-
whether alternative supervisory measures should have been pursued with the UAE Central Bank;
- whether the shareholders should have been informed that the Bank’s position had changed;
-
whether Price Waterhouse’s objections in the draft report warranted further consideration;
-
whether additional management removals would have addressed the concerns; or
- whether the financial support already committed justified a brief period for reassessment before closure.
Lord Justice Bingham’s Principal Conclusions
Lord Justice Bingham did not attempt to describe the entire history of BCCI’s activities throughout the world. Nor was he asked to determine comprehensively whether overseas regulators, directors or auditors had properly discharged all their responsibilities, or whether the fraudulent practices described in the draft section 41 report were present throughout every country in which BCCI maintained banking operations.
However, the Report provides a detailed account of the involvement of United Kingdom authorities and identifies serious weaknesses in the Bank of England’s supervision of the BCCI Group.
This conclusion is important because it indicates that BCCI’s United Kingdom regional operations remained viable and had not themselves given rise to serious supervisory concern. It also supports the possibility that a similar model could have been applied to viable BCCI operations elsewhere. The Bingham Report records that the fraud and management failures within the Group were facilitated, in significant part, through the use or misuse of the ICIC companies in the Cayman Islands, which appeared to be controlled by persons who also controlled BCCI. This distinction between the viable operating businesses and the entities through which problem loans, concealed liabilities and irregular transactions were managed by a limited number of senior employees raises the question whether BCCI’s United Kingdom operations, together with operations not associated with the reported fraudulent practices in other jurisdictions and their employees, should have been preserved through the proposed separately incorporated and properly regulated banks in London, Abu Dhabi and Hong Kong..
Lord Justice Bingham criticised several supervisory judgments made by the Bank of England. He concluded that the Bank:
- had been slow to impose an appropriate supervisory regime;
- relied for too long upon the Luxembourg authorities to take the leading role;
- placed excessive reliance upon the auditors;
- failed to pursue warning signs with sufficient rigour;
- did not always ensure that important information reached senior officials;
- failed adequately to adapt its supervisory approach to BCCI’s unusual structure; and
- did not act with sufficient alertness and inquisitiveness.
He summarised the later history in the following words:
Lord Justice Bingham found no bad faith, conspiracy or deliberate cover-up. Nevertheless, he concluded that mistakes had been made and that, in important respects, the Bank of England’s supervision had been deficient.
However, its terms of reference did not require Lord Justice Bingham to examine whether the Bank should bear financial responsibility for the consequences of those errors and failures, or whether depositors, creditors and former employees should receive compensation for the losses and hardship resulting from BCCI’s closure. The Report therefore identified supervisory failings but the Inquiry did not require Lord Justice Bingham to assess their financial impact upon those affected or make recommendations for recompense to the depositors.
Summary of Selected Key Chapters of the Bingham Report on BCCI
A summary has been prepared to help readers identify and locate the chapters and passages of the Bingham Report most relevant to BCCI’s closure, the events leading to that decision, the restructuring proposals advanced by the Abu Dhabi majority shareholders, and the substantial financial support intended to preserve the viable parts of the Group. It highlights material that may assist readers in considering whether the available alternatives to immediate closure were fully examined.
Particular attention is drawn to the distinction between the serious Group-level fraud, concealed liabilities and management failures identified in the Report, and the absence of comparable findings of widespread fraud within BCCI’s United Kingdom regional operations. The Report also recognised that fraudulent practices were facilitated through the use or misuse of the ICIC Group in the Cayman Islands, which appeared to be controlled by persons who also controlled BCCI.
Right to Information
These issues extend beyond the limited scope of the Bingham Inquiry and continue to give rise to legitimate questions concerning the regulatory approach adopted during the final days before BCCI’s closure. A fuller understanding of those events by readers and researchers may ultimately depend upon the disclosure of all relevant official records, including internal Bank of England deliberations and correspondence, minutes of meetings and records of telephone communications with regulatory authorities in Luxembourg, the United States and other jurisdictions concerning BCCI’s worldwide operations.
Such disclosure engages the wider public interest in transparency and regulatory accountability. Where the records remain available, access may be sought through the United Kingdom Freedom of Information Act 2000 and the Bank of England’s archival arrangements, as well as through corresponding access-to-documents legislation in Luxembourg and the United States Freedom of Information Act. Any right of access would remain subject to applicable statutory exclusions and exemptions, particularly those relating to confidential supervisory information, financial stability, professional secrecy, bank-examination records, law enforcement, personal information and commercial confidentiality.
Read more
