The Evidence Already Examined Before the Bank of England Investigation by Price Waterhouse - Section 41 Report
During its audit of BCCI’s 1989 accounts, Price Waterhouse raised concerns about a number of international loans and related transactions, principally associated with the Grand Cayman branch of BCCI Overseas.
At Price Waterhouse’s request, the Chief Executive Officer of BCCI Holdings (Luxembourg) SA established a special Task Force on 13 March 1990. It consisted of senior BCCI officers drawn from finance, treasury, credit and operations. Its terms of reference were agreed jointly with Price Waterhouse.
The Task Force reviewed the accounts identified by the auditors, interviewed the responsible account officers and examined the files and documents available in London. It also extended its work to certain accounts and locations that had not been covered by the Price Waterhouse audit.
Work Undertaken with Price Waterhouse
The Task Force was not a substitute for an independent audit. Its purpose was to investigate the accounts identified by Price Waterhouse, clarify the nature and relationships of the transactions, assess their financial implications and recommend the provisions required.
Price Waterhouse supplied the Task Force with reports identifying problem loans and related issues. The two teams worked together, reviewed individual cases and discussed the additional provisions required for BCCI’s 1989 accounts. The Task Force submitted its findings to the Chief Executive Officer and Price Waterhouse in April 1990.
The Later Section 41 Investigation
On 4 March 1991, the Bank of England commissioned Price Waterhouse to investigate BCCI under Section 41 of the Banking Act. A draft report was delivered on 22 June 1991, less than two weeks before BCCI was closed on 5 July. Importantly, the report was never finalised, and the Bank of England did not require Price Waterhouse to complete it before proceeding with the closure of BCCI.
The later Section 41 report revisited many subjects already examined during the 1989 audit and the 1990 Task Force review. This makes a direct comparison of the two reports essential.
Questions Raised by the Comparison
The comparison should establish:
- Which findings in the Section 41 draft were genuinely new.
- Which matters had already been identified by Price Waterhouse in 1990.
- Which findings had already been examined or confirmed by the Task Force.
- Whether the Section 41 investigation relied upon the earlier audit and Task Force material.
- Whether the later report disclosed continuing problems or largely restated historical matters already being addressed.
- Whether any remaining concerns could have been dealt with through the Abu Dhabi-backed restructuring then under way.
Similarity between the reports would not, by itself, establish that the Section 41 investigation added nothing. It would, however, raise an important question about whether the draft presented materially new evidence requiring immediate worldwide closure, or largely brought together matters already known to Price Waterhouse, BCCI’s senior management and the Abu Dhabi shareholders.
Why It Matters
By 1991, Abu Dhabi had committed substantial financial support, management changes were under way, and a restructuring intended to separate viable banking operations from problem assets was close to implementation. If the principal concerns in the Section 41 draft were already known and being addressed, the decisive issue is not simply what the report alleged, but what it established that was new, continuing and incapable of remedy through the funded restructuring.
A document-by-document comparison is therefore necessary before the Section 41 draft can be treated as sufficient justification for the Bank of England to move to BCCI’s abrupt closure.