The abrupt closure of the Bank of Credit and Commerce International (BCCI) in July 1991 was followed by allegations of fraud, money laundering, false accounting, regulatory breaches and what came to be described as a pervasive “criminal culture.”
These allegations came to dominate the public image of BCCI and, over time, were frequently applied not merely to particular individuals, customers or operations, but to the Bank as an institution and, indirectly, to thousands of employees throughout its international network.
Examining double standards does not require denying that serious irregularities occurred within BCCI. Any fraud, false accounting, money laundering or other misconduct that could be established required investigation and appropriate action against those responsible.
The more difficult question is whether the response to BCCI was proportionate, and whether the principles subsequently applied when major Western banks encountered serious misconduct, regulatory failure or financial collapse were equally available to BCCI.
The comparison falls into two distinct areas:
- serious misconduct, where banks were investigated, fined, prosecuted, monitored and reformed while continuing to operate; and
- serious financial failure, where governments and regulators used emergency liquidity, recapitalisation, restructuring, merger, nationalisation or orderly resolution to preserve viable banking operations and protect customers.
The circumstances of these institutions were not identical to BCCI. The issue is not whether every bank should have received precisely the same treatment. It is whether the range of alternatives to closure subsequently used so extensively elsewhere was adequately considered in BCCI's case.
A Bank with Different Origins
BCCI was unusual among major international banks of its time. Although incorporated in Luxembourg in 1972 and managed for much of its existence from its Central Office in London, its origins, ownership, management and much of its international business were closely connected with the developing world.
Its founder, Agha Hasan Abedi, came from the Indian subcontinent and had previously helped establish United Bank Limited in Pakistan. His ambition for BCCI was to build an international banking institution linking the established financial centres of Europe and North America with countries across Asia, Africa, the Middle East and Latin America.
Its shareholders included prominent investors from the Gulf and Middle East. By 1990, Abu Dhabi interests had become the majority shareholders and were providing substantial financial support while an extensive restructuring programme was being developed.
BCCI's workforce was similarly international, bringing together employees from more than one hundred nationalities. Its relationships with governments, businesses, institutions and communities throughout the developing world formed an important part of its international banking model.
Abedi's wider vision extended beyond conventional commercial banking. He promoted economic, educational, social and intellectual cooperation among countries then commonly described as the Third World, and today more often referred to as the Global South.
These origins did not exempt BCCI from proper banking regulation. They are nevertheless relevant when examining whether a major bank created, financed and largely managed by people from outside the established Western banking system was perceived and treated in the same way as institutions rooted within that system.
From Misconduct to an Institutional Label
One of the most lasting consequences of BCCI's closure was the manner in which allegations concerning particular executives, customers, transactions or operations became associated with the Bank as a whole.
The description “criminal culture” became especially influential.
Once that label became attached to BCCI, distinctions between individuals accused of wrongdoing and thousands of employees carrying out ordinary banking activities became increasingly blurred.
That distinction matters.
Large international banks are complex organisations. Criminal or improper activity by employees, executives, traders, customers or individual business units may be extremely serious without necessarily establishing that every employee, branch or legitimate activity of the institution forms part of a criminal enterprise.
Later banking scandals demonstrate that regulators have repeatedly been prepared to make precisely that distinction.
Serious Misconduct Without Institutional Closure
Money Laundering and Sanctions Violations
A number of major international banks have subsequently faced extremely serious findings concerning money laundering, sanctions violations and failures in anti-money-laundering controls.
HSBC, for example, entered into a deferred prosecution agreement with the United States Department of Justice in 2012 after admitting anti-money-laundering and sanctions violations. It agreed to forfeitures and penalties approaching US$2 billion, enhanced compliance obligations and independent monitoring. The institution nevertheless continued operating.
Standard Chartered similarly entered agreements with US authorities concerning sanctions violations. In 2019 it admitted further criminal conduct relating to transactions involving Iran and agreed to penalties exceeding US$1 billion, together with an extension of its deferred prosecution agreement and additional compliance requirements.
The purpose of referring to these cases is not to suggest that their misconduct was identical to that alleged against BCCI. Rather, they demonstrate the regulatory principle that even very serious institutional misconduct may be addressed through financial penalties, criminal settlements, management accountability, enhanced controls, monitoring and continuing supervision without requiring the destruction of the banking institution itself.
LIBOR and Benchmark Manipulation
The LIBOR and EURIBOR scandals provide another important comparison.
Investigations established serious manipulation of benchmark interest rates involving employees of several major international banks over a period of years. Barclays was fined for misconduct that the UK regulator described as serious, widespread and involving a significant number of employees. Other institutions, including UBS, RBS, Deutsche Bank and Lloyds Banking Group, were also subjected to substantial penalties.
The response was extensive. Employees were dismissed or prosecuted, banks paid large fines, systems and controls were criticised, senior management came under scrutiny and the regulatory framework governing benchmark rates was substantially reformed.
Yet the banks themselves were not characterised as organisations that had to cease to exist.
This does not mean that LIBOR manipulation and the allegations against BCCI were identical. They plainly were not.
The relevant question is whether regulators applied a different underlying philosophy: identify misconduct, punish those responsible, reform the institution and allow legitimate banking operations to continue.
Compensation of BCCI Victims
Questions of double standards also arose over compensation for BCCI depositors, creditors and other victims. Comparisons were made in the UK Parliament with Barlow Clowes, where substantial ex gratia compensation was eventually paid following findings of maladministration.
Following the Bingham Report, the UK Government Treasury and Civil Service Committee concluded that the Bank of England had failed to discharge its supervisory duties in respect of BCCI. Nevertheless, proposals for additional compensation to BCCI victims were not accepted.
Read more: Barlow Clowes and Compensation - Treasury Committee and BCCI Compensation
Foreign-Exchange Manipulation and Other Misconduct
The same principle became evident in subsequent foreign-exchange investigations.
In 2015, major banks including Citicorp, Barclays, JPMorgan and RBS agreed to parent-level guilty pleas in the United States in connection with manipulation of foreign-exchange markets. Very substantial criminal penalties followed.
Again, criminal wrongdoing attributed to traders and banking institutions resulted in prosecution and punishment, but not the permanent closure of the international banks concerned.
These later cases demonstrate an important principle: institutional criminal liability does not necessarily require institutional destruction.
Financial Failure - Rescue, Restructuring and Preservation
A second and separate comparison concerns banks that encountered severe financial difficulty or actual failure.
These cases should not be confused with misconduct cases. They are relevant because they demonstrate the range of measures governments and regulators have been prepared to use to preserve viable banking operations when an institution's survival was threatened.
Northern Rock
Northern Rock is particularly instructive.
Its crisis in 2007 arose principally from its dependence on wholesale funding rather than allegations comparable to those against BCCI. When funding markets deteriorated, the Bank of England provided emergency liquidity support. The Government subsequently guaranteed deposits and explored private-sector solutions before ultimately taking Northern Rock into public ownership in February 2008.
The Bank of England records that its lending to Northern Rock peaked at approximately £27 billion. The institution was subsequently divided between a continuing bank containing deposits and higher-quality mortgages and an asset-management company holding much of the remaining mortgage portfolio and government liabilities.
Northern Rock was therefore not simply allowed to disappear when its funding model failed. Authorities used liquidity support, guarantees, public ownership, restructuring and separation of assets while seeking to protect depositors and financial stability.
The circumstances were very different from those of BCCI. Nevertheless, Northern Rock demonstrates that when regulators considered preservation desirable, a wide range of intervention mechanisms could be deployed.
RBS
The financial crisis of 2008 produced intervention on an even greater scale.
Royal Bank of Scotland (RBS) required massive government support after suffering severe financial difficulties. The UK Government injected capital and ultimately became its majority shareholder.
Government support for the banking system included capital investment, guarantees, liquidity schemes and protection against losses on enormous portfolios of assets. The National Audit Office concluded that these interventions were justified because the economic and social consequences of allowing major banks to collapse could have been extremely serious.
RBS was therefore recapitalised and restructured rather than simply closed.
The comparison with BCCI is not that their financial positions or conduct were the same. It is that preservation of viable banking operations was recognised as an important regulatory and public-policy objective.
HBOS and Lloyds
HBOS provides another example.
Official reviews later concluded that HBOS's board and senior management had pursued a flawed business model and that weaknesses in regulatory supervision had contributed to the failure to appreciate the risks being taken.
By October 2008, HBOS was approaching the point at which it could no longer meet liabilities as they fell due and sought emergency liquidity assistance from the Bank of England.
The response was not immediate liquidation.
HBOS received government capital support and was acquired by Lloyds TSB, with the Government also providing capital to facilitate the enlarged banking group.
The later official review concluded that ultimate responsibility for HBOS's failure rested with its board and senior management, while also identifying shortcomings in the FSA's supervision.
Yet the objective remained to preserve banking operations through capital support and combination with another institution rather than destroy the underlying customer businesses.
Barings Bank
Barings Bank presents a somewhat different example.
Barings collapsed in 1995 after unauthorised derivatives trading produced losses that overwhelmed the institution. Subsequent examination identified major failures of internal control and supervision.
The Bank of England did not use public money to rescue Barings, but efforts were made to find a commercial solution. The viable banking business was ultimately acquired by ING.
Thus, even where the original institution failed, considerable value, business activity and employment could be preserved through transfer to another banking group rather than simply extinguished.
Why These Comparisons Matter
The cases of HSBC, Standard Chartered, Barclays, Deutsche Bank, RBS, Lloyds, Northern Rock, HBOS and Barings are not presented as exact equivalents of BCCI.
Some involved criminal or regulatory misconduct.
Others involved liquidity crises, flawed business models, inadequate controls or outright financial failure.
Their importance lies in demonstrating the range of regulatory responses available when a major bank encounters serious difficulty.
Those responses have included:
- prosecution of individuals;
- removal of executives;
- financial penalties;
- guilty pleas and deferred prosecution agreements;
- restrictions on particular business activities;
- enhanced compliance requirements;
- independent monitoring;
- replacement of management;
- emergency liquidity;
- government guarantees;
- capital injections;
- nationalisation;
- separation of impaired assets;
- sale or transfer of viable operations;
- mergers with stronger institutions; and
- continuing restructuring under regulatory supervision.
In other words, subsequent banking history demonstrates that serious misconduct or even institutional failure does not automatically require the destruction of all viable operations of the institution concerned.
That is the central relevance of these cases to BCCI.
BCCI's Restructuring Programme
By 1990-91, Abu Dhabi had become BCCI's majority shareholder and substantial work was underway on a restructuring programme.
The proposals involved changes to management, reductions in staff and branches, strengthening of capital, dealing with impaired assets and reorganising the international group into separately regulated banking institutions.
Considerable financial support had already been provided by the majority shareholders.
Whether that restructuring would ultimately have succeeded remains a legitimate matter for debate.
But the historical question is whether it was given sufficient opportunity to be implemented and independently tested.
Instead, regulators led by the Bank of England moved toward coordinated international closure, and BCCI's operations were abruptly shut on 5 July 1991.
The relevant comparison with later banking cases is therefore not simply:
Why was BCCI not fined?
It is broader:
Why were restructuring, management replacement, additional capital, separation of impaired assets, transfer of viable businesses, continuing supervision or other forms of regulatory resolution not given greater opportunity before the irreversible decision to close the international group?
Proportionality
The case for reassessing BCCI does not require arguing that the Bank should have been immune from regulatory action.
If fraud occurred, those responsible should have been investigated and prosecuted.
If false accounts were prepared, responsibility should have been established among those involved, including management, auditors and others where appropriate.
If money laundering occurred, the responsible individuals, customers, branches and management should have faced investigation and sanctions.
If controls were inadequate, management could have been changed and controls rebuilt.
If additional capital was required, the willingness and financial capacity of the Abu Dhabi majority shareholders to provide it could have been tested.
If substantial parts of the international banking business remained commercially viable, the possibility of preserving or transferring those operations could have been examined.
Later experience demonstrates that none of these approaches is unusual.
They became standard components of the regulatory response to major banking crises and scandals.
The Global South Dimension
BCCI had emerged outside the traditional centres of Western banking power.
Its founder came from South Asia; much of its senior management originated in the developing world; its principal shareholders were from the Gulf; and a substantial part of its business was built around relationships in Asia, Africa and the Middle East.
For many developing countries, BCCI represented an unusual international institution in which bankers from the Global South occupied senior positions and developed direct relationships with governments, businesses and institutions across regions traditionally served by European and North American banks.
Those relationships were sometimes portrayed after BCCI's closure as evidence of something inherently unusual or suspicious.
Yet relationship banking, access to political and business leaders, cultivation of major clients and close links with governments have long been features of international banking.
The legitimate question is whether similar practices were perceived more negatively when associated with an institution that stood outside the established Western banking system.
Perceptions of a Colonial Mindset
Some former employees, customers and observers have considered whether BCCI's treatment reflected deeper attitudes within the international financial system toward institutions originating outside the traditional Western banking establishment.
From this perspective, conscious or unconscious assumptions about management, capital and institutions originating in the developing world may have contributed to the way BCCI was perceived.
This interpretation cannot simply be asserted as fact and should be examined against the available documentary evidence.
Nevertheless, the perception of unequal treatment and of a lingering colonial mindset remains an important part of the debate surrounding BCCI's closure.
The increasingly extensive record of how major Western institutions were subsequently treated makes the question more, rather than less, relevant.
Language, Reputation and the “Criminal Culture” Label
The language used to describe banking scandals is itself significant.
When later banks experienced serious scandals, official and media descriptions frequently referred to: governance failures, control failures, rogue traders, misconduct, compliance weaknesses, poor risk management, supervisory failures and cultural problems.
In BCCI's case, the description “criminal culture” became closely associated with the institution itself.
Language affects historical memory.
An institution described as suffering from severe governance or compliance failures can potentially be restructured and rehabilitated.
An institution characterised as inherently criminal is much more difficult to distinguish from the wrongdoing of particular individuals.
This distinction had consequences not only for those accused of misconduct but for 12,000 BCCI employees around the world, the overwhelming majority of whom were never accused of criminal wrongdoing.
Accountability Is Not the Same as Destruction
A credible reassessment of BCCI does not require denying wrongdoing.
Nor does it require arguing that HSBC, Barclays, RBS, Northern Rock or any other subsequent bank should have been closed merely because BCCI was closed.
That would simply repeat the same potentially disproportionate approach.
The more constructive question is:
Why was the regulatory philosophy subsequently used so extensively elsewhere — identify wrongdoing, punish those responsible, replace management where necessary, inject or require capital, restructure impaired businesses, protect viable operations and preserve value for customers and creditors where possible — not given greater opportunity in BCCI's case?
Later banking history demonstrates an important distinction between:
institutional accountability and institutional destruction.
That distinction lies at the heart of the argument concerning Double Standards.
A Wider Historical Question
BCCI's closure should therefore be considered not only in relation to the allegations made against it, but against the wider history of international banking supervision.
Questions remain:
Were the actions taken in July 1991 the only reasonable course available?
Could wrongdoing within parts of BCCI have been isolated and dealt with while preserving viable operations?
Was sufficient consideration given to the restructuring programme and financial support being provided by Abu Dhabi?
Could impaired assets have been separated from sound banking businesses?
Could viable regional operations have been transferred or recapitalised?
Were innocent employees, customers and creditors sufficiently distinguished from individuals alleged to have committed wrongdoing?
Why were rescue and resolution techniques subsequently used for Northern Rock, RBS, HBOS and other banks not considered appropriate, or not pursued further, in BCCI's circumstances?
And ultimately:
Would a long-established Western international bank, supported by wealthy majority shareholders willing to provide substantial additional capital, have been treated in precisely the same manner?
Later banking scandals and failures cannot provide an automatic answer. The circumstances of every institution are different.
They do, however, make these questions increasingly difficult to ignore.
For BCCI - an international bank created largely through capital, management and relationships originating in the developing world - the argument is not for preferential treatment.
It is for equal treatment, proportionality and consistency in international banking supervision.
That remains the central question of Double Standards.
Related Studies
This perspective should be read alongside the more detailed studies in this section:
Barings Bank - A Different Regulatory Response
The collapse of Barings in 1995, the control and supervisory failures subsequently identified, and the preservation of its viable business through acquisition by ING.
Northern Rock - Rescue, Nationalisation and Restructuring
The emergency liquidity assistance, government guarantees, nationalisation and subsequent restructuring of Northern Rock following its 2007 funding crisis.
RBS and HBOS - Preserving Systemically Important Banks
Government recapitalisation, liquidity assistance, asset protection and restructuring during the 2008 financial crisis.
World's Biggest Banks Enabled Money Laundering
Later money-laundering, sanctions and compliance cases involving major international banks and the use of penalties, settlements, monitoring and remediation rather than closure.
LIBOR Fixing - Widespread Misconduct Without Institutional Closure
Manipulation of LIBOR and EURIBOR within leading international banks and the contrasting emphasis on prosecution, fines, management accountability and regulatory reform.
Foreign-Exchange Manipulation - Criminal Liability Without Closure
The prosecution and guilty pleas involving major international banks in foreign-exchange benchmark manipulation while the institutions continued their banking operations.
The individual case studies can be accessed directly from the side menu:
- Northern Rock
- RBOS and HBOS
- Barings Bank
- Johnson Matthey Bankers
- Midland Bank
- Bank of New England
- Fannie Mae and Freddie Mac
- Credit Suisse
- Silicon Valley Bank UK
- World’s Biggest Banks Enabled Money Laundering
- LIBOR Fixing
- Compensation of BCCI Victims
- Foreign Exchange Manipulation
Taken together, these cases provide a wider basis for examining whether BCCI was afforded the same degree of regulatory flexibility, opportunity for restructuring and preservation of viable operations that was available in other major banking crises and misconduct cases.
Also read:
- Double Standards: The Forced Closure of the BCCI Bank, which examines BCCI's treatment against subsequent banking scandals and regulatory responses.
- HSBC vs BCCI Hypocrisy at its Best
