Questions of Bad Faith

This section examines the circumstances surrounding the restructuring of the Bank of Credit and Commerce International (BCCI) and the regulatory response that culminated in its closure in July 1991. It draws on material presented in the Key Events and Restructuring Programme sections of this website, together with the recollections of senior BCCI employees involved in the restructuring process and the observations contained in the Report of Lord Justice Bingham, who had access to confidential internal documents and reports relating to BCCI and its supervision.

The purpose is not to reach definitive conclusions, but to provide context for considering how the restructuring process unfolded, the role of shareholder support, the intended and actual outcomes of regulatory action, and the eventual position of depositors and creditors. These matters are relevant in assessing whether the actions taken by regulators, led by the Bank of England and excluding the UAE Central Bank from key discussions, supported or potentially curtailed the efforts then underway to stabilise and restructure BCCI.

They also raise a further question considered in some analyses: whether obtaining an additional US$650 million in shareholder support from Abu Dhabi, paid into BCCI’s account on 4 July 1991 after the move towards closure had begun on 1 July 1991, together with subsequent action concerning promissory notes of approximately US$4 billion provided by Abu Dhabi, was intended to ensure that sufficient funds were available to repay depositors following closure and thereby reduce the risk of criticism being directed at the regulators involved.

However, the intended outcome does not appear to have fully materialised. Following the announcement of BCCI’s closure on 5 July 1991, Abu Dhabi immediately recalled the US$650 million transferred to the Bank on 4 July 1991. As the transfer had to be routed through New York and 4 July was a public holiday in the United States, the transaction had not yet been processed when the recall instruction was issued. This would have created a shortfall in the funds available to the liquidators and reduced the financial resources that might otherwise have been available for distribution to depositors and creditors.

Following the announcement of BCCI’s closure, the Abu Dhabi majority shareholders also obtained court restrictions preventing the uncashed promissory notes forming part of the US$5.1 billion support package from being removed or used. As a result, the liquidators were ultimately able to recover only approximately US$1.9 billion for the benefit of creditors under a pooling agreement with Abu Dhabi.

Regulatory Response and the Restructuring Context

During the period leading up to July 1991, BCCI was engaged in a major restructuring process involving discussions with the Bank of England and supported by its Abu Dhabi majority shareholders. Those shareholders had already committed substantial financial resources in 1990 and provided a further US$650 million on 4 July 1991 as part of the final stabilisation plan.

As outlined in the Key Events section, this period was marked by operational, financial and regulatory challenges, together with measures taken by the Bank and its stakeholders in response. The restructuring programme formed part of those efforts and was intended to allow BCCI’s viable operations to continue through three newly capitalised banks under new leadership, while problem assets were to be transferred to separate entities or a fourth bank responsible for recoveries.

The Bingham Report on BCCI also considers the position facing the Bank of England at the time and the range of supervisory responses available before closure. Although it records the concerns that ultimately led to regulatory action, it also provides the wider context in which continued supervision, restructuring and other forms of intervention might have been considered. This has contributed to subsequent debate over whether closure represented the only viable course of action available in July 1991.

Secret Move Towards the Closure of BCCI

Although BCCI was publicly closed on 5 July 1991, the Bingham Report indicates that the effective decision-making process had begun earlier and was conducted under conditions of strict secrecy.

The clearest references are as follows:

1 July 1991 - The Board of Banking Supervision had already moved towards coordinated supervisory action, including a proposed mission to Abu Dhabi. By 4 July, however, that mission had been abandoned because members of the College of Regulators considered that it might alert interested parties to the action being contemplated.

4 July 1991 - This appears to be the clearest date by which the course of action had effectively been settled. The Bingham Report records that the Board of Banking Supervision met on the morning of 4 July, after the Governor of the Bank of England had met the Prime Minister and other ministers. The plan was that, on the following day, the Luxembourg Monetary Institute and the Bank of England would meet Mr Mazrui in Luxembourg and seek an orderly winding down of BCCI. Thereafter, legal and regulatory action would be taken to close BCCI S.A. and BCCI Overseas and to freeze their assets and liabilities. The meeting with Mr Mazrui a member of the BCCI Board of Directors also with other directors took place on 5 July 2026.

The Report also records that Abu Dhabi's additional financial support formed part of the restructuring discussions then taking place. Whether the Governor of the Bank of England was aware that the US$650 million transfer had already been initiated by Abu Dhabi before those meetings is not addressed in the Report and remains an unresolved question.

The Report also records that, on 4 July, Price Waterhouse considered seeking a meeting with the Governor to object to what it regarded as precipitate and prejudicial action. It decided not to proceed because “it seemed clear a decision had been made.”

The Bingham Report further indicates that the move towards closure was not agreed by all members of the College of Regulators. In particular, the UAE Central Bank, although a member of the College, was excluded from the key discussions and decisions led principally by the Bank of England and the Luxembourg authorities.

Assessment of Regulatory Approach

Despite the concerns identified by the Bank of England and other regulators, the decision to close BCCI abruptly on 5 July 1991 remains the subject of continuing discussion and analysis.

Some observers, including former employees, depositors and other commentators, have argued that alternative regulatory approaches were available. These could have included:

allowing the restructuring programme to continue under enhanced regulatory supervision;
implementing a phased resolution while the restructuring process was completed;
continuing engagement with the Abu Dhabi majority shareholders in relation to their capital support and restructuring proposals, including the proposed management teams for the new banking entities.

This view is reinforced by the objections raised by BCCI's external auditors, Price Waterhouse, who regarded the proposed closure as "precipitate and prejudicial" and considered seeking a meeting with the Governor of the Bank of England before concluding that "it seemed clear a decision had been made." It has therefore been argued that allowing the restructuring process to proceed may have avoided the disruption and losses subsequently suffered by depositors, employees and other stakeholders, together with the lengthy and costly liquidation process that continued for many years.

It is also relevant that many of the concerns relating to BCCI's governance, lending practices and financial position, which were later examined in the Bingham Report and other inquiries, had already been identified by BCCI itself. In response to concerns raised by Price Waterhouse, BCCI established an internal Task Force to review selected international loans and transactions. Its report, completed on 16 April 1990, was provided to the Bank of England and to the Abu Dhabi majority shareholders.

Following receipt of that report, the Abu Dhabi shareholders acquired a 77% majority shareholding and committed substantial financial support through capital injections, guarantees and promissory notes. They also worked with BCCI on a comprehensive restructuring programme that remained the subject of ongoing discussions with the Bank of England. The programme contemplated the creation of three newly capitalised banks under new management together with separate arrangements for the management and recovery of problem assets.

Against this background, questions arise regarding the sequence of events immediately preceding BCCI's closure. The Bingham Report indicates that, by 1 July 1991, the Bank of England had already moved towards coordinated supervisory action that would culminate in the closure of BCCI, while discussions concerning restructuring and shareholder support nevertheless continued. On 4 July 1991, Abu Dhabi transferred a further US$650 million to BCCI as part of its financial support package, yet the decision to proceed with closure was implemented the following day. This chronology raises legitimate questions as to why the restructuring discussions and requests for additional shareholder support continued if the decision to close the Bank had, in substance, already been reached.

These issues do not, in themselves, establish bad faith. They do, however, give rise to questions as to whether the regulatory process was conducted with complete openness towards the BCCI management team involved, the Abu Dhabi majority shareholders and the UAE Central Bank, and whether the restructuring proposals received full and fair consideration before the decision to close BCCI was implemented.

Questions of Consistency and Good Faith

Within this broader context, questions have also been raised regarding the consistency and proportionality of regulatory action.

These include:

Whether similar situations involving international banks in Western jurisdictions were addressed through closure or through alternative supervisory or restructuring measures
Whether the Bank of England’s engagement in ongoing restructuring discussions with BCCI and its majority shareholders was intended to facilitate a viable restructuring, or whether the process had a hidden purpose
Whether BCCI’s position as an international bank without Western ownership—supported primarily by shareholders from the Middle East - and its development as a major banking group rooted in the Third World influenced perceptions and regulatory responses

More broadly, some observers have suggested that BCCI represented a distinctive model of international banking, with significant operations across developing countries and a global presence extending beyond traditional Western financial centres. In this context, it has been argued that such characteristics may have shaped the way in which the bank was viewed and treated, although this remains a matter of interpretation.

These questions do not imply conclusions, but form part of the wider discussion as to whether the regulatory response was aligned with principles of fairness, consistency, and good faith.

Outcomes for Depositors and Creditors

The subsequent liquidation of the Bank of Credit and Commerce International, supported primarily by the recovery of assets- including substantial funds placed with other banks - and in part by a reduced financial contribution from Abu Dhabi’s majority shareholders, resulted in significant payments to depositors and creditors.

In many cases:

Payments to depositors exceeded 90%
In certain jurisdictions, including Hong Kong, recoveries exceeded 100%
Payments to creditors approached full recovery levels

These outcomes were achieved over a prolonged period and after substantial liquidation costs, as well as a reduced contribution that Abu Dhabi was only prepared to pay towards the overall liquidation process.

In this context, questions arise as to the bank’s underlying asset position and the extent to which restructuring efforts - supported by shareholder financial commitments - should have been the preferred alternative for the depositors and creditors.

Context and Ongoing Discussion

The decision to close the Bank of Credit and Commerce International remains subject to differing interpretations. The interaction between regulatory concerns, restructuring efforts, shareholder support, and the timing of events continues to require careful examination, both in official inquiries and in independent analysis.

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.