The following summary is intended to help readers identify and locate the chapters and passages most relevant to BCCI’s closure, the events leading to that decision, the restructuring proposals advanced by the Abu Dhabi majority shareholders and the financial support intended to preserve the viable parts of the Group.
It is not intended to reproduce or replace the Report. Its purpose is to provide a chronological guide to:
- the concerns that influenced the supervisory authorities;
- the corrective measures taken or proposed by BCCI and the Abu Dhabi shareholders;
- the development of the three-bank restructuring;
- the financial support provided or committed;
- the pressure exerted by the United States authorities; and
- the extent to which alternatives to immediate closure were considered.
1. The Tampa Indictment and Its Outcome
Chapters 17 and 22
These chapters should be read together.
Chapter 17 describes the Tampa indictment and the concerns it created, particularly in relation to money laundering and BCCI’s internal controls. Chapter 22 considers the outcome of the proceedings and the significance attached to the eventual settlement.
The chapters help distinguish between the original allegations, the conduct of the individuals involved, the settlement reached with BCCI and the remedial action required by the regulators.
They also provide important background to the increasingly cautious attitude adopted by the supervisory authorities.
2. The College of Supervisors and Developing Regulatory Concerns
The College included representatives of the authorities responsible for BCCI’s principal operations, including the Bank of England, the Luxembourg Monetary Institute (IML), the Cayman Islands authorities and the UAE Central Bank
Chapters 18 and 23
Chapter 18 concerns the second meeting of the College of Supervisors in November 1988. Chapter 23 covers the period from January to April 1990.
Together, these chapters show how concerns developed regarding BCCI’s international structure, the absence of a single consolidated supervisor and the reliability of the Group’s financial position.
They also help identify which matters had already been raised with BCCI and which concerns emerged only after Price Waterhouse undertook further work.
3. Price Waterhouse’s Report of 18 April 1990
Chapter 24
Chapter 24 concerns the Price Waterhouse report dated 18 April 1990.
The report identified the need for substantial provisions and financial support and marked an important stage in recognising the scale of BCCI’s problem loans and financial weaknesses.
The chapter should be read not only as evidence of the problems discovered, but also as the starting point for the corrective action subsequently undertaken by the Abu Dhabi majority shareholders.
That action included:
- increased financial support;
- investigation of impaired and problem assets;
- proposed changes in senior management;
- the creation of a new board structure; and
- development of the restructuring programme.
4. Abu Dhabi Intervention and the 1989 Accounts
Chapters 25 and 26
Chapter 25 examines the involvement of the Abu Dhabi interests. Chapter 26 describes the finalisation of BCCI’s 1989 accounts.
The Abu Dhabi interests did not merely increase their shareholding. They became directly involved in financing the Group, investigating the problem loans and considering its future management and structure.
The finalisation of the accounts was closely connected with assurances that the identified financial deficiencies would be covered.
5. The Summer of 1990 and the Need for Further Support
Chapters 29 and 30
Chapter 29 records developments during the summer of 1990, when the need for further financial support became increasingly apparent.
Chapter 30 concerns Price Waterhouse’s report of 3 October 1990. That report estimated a need for approximately US$1.5 billion in further provisions or financial support.
Price Waterhouse nevertheless considered that the financial problems could be addressed with the support of the Abu Dhabi majority shareholders. A final strategic plan could not be completed until a new board and permanent senior management had been appointed.
6. The Sixth College Meeting and the Proposed Resolution
Chapter 31
Chapter 31 covers the sixth meeting of the College of Supervisors in October 1990.
The principal issues were:
- the resolution of BCCI’s financial problems;
- restructuring of the Group;
- removal or assumption of problem loans;
- provision of financial support; and
- future arrangements for consolidated supervision.
The Abu Dhabi interests indicated a willingness to remove problem loans from BCCI and provide support at the level identified by Price Waterhouse, subject to certain conditions.
The chapter demonstrates that the principal problems had been recognised and that a programme for addressing them was being developed.
7. Restructuring and Implementation
Chapter 32: October–December 1990
Chapter 32 contains important evidence of the steps taken following the October College meeting.
The Bank of England was aware of BCCI’s proposal to establish three separate banking institutions in London, Abu Dhabi and Hong Kong.
When the establishment of a single holding company proved difficult, a modified proposal was advanced under which the three banks would be free-standing institutions. The Bank of England considered the proposal acceptable in principle, subject to adequate independence, regulation and supervision.
Paragraphs 2.275 and 2.276 are particularly important:
- on 27 November 1990, the Bank informed Price Waterhouse that it accepted the three-bank proposal in principle; and
- on 6 December 1990, Salem of the Abu Dhabi Ministry of Finance discussed the restructuring directly with Barnes of the Bank of England.
The Abu Dhabi shareholders also established an investigating committee to examine BCCI’s problem loans. Lord Justice Bingham described this as a constructive step for which full credit should be given.
By December 1990, the Abu Dhabi Government’s total financial outlay, including its acquisition of BCCI shares, was estimated to exceed US$4.15 billion.
8. Supervision of the United Kingdom Region
Chapter 33
Chapter 33 examines the supervision of BCCI’s United Kingdom region from 1 January 1990 until 5 July 1991.
At paragraph 2.285, the Report concluded that the Bank of England had encountered nothing in its supervision of the UK region that caused serious concern.
This distinction between the condition of the UK regional business and the wider Group-level problems is relevant when considering whether the viable UK operations could have been preserved through incorporation in a separately authorised bank.
9. The “Doomsday Report” and Approval of the Financial Package
Chapters 35–37
The relevant material appears across Chapters 35, 36 and 37.
On 25 February 1991, Price Waterhouse produced the report known as the Doomsday Report. It enabled the majority shareholders to compare the cost of continuing support with the cost of abandoning the Bank.
The estimated cost of continued support ranged from approximately US$4.4 billion to US$5.6 billion. The estimated cost of abandonment was considered potentially greater.
On 4 March 1991, the Bank of England was informed that the majority shareholders had decided to continue supporting BCCI and had approved the financial package.
The Report also records that BCCI’s preliminary restructuring plan was unusually specific, detailed and practical, although formal approvals and some strategic decisions remained outstanding.
10. Regulatory Deadlines and Pressure from the United States
Chapter 38: 5–30 April 1991
Price Waterhouse continued to discuss the restructuring with the Bank of England throughout April 1991.
The expected timetable was:
- UK authorisation by 30 June 1991;
- Hong Kong authorisation by 30 September 1991; and
- UAE authorisation by 31 December 1991.
On 23 April, Price Waterhouse met the Luxembourg Monetary Institute. The proposed arrangement involved withdrawal of BCCI S.A.’s Luxembourg banking licence while leaving a residual company to deal with transitional problems.
On 30 April, Price Waterhouse informed the Bank that Nasser, Habroush and Salem were taking a responsible approach and would consult the UAE Central Bank.
At the same time, pressure from the United States was increasing. Senator John Kerry wrote to Federal Reserve Chairman Alan Greenspan opposing approval of transactions involving BCCI and CCAH unless the assets were brought under a consolidated supervisor.
US officials warned the Bank of England of impending investigations, proceedings and political consequences. Gerald Corrigan of the Federal Reserve Bank of New York advised against proceeding with restructuring until the US investigations had developed further.
11. Completion of the Financial Support Package
Chapter 39: 1–22 May 1991
Despite continuing US pressure, the Bank of England and Price Waterhouse continued working on the restructuring.
On 22 May 1991, the financial support package was signed. It comprised potential support of approximately US$5.1 billion, including:
- US$3.061 billion in promissory notes;
- a US$750 million guarantee;
- a share subscription initially of US$400 million and later increased to US$650 million; and
- up to US$600 million to replace substantiated unrecorded deposits.
On 7 June, the Abu Dhabi Government committed itself to provide further support, and members of the Ruling Family waived their claims against BCCI.
12. Continuing Pressure from the US Authorities
Chapter 41: 23 May–27 June 1991
Chapter 41 records continuing demands and warnings from the Federal Reserve, the New York District Attorney and the US Department of Justice.
The US authorities remained strongly opposed to BCCI and warned of criminal proceedings, adverse publicity and allegations concerning BCCI’s relationship with First American and other US institutions.
Lord Justice Bingham concluded that the beliefs and intentions of the US authorities, when combined with the draft section 41 report, helped shift the balance decisively towards the action ultimately taken.
This indicates that the closure decision was influenced not only by the draft report but also by the pressure, prospective proceedings and anticipated publicity arising in the United States.
13. Progress towards the Three-Bank Restructuring
Chapter 42: 23 May–22 June 1991
Chapter 42 records substantial progress towards establishing the proposed UK bank.
On 28 May, Mazrui (HE Ghanim Faris A Mazrui), BCCI Director - also Abu Dhabi Investment Authority - UAE Central Bank - Chairman of the Private Department of the Abhu Dhabi Ruling Family, and Nasser (Mr Khalifa Nasser, BCCI Deputy Chief Executive Officer with responsibility to handle the restructuring, reaffirmed the majority shareholders’ commitment. They proposed removing the existing senior management and establishing separate boards and management structures for each of the three new banks.
The Bank received BCCI’s draft UK application on 29 May. On 31 May, the restructuring was formally presented by BCCI, Price Waterhouse, Booz Allen and the Abu Dhabi shareholders.
The application, business plan and financial projections were considered in detail. Revised documents addressed the Bank’s technical concerns, including its required risk-asset ratio.
Lord Justice Bingham concluded that the Bank’s conduct gave the shareholders every reason to believe that it would raise no obstacle to the restructuring once its technical requirements were satisfied.
The shareholders received no indication that the restructuring depended upon the outcome of the section 41 investigation. The Bank had never mentioned that investigation to any representative of the majority shareholders.
Bingham found no deliberate duplicity. Bank officials had not themselves regarded the section 41 investigation as a possible impediment because the shareholders had agreed to cover any established liabilities.
He nevertheless understood why the shareholders felt betrayed when the draft report was subsequently relied upon to justify closure.
14. The 1990 Accounts and Delivery of the Draft Report
Chapter 43
Price Waterhouse informed the Bank that the condition of the 1990 accounts would not necessarily prevent BCCI from continuing if the shareholders provided sufficiently strong and unequivocal support.
The draft section 41 report was delivered on the evening of Saturday, 22 June 1991. It was supplied in draft so that its provisional conclusions could be considered by the Assessment Committee and discussed with the Bank before finalisation.
Price Waterhouse expected the report to affect the detail and structure of the restructuring. It did not anticipate immediate closure.
15. The Draft Section 41 Report
Chapter 44
The draft report assembled allegations and findings concerning:
- falsification of accounting records;
- use of external vehicles to route funds and conceal transactions;
- nominee and hold-harmless arrangements;
- problem loans and concealed liabilities;
- Central Treasury losses;
- ICIC companies managed by BCCI;
- Gulf Group lending; and
- BCCI’s relationship with CCAH.
The cumulative presentation had a powerful impact upon Bank officials.
Price Waterhouse recorded its understanding that Mazrui and the Abu Dhabi Government had been fully briefed on the principal problems in April 1990.
The shareholders subsequently continued to investigate the impaired assets, replace management, develop the restructuring and provide substantial financial support.
16. The Final Phase and the Decision to Close
Chapter 45: 24 June–5 July 1991
The Bank of England’s position changed abruptly after senior officials read the draft section 41 report.
At a meeting chaired by the Deputy Governor on 28 June, it was concluded that the restructuring and the proposed UK bank could no longer be pursued.
This reversal followed the combined effect of:
- the draft section 41 report;
- the proposed disclaimer on the 1990 accounts;
- information and pressure from the United States; and
- serious but then unverified allegations concerning Mazrui.
During the weekend of 29–30 June, Price Waterhouse continued discussing support with Abu Dhabi. Total support requirements were estimated at approximately US$6.9 billion.
By 3 July, the Abu Dhabi Government had indicated that it was prepared to provide support of approximately US$7 billion, although it would not undertake an unlimited and open-ended commitment.
Price Waterhouse remained prepared to sign the accounts with a disclaimer while stating that BCCI’s financial position was underpinned by the Abu Dhabi Government.
The auditors strongly opposed closure and described liquidation as a “nightmare scenario”.
Nevertheless, the Bank proceeded with coordinated action.
Mazrui attended the Luxembourg meeting on 5 July expecting to resolve the remaining restructuring and financial-support issues. He had not been warned that the restructuring had been abandoned.
He was informed that the supervisors had decided to act and that BCCI would be placed into provisional liquidation. He complained that the shareholders should have been informed in advance and requested time to consult Abu Dhabi. His request was refused.
Lord Justice Bingham concluded that the Bank of England was the prime mover in deciding upon and coordinating the closure.
Findings Concerning Other Allegations
HM Customs and Excise
Following Operation C-Chase, UK Customs found no evidence implicating BCCI’s London management in the money-laundering conspiracy and no evidence of an established history of money laundering within the UK operation.
In relation to General Noriega, documents relating to accounts held in London were found, but UK Customs did not obtain evidence that the funds represented the proceeds of drug trafficking.
The Intelligence Agencies
Following detailed enquiries, the Inquiry found no evidence that BCCI management above branch-manager level knowingly held or handled accounts belonging to the Abu Nidal Organisation, its front companies or any other terrorist organisation.
Other Government Departments and Public Bodies
The Report recorded that:
- the Crown Prosecution Service had not prosecuted BCCI and had no grounds then known for doing so;
- the Home Office had received no evidence showing BCCI’s involvement in drug money laundering or another criminal offence;
- the Inland Revenue had not prosecuted BCCI for a revenue offence;
- Metropolitan Police records contained no evidence pointing to criminal offences by BCCI or its management;
- BCCI made positive changes to its anti-money-laundering procedures following the Tampa arrests;
- the Office of Fair Trading found nothing implicating BCCI’s UK controllers in the activities of the US employees; and
- the Serious Fraud Office had not, in the matters then considered, found evidence that BCCI itself had committed an offence.
These findings do not contradict the serious Group-level accounting fraud and concealed liabilities described in the draft section 41 report.
They do, however, demonstrate that several wider allegations later associated with BCCI were not supported by the records held by the relevant United Kingdom authorities before the closure.
Overall Conclusion
The selected chapters show that the closure represented a sharp departure from the course followed by the Bank of England until late June 1991.
Only days before receiving the draft section 41 report, the Bank was examining BCCI’s UK application, requiring technical amendments and giving the shareholders reason to believe that approval in principle was likely once the regulatory requirements had been met.
The Abu Dhabi Government and majority shareholders had signed a support package of approximately US$5.1 billion and were considering total support approaching US$7 billion. New management and boards were being recruited, impaired assets were to be separated from viable operations and applications for three new banks were being pursued.
The shareholders had not been warned that the proposed restructuring depended upon the section 41 investigation. Lord Justice Bingham found that this was not deliberate deception. Bank officials had not themselves anticipated that the investigation would become the basis for closure.
Price Waterhouse similarly expected the report to affect the management, structure and conditions of the successor banks. It did not expect immediate closure.
The timing is therefore significant. Within approximately one week of senior Bank officials reading the draft report:
- the restructuring was abandoned;
- the proposed mission to Abu Dhabi was cancelled;
- coordinated closure action was organised;
- the UAE Central Bank was excluded from the decisive discussions; and
- the shareholders were given no advance opportunity to respond.
The draft report contained extremely serious material and presented a cumulative picture of fraud, concealment and management failure. Nevertheless, it remained a draft, some matters required further verification, allegations against the shareholders’ representative were disputed and Price Waterhouse had not been given a full opportunity to discuss the document before the closure process was initiated.
The Report also indicates that pressure and warnings from the United States contributed to the changed atmosphere and, together with the draft section 41 report, helped shift the balance towards closure.
None of this establishes that the restructuring would necessarily have succeeded, that closure was legally unavailable or that the Bank of England acted dishonestly. Lord Justice Bingham considered closure an appropriate course, although he recognised that it was not the only possible course.
The continuing question is whether, before taking an irreversible decision with extensive consequences for depositors, creditors and employees, the Bank of England should have:
- disclosed its changed position to the shareholders;
- provided the material allegations for response;
- consulted the UAE Central Bank;
- allowed Price Waterhouse to explain and finalise its report;
- required the removal of any individuals considered unsuitable;
- sought additional guarantees or indemnities; and
- examined whether the substantial financial support and separation of impaired assets could have supported a controlled restructuring or transitional solution.
When the absence of formal representation for depositors and former employees, the treatment of Price Waterhouse’s objections and the exclusion of the subsequent High Court proceedings are considered together, legitimate questions remain as to whether the Inquiry’s restricted structure and terms of reference prevented the closure decision from receiving sufficiently independent, objective and comprehensive examination.
Right to Information and Further Disclosure
These questions extend beyond the limited scope of the Bingham Inquiry and continue to raise issues concerning the regulatory approach adopted during the final days before BCCI’s closure.
For the benefit of readers and researchers, a fuller understanding may ultimately depend upon disclosure of all official records, including:
- internal Bank of England deliberations;
- correspondence between the Bank and the United Kingdom Government;
- minutes and notes of meetings;
- records of telephone conversations;
- communications with the Luxembourg Monetary Institute;
- communications with the Federal Reserve, the US Department of Justice and other US authorities;
- records concerning the exclusion of the UAE Central Bank;
- correspondence with Price Waterhouse; and
- documents concerning the decision to abandon the restructuring.
Disclosure of such records engages the wider public interest in transparency, accountability and the historical assessment of decisions affecting depositors, creditors and employees throughout the world.
Where the records remain available, access may be pursued through the United Kingdom Freedom of Information Act 2000, the Bank of England’s archival arrangements and corresponding access-to-information legislation in Luxembourg and the United States.
Any right of access will remain subject to statutory exclusions and exemptions, including those relating to confidential supervisory information, professional secrecy, financial stability, bank-examination material, law enforcement, personal data and commercial confidentiality.