BCCI - now the Bank takes the stand

[FaGal]

BCCI - now the Bank takes the stand
observer.guardian.co.uk - June 12, 2005 - The Observer

Conal Walsh on the trial that has already broken records


We've had the marathon speeches, the painstaking analysis and the never-ending legal nit-picking - all with the lawyers' clock running, of course. Tomorrow the long-running BCCI trial takes on a human dimension when the first witness finally takes the stand.

Brian Quinn, 68, is best known today as the chairman of Celtic plc, the holding company for the Glasgow football club. But he was senior banking supervisor when the Bank of Credit and Commerce International collapsed with £7 billion of undeclared debts in 1991, leaving thousands of depositors out of pocket.

Tomorrow morning Quinn embarks on a gruelling session in a High Court witness box, fielding questions from Gordon Pollock QC, one of Britain's top barristers. He could be there most of the summer, fighting allegations that he and other officials at the Bank of England recklessly turned a blind eye to fraud.

Quinn will be quizzed on his own alleged reluctance to intervene robustly in BCCI's affairs, despite mounting evidence that the Pakistani-Arab bank was in trouble. Quinn, his colleagues and the Bank itself strongly deny negligence. Their accusers are BCCI's creditors - from London street market traders to the state of Abu Dhabi - led by liquidator Deloitte.

BCCI, with offices in 70 countries and used by drugs barons and corrupt dictators as well as bona fide customers, collapsed after years spent looting its depositors' accounts and falsifying its financial statements.

Many of the criminal fraudsters behind the BCCI scam have been jailed and much of the lost money recovered, but the creditors insist that the Bank is partly liable and are demanding compensation of £1bn. Central to the case is their claim that Threadneedle Street officials erred in granting BCCI a licence in 1980, and thereafter tried to ignore growing evidence of fraud at the bank, rather than assume responsibility for their original mistake.

BCCI's primary regulator was the tax haven of Luxembourg, where it was officially headquartered. In 1987, in a note on the rather limited scrutiny BCCI was receiving there, Quinn insisted: 'I am convinced that it would be very dangerous to accept this as a UK bank. It is Luxembourg's problem; they must find a solution.'

This, claim BCCI's victims, was a clear dereliction of duty, since BCCI's principal place of business was the UK. It had dozens of branches here and key executive functions located in its Leadenhall Street office in the City.

In other memos there is more of the same. Later in 1987, Quinn commented on a suggestion that the United Arab Emirates should assume an oversight role over BCCI. 'There is a real risk that transferring the principal responsibility to UAE will prove a hollow solution: they have neither the will nor the resources to do it or effect a shrinkage [of BCCI's activities]. But the Luxembourg authorities could enforce a much smaller group to a size they were capable of supervising on a consolidated basis. I believe we should resist incorporation in the UK in any form - we cannot trust them.'

In the event, no authority forced BCCI to desist from some of its more questionable activities and it crashed four years later. In the aftermath of the debacle, the Bank of England was castigated for its failures of supervision by official enquiries in Britain and the US. But, while accepting criticism, the Bank denies it was wilfully negligent.

Nicholas Stadlen QC, for the Bank, has argued in court that officials followed correct procedures with regard to BCCI. He claims that the internal Bank memos cited by the creditors have been cherry-picked to give a false impression of the banking supervision department's work.

The trial has been a decade in the making, spawned innumerable technical arguments and considered more than 60,000 pages of documents. Stadlen sat down on 25 May after delivering an opening argument that lasted 119 days, the longest speech in British legal history.

Given the scale and complexity of the fraud, it seems fitting that the BCCI litigation should have broken a few records. But that complexity may increase the burden on Quinn, who became the BoE's head of banking supervision in 1985. He and Peter Cooke, his predecessor, are the only two defence witnesses currently scheduled to appear, despite earlier assumptions that the Bank would call more than a dozen witnesses, including former governors.

The likely result is that it will now be down to Quinn and Cooke to answer all of the creditors' many questions.

[FaGal]

Bank faces £100m bill for BCCI
observer.guardian.co.uk - Conal Walsh - June 12, 2005 - The Observer


The long-running BCCI trial is on course to cost the Bank of England a record-breaking £100 million in legal fees, bank officials have admitted.

Threadneedle Street is spending £20m a year on the case - or nearly a tenth of its budget - according to its annual report, which is published this week.

The total spending so far has been £70m, so the Bank's final legal bill will reach £100m if, as is widely expected, the case goes on until the end of 2006.

The news comes as the Bank is due to call the first of its trial witnesses tomorrow. Brian Quinn, now chairman of Celtic plc, the company behind the Glasgow football club, is scheduled to spend the next three months in the witness box.

Quinn was the Bank of England's senior banking supervisor when BCCI collapsed with undeclared debts of £7 billion in 1991.

The Bank is accused by Deloitte, BCCI's liquidator, of deliberately turning a blind eye to fraud at the Pakistani-Arab bank, which was effectively run from an office in London. Deloitte accuses the Bank of 'misfeasance' and is claiming £1bn in damages on behalf of BCCI's creditors.

The Bank strongly denies that it was wilfully negligent and is fighting the claim, which threatens to break new legal ground by challenging the government's statutory immunity against being sued.

The trial, which began in January 2004, has become notorious for its complexity. The Bank had already spent £40m on legal fees before the case began, since it was preceded by years of pre-trial hearings and legal wrangles over the disclosure of documents.

Nicholas Stadlen QC and Freshfields, the City law firm, are leading the Bank's case. Deloitte and BCCI's creditors are represented by Gordon Pollock QC and the law firm Lovells. Their legal costs are understood to be running at about £10m a year, half the level of the Bank's.

Creditors range from East End market traders to the state of Abu Dhabi. Many British depositors lost their savings when BCCI, which had dozens of branches in the UK, toppled amid claims of massive fraud and embezzlement. Much of the money has since been recovered by investigators.

In an official report after BCCI's collapse, the Bank was criticised over its handling of the debacle, which remains the biggest banking fraud in history.

[FaGal]

Bank boss to take stand in £1bn case
www.thisismoney.co.uk - James Rossiter - Evening Standard - June 13, 2005


The Bank of England's former head of supervision, Brian Quinn, was due to take the stand today as the first defence witness in a £1bn landmark case brought by the liquidators of failed lender BCCI.

'Deloitte is suing the Bank for 'misfeasance' in its regulation of fraud-ridden BCCI, which collapsed in 1991 leaving debts of £13bn. The trial began in January 2004 and looks set to continue into 2006.

Quinn is expected to face severe criticism over his role from 1982 as assistant director of banking supervision and as that division's head from 1986 to 1988.

Evidence already submitted to the court includes annotations in February 1987 on a note by a former deputy head of Quinn's team to the then Bank Governor Lord Kingsdown (Robin Leigh-Pemberton) in which he stated: 'I am convinced that it would be v. [sic] dangerous for us to accept this as a UK bank.'

The liquidators claim the Bank acted unlawfully, improperly or dishonestly in regulating BCCI and was 'knowingly reckless' in endangering depositors' money.

Fighting the case is costing the taxpayer about £20m a year, according to the Bank's last annual report. Total costs could reach £200m.

The Bank's lead barrister finished his 'opening comments' only last month after a record 119 days following 86 days of opening by Deloitte's lead QC.

Clare Montgomery QC, for Deloitte, will cross-examine Quinn. Her previous cases include representing former Argentinian dictator General Pinochet in an extradition case.

[FaGal]

Quinn claims BCCI charge is "preposterous"
news.independent.co.uk - By Julia Kollewe, Banking Correspondent - June 14, 2005


Brian Quinn, the former Bank of England head of banking supervision, yesterday denied that he or other officials lied to their bosses over the handling of the fraud-ridden bank BCCI before its collapse.

Mr Quinn, now chairman of Celtic Football Club, became the first witness to take the stand in the £850m lawsuit brought against the central bank by Deloitte, the liquidators of Bank of Credit and Commerce International. Nicknamed the Bank of Cocaine and Criminals International, it collapsed in 1991with debts of over £10bn in the world's biggest banking fraud.

At the High Court in London, Nicholas Stadlen, the Bank's counsel, put to Mr Quinn allegations made by the liquidators' barrister Gordon Pollock, who accused him of "deliberately misleading, deceiving and concealing information" from the Bank's governors in the years running up to BCCI's collapse.

Mr Quinn told Mr Justice Tomlinson: "It's not part of my character to lie or deliberately mislead. Mistakes get made but I did not lie and did not deceive, and to say that is to misunderstand the culture of the Bank. The standards of behaviour at the Bank were extremely high - higher than at any of the many organisations I have worked at" - including the International Monetary Fund, the investment bank Nomura and Britannia Asset Management Group.

He added: "The idea that I or anybody else would deliberately deceive is totally inconsistent with the culture of the Bank."

Twenty-two Bank officials are accused of acting in bad faith when granting BCCI a licence to operate in 1980 and of failing to supervise it properly thereafter. Mr Quinn "categorically" denied all the allegations yesterday.

He talked about his close personal relationship with the Bank's former governor Sir Eddie George, and said the idea that he would deceive him was unthinkable.

In his opening address last year, Mr Pollock also claimed that the issue of closing BCCI was a "taboo subject" in the 1980s. But Mr Quinn told the court yesterday: "Throughout my time in banking supervision, there were no taboo subjects. That wasn't the way the Bank worked ... The question of whether we should or should not revoke [the licence] was visited many times. It was examined carefully in 1986 and most particularly in 1990."

Mr Quinn is now being cross-examined by Claire Montgomery QC, for the liquidators, over 12 weeks, beyond the court's summer break.

[FaGal]

Bank of England's BCCI bill increases by £23.5m
news.independent.co.uk - By Julia Kollewe Banking Correspondent - June 16, 2005


The Bank of England is spending another £23.5m this year - nearly 10 per cent of its annual budget - defending itself in its marathon legal battle with the liquidators of the fraud-ridden bank BCCI.

The Bank's budgeted legal fees for the year to the end of February are up from £19.5m last year, according to its annual report. Its total spending has risen to £249.7m this year, up from £241.6m last year.

Mervyn King, the Bank's Governor, said the costs of fighting the BCCI liquidators' £850m lawsuit were "substantial" but stressed: "We have no doubt that it is right to do so and will take every opportunity in due course to press for the fullest recovery of our costs."

Mr King, who made a brief appearance at the High Court on the 200th day of the trial on 18 May, said: "This is a case that should never have been brought, and we remain confident that it will not be successful."

BCCI collapsed in 1991 owing more than £10m to depositors and creditors. The liquidators claim the Bank knew that BCCI was in a bad state long before its crash and failed to take steps to prevent the world's biggest banking fraud.

The Bank has called the allegations "fundamentally implausible". The charge of misfeasance is being brought because the Bank cannot be sued for negligence. Its barrister, Nicholas Stadlen, has said only one successful case of misfeasance has been reported in 300 years.

The liquidators indicated their willing to settle out of court before the trial started in January last year, but Mr King has vowed to fight to the end to clear the names of the 22 officials accused of dishonesty. Both sides are prepared to take the case to the House of Lords.

Mr King's pay rose to £268,137 this year, from £248,301 in the previous financial year, the annual report showed. The latter figure includes his pay as deputy governor until the end of June. His pay dwarfs that of Alan Greenspan, the head of the US Federal Reserve, who earns $180,100 (£98,800) a year.

[FaGal]

Marathon BCCI, BoE trial to resume
today.reuters.co.uk - September 25, 2005


LONDON (Reuters) - A 1-billion-pound lawsuit against the Bank of England resumes on Monday with the central bank calling its second witness in its fight related to the collapse of the Bank of Credit and Commerce International.

In a trial which has broken records for the length of its speeches, lawyers for Deloitte, BCCI's liquidator, have alleged the Bank of England knowingly did not protect depositors when the world's biggest bank fraud resulted in BCCI's collapse in 1991 owing more than $16 billion.

Peter Cooke, who was head of the Bank of England's banking supervision from 1976 to 1985, will take the stand after the court's summer recess.

The case began in January 2004 and has already made English legal history for the two longest opening speeches -- 119 days for the Bank and 80 days for Deloitte.

Brian Quinn, a former head of supervision at the Bank of England, followed with seven weeks of testimony as the BoE's first witness.

The case is so complex that a stack of files five feet (about 1.5 meters) high -- dubbed the Berlin Wall -- has grown between the two legal teams.

BCCI was closed in 1991 by regulators in a worldwide swoop, partly organised by the Bank of England, after they discovered the lender had disguised losses and was insolvent.

[FaGal]

Supervisory chief defends Bank over BCCI collapse
news.independent.co.uk - By Julia Kollewe Banking Correspondent - September 27, 2005


Peter Cooke, a former Bank of England head of banking supervision, argued yesterday that "overzealous" regulation of the fraud-ridden bank BCCI and other banks would have damaged London's standing as a major financial centre.

As the trial resumed after the summer break, Mr Cooke took the witness stand to defend the Bank against the charge of "misfeasance" in the $850m (£478m) lawsuit brought by Deloitte, the liquidators of Bank of Credit and Commerce International. Nicknamed the Bank of Cocaine and Criminals International, the bank collapsed in 1991 with debts of more than £10bn.

The liquidators claim 22 Bank officials, including Mr Cooke, knew BCCI was a in a bad state long before its crash in 1991 and failed to take steps to prevent what has been described as the largest banking collapse in modern history. They also claim the Bank knew it should never have granted a licence to BCCI in 1980.

Mr Cooke, 73, was head of banking supervision at the Bank between 1976 and 1985. In a written statement to London's High Court, he said: "It is absurd to suggest that we were licensing an institution that we thought would cause loss to depositors."

He admitted he was aware that some of the supervisors in Luxembourg, where BCCI was incorporated even though it was run from London, felt they sometimes had difficulties in supervising BCCI. But he rejected the suggestion that the Bank should therefore not have licensed BCCI. "Had we applied such a basis of assessment consistently to all foreign institutions, it might have led to the Bank refusing licences to numerous ... long-established institutions with considerable damage to London's standing as a financial centre." Mr Cooke argued the Bank's approach was "regulation, not strangulation".

Mr Cooke also said Hasan Abedi, who ran BCCI, had a tendency to be "somewhat ingratiating and unctuous". That led him to characterise Mr Abedi as "the personification of Uriah Heep" - referring to the fraudster in the Charles Dickens novelDavid Copperfield - in a note to the Bank's Governor in 1978. But he added that he "never thought that he was dishonest", and later described him and his colleagues as "effective and competent bankers".

Asked in court about the levels of integrity within the banking supervision department, Mr Cooke said: "I had absolute confidence in all of them."

Mr Cooke is the second Bank witness to testify, after Brian Quinn, now the chairman of Celtic Football Club, who succeeded him as head of the supervisory department. Mr Cooke is being cross-examined by Gordon Pollock, the counsel acting for the liquidators, for up to three months. The liquidators also want to questionother junior Bank officials, who criticised the supervision of BCCI in the 1980s.

[FaGal]

Bank rejects deal to settle £1bn lawsuit
www.guardian.co.uk - Mark Tran - October 4, 2005


The Bank of England today said it had rejected a recent overture to settle a £1bn lawsuit arising from the collapse of Bank of Credit and Commerce International (BCCI).

A spokesman for Deloitte, the liquidators of BCCI, said the financial services firm had made several approaches to the Bank to settle the landmark case.

Deloitte is suing the Bank for damages, claiming it knowingly failed to protect investors when BCCI collapsed in 1991 owing more £10bn. About 6,500 people lost savings as a result of BCCI's collapse in one of the most serious fraud cases in history.

John Richards, the liquidator, said in a statement: "It is our usual practice to approach defendants to see if they are willing to negotiate and we regret that the Bank has so far refused to discuss a settlement."

The last effort to broach a settlement was made just before the main witness Peter Cooke, who was head of banking supervision at the Bank from 1976 to 1985, started giving evidence last week.

But the Bank again rejected the approach as it is determined to avoid any outcome that smacks of a tacit admission of guilt.

"We've always made clear there would be no deal and no negotiations," a spokesman for the Bank said.

The case began in January 2004 and has already made English legal history for the two longest opening speeches - 119 days for the Bank and 80 days for Deloitte. In his evidence last week, Mr Cooke said it was "absurd to suggest that we were licensing an institution that we thought would cause loss to depositors".

Mervyn King, the Bank of England governor, has said the claim against the Bank "never should have been brought".

The lawsuit, the first in the Bank's 300 year history, including pre-trial hearings stretching back to 1993, is expected to cost the Bank more than £100m if not finished by the end of this year.

The liquidators' legal costs are believed to be running at about £10m a year. Their case is that 22 Bank officials, who regulated licensed banks, behaved in a reckless manner, knowing depositors' life savings might be at risk.

[FaGal]

BoE rebuffs BCCI offer to settle case
www.khaleejtimes.com - Reuters - October 5, 2005


LONDON - The Bank of England said it had rebuffed a recent approach to settle a £1 billion ($1.8 billion) lawsuit related to the collapse of Bank of Credit and Commerce International (BCCI). “We’ve always made clear there would be no deal and no negotiations,” a spokesman for the Bank of England said yesterday.

Lawyers for Deloitte, BCCI’s liquidator, have alleged the Bank knowingly failed to protect depositors when the world’s biggest bank fraud resulted in BCCI collapsing in 1991 owing more than $16 billion.

A spokesman for the liquidators said several approaches had been made to the Bank to settle, with the last made before the main witness Peter Cooke, who was head of banking supervision from 1976 to 1985, started giving evidence last week.

“It is our usual practice to approach defendants to see if they are willing to negotiate and we regret that the Bank has so far refused to discuss a settlement,” John Richards, the liquidator, said in a statement.” The Bank has unlimited public finance at its disposal, unlike the commercial organisations we have successfully pursued for recovery,” Richards added. A spokesman for Deloitte said its liquidation had so far returned 75 per cent to creditors, or $5.5 billion, and it aimed to claw back another 5 per cent by the end of this year. The liquidators allege senior BoE officials were guilty of misfeasance — an accusation that could make any settlement of the long-running case difficult. The case began in January 2004 and has already made English legal history for the two longest opening speeches, followed by seven weeks of testimony from the central bank’s first witness. The Bank has spent over 40 million pounds defending the case in the last two years and said it expects to spend another 23.5 million this year; as well 3.5 million budgeted for overruns. BCCI was closed in 1991 by regulators in a worldwide swoop, partly organised by the Band of England, after they discovered the lender had disguised losses and was insolvent. Its collapse left more than 6,500 depositors trying to get their money back.

[FaGal]

Liquidators for collapsed bank drop claim
seattlepi.nwsource.com - By JANE WARDELL - AP BUSINESS WRITER - November 2, 2005


LONDON - Liquidators for Britain's Bank of Credit and Commerce International, which collapsed 12 years ago, dropped a damages claim for 1 billion pounds ($1.8 billion) against the Bank of England on Wednesday.

The liquidators - accountants Deloitte Touche Tohmatsu - launched the lawsuit last year on behalf of depositors with BCCI, alleging that the Bank of England was negligent in failing to clamp down on fraudulent activities at BCCI that led to its collapse in 1991 with debts of $10 billion.

Deloitte's lawyers said Wednesday that they had decided to discontinue the challenge after the High Court found the case was no longer in the best interest of creditors.

About 6,500 people lost money when BCCI failed in 1991. The Bank of England has always denied it was willfully negligent and rebuffed a settlement approach from BBCI's liquidators to end the case last month.

The lawsuit, which began in January 2004, was the first the central bank had faced in its 300-year history. It is legally immune from being sued for negligence so Deloitte made the rare allegation of "misfeasance in public office."

Deloitte's lawyers told the court at the start of the hearing that BCCI "was the SS Titanic" and that the Bank of England knew it was "a disaster waiting to happen."

The Bank of England, which no longer supervises the banking sector, described the lawsuit as "not only misconceived, but outrageous."

Governor Mervyn King said Wednesday that he was delighted the "disgraceful allegations," which were leveled against 22 of the bank's staff, were dropped.

"The foolish determination to pursue a hopeless case for so long has also led to a huge waste of creditors' and taxpayers' money, and I hope everyone concerned will take a close look at how and why such a very weak case took 12 years to come to an end," he said outside the court in central London.

King added that the bank would seek the largest possible compensation for costs it incurred defending the case.

The bank revealed in June that it had already spent 70 million pounds ($123 million) defending the case. Deloitte said its legal costs stood at about 38 million pounds ($67 million).

BCCI was founded in 1972 by Pakistani financier Agha Hasan Abedi. Backed by Arab sheiks and, for a time, a major shareholding by Bank of America Corp., it grew into a worldwide operation with 14,000 employees at 400 branches in 73 countries.

Incorporated in Luxembourg but based in London, the rapidly expanding BCCI was licensed as a deposit taker, without full banking powers, by the Bank of England in 1980.

The Bank of England withdrew its license in 1991, when regulators alleged the bank was used for money-laundering by drug dealers, dictators and corrupt businessmen. It was described as the largest fraud in banking history.

The bank's role as supervisor of the banking sector was transferred to the Financial Services Authority in 1997.