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Bank of England Criticized in BCCI Scandal; Creditor Payout Plan Approved A version also

October 22, 1992

Bank of England Criticized in BCCI Scandal; Creditor Payout Plan Approved A version also moved on financial wire

LONDON (AP) _ BCCI was able to perpetuate the biggest banking fraud in history partly because the Bank of England didn’t follow up on key leads about the scandal- ridden bank, according to a special report released Thursday.

Britain’s top Treasury official, Chancellor of the Exchequer Norman Lamont, said he was taking steps to ensure Britain will in the future do a better job fighting bank corruption.

In another key development in the banking scandal, a Luxembourg court approved a controversial plan to liquidate Bank of Credit and Commerce International and repay creditors between 30 cents and 40 cents on the dollar.

The ruling from Judge Maryse Welter ends more than a year of negotiations, court hearings and bitter protests from some of the 250,000 creditors in 40 countries. Under the agreement, the bank’s major shareholders, the government and royal family of Abu Dhabi, have agreed to pitch in $1.7 billion to reimburse BCCI depositors and creditors.

Creditors should receive their first payments, equal to about 15 cents on the dollar, mid-1993, said BCCI liquidator Julian Roden.

The new BCCI report, produced by Lord Justice Bingham at Lamont’s request, said British banking regulators for years failed to follow up on tip-offs of wrongdoing at BCCI.

The Bank of England came under similar criticism in a report issued earlier this month by a U.S. Senate subcommittee chaired by Sen. John Kerry, D-Mass. Kerry charged Bank of England’s regulation of BCCI was ″wholly inadequate″ to protect creditors and depositors.

The Bingham report led one member of Parliament to call for the resignation of Bank of England Governor Robin Leigh-Pemberton.

″We have always said the bank did not act properly and this report proves it,″ said Keith Vaz, who has vigorously represented BCCI depositors. ″The credibility of the governor has been severely undermined and he must go.″

From Bank of England’s perspective, Bingham’s report said, the rules governing international banks were not always clear because British banking supervision was changing drastically in the late 1970s and the 1980s.

Lamont told the House of Commons about regulatory reforms following BCCI. Lamont said he had ordered the Bank of England to improve training for supervisors, as well as set up special investigations and legal units.

″The government is determined to learn all the lessons from this unhappy affair,″ Lamont said.

BCCI was closed by banking regulators in England and elsewhere in July, 1991, a month after BCCI’s auditors, the accounting firm Price Waterhouse, turned over a report detailing widespread fraud in the bank. BCCI had been used by international drug smugglers and arms merchants, including former Panamanian dictator Manuel Noriega.

Lamont said that the Bank of England had been surprised by the extent of the wrongdoing. He said the report indicated Price Waterhouse should have come forth with incriminating details more quickly.

But Price Waterhouse interpreted the report differently, saying it spells out its role in uncovering the BCCI fraud and its discussions with regulators, it said.

Ian Brindle, a senior partner, said the report showed his firm ″acted promptly, properly and professionally.″

Bingham’s 218-page report also details numerous cases in which the Bank of England throughout the 1980s failed to pursue tips on irregularities at BCCI.

For example, an anonymous letter that the bank received in December 1985 suggested the ″speculative mysterious profitability″ of BCCI should be investigated. The letter was earmarked for the Bank of England’s BCCI files, but never reached them, the report said.

Other tips came to the Bank of England in 1988, he said. The Bank of England received information through British diplomatic sources in the Persian Gulf indicating ″evidence of fraud and manipulation in BCCI on a substantial scale.″

The report said ″the bank official to whom the report was referred discussed it with a colleague and they agreed that no follow-up was possible.″

″Both these incidents, in my opinion, point to a weakness in the bank’s supervisory approach,″ Bingham wrote.

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