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Friday, 23 March, 2001, 11:37 GMT
Bank faces 1bn law suit
The Bank of England
The Bank of England is normally immune from prosecution
The Bank of England is to be sued for up to 1bn by the liquidators of the collapsed Bank of Credit and Commerce International (BCCI).

It is the first time in the bank's 300 year history it has had to fight such a court action.

The liquidators, Deloitte and Touche, claim the central bank failed to properly regulate BCCI, which was closed down in 1991 after the discovery of what was, at the time, the largest fraud in banking history.

The civil trial, expected to start next year, will be the most searching and potentially expensive examination of the Bank of England's competence in its history.

Corruption

The bank's most senior staff, including Sir Edward George, the current governor, are possible witnesses in the case which is expected to last between six months and a year in court.

The Bank of England led the worldwide operation to close BCCI down, when evidence of years of corruption among the bank's senior management came to light.

Its eventual collapse, with debts of $12bn, left around 150,000 depositors worldwide scrambling to recover lost money.

Deloitte and Touche, which represents 6,000 BCCI creditors in the UK, claims the Bank of England wrongfully granted BCCI a licence - and did not act quickly enough to withdraw it.

More serious charge

The Bank of England has since been replaced by the Financial Services Authority (FSA) as the UK's bank regulator.

Both organisations are normally immune from prosecution and cannot be sued for negligence.

However, bank supervisors can be sued for the more serious charge of misfeasance, which implies deliberate wrongdoing.

In the High Court on Thursday, the law lords ruled by a 3-2 majority to allow a claim of misfeasance to proceed.

The case, which could turn out to be one of the most expensive in legal history, could clear the way for similar actions.

BCCI was founded in the 1970s by a group of high-ranking Pakistanis.

It operated in 60 countries and its regulation was split between the Bank of England, the Cayman Islands and Luxembourg, which led to difficulties when it was being wound up.

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05 Dec 00 | Business
Knighthood for bank governor
11 Dec 98 | The Company File
BCCI case goes to Lords
06 Dec 98 | The Company File
BCCI claimants lose compensation appeal
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