Defence opens in BCCI law suit

The Bank of England (BOE) will begin its defence on Monday in a court case relating to the collapse of BCCI Bank.

Thousands of depositors lost money in 1991 when BCCI was wound up owing more than $16bn (£8.6bn), amid accusations of money laundering and fraud.

Liquidators Deloitte & Touche accuse the BoE of "misfeasance", doing nothing despite knowing BCCI was badly run.

The BOE denies the charge, and the trial is set to become one of the UK's most expensive and longest running.

According to BBC business correspondent Hugh Pym, the case is likely to continue until early 2006, with legal bills which could run to nearly £107m ($200m).

Payout

As liquidators of BCCI, Deloitte & Touche have recovered billions of pounds for creditors through a series of legal actions against the bank's auditors and accountants, as well as its backers in the Middle East.

With 75% of losses recovered, they have now turned their attention to the BoE.

BCCI TIMELINE 1972: Luxembourg-based BCCI opens branch in London 1985: Price Waterhouse investigates BCCI losses 1987 Luxembourg asks for help to regulate BCCI 1988: Tampa branch of BCCI closed after money-laundering charges 1990: Price Waterhouse says BCCI needs £1.8bn rescue 1991: BCCI closed down by international regulators 1992: Bingham report criticises Bank of England's role 1993: Liquidators issue writ against Bank of England 1997: Labour moves banking supervision to FSA 2004: Court case begins How UK Asians lost out from BCCI's collapse

According to the BBC's Hugh Pym, the liquidators of BCCI have alleged that the Bank of England failed to carry out its duties as a regulator and that this amounted to dishonesty.

Deloitte & Touche's lawyers have argued that there was clear evidence of fraud well before BCCI collapsed in 1991.

Lawyers for the BoE, in contrast, are expected to tell London's High Court that the claim is implausible.

No public institution, they are likely to argue, has ever faced such serious allegations of dishonesty.

August witnesses are to be called including former governors such as Lord George - albeit not for several months.

Fine points

As well as its staggering length and expense, the trial is also making legal history for its use of an obscure charge known as "misfeasance".

The law has in the past mainly been applied to corrupt election practices or wrongful arrest by the police.

Deloitte & Touche have resorted to this because the BoE is immune from prosecution for simple negligence.

If the liquidators succeed, the BoE could face copycat lawsuits from investors who lost money in other financial scandals.

Dirty money

BCCI was founded by Pakistani banker Agha Hassan Abedi who began his career running a small Asian bank.

It expanded into 69 countries but lost huge sums of money from its lending operations, its foreign currency dealings, and its deposit accounts.

It also became the bank of choice for money-launderers and terrorists.

Drug money from Colombia and Panama, funding for the Mujahideen in Pakistan, and Abu Nidal in the Middle East all flowed through its coffers.

But legitimate depositors - including many small Asian businesses - lost thousands of pounds when the bank was closed down.

The losers also include 28 UK local authorities who had kept funds in BCCI.