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Last Updated: Wednesday, 2 November 2005, 14:29 GMT
BCCI liquidators drop 1bn case
BCCI sign
BCCI collapsed in 1991
Liquidators for BCCI have dropped their 1bn ($1.76bn) damages case against the Bank of England.

Deloitte said it had made the decision after a reserve judgement from the High Court said the case was no longer in the best interest of creditors.

The liquidators claimed the Bank had knowingly failed to protect thousands of investors when BCCI collapsed.

About 6,500 people lost money when BCCI failed in 1991. The Bank has always denied it was wilfully negligent.

'Disgraceful allegations'

Bank of England governor Mervyn King said he was "delighted" with the outcome.

"There has never been a shred of evidence to support these disgraceful allegations, and the case has collapsed as we always expected it would," he said.

The Bank will now be seeking the "largest possible compensation" for its costs, he added.

If the case were to continue it could last for several more years, allowing for appeals, and involve further enormous costs

The judge had already been informed the Bank would be claiming at least 70m, but that may rise depending on the outcome of a hearing into the issue set for a week on Friday.

Meanwhile, Deloitte said that dropping the case had to be weighed against the overall success of recovering money through means other than court action.

In 1993, when the writ was issued, Deloitte had thought it would only return 10% of the lost money to creditors. Instead it now expects to repay 81%.

"If the case were to continue it could last for several more years, allowing for appeals, and involve further enormous costs," Deloitte said in a statement.

Just last month, the Bank rebuffed a settlement approach from the BCCI's liquidators to end the case saying it had "always made clear there would be no deal and no negotiations".

Historic case

The lawsuit, which began in January 2004, was the first the Bank had faced in its 300-year history - and has proved to be a costly one.

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
October 2005: Bank rebuffs settlement move from liquidators
November 2005: Liquidators drop 1bn damages claim lawsuit

In its annual report, published in June, the Bank said it had already spent 70m on the case. Deloitte said its legal costs stood at about 38m.

The court case also made legal history for the longest two opening speeches because of the complexity of the matter. The opening statements by both sides took more than six months.

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, foreign currency dealings and deposit accounts.

Dirty money

It also became a 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 in 1991 owing $16bn (9.07bn).

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

Independent BCCI liquidator abandons GBP850m claim against Bank - 7 hrs ago
Telegraph BCCI case collapses - 24 hrs ago
Guardian Unlimited BCCI case collapses - 38 hrs ago
Reuters BCCI lawsuit dropped - 38 hrs ago
Washington PostLiquidators for Collapsed Bank Drop Claim - 45 hrs ago
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