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Last Updated: Tuesday, 13 January, 2004, 12:19 GMT
BoE 'shut its eyes' over BCCI
The council lost millions in the BCCI crash
Bank of England regulators "shut their eyes and turned away" from the fraudulent ways of the failed Bank of Credit and Commerce International.

That was the allegation made at the High Court where action is being taken against the BoE by creditors of BCCI.

One of those creditors, Western Isles Council, lost 24m when the bank was wound up in 1991 with debts of 7bn.

It is alleged BoE was guilty of "misfeasance" because it let BCCI operate while knowing it was badly run.

On Tuesday, Gordon Pollock QC court was told that officials did not want to know how bad the situation was at because they did not want to do anything about it.

The "Orwellian logic" behind their attitude was: If I haven't seen what was going on at BCCI, you can't blame me.

1972: BCCI opens branch in London of Luxembourg bank
1980: Bank of England licenses BCCI as deposit-taking institution
1985: PriceWaterhouse investigates BCCI losses
1987: Luxembourg asks for college of supervisors to help regulate BCCI
1988: Tampa branch of BCCI closed after money-laundering charges
1990: PriceWaterhouse 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 removes banking supervision to FSA
2001: House of Lords allows court case to proceed
2004: Court case begins
Mr Pollock told Mr Justice Tomlinson the case, alleging "misfeasance in public office", was being fought "in a fairly brutal fashion".

Misfeasance cases were rare, he said, and this one was even rarer because it was brought against "what was once - and I emphasise once - one of the most revered and respected public institutions in this country".

In a hearing set to last well over a year, BoE officials are accused of "knowingly or recklessly" failing properly to supervise the rogue bank's activities.

The Old Lady of Threadneedle Street is legally immune from being sued for negligence, and the liquidators - accountants Deloitte Touche Tohmatsu - are aiming to prove "bad faith" on the part of supervisory staff.

The liquidators are seeking to add 1bn on behalf of 6,500 UK depositors to the 3.1bn so far recovered for creditors worldwide in the massive and unprecedented lawsuit.

Recoup money

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

Western Isles Council was one of the biggest losers when the bank went bust.

The local authority had to borrow 24m from the then Scottish Office, to be repaid over 30 years.

Since then it has managed to recoup most of the money through the liquidation process and favourable currency movements, but it hopes that the action against the BoE will yield a further dividend.

The Bank vigorously denies the claim that it acted with criminal intent, not just negligence, in failing to close down BCCI.

It intends to call three former Bank of England governors, Lord Richardson, Lord Kingsdown, and Sir Eddie George, to prove its case.

In addition, the former heads of its banking supervision division - including Brian Quinn, now chairman of Celtic Football Club - will testify.

Bank of England sued in BCCI case
13 Jan 04  |  Business
Bank faces 1bn law suit
23 Mar 01  |  Business
BCCI case goes to Lords
11 Dec 98  |  Business

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