LONDON, Jan 13: The Bank of England "ran away" from its duty to supervise the Bank of Credit and Commerce International, which collapsed in 1991 after widespread fraud was uncovered, a London court heard on Tuesday.
Lawyers for BCCI liquidators Deloitte and Touche accused Bank of England officials of turning a blind eye to the misdeeds at BCCI, on the opening day of a lawsuit against the British central bank at London's high court. The Bank of England, which was Britain's financial regulator at the time, denies the allegations.
The court battle, expected to drag on for a year or more, is the culmination of more than a decade of efforts by Deloitte and Touche to win compensation for BCCI's 6,000-plus British-based depositors.
"It's been a long time coming but at last we're here," Gordon Pollock QC, who is representing the claimants, told Court Number 73 at the Royal Courts of Justice packed with about two dozen journalists and almost as many lawyers.
"We will seek to demonstrate to your lordship that over a considerable period of time the Bank of England deliberately ran away from seeking to find out sufficient information about BCCI because it did not want to be drawn into the role of supervisor," Pollock said.
But it was not part of the claimants' case that any official at the Bank of England acted corruptly, he stressed to Judge Justice Tomlinson. "The allegation is that they bent the rules and having bent them found themselves going down a pretty slippery slope," Pollock said, as he began a long opening speech peppered with references to banking regulation and legal technicalities, which is expected to last up to 12 weeks alone.
Deloitte and Touche is suing the British central bank for at least 850 million pounds (1.57 billion dollars). The prospect of a marathon legal battle threatens to deal a blow to the carefully guarded reputation of the "Old Lady" of Threadneedle Street.
No one has ever successfully sued the 300-year-old central bank, and for good reason: Britain's premier financial institution is immune from all claims of negligence.
The liquidators' lawyers must therefore show that the central bank is guilty of "misfeasance", meaning that it knew it was acting dishonestly. The BCCI collapse, described by Britain's Serious Fraud Office as "the biggest fraud in banking history," sent shockwaves through London's cosy financial establishment long before recent scandals such as Enron and Parmalat.
Among a string of heavyweight witnesses the Bank of England plans to call to defend its honour are three previous governors, including Sir Edward George, the central bank's head until last June.
The liquidators do not intend to summon any witnesses. Instead they are relying on cross-examination and piles of the Bank of England's internal documents.
They argue that the Bank of England was aware that BCCI's main place of business was London - giving it a duty to regulate the bank - even though BCCI was officially based in Luxembourg.
While BCCI had little more than a two-strong team and a brass plaque in Luxembourg, in London it had 1,000 employees, a huge office just around the corner from the Bank of England and 49 British branches, the liquidators say.
BCCI was set up in the 1970s by a group of high-ranking Pakistanis including its head, Agha Hasan Abedi. Among the many misdeeds which led to its collapse, BCCI secretly channelled many millions of dollars into Gulf Group, a Geneva-based shipping giant, even though the senior management of both companies knew that Gulf Group was insolvent.
Gulf Group head Abbas Gokal and his fellow conspirators falsified documents on a vast scale and engineered an intricate money laundering operation.-AFP
