-Caveat Lector- Euphorian spotted this on the Guardian Unlimited Observer site and thought you should see it.
To see this story with its related links on the Guardian Unlimited Observer site, go to http://www.observer.co.uk Spies hide as Bank faces BCCI charges Victims of the biggest banking fraud ever are putting UK regulators in the dock - and demanding security service documents. Conal Walsh reports Conal Walsh Saturday January 18 2003 The Guardian A mega-scandal much older than Enron or WorldCom is about to shake the British financial establishment. More than a decade after the spectacular collapse of the Bank of Credit and Commerce International, its creditors are finally to put the Bank of England in the dock. The stakes could not be higher for the Old Lady of Threadneedle Street. It was the financial regulator in 1991 when the BCCI crashed with £7 billion of undeclared debts, and has long been accused of turning a blind eye to fraud at the Middle Eastern bank. Now it faces a giant lawsuit brought in London by BCCI's victims, who claim it is guilty of negligence amounting to 'misfeasance', or wilful misconduct. The Bank has fiercely denied the charge, and made every effort to get the legal action thrown out. And no wonder. BCCI's creditors are claiming up to £1bn in damages. They are also breaking new ground by challenging the Bank's statutory immunity against being sued. The Government's worries do not stop there. It will have to answer potentially embarrassing questions over what Ministers, civil servants and the regulator knew about BCCI before it crashed. The Bank's most senior officials, past and present, are expected to go into the witness box, and the High Court will also consider evidence from John Major, the former Prime Minister, as well as former Chancellors Norman Lamont, Nigel Lawson and Denis Healey. Then there is the small matter of the role played by Britain's intelligence services, whose relationship with BCCI has long been questioned. Did MI6 use accounts at the secretive bank to pay sources and operatives around the world? Did BCCI channel Western funds to Mujahideen fighters in the Eighties - or even, as some conspiracy theorists have surmised, to Osama bin Laden? All this may - or may not - come out when the trial begins in October. For now, though, both sides are engaged in pre-trial legal tussles over secret service documents. The creditors are led by accountant Deloitte & Touche, BCCI's liquidator. They range from East End market traders to local councils to the state of Abu Dhabi, which had become BCCI's principal shareholder by 1991, and is thought to have lost £2bn. BCCI remains the world's biggest-ever banking fraud, and the colour and complexity of the scam is awesome. Press attention at the time tended to focus on such unsavoury customers as Panama's military leader Manuel Noriega, as well as the gilt-edged lifestyles of the bank's executives, many of whom remain fugitives from justice today. BCCI laundered drugs money, bribes and dictators' loot. But this reflected only part of an endemic culture of fraud, which would consume more than 90 per cent of the bank's assets. BCCI was founded in 1972 by Agha Hasan Abedi, a charismatic banker and mystic from Pakistan. It grew rapidly, and would eventually boast offices in 70 countries and 14,000 employees. But from the start, it had a taste for opaque finances. It was incorporated in two tax havens, Luxembourg and Grand Cayman, and used two sets of auditors, allowing it to avoid publishing meaningful consolidated accounts. Abedi's bank was beloved of Asian and Middle Eastern expatriates, and he cherished a vision of the BCCI as a force for unity in the developing world. But by the late Seventies, its biggest borrower, the Gulf shipping group owned by Abbas Gokal, was heading for bankruptcy. Concerned that regulators would shut down BCCI if its exposures were revealed, Abedi and other executives falsified the books. BCCI secretly poured money into Gulf, just to make it look like a going concern capable of servicing its debts. This deception lasted for 15 years, involved 750 false accounts and an estimated total turnover of $15bn. BCCI also created fictitious transactions to mask other non-performing loans, as well as hundreds of millions of pounds' worth of losses at its London-based treasury department. Reckless expansion into the United States and Europe dented profitability further. By the time it went down, BCCI was routinely plundering customer deposits to maintain an appearance of solvency. It had been granted a licence to trade in the UK by the Bank of England in 1980, and opened dozens of outlets here, its largest branch network in any single country. BCCI's collapse provoked fury in the UK, as tens of thousands of depositors were left out of pocket. Several protagonists, including Gulf's Gokal, were put behind bars by the Serious Fraud Office, and the Bank of England was castigated for its failures of supervision by Lord Bingham, whose official inquiry into the BCCI reported in 1992. Bingham's sentiments were forcefully echoed by a US Senate inquiry. Despite the criticism, Threadneedle Street has spent an estimated £10m in legal fees fighting creditors' attempts to gain financial redress. For years, the trial has been held up in pre-court hearings, with Government lawyers attempting to withhold reams of classified papers collected by Bingham's inquiry. Much has been handed over, including witness statements from politicians and evidence from government depart ments at home and abroad. But the BCCI creditors have not had as much luck in getting key intelligence documents. Jack Straw, the Foreign Secretary, secured public interest immunity orders last year to block the disclosure of 'sensitive' passages from an unpublished appendix of the Bingham report, which dealt with the security services. Other material has been kept out of creditors' hands by invoking a statute that also relates to national security. In an extraordinary twist, however, the Government is refusing to identify exactly which statute it has invoked. Government lawyers may fear that to identify the statute would effectively reveal the nature of the material they are trying to keep secret. The BCCI creditors, however, are not satisfied. They believe they are not being given a proper chance to challenge the Government's non-disclosure. The creditors insist they are not making mischief for British intelligence: they only want to find out what the Bank of England was told about BCCI. There are still a lot of secret documents to argue over. Expect more skirmishes in the months ahead. Years and years of ignored warnings 1972 BCCI founded. First offices in Luxembourg, UK, Oman and United Arab Emirates. 1976 US regulators express concern about BCCI's status. 1980 BCCI is plundering accounts to conceal substantial losses by Gulf Shipping. Bank of England grants banking licence. 1985 Bank of England receives anonymous letter detailing fraud at BCCI. By now, clients include Abu Nidal's terrorist organisation and Medellin drugs cartel. 1988 BCCI employees charged with money-laundering in US. Bank of England ignores warning about BCCI from City fraud squad. 1991 Price Waterhouse reports massive fraud. Top Bank of England officials are 'devastated' and shut BCCI. 1992 Bingham report and the US Senate criticise Bank of England for supervisory failures. 1993-97 Six convictions following Serious Fraud Office investigations. Other BCCI suspects go on the run. 2001 House of Lords gives creditors leave to sue Bank of England. Copyright Guardian Newspapers Limited <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. 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