Losers In BCCI Bankrupcy Will Be Dismayed At Alleged Bank Of England Failure To Act

12.00.00am UTC (GMT +0000) Tue 13th Jan 2004

Liberal Democrat Shadow Chancellor Vincent Cable

Legal action against the Bank of England for alleged failure to regulate the activities of the Bank of Credit and Commerce International (BCCI) will severely dent public confidence in the probity of financial regulation in the UK, Liberal Democrat Shadow Chancellor Vincent Cable warned today

People who lost their entire savings and livelihoods when BCCI went bankrupt will be dismayed at news of allegations that the Bank of England failed to act appropriately. Vincent Cable called on the Government to act quickly to set out clear guidelines as to what should be regarded as regulatory failure and when this should lead to public payment of compensation.

Deloitte and Touche allege the Bank of England misled the Government for over two decades about the financial stability of BCCI. If this is proved in the High Court tax payers may have to foot a massive legal bill of around £1 billion in compensation for depositors who lost money as a result of BCCI's collapse.

Mr Cable said: "A long and protracted legal case against the Bank of England has enormous potential for damage to our financial institutions."

"There is much uncertainty over when a public body such as Bank of England in the case of BCCI can be said to have failed in its duty of regulation, which could then lead to a payment of public money in compensation. The Government must act quickly."

"We need clear guidelines to prevent a repeat of this in future. This question will arise again in a couple of weeks time with the publication of the Penrose report where if the regulator the DTI is shown to have been negligent there will be strong pressure for payment of compensation to those who have suffered as a result of the Equitable Life fiasco."

Mr Cable went on to point out Gordon Brown's stance on the BCCI scandal in opposition. Gordon Brown in the past clearly believed that the Bank of England had failed completely in its regulatory duties. Speaking in 1992 over the Bingham report which had been appointed to look into the collapse of BCCI in 1991, Mr Brown asked: "is it not the case that the Bank of England knew in 1988 of the charge (against BCCI) of laundering billions of pounds of drug money, knew in March 1990 that terrorists held bank accounts in the UK at BCCI, knew from PWC in April 1990 that statements and transactions by the bank were either false or deceitful". Mr Brown went on to argue that the Bank of England in 1991 claimed, despite this knowledge, that BCCI was in "pretty good shape" while allowing BCCI to remove incriminating records from the UK beyond the jurisdiction of British authorities.

If this element of dishonesty can be proved by Deloitte then this could lead to a £1 billion payout of taxpayer's money.

Mr Cable concluded: "Having been so critical of the Bank of England's handling of the BCCI scandal in the past, it will be interesting to see whether Chancellor Gordon Brown will be as vehement in his criticism as he was over 11 years ago, and whether he will act to prevent anything like this happening again."

"The Chancellor should also give some indication, if the case against the Bank of England is proved, whether the Government will quickly compensate those who have been struggling to recover their money for so many years."