For the first time in its 300 year history, the Bank of England is facing accusations of deliberate negligence in a nearly $2 billion lawsuit stemming from the biggest bank fraud ever, the 1991 failure of the Bank of Credit and Commerce International, known as BCCI.
The case opened in London's ornate Royal Courts of Justice. In an opening statement, a lawyer for the plaintiff accused Bank of England regulators of purposely ignoring the fraudulent activities of the London-based BCCI, which collapsed 12 years ago with debts of $10 billion.
BCCI was founded in 1972 by a Pakistani banker, Agha Hassan Abedi. It grew over the years to have operations in about 70 countries and assets of $20 billion. Its collapse revealed an elaborate international money-laundering network used by drug dealers, terrorists and other criminals.
The financial services company, Deloitte Touche Tohmatsu, has brought the lawsuit. The company has been liquidating BCCI's assets and is pursuing its creditors on behalf of about 6,500 British depositors.
The Bank of England has always denied any wrongdoing in the BCCI affair. In 1991, when the BCCI scandal broke, the then-governor of the Bank of England, Robin Leigh-Pemberton, said he owed nothing to BCCI depositors. "I do not have to apologize. We did our best by them. And the fact that we failed is not our fault, but the fault of the directors of bank to whom they committed their money," he said.
Britain's treasury will have to come up with the money if the Bank of England loses the case. The current treasury chief is Gordon Brown. As an opposition lawmaker in 1991, he was highly critical of the Bank of England's oversight of BCCI. "Effective and tough regulation was never taken sufficiently seriously, with the result that the Bank of England's so-called light hand made it a soft touch for a crooked bank," he said.
Legal experts say the trial will be extraordinarily complex. The plaintiff's opening statement is expected to take three months and the entire trial could last at least a year. The plaintiff's lawyers have gotten access to about 300,000 internal Bank of England documents. And three former Bank of England governors may be called to testify.