Why is the Bank of England in the dock?

The Bank of England faces the start of a £1bn lawsuit in Britain's high court over its role in the world's
biggest banking fraud. Lawyers for the liquidator of Bank of Credit and Commerce International (BCCI)
allege that the Bank "knowingly" did not protect depositors of BCCI, which was shut down by the Bank of
England in 1991 owing £9bn. This is a first, as the Bank has never been sued before. The trial without jury
is set to last a year.

What is the exact charge against the Bank?

Legally the Bank is protected from negligence claims. The liquidators - accountancy firm Deloitte Touche
Tohmatsu - are alleging the stronger claim of "misfeasance in public office." The centuries-old statute is
defined as the "wrongful exercise of lawful authority".

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What must Deloitte prove?

To succeed, Deloitte, through its City law firm Lovells, must prove that Bank officials not only blundered, but
also acted dishonestly and recklessly by failing to perform their duties. Regulators "shut their eyes and
turned away" from BCCI's fraudulent activities so that they could not be blamed," according to Gordon
Pollock QC, representing Deloitte.

What does the Bank say?

It says the action is "not only misconceived, but outrageous." To accuse 22 supervisory officials and staff of
a massive cover-up over 11 years and of deliberately misleading the Bank's governors is to compare them
with crooks and fraudsters, the Bank argues. In any case, it would have been pointless to cover up
something that was bound to emerge when BCCI collapsed.

Why has the case taken so long to come to court?

When BCCI was shut down, the liquidators fought hard to recover what money they could for tens of
thousands of depositors - many in the UK - left out of pocket. Against the odds, through various legal
actions, the liquidators have recovered 75p in the pound. The action is also hugely complex, with Mr
Pollock, one of Britain's highest-paid QCs, drawing upon 300,000 documents disclosed grudgingly by the
Bank.

Who else lost money?

Apart from ordinary individual depositors, many from the Asian community, the UK losers included Western
Isles council (the local authority on Skye), which lost £24m, and other local authorities: Bury, Harlow,
Rochester on Medway and Westminster.

Why did the Bank not settle out of court?

An out of court settlement could encourage future claimants to try to get round the statutory protection from
negligence claims. The stakes are enormous. If the litigants win the £1bn in damages claim, the Bank will
have to be bailed out by the taxpayer. A loss would also open the floodgates for similar lawsuits on the
grounds of supervisory failure, which is why Equitable Life policy-holders and Railtrack investors are
watching with interest.
Why was BCCI shut down?
BCCI was closed in July 1991 by regulators in a worldwide swoop, partly organised by the Bank of
England, after it discovered the lender had disguised losses and was insolvent. Founded in 1972 by
Pakistani banker Agha Hassan Abedi, BCCI grew from a small, Asian bank to an empire employing 14,000,
spanning 69 countries with £10.8bn of assets.

How did it get into trouble?

By the late 1970s, BCCI's biggest borrower, the Gulf shipping group owned by Abbas Gokal, was heading
for bankruptcy. Worried that regulators would shut BCCI down if its exposures were revealed, BCCI
falsified the books as it poured money into Gulf to prop it up. The deception dragged on for 15 years,
involving 750 false accounts. It also created fictitious transactions to mask other non-performing loans. By
the time of its collapse, BCCI was routinely plundering customer deposits to maintain the façade of financial
health - robbing Peter to pay Paul.

Where was BCCI headquartered?

BCCI's headquarters were in London, a short walk from the Bank of England, but it was incorporated in two
tax havens, Luxembourg and the Cayman Islands, where regulation was less rigorous. It also used two
sets of auditors, enabling it to avoid publishing meaningful consolidated accounts.

Who granted BCCI its licence?

The Bank of England gave BCCI a licence in 1980 and discussed the bank's status on and off until its
collapse, documents cited in Deloitte's claim show. One 1982 memo described BCCI as "on its way to
becoming the financial equivalent of the Titanic." Peter Cooke, a high-ranking Bank official, described Mr
Abedi as "the living personification of Uriah Heep." In 1988, a federal grand jury in Tampa, Florida indicted
BCCI and 10 of its officials on charges of laundering drug money, so the bank was already in big trouble
well before it was shut down.

What charges did BCCI face in the US?

The bank was accused of secretly buying stakes in several US financial institutions, including First
American, Independence Bank and CentTrust Savings Bank. BCCI's liquidators subsequently pleaded
guilty to all charges and agreed to forfeit the bank's US assets, worth an estimated $550m (£297.6m). In
addition, the Bank numbered among its clients unsavoury customers such as Manuel Noriega, Panama's
strongman, Colombian drug barons and the Abu Nidal terrorist organisation.

Was the Bank of England criticised for its role?

The Bank was castigated for its failures of supervision by Lord Bingham, whose official inquiry reported in
1992. His sentiments were forcefully echoed by a US senate inquiry. But Lord Bingham, now Britain's most
senior judge, blamed poor communication and procedures rather than deliberate negligence.

Who was in charge of the Bank at the time?

The Bank will call the men who ran the bank from 1973 to 1993. The former governors are Lord Gordon
Richardson, Robin Leigh-Pemberton (Baron Kingsdown), and Sir Edward George. Among the supervisors
expected to give evidence are Mr Cooke, a former departmental head who oversaw banking activity during
most of the 1980s, and a former bank executive director, Brian Quinn, the current chairman of Celtic
football club.
What was the political impact at the time?
In rowdy scenes in Parliament, Neil Kinnock, Labour's leader at the time, accused John Major, the prime
minister, of being "utterly negligent" for failing to act sooner against BCCI. Mr Major replied: "If you are
saying that I am a liar, you had better say so bluntly." At the time Gordon Brown, a young firebrand,
demanded government compensation for BCCI's hapless depositors. Now as chancellor, Mr Brown sings a
different tune.