THE Bank of England’s Governor vented his anger yesterday over its continued embroilment in the BCCI court case, which is set to cost the Bank up to £100 million to defend.
Its total legal bill for the 2003-04 financial year alone reached £21 million and the same amount is being budgeted for the new financial year. The annual cost is about 10 per cent of the Bank of England’s overall operating budget of about £240 million a year.
In his first public comments on the Bank of Credit and Commerce International affair, Mervyn King made clear that he is livid over the High Court action’s continued impact on the Bank of England.
Detailing his frustration and annoyance in the Bank’s annual report, he wrote: “There are important policy reasons for resisting claims of this kind against public bodies . . . It is, in any event, impossible to contemplate settlement of an action in which 22 present and former members of this country’s central bank are accused of dishonesty.”
Mr King said the Bank would fight the case all the way and had a “strong defence”. He added: “With the full support of Court (the Bank’s board of directors) I am therefore determined that the claim will be vigorously defended.”
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The liquidators of the collapsed BCCI are pursuing the Bank of England for almost £1 billion for allegedly failing in its duty to supervise BCCI.BCCI was shut down by world banking regulators in 1991 with debts of more than $16 billion.
Mr King used the opportunity provided by his foreword to yesterday’s annual report to declare his irritation over the affair, which has dragged on for more than a decade.
With a raft of costs racked up over previous years since BCCI collapsed, the Bank’s officials estimate that its total bill for defending itself could exceed £100 million.
BCCI was founded in 1972 by Agha Hasan Abedi, a banker who, backed by Arab oil money, built it into a huge business. It had 25 branches in the UK and 120,000 account-holders, with a strong position in the Asian community. The Bank of England licensed BCCI as a deposit-taking institution in 1980 but notably refused to recognise it as a bank.
Doubts had already been raised about Abedi and by 1987 the regulators were keeping watch. In 1988 seven bank officials were arrested in Florida, charged with drug trafficking and money-laundering.
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The Bank of England, along with other regulators, cannot be sued for negligence. But the liquidators of BCCI, who are bringing the case, aim to show the Bank is guilty of “misfeasance in public office”, a heavy burden of proof meaning they acted in bad faith, or knowingly, or recklessly, failed in their supervisory duties.