Bingham storm about to break over Bank

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The Independent Online
THE Bank of England is this week braced for strong criticism of its supervision of the failed Bank of Credit and Commerce International, to be made in a report by Lord Justice Bingham.

Political reaction to the report, which is expected to be presented to Parliament on Thursday, could play an important role in the Government's choice of a successor to Robin Leigh-Pemberton, Governor of the Bank of England, who retires next year.

His deputy, Eddie George, has been a candidate for the job but may not get it if - as seems likely - the handling of the closure of BCCI emerges badly from the Bingham report.

There has also been speculation about whether the report will lead to a reshuffle or sackings at the Bank, following indications from drafts of the report that there were failures of internal communication in the crucial months leading up to the closure of BCCI on 5 July, 1991.

No heads rolled after the last big banking supervision controversy, the closure of Johnson Matthey Bankers in 1984, but there was a discreet reshuffle at senior level.

The Bingham report is certain to be compared closely with a US Senate report earlier this month that attacked the Bank of England, saying it had known about fraud for 15 months before closing BCCI.

The report, by Senator John Kerry, said the Bank had been pushed into ordering a closure instead of a rescue it was negotiating with Abu Dhabi, because investigations by Robert Morgenthau, New York district attorney, were about to show BCCI was fundamentally corrupt.

The draft of the Bingham report said the Bank waited four months after senior officials in its banking supervision department learnt the true extent of the fraud at BCCI before it closed the bank down.

The key facts had been established by 4 March 1991, but the Bank continued to negotiate a rescue package with the majority shareholders in Abu Dhabi until the closure, according to the draft.

After the closure the Bank said it had no idea of the scale of the fraud until it received a Section 41 report under the Banking Act from the accountants Price Waterhouse on 22 June 1991, a fortnight before the closure. The allegation that the key facts were known within the bank months earlier is therefore highly embarrassing.

The draft report also criticised Abu Dhabi as majority shareholder for withholding vital information about the extent of the fraud within BCCI for nine months during 1990.

But after receiving the criticisms in draft form, Abu Dhabi made strong representations to Lord Justice Bingham, saying what it knew in April 1990 had been exaggerated and claiming that work on the case was delayed because the entire country was preoccupied with the aftermath of the invasion of Kuwait.

It is not known whether Lord Justice Bingham has accepted any of these points, or similar representations made by the Bank of England following receipt of drafts of his criticisms.

Abu Dhabi officials have made clear they are unhappy with the way the report is being 'censored' for publication by Treasury and Bank of England lawyers, who they say are interested parties. The Treasury has confirmed the report has been edited.

There are concerns that information obtained under the secrecy provisions of the Banking Act should not be released. The Government has waited for Parliament to resume so the report can be published with the protection of parliamentary privilege.