'Deep Throat' started rout of BCCI: The unravelling of the fraud at the Bank of Credit and Commerce International owed much to a mystery informant among its staff, writes Chris Blackhurst

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IF THERE is any good news to come out of the collapse of the Bank of Credit and Commerce International, it is this: no matter how clever the fraud and how skilfully woven the web, one brave, outspoken employee can be its undoing.

Only a handful of people know the identity of the employee who first tipped off Price Waterhouse, BCCI's auditors, about possible fraud and the existence of potential black holes in the bank's accounts in October 1989.

In his report into BCCI's supervision by the Bank of England, published last week, Lord Justice Bingham says he knows his identity but will not name him - 'to protect his personal safety'.

In phrases reminiscent of the Watergate scandal and its unmasking by Woodward and Bernstein, with their famous anonymous source, Lord Justice Bingham relates how the 'deep throat' at BCCI 'spoke in riddles, made suggestions about areas to be investigated and dropped hints'.

Some people at Price Waterhouse did not believe him. Fortunately, the partner he dealt with did.

It was the 'Informant' - for that is how Lord Justice Bingham chooses to describe him - who triggered the chain of events that led ultimately to the exposing of BCCI. (The Informant was the genuine article and is not to be confused with the shadowy 'Mr X' figure who accused Bank of England officials of taking bribes from BCCI - a claim rejected last week by the Serious Fraud Office.)

In Lord Justice Bingham's 190-page report, the Informant makes just five fleeting appearances, but they are more valuable than those of any named individual. He pointed the auditors in the right direction. This tantalising figure - we are not told why he did it - destroyed the avowed plans of BCCI's founder, Agha Hasan Abedi, to create 'the biggest bank in the world'.

Until his appearance on the scene, there was plenty of talk about BCCI but very little proof. The bank, it was whispered, was being used by drug launderers and terrorists - Manuel Noriega, Ricardo Bilonick of the Medellin drugs cartel and Abu Nidal were among its better-known customers - and was thought to be losing huge sums of money on some of its dealings. But there was no hard evidence.

Faced with a bank that had cleverly split its ownership in two between companies in Luxembourg and the secretive Cayman Islands, that had branches in 32 countries, that was plundering accounts to conceal losses elsewhere in its operations, and that for much of its short history even had two sets of auditors, the authorities were stymied.

To make matters worse, Abedi and Swaleh Naqvi, his deputy, were charming and personable. Only once, records Lord Justice Bingham, did the composure of Abedi slip. That was in 1982 when the Bank of England tried to impose itself as BCCI's supervisor by having the bank incorporated in Britain. He was having none of it.

In 1988, Abedi - described by Lord Justice Bingham as blessed by 'an inordinate endowment of low cunning, manifested in many ways and not least in his assiduous cultivation of those who by virtue of their wealth or position could be used to his advantage' - had two heart attacks and retired. The business, now led by Naqvi, carried on the same as before.

All the time, the authorities were chipping away, but to no real effect. In 1987, supervisors from eight countries formed a college to oversee BCCI. A US Senate sub-committee led by Senator John Kerry started looking into Noriega's accounts. And Price Waterhouse had been appointed sole auditor. A year later, 11 BCCI employees were charged with money laundering.

But it was not until October 1989 that the first real light on the web of deceit and double- dealing occurred. A senior officer of BCCI from outside the UK got in touch with Price Waterhouse. He had, Lord Justice Bingham reports, 'access to good information'.

At first the Price Waterhouse partner he dealt with did not know what to make of his strange offer of assistance. Gradually, though, the partner began to trust him. Other colleagues in the firm, however, were more sceptical.

The deep throat's information painted a picture of fraud on a monumental scale. At a series of meetings, he provided the first clues on:

False loans made by BCCI on the security of shares in an American company.

Fraudulent accounts booked in the Caymans.

The authenticity of some loans made in Bahrain.

Dubious transactions with offshore companies.

The existence of dummy loans.

The crediting of funds to non- performing accounts.

Loans to one corporate customer, which, the Informant claimed, were 'a joke'.

He pointed Price Waterhouse to International Credit & Investment Company Holdings, an unaudited BCCI affiliate in the Caymans. When the accountants eventually tracked it down, instead of the dormant shell they had been told was there by BCCI management, they discovered an active company, incurring substantial losses and expenses.

In their report to BCCI, Price Waterhouse did not refer to the mole or anything he said. But the firm's account, which was not seen by the Bank of England, 'struck a sombre note', Lord Justice Bingham says.

It attacked the bank's accounting policies and highlighted the rise in large loans since the end of 1988. And, unusually, Price Waterhouse followed its observations with an insistence that borrowers of the American company named by the Informant should meet more stringent lending requirements.

If the BCCI executives suspected something was afoot, they did not show it. Driven perhaps by a belief in their own infallibility, they accused Price Waterhouse of acting more like a regulator than an adviser.

Crucially, they apparently did not think to ask the firm where it was getting its information from.

Although nobody knew it at the time, the Informant's emergence marked the beginning of the end. No matter how hard the bank tried to twist and turn, there could be no escape now there was a 'traitor' in its midst.

In early 1990, the Informant was finding an increasingly welcoming audience at Price Waterhouse.

Tim Hoult, one of the firm's senior partners, called Roger Barnes, the head of the Bank of England's supervision department, and said he wanted to speak to him about the probity of BCCI. Barnes, Lord Justice Bingham says, told Hoult and a colleague to come round at once.

The Price Waterhouse men were crossing the accountancy equivalent of the Rubicon. BCCI was their client, yet there they were going behind its back to the Bank. They entered the Bank separately in case they were spotted by a BCCI official.

Because of the secrecy, they agreed with Barnes, who was alone, that no record of the meeting should be kept.

Subsequent accounts of what took place differ. Lord Justice Bingham's verdict is that it was 'probable' Hoult mentioned the informant and some of the questionable transactions.

Barnes's recollection - that they came to tell him the audit was not going well and they were finding it hard to extract information from Naqvi - was, Lord Justice Bingham says, 'mistaken'. Although he adds: 'He thinks that if the informant had been mentioned, he would have remembered it.'

For the accountants, the meeting's very existence involved much soul-searching. Yet on Barnes it made little impression. It is true, Lord Justice Bingham says, that the Price Waterhouse pair offered little by way of chapter and verse. But he adds: 'A reputable auditor does not voice doubts about the probity of his client to a regulator unless he has something fairly substantial to go on.'

Lord Justice Bingham acknowledges that 'it was reasonable for Barnes to await further developments'. But he adds: 'After years of criticism . . . here was a suggestion of dishonesty from an unimpeachable source pointing at the chief executive of the group.'

The Price Waterhouse duo went away and resumed their curious double role as BCCI's trusted accountants on the one hand and increasingly inquisitive financial experts on the other.

On 28 February 1990, they had something of a showdown with Naqvi. It was, Lord Justice Bingham says, a 'long and difficult meeting'. The accountants believed they had extracted two 'confessions' from the BCCI chief, relating to false documents on some Bahrain loans and the terms upon which the American company had been lending money.

The next day, at a meeting with Hoult, Naqvi described BCCI as 'a bad bank' that he had inherited.

On 2 March 1990, the indefatigable accountants returned to the Bank of England. In a much longer meeting - this time a note was taken - with Barnes and a colleague, they covered, Lord Justice Bingham says, a whole range of issues. These included 'the Informant (no details were supplied), 'Guinness-type issues' and questions about the integrity, openness and trustworthiness of Naqvi'. They talked about 'a bad bank inside a better bank'.

The discussions with Naqvi had seriously harmed the accountants' relationship with BCCI. So, as a bridge-building exercise, Price Waterhouse and BCCI set up a task force to investigate the areas that were causing the auditors concern.

The accountants subsequently uncovered a far worse financial mess than they had imagined. Their eventual report, on 18 April 1990, was daunting: BCCI required a minimum dollars 1.8bn in financial support to stay afloat.

The Abu Dhabi government stepped in but the writing was already on the wall. The Bank of England maintained its dialogue with Price Waterhouse and in March 1991 asked it to prepare a detailed examination under the Banking Act. When it came, in June 1991, the document described probably one of the most complex deceptions in banking history. The regulators, who were devastated, moved to close BCCI down.

Lord Justice Bingham makes it clear just how vital was the Informant's contribution. He also pays tribute to the mystery whistle-blower's courage. In a section dealing with another BCCI employee, who started voicing fears about the bank after he had left, Lord Justice Bingham says: '(He) was critical of BCCI's business methods in a number of ways, but never voiced those criticisms to the auditors or anyone outside the group until after he had become redundant. Nor did his colleagues. The Informant was an exception.'

(Photographs omitted)

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