British Premier Faces Critics on BCCI Collapse
THE political reputation of the British prime minister and the professional future of the governor of the Bank of England have been placed on the line amid the growing furor created by the collapse of the Bank of Credit and Commerce International (BCCI).The scandal, thought to involve fraud worth $5 billion to $15 billion, has prompted leading British banking experts to call for a new system to regulate financial institutions whose global operations national watchdog bodies are unable to monitor adequately. Meanwhile, the opposition Labour Party has lambasted Prime Minister John Major for failing to act on warnings about corruption at BCCI more than a year ago, when he was Chancellor of the Exchequer. Responding to Labour demands that he tell Parliament what and when he first knew about the bank's fraudulent conduct, Mr. Major said he had heard about the scandal only in June 1991. He accused opposition Labour leader Neil Kinnock of "muckraking." Mr. Kinnock said Major's response contradicted remarks by Britain's central bank head, Robin Leigh-Pemberton, who said he had kept the Treasury fully informed about BCCI's problems when Major was Chancellor of the Exchequer. Mr. Leigh-Pemberton is under fire on two contradictory counts: allegedly moving too slowly to shut the bank down; and opting to close it when there might still have been a chance of the bank's operations being returned to an ethical footing. Major ordered an independent inquiry July 18. It will be headed by a judge empowered to investigate all aspects of BCCI's activities, including charges that British and American intelligence organizations knew about corruption at BCCI as early as 1988. While the political battle raged in the House of Commons, the government gave the Bank of England and the Ruler of Abu Dhabi, BCCI's chief shareholder, eight days to produce a rescue package for the bank. Gabriel Moss, legal counsel for the Bank of England, earlier told the court that fraud at BCCI had been extensive and that there was little chance of rescuing the bank. The bank's 50,000 depositors in Britain are hoping that compensation for their losses can be arranged. Leigh-Pemberton has already come under sharp criticism from many small business traders in Britain for ordering the closure of a bank which had funded their operations. Many of BCCI's customers were Asian businessmen and entrepreneurs, who now find their funds frozen. At the core of the government's embarrassment is the fact, officially confirmed last week, that a letter from BCCI's internal auditor, Vivian Ambrose, warning of widespread corruption at BCCI, was sent to the Treasury in June 1990 but never acted upon. WHEN the official inquiry into BCCI's collapse gets under way, the spotlight is likely to fall on the apparent inadequacy of national regulatory agencies in supervising banks which operate globally. BCCI had branches in 70 countries and capital of $20 billion. Richard Dale, professor of international banking at Southampton University, said the BCCI collapse raised "fundamental questions about the way global banks are regulated by national authorities." Mr. Dale noted that BCCI's two main subsidiaries were incorporated in different places - Luxembourg and the Cayman Islands - and that supervision of its activities was dispersed among several national authorities. "Nobody was in charge," Dale said. Leigh-Pemberton appeared before a parliamentary committee July 23 to be grilled about the Bank of England's apparent slowness in moving against BCCI. In March 1990 Price Waterhouse, BCCI's external auditor in Britain, sent the Bank of England a report pointing to suspicions of fraud at BCCI. It was not until after another Price Waterhouse report in January of this year that machinery for suspending BCCI's operations was set in motion. It then took six months to shut the bank down.