BCCI BANK SCANDAL Introduction The Bank of England closed down the operations of the Bank of Credit and Commerce International (BCCI) in July 1991, amidst allegation of fraud. It was one of the banking institutions that committed fraud in the twentieth century; a loss of around $10 billion was experienced. The Bank of England used some global accountancy firms that owed a duty of care neither to the bank depositors nor to the Bank of England to regulate BCCI (Giroux 2013, p. 59). This loophole in the regulatory structure led to fraud at BCCI. The role played by Deloitte as BCCI Liquidator The collapse of BCCI in the year 1991 was the worlds biggest liquidation, and it triggered more than 70,000 claims from the creditors, ranging from Abu Dhabi and East End market traders to the local councils.
Deloitte led the liquidation process, and it managed to recover $8.5 billion to pay creditors. At one point, Deloitte employed hundreds of accountants on the BCCI liquidation, including a young Goodwin Fred, who was headhunted to join the Royal Bank of Scotland.
Deloitte informed the creditors that 90% of the losses had been recovered and that the final dividends were paid in August 2012. In its reports to the creditors, Deloitte said that the total cost of the liquidation process was $1 billion. The amount was paid to the liquidator and other payments such as legal fees. Angus Martin, the leading partner in the BCCI liquidation at Deloitte said that the creditors committee had scrutinized all the Deloittes costs and the level of the realization had been far greater than in most wind downs where recoveries were typically twenty to 25%.
Deloitte at the beginning of the liquidation process had projected that it could only recover 10%-15% of the losses. In the long run, it managed to recover 90%, which was a great achievement for the liquidator and the creditors. The legal and other professional expenses were $242 million with $18million paid to the property agents. Legal fees were inflated by 130 pounds of the legal bills as Deloitte brought, but later left a hotly contested 850 pound misfeasance claim brought against the Bank of England in the year 2005.
Other costs included storage, staff costs and premises worth $161 million, as well as the net value added tax and the government fees of $77 million and US taxation refunds of $46 million was also paid as an expense. BCCI revealed some of the complications, which arose in the insolvency of multinational banking organizations. Due to lack of agreement on the international insolvency regimes, the liquidators of BCCI faced challenges in the treatment of assets and deposits at branches, which were based in different countries (Herring 2006, p.
17). As a result of these complications, the uninsured creditors of BCCI incurred a lot of legal expenses and they waited for a long time before the claims at the bank would be settled. BCCI insolvency raises a number of legal problems and difficulties. For instance, the various jurisdictions approached insolvency from different philosophical perspectives. Some of the jurisdictions in which BCCI operated in were more pro-debtor than others while others favored administrative procedures than judicial procedures for dealing with the insolvency procedures. Other problems included the conflicts of laws, different treatment of assets and the various approaches to netting and set-off.
All these problems complicated the liquidation process of BCCI. BCCI took advantage of the lapses in the international supervisory network in the banking sector. Not only did BCCI manage to evade the consolidated supervision in the home country authority, it also managed to evade the consolidated external oversight by hiring various external auditors for each of its two main subsidiaries. Thus, those different external auditors reported differently since they were based on different jurisdiction, which led to the bank financial position not being known. In conclusion, BCCI never came back to its original financial state after the scandal that led to its closure in July, 1991.
But through the liquidators, depositors and creditors of the bank managed to recover only 75% of the investment in the bank, although the legal expenses incurred in the process consumed much of the money, which had been recovered. Some of the persons and companies who were involved in the financial fraud were judged in the court of law as a result of inadequate evidence against them, bearing in mind that the crime was well organized by the perpetrators (Kohn 2001, p.
29). Thus, they left no traces of evidence for the investigators to find out what exactly transpired before the closure of BCCI. Reference Bank of Credit and Commerce International, 2007. THE BCCI AFFAIR. New York: BCCI. http: //www. apfn. org/apfn/bcci. htm Giroux, G., 2013. Business Scandals, Corruption, and Reform. California: ABC-CL. https: //books. google. co. ke/books? id=cW2jAQAAQBAJ&pg=PA59&dq=BCCI+bank+scandal&hl=en&sa=X&ei=HX5CVbnoDtbxat-5gOAN&redir_esc=y#v=onepage&q=BCCI%20bank%20scandal&f=false Herring, R.J. , 2006. BCCI & Barings Resolutions Complicated by Fraud. Business Journal, 5 (1), pp. 1-35. http: //fic. wharton. upenn. edu/fic/papers/05/0518.pdf? q=bcci Kohn, G.C. , 2001. American Scandal. New York City: Infobase Publishing.
https: //books. google. co. ke/books? id=uzdWTBytwAIC&pg=PA29&dq=BCCI+bank+scandal&hl=en&sa=X&ei=HX5CVbnoDtbxat-5gOAN&redir_esc=y#v=onepage&q=BCCI%20bank%20scandal&f=false Pixley, J., 2004. Emotions in Finance. Cambridge: Cambridge University Press. https: //books. google. co. ke/books? id=jdBXeft5CjQC&pg=PA124&dq=Solution+to+the+BCCI+bank+scandal&hl=en&sa=X&ei=BYFCVYjPOY3Zaq2HgbAE&redir_esc=y#v=onepage&q=Solution%20to%20the%20BCCI%20bank%20scandal&f=false