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Bank closure wreaks financial havoc, political scandal in Britain


LONDON -- It rolled out of nowhere, a financial storm of monstrous proportions. It left thousands of investors in Britain and elsewhere in the world bereft of their savings, the funds to run their businesses, and now for the first time since it broke in early July, it threatens to billow into a major political scandal here.

Yesterday, the governor of the Bank of England, Robin Leigh-Pemberton, told the Treasury committee in the House of Commons that his institution knew that terrorists kept accounts at the now-closed Bank of Commerce and Credit International.

Mr. Leigh-Pemberton did not identify terrorists or organizations that held accounts at BCCI, but news reports here said the bank was told that Abu Nidal, perhaps the most notorious terrorist in the world, had accounts at two London branches of BCCI. These accounts allegedly were used to finance terrorist operations.

On Monday, the Times of London also quoted intelligence sources as saying that BCCI accounts were also drawn on to finance nuclear weapons programs in Iraq and Pakistan.

In early July, the Bank of England coordinated the closure of BCCI branches around the world. Since then, it has been seeking to liquidate BCCI's assets in Britain.

The closure action came after a Price Waterhouse report, commissioned by the Bank of England. It said BCCI fraudulently concealed losses that totaled several billion dollars over the last 15 years and may never have been profitable. The report in March detailed phony loans, bribery, switching of funds between different parts of BCCI and unrecorded deposits.

Mr. Leigh-Pemberton said yesterday that the Bank of England "had no evidence of fraud on this scale until receipt of this report."

After that, Mr. Leigh-Pemberton said, the bank sought to find a way to reconstitute BCCI through funds from Arab donors from the Persian Gulf. "We take the point that it is better to preserve than to liquidate," the bank chief said.

"To suggest it should have been closed down earlier does not in my mind mean the consequences would have been any different," Mr. Leigh-Pemberton told the committee when asked why he had waited four months to close down BCCI.

Another possible witness in the investigation is Prime Minister John Major. He was the chancellor of the exchequer in the government of Prime Minister Margaret Thatcher when one of BCCI's former employees wrote the Treasury Department more than a year ago and revealed the extent of the corruption in the bank.

The incriminating letters of Vivian Ambrose bounced from department to department and eventually were lost.

The Labor Party is pushing for a parliamentary probe of the government's handling of the affair. It wants to know how long the government knew about BCCI's disarray and especially how long it knew about the bank's alleged connection to terrorists.

Labor clearly smells blood. BCCI is an issue it hopes will reverse the slow climb back into public favor by the Conservatives under Prime Minister Major, as registered in recent polls.

All over London, branches of BCCI remain empty and locked. Their windows are clouded with dust. Some among the bank's 48,000 British depositors and 12,000 employees were outside the Royal Courts of Justice on Monday as proceedings were begun to liquidate the bank, which must be done before partial payment can be made to its depositors.

There is resistance to this, mainly from BCCI's chief shareholder, Sheik Zayed bin Sultan al-Nahyan, the ruler of Abu Dhabi, who has deployed a platoon of lawyers to block the liquidation. The sheik owns 77 percent of BCCI's stock and is not thought to have been involved in any of the bank's irregularities. In fact, he tried to prop up the bank with an injection of nearly $600 million. But it was not enough.

BCCI was founded in 1972 by a Pakistani named Agha Hasan Abedi. It operated in Europe, the Middle East, South Asia, Latin America and the United States.

The bank had 120,000 depositors in 69 countries, and assets and liabilities of about $20 billion. Its headquarters were in Luxembourg, but most of its operations were in Britain or in British-controlled territories such as the Cayman Islands.

During its 19 years of existence, it never made a dime. In all, about $5 billion to $15 billion worldwide is expected to be lost as the bank is folded.

Particularly hard hit when BCCI was closed July 5 by the Bank of England were thousands of Asians, who made up about two-thirds of the bank's depositors in Britain. A full 25 percent of Britain's 100,000 Asian-owned businesses were believed to have held accounts in the bank.

Also hit particularly hard were at least 30 local governing councils throughout Britain that had invested public funds in BCCI. They reportedly lost access to about $1.7 million each when the bank shut its doors.


Reports of BCCI's instability first emerged in 1985, when it reported a loss of more than $430 million from investments in the United States. The first suggestion of criminal activity in the bank came to light in 1988, when allegations of money laundering were aired by a Senate subcommittee headed by Sen. John Kerry, D-Mass. Panamanian dictator Manuel Antonio Noriega was one of BCCI's clients.

In January 1990, BCCI pleaded guilty in a Tampa, Fla., courtroom to offering money-laundering services. It was fined $15 million. Seven of its managers went to prison.

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