LONDON, 19 January 2004 — Is British banking institutionally racist? This question deserves airing following the revelation of a draft annotated memo written by a senior Bank of Enland (BoE) official describing overseas bankers as “wogs”. The revelation came last week at the opening of the trial in London in which the BoE is being sued for over 1 billion UK pounds in damages for its role in the regulation and supervision of the collapsed Bank of Credit & Commerce International (BCCI).
The liquidator, Deloitte & Touche, maintains that the BoE had failed to adequately regulate and supervise BCCI, whose operational headquarters was in London, and had lied to the official Bingham Inquiry into the collapse of BCCI which was subsequently set up in 1993 and conducted by Lord Justice Bingham.
BCCI was incorporated in Luxembourg, and it remains to be seen whether the liquidator will similarly sue the Luxembourg Monetary Institute (the central bank) for similar alleged dereliction of regulatory and supervisory duty. The liquidators, however are also suing or have sued Bank of America on the basis that it knowingly participated in the fraudulent trading carried out by BCCI; and the State Bank of India and the Bank of India relating to alleged fraudulent trading under Section 213 of the UK Insolvency Act 1986.
BCCI closed for business at 1.15 p.m. on Friday July 5, 1991, with liabilities amounting to $20 billion. The draft memo in fact was written in 1978, some thirteen years prior to the collapse of BCCI. The final version, minus the reference to the “wogs”, which bankers claim was merely Bankese, the jargon used by the sector at that time when political correctness was unheard of, was actually sent to banking supervisors and banks worldwide. The memo warned of the quality of BCCI’s management.
Last week the BoE could not identify the senior official, who it is believed left the bank ages ago. However, the BoE moved quickly to distance itself from the remarks stressing that the language in the draft memo was “totally unacceptable then and it is totally unacceptable now. Such language would represent a clear breach of the bank’s policies and ultimately could lead to dismissal on grounds of gross misconduct.”
In fact, allegations of arrogance and racism against the BoE and for that matter the British banking majors are not new. Gulf officials and bankers at the time of the BCCI collapse were incensed at the BoE’s refusal to seriously contemplate a rescue and restructuring of BCCI, which Abu Dhabi ruler Sheikh Zayed Al-Nahayan, the major shareholder of the bank, was willing to negotiate and if necessary to underwrite.
The general belief in the Gulf and in South Asia, rightly or wrongly, was that BCCI was closed because it was Muslim-owned and that it was the only bank with a global presence from the developing countries that could threaten the global monopoly of the Western banking majors from the US, UK, Germany and France.
These critics point to the overwhelming willingness and enthusiasm of the BoE in putting together a rescue plan for the failed blue-chip Barings bank a few years later, which was subsequently acquired by the Dutch banking group, ING. Ex-senior BCCI officials who were cleared of any wrongdoings, and senior Gulf officials have consistently in the past stressed to me that the real story behind the BCCI collapse has yet to be told.
There is no doubt that mismanagement at senior levels of the bank was rife, and that it was involved in money laundering. This does not mean that the entire structures of senior management were corrupt. In fact, in the original indictment document filed in the US courts in Miami and New York, more than 20 banks were named, including BCCI. But most were US banks, who remain by the far the biggest targets for money laundering, even today.
If banks such as BCCI were singled out in the 1970s and 1980s, can one imagine the pressure on banks from the Muslim world and the emerging markets in Eastern Europe and Asia, especially in a post 9/1 political environment. This despite the endemic corruption in Western corporate, banking, and auditing sectors as so spectacularly highlighted by the collapses of Enron, WorldCom, and Parmalat, to name but a few.
Take also the case last year of the Russian bank specializing inter alia in trade finance, performance bonds, and LC confirmation. The bank was building up its correspondent banking relations in Asia, Africa and with the Middle East banks, primarily to facilitate and regenerate bilateral trade between the new Russia and its erstwhile trading partners in the developing countries.
The bank approached a southern African subsidiary of a major British high street bank to exchange test key arrangements and to open a correspondent banking relation. The African senior manager of the subsidiary, who was interested in opening the correspondent banking account with the Russian bank, referred the matter to the relevant department at head office in London.
The responsible official in London replied dismissively by e-mail to the manager in the African subsidiary, stressing: “Ah! a Russian bank. They must be involved in money laundering and other illegal activities. As such we would not be interested in this.” Unfortunately for the official at head office in London, he copied his e-mail reply to his manager in the African subsidiary in error also to the Russian bank in Moscow.
This type of chauvinism, according to bankers from the emerging countries, has increased considerably post 9/11 as compliance measures against money laundering for terrorist financing have been tightened.
In the case of the collapsed Italian food giant, Parmalat, senior officials used a web of complex nominee companies to cream off and hide millions of dollars of illegal funds. They even used the name of Parmalat’s telephone operator, of course without his permission, as the CEO of some 20 of these nominee offshore companies.
