§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Patnick.]
§ [Relevant documents: The Second Report from the Treasury and Civil Service Committee (House of Commons Paper No. 26 of Session 1991–92) and the Fourth Report from the Committee (House of Commons Paper No. 177 of Session 1991–92) on Banking Supervision and BCCI, together with the responses of the Government and the Bank of England thereto (Third Special Report, House of Commons Paper No. 302 of Session 1991–92; First Special Report, House of Commons Paper No. 178 of Session 1992–93; Second Special Report, House of Commons Paper No. 248 of Session 1992–93) and the Minutes of Evidence taken before the Committee on 4th November (House of Commons Paper No. 250-i.]9.34 am
§ The Economic Secretary to the Treasury (Mr. Anthony Nelson)
This debate fulfils the pledge made by my right hon. Friend the Chancellor of the Exchequer that there would be an early opportunity for the Bingham report to be debated in the House and for hon. Members to have the chance to express their views.
In introducing the debate, I intend to summarise the main themes of the report and to set out the proposals of the Government and the Bank of England in response to the main recommendations. I shall put those changes in the context of what is happening in Europe and internationally on banking supervision, and respond to the reports of the Treasury and Civil Service Select Committee. I also intend to highlight the important issue of compensation, which is of concern to many hon. Members and their constituents.
Sir Thomas Bingham's report on the supervision of the Bank of Credit and Commerce International was published on 22 October. It represents the conclusion of an inquiry into the largest and most wide-ranging fraud in the history of banking. Billons of dollars were involved in a series of financial crimes, deceptions and malpractices that extended over many years and touched the lives of tens of thousands of depositors in more than 60 countries. Those frauds, and the calculating and cynical men who devised and directed them, were responsible for bringing hardship into the lives of many innocent and hard-working people who trusted BCCI with their savings. I know that many hon. Members have constituents who have suffered in that way, and I am sure that we all condemn the individuals whose greed and callousness has led to such widespread distress.
The report is the outcome of an inquiry into the supervision of BCCI, not into the bank itself. The inquiry lasted for just over a year and involved taking written and oral evidence from more than 200 witnesses. Among those 524 witnesses were current and former Ministers, hon. Members, officials of Government Departments, including the Treasury, and representatives from the Bank of England and BCCI's auditors, Price Waterhouse. BCCI's majority shareholders from Abu Dhabi also gave evidence, as did former employees and directors of the bank; banking regulators from the United States, Luxembourg, the United Arab Emirates and elsewhere; and many others, all of whom had dealings with BCCI in one way or another.
The inquiry was thorough and painstaking; and the report is both comprehensive and clear. It makes some significant criticisms of the Bank of England's supervision of BCCI and draws attention to important lessons that the Bank and the Government are determined to learn.
I am sure that all hon. Members will join me in paying tribute to Sir Thomas Bingham for the thorough way in which he has produced an extremely readable report. We owe him a debt of gratitude for the assiduous and comprehensive inquiry that he conducted.
The narrative of events that makes up a large part of Sir Thomas Bingham's report has two main themes. The first is of a bank that was structured in such a way as to maximise its potential for concealing information from both its auditors and the supervisory boards around the world that sought to regulate its activities. The bank's guiding principle was divide and deceive. It almost seemed to be in search of a home.
Throughout much of the report, which hon. Members will have read, it is clear that the bank had a constant quest for a proper supervisory structure. However, the quest was impeded by a determination to procrastinate and obscure the command structure within the bank. The BCCI group was structured into myriad companies built around two major banking subsidiaries, one of which, BCCI SA, was incorporated in Luxembourg and the other, BCCI Overseas, in the Cayman Islands.
§ Mr. David Shaw (Dover)
My hon. Friend is aware that I have introduced the Transactions with Tax Havens (Sanctions) Bill. The purpose of the Bill is to concentrate not so much on the tax issues of tax havens, as on the fraud issues of the havens, which might better be called "fraud havens". Will my hon. Friend please touch on the issue of how we might take more and better regulatory action against such fraud havens?
§ Mr. Nelson
I will try to do so during my remarks. I take very seriously any recommendations and legislative proposals that my hon. Friend introduces. Much of the theme of European and international debate in Basle and in some of the Community directives have very much in mind the transparency and corridors of communication that underlie my hon. Friend's proposals.
§ Mr. Keith Vaz (Leicester, East)
Does the Minister recall his remarks to the House when the inquiry was announced by the Chancellor of the Exchequer. The right hon. Gentleman said:Many of us are confident that it will show beyond any question of doubt that the Government and the Bank of England acted only in a timely and proper fashion."—[Official Report, l9 July 1991; Vol. 195, c. 724.]I accept that the Minister was a Back Bencher at that stage. Will he now accept that his statement was wrong?
§ Mr. Nelson
I will not. The one thing that is evident is that Treasury Ministers and other Ministers get a clean bill of health—a glorious phrase—in that regard. I do not retract my remarks.
It is true that the report makes some serious criticisms of the Bank of England in terms of time limits; I acknowledge that. However, the report stops well short of suggesting that things would necessarily have been different if the Bank of England had acted differently, and it does not make any accusations of negligence, for example. Nevertheless, there are serious criticisms, as my right hon. Friend the Chancellor and I have acknowledged on separate occasions.
In practice, BCCI did little business either in Luxembourg or in the Cayman Islands. It spread forth its tentacles into more than 60 countries. BCCI SA operated 47 branches in 13 countries, including the United Kingdom. BCCI Overseas had 63 branches in 28 countries, and subsidiaries and affiliates of the holding company operated 255 banking offices in 28 countries. The deliberate confusion that flowed from the structural complexity enabled BCCI to grow rapidly in the 1970s and the 1980s, when modern techniques and systems of banking supervision were only beginning to come into force, and in parts of the world where, to quote the report, "impenetrable secrecy" was a prominent feature of banking regulation.
It was only in the final years of BCCI's existence, when Price Waterhouse took over responsibility for auditing the bank worldwide and when regulators began to come together in a college of supervisors, that the full enormity of the fraud being practised started to come to light.
The other striking theme of the report is the sheer scale of the fraud. Many hon. Members may have felt, as I did on reading the report, that the deeply offensive point about it was that the scale and quantity of fraud dwarfed the earnings and savings of ordinary people. The fraud was wholly out of proportion to the lives, efforts and prudence of ordinary people. To that extent, the report, and the crimes and frauds revealed by it and by the collapse of the bank are shocking and arresting. The sums being siphoned off and misappropriated were enormous.
When my right hon. Friend the Chancellor made his statement to the House, he thanked Sir Thomas Bingham for producing a masterly account of such a complex subject and for being so constructive in his recommendations for the future. I repeat today that the Government accept all the recommendations and have already begun to implement them.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
A few moments ago, the Minister implied that if the Bank had not made mistakes, it is unlikely that the outcome would have been different. I ask the Minister to note paragraph 2.484 in the report, in which Sir Thomas says:How different the course of events would have been had these deficiences not existed, one can only speculate.The Minister must recognise that, if action had been taken earlier, the many individuals involved at least would not have lost money.
§ Mr. Nelson
Yes. I have tried to make it clear, and I will do so again, that I have understood Sir Thomas Bingham to say that he could not speculate on what the outcome would have been if the Bank had acted differently.
The right hon. Member for Berwick-upon-Tweed (Mr. Beith) spoke of action being taken sooner. There has been 526 a great deal of discussion about the exact timing, about when the whistle should have been blown and about when the bank should have been closed down. There has been discussion about when that point should have been—whether a month sooner, six months sooner or a few months later, which some people suggested at the time to protect depositors. It was suggested that the bank was closed down too soon and that another solution, such as the injection of further capital, could have been found. Whenever closure takes place, people lose.
When the bank was closed, the books amounted to $16 billion. Previously, the gross assets had been up to $23.5 billion. I know that that cannot be construed as an argument for not acting sooner. If something is a rotten apple to the core, one must take action whenever it is justified and when the evidence is clear. However, to suggest that fewer people would have lost raises a difficult question. It is arguable that many more people might have lost, because the deposit base would have been even larger.
§ Mr. Terence L. Higgins (Worthing)
I understand what my hon. Friend is saying. It is a question of how far back one takes the matter. Everyone now accepts that there should have been a single lead regulator. Instead, a special arrangement was set up for BCCI. Had such an arrangement been refused at that point, the scale of losses would be far smaller.
§ Mr. Nelson
My right hon. Friend makes an important point, which is covered in a complete analysis by Sir Thomas Bingham. Hindsight is a great thing, whereas foresight is far more difficult. There were cases in 1979, in 1985 and in the latter part of the 1980s, which are considered carefully by the Bingham report, when a different decision and a different approach could have been taken by the Bank of England, not only on the question of the revocation of authorisation, but on the question of the appropriate form of supervisory structure.
We must make it clear that we were dealing with, if not a unique, a complex and devious bank structure. The bank's deliberate intention was to play one regulatory system off against another to try to fall between all posts and to set itself up in the least regulated condition. It was difficult for any one authority to take on complete and consolidated supervision, which is why the college of regulators was established. However, my right hon. Friend the Member for Worthing (Mr. Higgins) makes a good point.
§ Mr. Calum Macdonald (Western Isles)
The Minister's answer explains exactly why the Bank of England should have stepped in earlier to regulate more effectively. The structure of BCCI hid the fraud from the outset. In paragraph 2.484, Sir Thomas Bingham says that the problem of fraud did not occur only in the last 15 months, but had its roots deep in the past. He says that the fraud hidden by the structuremight have been in part prevented, or brought to a head much earlier, had strong and resolute action been taken to insist on structural change as a condition of continued authorisation and to impose on the group the supervisory regime it was known to require.It was known not with hindsight, but at the time. Sir Thomas concludes:The Bank did not pursue the truth of BCCI with the rigour that BCCI's market reputation justified"—at the time.
§ Mr. Nelson
To be fair to the Bank, it insisted on a number of changes, not only in the structure, but in the management of BCCI. The hon. Gentleman referred to the various points at which BCCI'S reputation might have been brought into question. It is important for all of us to recognise that the prime responsibility of the Bank of England under successive legislation has been to protect depositors. Bearing that responsibility uppermost in mind leads not necessarily to pre-emptive foreclosure but to an attempt to find ways to protect deposits. In 1979 the bank was profitable, the Luxembourg Banking Commission was not complaining and the auditors were not qualifying the reports.
In 1985 an alternative structure of incorporation in the United Kingdom under SA was decided upon. It was also decided that treasury operations would be moved to Abu Dhabi—a structural change insisted upon by the Bank of England. Efforts in the later part of the 1980s were to protect depositors. The improved standing of the principal shareholder, the injection of further resources and management changes were carried out deliberately to try to safeguard the interests of depositors. With the benefit of hindsight, it is easy to make a different judgment about what should have happened, and with the benefit of hindsight that may well be right. But at the time, the main interest was the protection of depositors, and on the information available to the Bank of England at the time, its decisions can be defended.
§ Mr. Macdonald
The Minister mentioned 1979. Bingham says that, in 1979, the bank was structured in such a way that effective regulation was impossible. Paragraph 2.30 of the report says:if a group was so structured that the Bank was unable to ascertain how the business was done, and so to satisfy itself that the business was conducted prudently, then the Bank was not only entitled but obliged to refuse a licence",to take deposits. The Minister says that it is a matter of judgment as to whether the bank should have acted differently but Bingham's judgment is that the bank should have acted differently by refusing to issue a licence.
§ Mr. Nelson
Bingham speaks for himself on the matter but also says in paragraph 2.21 that no concrete evidence of malpractice had been established in 1979. The Banking Act 1979, which was Labour legislation, introduced two tiers of full banking authorisation and deposit-licensed status. The key part of that legislation was section 3(5) which effectively allowed foreign authorisation of a bank as a satisfactory means of "grandfathering" into the new regime an authorised bank.
The fact that BCCI was not given full banking status at that time reflected the Bank of England's concern about it. The bank became a licensed deposit taker. The report's criticisms of the Bank's actions at that time acknowledge that there were arguments on both sides, and paragraph 2.21 sets out grounds for the Bank of England believing that its action at that time was proper. [Interruption.] I should like to make some progress, because there are important issues to be addressed and many hon. Members want to take part in the debate.
The Bank has responded to one of the important recommendations by establishing a special investigations unit under Mr. Ian Watt. It will have specific responsibility for pursuing evidence of malpractice or illegality which the Bank receives, and for seeing that the issues which may be raised are followed up. As part of this process, the Bank is 528 also strengthening its existing capacity for on-site examination of banks. Before taking up this appointment, Mr. Watt was a partner at KPMG Peat Marwick. He has considerable experience of liquidation and has acted as a DTI inspector on a number of occasions, most notably into the Guinness inquiry. He acted as the accountancy assessor to the Bingham inquiry. In his new role, he will have direct access to the governors and will attend meetings of the Board of Banking Supervision.
Similar access and status will be accorded to Mr. Peter Peddie, a former partner in Freshfields, who has been appointed to head a new, specialised legal unit within the Bank. His role will be to ensure that, in carrying out its supervisory tasks, the Bank takes full account of the powers available to it under the law—an area where Sir Thomas Bingham felt that the Bank may have been too cautious in the past. The Bank will itself be taking steps to implement his recommendation that more use should be made of the Board of Banking Supervision—a body created by the 1987 Act largely to provide a vehicle for outside experts to advise the Bank on how it carries out its supervisory duties. The Bank is reviewing its guidance on involving the Board and in future its views will be sought at an earlier stage in problem cases. Outside members will be encouraged to have more contact with Bank officials at working level to discuss issues that cause them concern. They will continue to have free access to staff and papers.
On the Bank's approach to supervision, Sir Thomas concluded that, while its traditional techniques, had, on the whole, served the community well, a different approach was needed in cases such as BCCI where trust and frankness were lacking. With such institutions, the Bank's staff need to develop a higher degree of alertness to signs of fraud and they need to be more inquisitive. 'The Bank has begun to extend and improve the training that it provides to supervisors in order to achieve these objectives.
Sir Thomas regardsthe most important single lessonof the BCCI affair as being thatbanking group structures which deny supervisors a clear view of how business is conducted should be outlawed.While not persuaded that the Bank currently lacks the powers needed to deal with such cases, if there is felt to be any doubt on the point, he would support explicit provisions being introduced. The Government accept this conclusion and will introduce legislation, as soon as the parliamentary timetable allows, to put the Bank's powers beyond doubt. In particular, the legislation will need to deal with banking groups whose structure has changed significantly after authorisation or who have developed an active presence in secretive or poorly supervised jurisdictions.
On the European level, Sir Thomas finds nothing in the history of BCCI that requires substantial revision to the emerging Community regime for supervision. But he proposes that two recitals to EC directives—one discouraging supervisory "forum shopping" and the other requiring banks' place of incorporation and head office to be in the same member state—should become express requirements of Community law. He also proposes that all member states should confer powers on their regulators to refuse or withdraw authorisation where a bank cannot be effectively supervised, and he supports the proposed Community deposit guarantee directive being adopted as soon as possible.
529 As my right hon. Friend made clear at the time of publication, we shall be pursuing all of these points with the Commission and our European partners. Sir Leon Brittan has already issued a statement responding to the Bingham report and acknowledging the force of these recommendations. His officials have been asked to report quickly on all the Bingham points that bear on Community legislation so that Sir Leon can make a more detailed statement at the ECOFIN Council on 23 November. My right hon. Friend the Chancellor will be in the chair on that occasion and will use the opportunity to seek to take matters forward.
The Government have already made clear the importance that we attach to making progress with the deposit guarantee directive. Our officials are seeking to finalise the draft currently before the Council working group and we continue to hope for political agreement to a final text before the end of this year.
On the wider international front, the Government agree with all that Sir Thomas says about the need to press for further improvements in banking supervision and to facilitate better communications between supervisors. The new standards promulgated by the Basle committee—the key requirement of which is that all banks that branch abroad must have a home supervisor ready and able to conduct effective consolidated supervision—represent an important advance in international action to deal with countries offering impenetrable secrecy. The Government and the bank also support his call for independent monitoring of supervisory standards and will be proposing the establishment of peer group reviews, to both the G10 supervisors' committee and the EC banking advisory committee, as the best way of taking this forward.
The Government accept that the effective supervision of international groups requires clear and legally robust channels of communication between supervisors and other authorities and agencies engaged in combating financial crime and fraud. We shall be focusing our further action on four main areas.
First, we shall urge within the European Community that the provisions on information flow in the second banking co-ordination directive, and in other financial services directives, should be looked at again to ensure that the necessary channels of communication are being kept open. Next we shall raise the issue of exchanging information with non-EC countries, so that the practical difficulties in maintaining supervisory confidentiality are not allowed to constrain necessary communications with third countries. An international consensus is needed on the common interest in effective supervision of banking groups world wide, and on the level of confidentiality required to underpin it.
Thirdly, all those concerned in regulating international banks should be clear about what information should be shared and how it is to be channelled between those who need it.
Fourthly, as my right hon. Friend announced last month, new machinery is being established between the supervisory, investigation and prosecuting authorities within the United Kingdom, to strengthen their exchange of information, so as to enable us better to detect and deal with financial and company faud.
530 Finally, on auditors, Sir Thomas Bingham's main proposal is that they should be put under a statutory duty to report relevant information to the Bank. This reflects a similar recommendation in the fourth report of the Treasury and Civil Service Select Committee.
The Government strongly support this approach, which, I am pleased to say, has also been welcomed by the professional bodies. My right hon. Friend the Chancellor has already made it clear that a similar duty should be introduced for the auditors of building societies and financial services companies. My right hon. Friend the President of the Board of Trade has said that he would want this approach also to be extended to the auditors in insurance companies.
A process of consultation is now getting under way, involving both the professional bodies and representatives of the sectors concerned. This will cover the formulation of such a duty, and its enforcement. Discussions will proceed as a matter of urgency with the aim of introducing measures in this House at the earliest opportunity.
§ Mr. David Shaw
My right hon. Friend will know of my interest in small businesses. Has he taken into account the fact that, if every single financial services company is to be regulated, that will be getting down to some very small companies and businesses that will have to fill out even more forms than they are already filling out? Will there be a levelling-off process, so that the very small are exempted?
§ Mr. Nelson
I understand full well the important point that my hon. Friend raises, and I have considered a de minimis rule. So far, I am not inclined to introduce one. These matters will be the subject of consultation, but there is an existing professional responsibility that extends to auditors to flag up concerns when they arise, Secondly, it is intended that this will apply to all authorised firms in the financial services sector. To include some and exclude others would require a line that it would be extremely difficult to draw.
Thirdly, while I understand the concerns of some small firms, it is sometimes in those small firms that problems arise, and depositors and investors need to be protected. Finally, I want to ensure that the way that the legislation is introduced and then conducted in practice will not involve the flagging up of too much information, because that can impose an impossible burden on regulators and supervisors, and extra costs on small businesses. Overall, the objective is to bolster the ability of auditors to say to a firm or its directors, "Look, unless you bring this to the attention of the authorities, I am required to do so by law." For those reasons, the change is justified.
§ Mr. John Greenway (Ryedale)
Does my hon. Friend agree that the picture that he is painting of what is required in terms of auditors' disclosure is mirrored largely in what already exists in the regulation of insurance brokers, through the Insurance Brokers (Registration) Act 1977, on which I shall talk later if I manage to catch your eye, Mr. Deputy Speaker?
§ Mr. Nelson
I am grateful to my hon. Friend. That is indeed the case, and that is one reason why it has been welcomed by the profession.
I hope that it will be clear to the House from what I have said that the Government attach the highest importance to implementing in full all the recommendations that Sir Thomas Bingham has made. Perhaps I 531 should now say something about the work that the Treasury and Civil Service Select Committee has undertaken since the collapse of BCCI. It has produced two thoughtful reports, one on the role of local authorities and money brokers, and another looking into international and national regulation. The Government and the Bank of England have already responded to both reports. On behalf of the Government, I should like to say how much we appreciate the careful consideration and the compelling analysis and recommendations of these reports. I am sure that hon. Members will wish to pay tribute to the work of the Committee.
Both the Government and the Bank accept, and are grateful for, a sizeable number of the Committee's recommendations and conclusions, and we have already announced our intention to implement them. These include the need to deal effectively with banking groups that have an inadequate structure, the need to impose a statutory duty on auditors to report their suspicions to the Bank and the desirability of establishing an international mechanism for monitoring supervisory standards.
Despite all that we sometimes hear about the superiority of Senate committees over our Select Committees that operate here, the work that the Treasury and Civil Service Select Committee has done on BCCI compares favourably with the much less-considered report of Senator Kerry.
Another subject discussed in the Bingham report is the extent and nature of the Bank's powers to deal with recalcitrant institutions.
§ Mr. Brian Wilson (Cunninghame, North)
Why did Senator Kerry have to conclude that a number of significant documents were withheld, presumably on the instructions of the British Government? These related to information, of which the Bank of England must have been aware, from the security services on the doubts that existed in those quarters about BCCI many years ago. Readers of Private Eye have had a glimpse of these documents, but apparently Senator Kerry, and perhaps even Bingham, did not. In an age of supposedly open government, how can those documents be kept private and not be put in the public domain?
§ Mr. Nelson
The Governor and my right hon. Friend the Chancellor of the Exchequer established the Bingham inquiry for exactly that purpose. Nothing was withheld from Lord Justice Bingham while he was making his inquiries, and the Government regarded this report, as they do now, as the authoritative report on the supervision of BCCI.
Senator Kerry may complain that he did not get some information, but we may complain, with justification, that he did not seek evidence, and did not enable people to question some of his conclusions and findings. I am sure that the hon. Gentleman will accept, as many of his hon. Friends do, that this is the authoritative version, this is the one that was justified by the calling for any papers and this is the one that we should consider today.
Sir Thomas Bingham has, quite rightly, drawn attention at a number of points in his report to the nature and extent of the powers conferred on the Bank by the 1979 and 1987 Acts. He has also pointed, on a number of occasions, to situations where they could have been exercised. But, in all those cases, the Bank has always a second test that it must apply. It must ask itself not only 532 whether its powers are exercisable but, if it decides that they are, whether would it be in the interest of depositors to exercise them. Deciding to revoke a bank's licence and to bring its operations to an end may sometimes be the right or only course to follow.
Often, the interest of depositors are better served by taking less drastic, remedial action so that an institution in difficulties can be restructured or, perhaps, wound down over a period, so minimising the risks for depositors or even, with good management, eliminating them altogether.
Over the past six years or so, there have been 35 occasions on which banks have been persuaded to undertake remedial action without fuss and with no loss to depositors; 17 occasions on which authorisations have been revoked; 28 examples of authorisations being restricted under the Act; and 18 more in which an institution has been persuaded to surrender its authorisation under pressure from the Bank. On all these occasions, the Bank has acted in good faith with the need to protect depositors very much at the forefront of its concerns.
§ Mr. Nelson
If the hon. Gentleman will forgive me, I will not, as I wish to make progress. I shall deal now with compensation, and if need be, I shall give way on that issue.
At the time of closure, BCCI had 25 branches in the United Kingdom with deposits totalling £1.85 billion., of which one third were sterling retail deposits. Deposits by United Kingdom residents totalled £240 million, of which three quarters were in sterling. I understand that BCCI had more than 53,000 sterling accounts. The Deposit Protection Board has sent out claims forms to some 42,000 depositors. So far, more than 16,500 claims have been lodged with the board, and more than 9,000 of them have already been paid. A total of more than £54 million has been paid out so far, and we expect the final figure to be a good deal higher—perhaps as much as £85 million.
I can understand, of course, why a number of hon. Members—especially those who have had experience of hardship among their own constituents—should want to suggest that additional compensation should be paid to help those who have lost some or all of their savings as a result of the fraud.
The Government have made it clear that responsibility for the collapse of BCCI rests with those who devised, directed and implemented the frauds and that there is no justification for public money being used to provide recompense to those who have lost as a result. There are also other compelling reasons for this, which I invite the House to consider.
First, no system of banking supervision is fail-safe. When a fraud like this is led and organised by those at the very heart of an institution's management, and where so much time and effort was devoted to concealing its existence both from supervisors and from their auditors, it is particularly difficult to detect in its early stages.
It was because Parliament acknowledged that no system of banking supervision could ever guarantee banks against failure that the Banking Act 1987 established the Deposit Protection Board to provide a degree of compensation for depositors.
What these arrangements were designed to achieve—and what in my view they do achieve—is a proper balance 533 between the need to offer some protection, particularly to smaller depositors, on the one hand; and the equally important need, on the other, to maintain the principle that depositors themselves have to be aware of the risks associated with different institutions and to bear them in mind when deciding where to put their money.
If that were not so, and depositors were compensated for any failure of a financial institution, those banks that acted irresponsibly—by, for example, offering unrealistically high levels of interest—would prosper at the expense of the more prudent. That would lead to increasingly risky approaches being adopted towards the running of deposit-taking businesses, which, over the long term, would have damaging implications for the entire banking system. Recent experience of the United States thrift banks makes it clear that this is a real practical concern, and not simply the construct of theoretical economists.
Supervisors' behaviour would change too. They would become much more cautious in the way in which they carried out their task, tending towards the setting of higher capital and liquidity requirements and moving to close down banks at the earliest sign of difficulty. Their primary motivation would soon become to protect themselves from the risk of litigation, at the expense of almost everything else. That would not be in the long-term interests of depositors or of the economy more generally.
§ Mr. Vaz
I would have been astonished if the Minister had arrived in the Chamber this morning with a cheque for £6 billion to pay out compensation. If he accepts from the local authorities' point of view the argument of the Select Committee on the Treasury and Civil Service, which is set out in paragraph 76—the Minister has lavished praise on the Select Committee—there was a breach of supervisory duty on the part of the Bank of England. He must accept also, as I think he has done—he has accepted all the recommendations—the savage criticism of the Bank of England that appears in the report.
Surely there is no difference between the case of the BCCI victims, be they creditors, depositors, ex-members of staff or local authorities, and the people who lost money in Barlow Clowes. In that case, as the Minister knows, Lord Young refused compensation, but eventually compensation was paid. Surely the Minister must consider the issue of compensation. He must listen to the representations of those affected before he makes a decision.
§ Mr. Nelson
It would be wrong for me to lead the hon. Gentleman on. The Government have carefully considered the representations. We have considered the report fully, in accordance with our undertaking. My right hon. Friend made it clear that it was our intention not to grant additional compensation over and above that provided by the deposit protection scheme. The BCCI case is different from that of Barlow Clowes. The Parliamentary Commissioner for Administration recommended that compensation should be paid to those involved in the Barlow Clowes case. For the reasons that my right hon. Friend has already—
§ Mr. Nelson
I have given way on several occasions. There will be opportunities for the hon. Gentleman—
§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. The Minister is not giving way. I should be grateful if the hon. Member for Western Isles (Mr. Macdonald) would resume his seat.
§ Mr. Deputy Speaker
Order. The hon. Gentleman must resume his seat. He must not keep getting up and challenging the Minister.
§ Mr. Nelson
I am obliged, Mr. Deputy Speaker.
I move on to the Abu Dhabi scheme, which is of great importance in this matter. As many hon. Members will be aware, there is a further source of funds that will be potentially available to depositors. This is the separate package that is being negotiated by the liquidators of BCCI SA, BCCI Overseas, and the majority shareholders in Abu Dhabi. It has now been approved by the courts in Luxembourg, following earlier approval by courts both here and in the Cayman Islands. The package contains two main elements. The first is a pooling arrangement, by which the proceeds realised from assets by liquidators all around the world—whether from BCCI SA or the Caymans-registered BCCI Overseas—will be put into a central pool, from which all creditors, not just those in the United Kingdom, will receive a payment in proportion to their admitted claims.
I understand that the intention behind that arrangement is to ensure a co-ordinated approach to all BCCI creditors wherever they may be, and to prevent competition between different liquidators for the same assets. That is clearly a sensible objective, although it does have the consequence—about which several hon. Members have expressed understandable concern—that no payments have yet been made by liquidators, either in the United Kingdom or anywhere else. It is far from clear, given the complexity of BCCI's affairs, that any payments would yet have been made even if the package had never been proposed.
The second element, which I know has also aroused a good deal of interest, involves the setting up of a contribution fund by the majority shareholders, which—together with the estimated proceeds from the liquidation—should lead to creditors recovering some 30 to 40 per cent. of their money. I understand that, under the terms of that arrangement, majority shareholders would, over the next 20 months or so, put up between $1.2 billion and $1.7 billion to be paid to creditors. In return for payment from the fund, creditors would be required to waive any legal claims against the majority shareholders.
In order to be put into effect, the arrangement requires that creditors to the value of $7 billion grant waivers of legal claims—although that target figure may be reduced at the discretion of the majority shareholders. Once that level has been reached, the scheme can go ahead, and a first "distribution", which I believe will equate to about 10 per cent. of creditors' claims, will be paid, some time during 1993, with further payments following later.
§ Mr. Vaz
Is the Minister aware that an appeal has been lodged in the past 24 hours in the Luxembourg court against the proposal? That means that it is unlikely that the case will be dealt with for several months. As the hon. Gentleman has raised the issue of the Abu Dhabi scheme—I know that he visited Abu Dhabi last year—does he think that the pause will give the Government an opportunity of making approaches to a friendly Gulf state to ascertain whether the contribution that has been made can be raised, bearing it in mind that the Sheikh of Abu Dhabi will get back $4 million-worth of promissory notes as a result of the deal? The Government have been given an opportunity; will the Minister seize it?
§ Mr. Nelson
No, I do not think that the Government should or will. It is a matter for the shareholders and the liquidators. The hon. Gentleman mentioned the appeal, which has just been lodged. As I have already said. that is a matter for those involved. I must say that appeals against the scheme inevitably have the effect of delaying further recompense for others. The delays so far have had exactly that effect.
Of course people are entitled to make the judgment that they may get more. As far as Sheik Zayed is concerned—he is a man of enormous honour and integrity. and a great friend and ally of this country—the losses incurred in respect of $2 billion of investments, not deposits, placed with the group have been written off in addition to the funding requirement here. The Abu Dhabi authorities would argue, with some reason, that they are taking considerable losses on the nose.
As well as the distress caused to retail customers, much has also been made of the losses incurred by local authorities that deposited money in BCCI, and there have been the all-too-predictable calls for the Government to compensate them. My right hon. Friend the Chancellor has already made it clear that no special compensation will be paid and, like him, I see no reason why local authorities should be treated differently from any other depositor who lost money.
The losses are a matter for the local authorities concerned, although those who wish to do so can apply to their relevant Environment Department for the losses to be capitalised and spread over a number of years, so as to phase the impact on local chargepayers. But that does not mean that the Government are giving local authorities special treatment. Quite properly in my view, the consequences of the loss have to be met from local resources.
Before I conclude, I want to restate something that, although perhaps obvious, is often overlooked. Whatever system of supervision we construct, whatever the law seeks to provide, a fail-safe system can never be devised. As a Government and a Parliament, we have a proper responsibility to remind individuals of several basic, commonsense rules of financial husbandry from which they must not depart. I call them the five golden rules, and I commend them to all investors and depositors. I hope that I will not sound too preachy if I reiterate them now, but they are worthy of repetition.
First, the buyer, investor, and depositor must always beware. Secondly, one should spread one's investments and not put all one's eggs in one basket. Thirdly, one should obtain good advice from independent or 536 professional sources. Fourthly, one should always read the small print. Finally, one should never confuse authorisation with a guarantee.
The House has a proper interest in ensuring public confidence in the United Kingdom banking system. 'The Government and the Bank of England considered carefully, learned from, and implemented changes in line with the recommendations of not only the Select Committee but of Sir Thomas Bingham. In doing so, we have considerably improved the Bank's ability to spot at an earlier stage miscreants within our banking system; enhanced public confidence in the banking system; and met the real responsibilities that the Government accept in responding to a report such as that produced by Sir Thomas.
There were lessons to be learned and the Government have learnt them. This debate provides the House with an opportunity to express its views on Bingham's recommendations, and I hope that my right hon. Friend's response will be welcomed by all concerned.
§ Mr. Alistair Darling (Edinburgh, Central)
When the Minister set out his five golden rules, I was reminded of an expression familiar to many of us—as safe as the Bank of England. In debating the Bingham report, we should bear it in mind that some members of the public in the United Kingdom and other countries are entitled to expect that certain standards can be relied upon in an institution regulated by the Bank of England.
The Bingham report is set in the context of the whole banking and financial services regulation system being called into question. The regulators can, of course, point to their successes, but we are entitled to assess and to judge their weaknesses by examining also the system's failures. The most damning conclusion that one can draw from the Bingham report is not that the Bank lacked sufficient powers—even in 1979—but that it lacked proper judgment.
The Minister invites the House to acquiesce in allowing the same Bank—and in many cases the same personnel who made bad errors of judgment throughout the 1980s —to continue to exercise the same functions that they have had for some years. The House is entitled to question whether that is appropriate in all the circumstances. Of course, one can reach judgments with the benefit of hindsight. In considering my contribution, I first thought of addressing the Bingham report briefly and concentrating on the future—but one cannot do that without drawing conclusions from Bingham's telling criticism, which, because it is so understated, is so powerful.
BCCI's problems arose long before it collapsed, but I shall not dwell on the final years before its closure. In many ways, the lessons to be learned for the future are to be drawn from the bank's early days. As my hon. Friend the Member for Western Isles (Mr. Macdonald) said, Lord Justice Bingham reached the conclusion that BCCI should not have been licensed in 1979—or that it should only have been permitted to operate under strict conditions.
The Minister seemed to suggest that the only option open to the Bank of England was to allow BCCI to trade or to shut it completely. Bingham makes the point that, even under the 1979 legislation, the Bank could have used available powers to bring pressure to bear on Mr. Abedi to comply with the Bank's understandable concern, or made 537 much greater use of the power of which it has always boasted, in bringing its influence to bear. That influence might have been far greater in the earlier stages than was the case as matters progressed.
Between 1980 and 1984, the Bank of England tried to exert pressure to put in place a structure that it could regulate. It found a solution, but was rebuffed by Mr. Abedi. Lord Justice Bingham is extremely critical of that aspect, commenting that the Bank simply walked away from the situation. At paragraph 246, he states:I find it surprising that no effort was made to bring the Bank's traditional authority to bear on Abedi to secure his compliance … Abedi's truculence … would have made clear that the authority of the Deputy Governor, or even the Governor, would have had to be brought to bear.The alarm was sounded even in the early 1980s that BCCI was no ordinary bank and that it could not be treated as a member of the gentlemen's club—which has been the Bank's traditional approach to regulation in this country. Instead, the Bank was rebuffed in 1984 and then seemed to change tack.
Throughout the 1980s, the Bank of England received, with increasing regularity, reports that should have given notice that something was very wrong. The Bank and the auditors made considerable efforts during that decade to put in place a structure with which they could cope, when all the time BCCI appeared to be leading the Bank on a merry dance.
The Minister said that BCCI was a bank in search of a home. I do not think so. It successfully avoided finding a home. It might be said that it was a role model for latter-day poll tax evasion. It was obvious that BCCI did not want to be regulated and regarded the Bank of England as a soft touch—which it was.
In 1985, the Bank was alerted to substantial trading losses in BCCI's central treasury. Lord Justice Bingham is especially critical of the Bank's response in that regard. Although it is clear that it sent in inspectors, they were taken in by BCCI and had no idea what it was doing at that time.
Between 1986 and 1988, the Bank of England heard of more and more problems—of fraud in London and—from M16—of fraud in the Gulf. There was evidence also of doubtful loans. It is clear that although individuals in the Bank and Price Waterhouse, latterly the auditors, had that information, that intelligence was not brought together at an early stage and channelled ultimately, I suppose, to the Governor—who must, as the individual in charge of the Bank, accept responsibility for regulation.
Instead, lines of communication left much to be desired. At no time did anyone stand back and ask, "What on earth is going on at BCCI? Why have we made no progress? Why are we allowing months and years to elapse before taking firm action?"
§ Mr. David Shaw
I attended a meeting in the Grand Committee Room at which many members of BCCI's staff were represented. They argued that the closure had been a CIA plot against the Muslim world. They seemed to think that it had taken place far too early, and that the bank should have been given a longer chance to stay in business. How does the hon. Gentleman reconcile the early warnings with the considerable political pressure that was 538 exerted world wide, to the effect that the bank was looking after the interests of the third world and should be allowed to continue in existence?
§ Mr. Darling
I do not accept the argument that, according to the hon. Gentleman, was put to him and others in the Grand Committee Room, but that is neither here nor there. It would appear that the Bank of England considered the possible consequences of closing BCCI throughout the 1980s. It might more profitably have considered the consequences that would be visited on it if it took no action.
Let me repeat that the sole option was not always closure. If the Bank of England had told BCCI earlier that it was not prepared to allow it to continue in business without the imposition of conditions, matters might have been different. I do not disagree with the Economic Secretary's assertion that, whenever the bank was closed, some losses, somewhere, were inevitable. We must ask, however, whether it might have been better to take firmer action at the outset, rather than letting matters build up.
The Bank of England was in a difficult position. It was trying to arrange the restructuring of BCCI, and latterly, when the new majority shareholders appeared on the scene, it was trying to take advantage of that. Throughout that time, however, it should have focused on the main problem—that BCCI was not being regulated because its structure made regulation impossible. The Bank did not address itself to that problem; indeed, as 1991 approached, it became so confused that, in my view, it lost sight of what it was supposed to be doing. To that extent, its judgment was severely wanting.
§ Mr. Vaz
My hon. Friend is giving an excellent account of the Bingham report. Does he agree that it is very odd that, in a 45-minute speech, the Economic Secretary did not once defend the role of the Governor of the Bank of England? Is it not extraordinary that, following the savage criticism directed at him, the Governor has not resigned —or, at least, tendered his resignation and left Ministers to decide whether it should be accepted?
§ Mr. Darling
I shall deal with that point shortly.
Let us consider Bingham's criticism of the way in which the Bank of England handled reports that came to it from the fraud squad in England, from MI6 and from other sources. According to chapter 2, paragraph 14,it was in my view incumbent on the Bank to see that serious and apparently credible allegations capable of investigation … were fully investigated. As it was, the police complaint petered out and the report from the Gulf was neither investigatednor pursued.
Alarm bells should also have rung in respect of the Tampa indictment. According to paragraph 2.166, the auditors felt it necessary to enter the Bank of England separately in case they were seen by their clients. Yet, after they had spoken to an official of the Bank about the matter and acted accordingly, nothing was done. As Bingham points out, the Bank showed a "marked lack of curiosity".
In paragraph 2.162, he observes:The likelihood of involvement in handling the proceeds of drug-trafficking could scarcely have eluded a competent and diligent banker contemplating such an investment, particularly if he had branches in Panama and agencies in Florida — it was a pertinent enquiry, to which a rigorous supervisor would have wished to know the answer.I have cited those passages because they are relevant to what is to happen in the future. Bingham has made a 539 damning criticism of the judgment of junior, middle-ranking and senior officials in the Bank of England. and at the end of the day the Governor must accept responsibility.
We all know that the Bank of England is immune from prosecution or suit because of the terms of the Banking Act 1987. Surely, if those who rely on the Bank have no normal legal remedy, the counterbalance must be that those who accept responsibility—and all that goes with the governorship of the Bank of England—should accept the other side of the coin. When things go wrong and the organisation for which they are responsible fails to live up to the expectations to which we are entitled, they should accept the logical consequences and resign.
It is never pleasant to put someone in such a position; ultimately, however, responsibility for one's actions is a crucial part of accountability. I think that, after receiving the Bingham report, the Chancellor himself should have said to the Governor, "This is a damning criticism of the stewardship of the Bank, and you cannot do other than accept responsibility." There is a problem with that, however: I can imagine the Governor turning around and replying, "Well, Chancellor, I will go, but what about you? What about your conduct of matters for which we were both responsible?"
That has been one of our difficulties with the Government over the past few weeks. No one is prepared to accept responsibility for his actions. That debases public life, because the public are entitled to expect someone to accept responsibility when something goes wrong. Surely, when no legal remedy is available—I shall say more about that when I deal with the question of compensation—and no one is prepared to carry the can, the Chancellor is duty bound to insist that standards are upheld.
I find it extraordinary that the Governor seems to be maintaining the line that the Bank is blameless. I understand that he continued to take that stance when he was invited back to give evidence to the Select Committee earlier this week. According to him, no one was at fault; it was all a mistake; perhaps it should not have happened, but no one was to blame. I cannot accept that. Is the Economic Secretary asking us to accept that the Bank of England, in its present form—with many of its officials still occupying the desks that they occupied during the BCCI affair—is to continue to be responsible for regulation? If so, many people are bound to ask when the same thing will happen again.
This is not the first time that such a problem has arisen. The affair involving the Johnson Matthey bank—which, of course, entailed different circumstances—illustrates the problem. The Bank of England may enjoy many successes, but it has yet to get on top of affairs such as those involving Johnson Matthey and BCCI. Warning signs were there, but the Bank of England did nothing.
§ Mr. Beith
I believe that I am the only Select Committee member who took part in the questioning on Wednesday and who is present today. For many years, the Governor of the Bank of England has proved a courteous, frank, helpful and honest witness before the Committee. Like other Committee members, I was appalled by such a defensive approach to such a catalogue of failures as that listed in the Bingham report. I was genuinely amazed that neither the Governor nor his colleagues seemed willing to accept responsibility for what had happened.
§ Mr. Darling
I have not met the Governor; I believe that I am to meet him in the next couple of weeks, which makes matters rather difficult. I dare say that he will be delighted to meet me after what I have said! I think, however, that I should be failing in my duty on behalf of my party, and on behalf of many other hon. Members, if I did not say what I believe ought to be said: that someone should accept responsibility.
This is the biggest banking failure that we have seen. Many depositors, in this country and abroad, have lost all their money and are in severe financial difficulties. No matter what the Economic Secretary may say, when a bank is regulated its depositors are entitled to expect the regulator to discharge the duties incumbent on it. I do not suggest for a minute that they should not use their own commercial judgment in many respects, but there is no point in regulation unless it means regulation.
I think that I have made the point strongly enough. I find it extraordinary that the attitude of the Bank's senior management is "business as usual." I suppose that all that can be said in their defence is that exactly the same attitude prevails in the Treasury. Its approach is, "Nothing has happened. The public may have lost out; tough luck. We are carrying on." That attitude needs to be corrected.
Does the Economic Secretary believe that the Bank of England is the appropriate body to continue regulation? I know that that point has been canvassed by the Select Committee, but I wish to raise it again. I was struck by many features of Lord Lawson's book, which was published yesterday, but one aspect struck me particularly. I would not normally seek an ally in Lord Lawson, and some of his criticisms are in what I would call typically Lawsonesque style: everyone seems to have been to blame except him. However, he points out that the Bank of England has two tasks. One is to implement monetary policy; the other is to supervise banking policy.
On page 406 of his book, Lord Lawson says:despite the Bank's subordinate role in monetary policy and its leading role in bank supervision, the high fliers were all attracted to the former, much sexier side, while the humdrum but importanttask of regulation wasalways in danger in becoming something of a backwater.Two points arise. First, why did not Lord Lawson, during the six years that he was Chancellor of the Exchequer, do anything about it, if that is what he thought? Secondly, is he right? I understand that the Bank of England will say that that is not necessarily the case and that it has high-calibre people on the regulatory side. I wonder, however, whether an organisation whose sole job is regulation ought not to have focused on the problems that arose with BCCI at a much earlier stage. The Minister should look into that point.
To digress for a moment, if the treaty of Maastricht is concluded and a European central bank is established, the structure, composition and powers of the United Kingdom's own national Bank will have to be looked at. We ought, therefore, to consider whether the Bank of England should be responsible for regulation.
I say no more than that the situation might have been different had there been an organisation whose sole job was to look at these issues. Bingham makes the point that the Governor and deputy Governor were busy men, that they had many other matters to worry about in the 1980s and that it might have been better if someone had had sole responsibility for regulation.
541 I am glad that the Minister accepts the Bingham recommendations and also the Select Committee's recommendations, to which I shall return. I disagree with one of Lord Bingham's recommendations. He said:the Board of Banking Supervision played a valuable role but must be alerted to any fact which even might cause their antennae to twitch".There were a number of facts that would have made anybody's antennae twitch a trifle. Lord Bingham is a little complacent when he says that the Board of Banking Supervision had played a valuable role. I argue that it did not do so. It had the information, or had cause to ask for information to be put before it. I do not know the two gentleman to whom the Minister referred and I do not criticise them, but I wonder whether hon. Members can leave the House today feeling happy that the same people appear to be doing the same job that they were doing throughout this episode. Apart from that, I have no quarrel with the Bingham recommendations.
As for international co-operation, the House will be aware that under the European directive that comes into force in January 1993 we shall be faced with the curious fact that banks operating in the United Kingdom will be regulated by other European Community member states. The standards of regulation are not the same throughout the Community. The Treasury and the Bank of England will have to consider very carefully how that works out in practice so that we do not find that someone takes advantage of the fact that somewhere in the European Community there may be a regulatory regime that is less strong than the United Kingdom's regime.
The other important point is that the statutory duty of auditors ought to be clear so that if whistles are to be blown they are blown without doubt. It should never be necessary for auditors to have to go to the Bank of England and use separate entrances in such a clandestine manner as happened in the case of BCCI.
On the question of compensation, I have to remind the Minister that on the same day that he said that he was confident that the Bank of England would be exonerated, the Chancellor of the Exchequer said something different. The Minister may come to the Dispatch Box with a clean sheet, but the Treasury, for which he is now responsible, does not come to this matter with a clean sheet. The Chancellor is still the same Chancellor that we had in 1991. In reply to a question from my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) the Chancellor of the Exchequer saidI said that I would have to consider the position if the conclusion was that blame applied to the authorities or individuals, or there were findings of negligence."—[Official Report, 19 July 1991; Vol. 195, c. 722.]The Minister muttered the word "negligence". Negligence is a high test, but the Chancellor used the word "blame". I challenge anybody who has read the Bingham report to tell me that no blame attaches to the Bank of England. Ministers sometimes say things that they subsequently regret, but the tradition is that if they say things to the House they are stuck with them.
I know that the Chancellor will claim that he said that he would consider it and that he has now considered it. I dare say the minute he sat down he considered the matter and thought to himself, "I shouldn't have said that." However, he did lead people to believe that if there were blame, the matter might be different. The Government 542 have some responsibility because, as I said, the Treasury is responsible for the Bank of England. That is the line of communication and the line of accountability.
From 1988 onwards the Treasury was well aware of the problems with BCCI. When the Chancellor of the Exchequer made his statement on 22 October I said that the Treasury had to ask itself whether it ought to have done more. It certainly briefed Ministers that all was well, but the Treasury, for which Ministers must accept responsibility, must have known that alarm bells were sounding. In my wanderings around the City in the last couple of months or so, anybody who mentions these things tells me, "Anyone could have told you about BCCI. It's just unfortunate that nobody appears to have told the Governor of the Bank of England that there were problems."
§ Mr. Vaz
My hon. Friend raises a very important point about what the Chancellor said on 19 January 1991. Will he take it from me that the Economic Secretary's predecessor, Mr. Maples, gave exactly the same commitment when he met an all-party delegation of Members just after the Bingham inquiry was set up? He told us that if there were any question of negligence or blame, he would look into the question of compensation.
§ Mr. Darling
I must accept what my hon. Friend tells me. I dare say that someone on the Treasury Bench will have made a note of that point, though I suppose that in this era of open government we shall not see it.
The Chancellor certainly led the House to believe that if blame were to be attached to anybody he would have to consider the position. Most hon. Members took the view at the time that this looked like another Barlow Clowes. It could be, though, that the Chancellor had been briefed by the Governor of the Bank of England and that the Chancellor was clear in his own mind at that time that no blame was going to be attached to the Bank of England. It is possible that the Bingham report came as much of a surprise to the Chancellor as the section 41 report by Price Waterhouse came to the Bank of England in 1991.
The local authorities make one point that seems to me to have some force. Under the Banking Act 1987, the Bank of England has immunity. Local authorities cannot go to the ombudsman. It was the ombudsman's report that led to the recommendation that compensation should be paid to Barlow Clowes investors. The local authorities are in a difficult position.
The second report of the Treasury and Civil Service Select Committee deals with the local authorities. It makes useful comments about the Bank of England's approved list. Even those who criticise the local authorities—I am critical of one or two of them—accept that there is some ambiguity about the approved list that is published by the Bank of England. There was no point in having an approved list if the Bank of England knew, as one member of the Bank of England's staff said, that BCCI was a cesspool but then stuck it on the approved list, in the knowledge that people were likely to do business with it. Although he did not mention it specifically, I hope that the Minister accepts the Select Committee's recommendation.
I return to the point that I made earlier: there are two possibilities. Either the Bank of England is to be made available for prosecution or legal redress, in the event of negligence, or we are entitled to expect, when things go wrong, that somebody carries the can. We cannot have it 543 both ways. We cannot have the Bank of England being unable to be sued and, no matter what happens, nobody accepting responsibility for what goes wrong. It is unfortunate that poll tax payers in some local authorities will have to shoulder a very heavy burden.
Criticism has been levelled at the conduct of officials in the Western Isles council. When one looks at the catastrophic consequences for the economy of the Western Isles and for the poll tax payers—or for council tax payers next year—the Government's attitude appears to be high handed. Therefore, they ought to look into that question.
Individual depositors pose a difficult problem. Under the Banking Act, the maximum amount payable under the deposit protection scheme is £15,000. Under the Finance Act 1987—a different regime—the maximum sum payable is £48,000. Does the Minister intend to review the working of both schemes? There appears to be an anomaly. In the United States, the equivalent of about £68,000 can be paid to individual depositors.
If the Treasury and Civil Service Select Committee returns to the question of compensation and recommends that compensation ought to be paid to investors over and above what is provided for under the deposit protection scheme, I hope that the lavish praise that the Minister heaped upon the Select Committee will not cease and that he will accept such a recommendation. The Chancellor gave an undertaking, from which Ministers cannot lightly depart. I would not go so far as to say that the statement was misleading. It would be improper of me to do so. If, however, Ministers say something to the House and, therefore, to the country, people are entitled to rely upon it.
I accept the difficulties that the Government would have concerning the relationship between depositors, major shareholders and the compensation scheme. Nevertheless, if the Government can do anything to bring pressure to bear, as Governments can, I ask them to do so. There is no doubt that many people in this country feel that they have had a raw deal, and that they are not being given the same consideration as were the more articulate investors in other schemes. They feel badly done by, and they are beginning to wonder whether the Government regard them as less important than other investors.
As the bank is now in liquidation, there is the problem that the liquidators are responsible for all the creditors throughout the world, not just the United Kingdom creditors. I understand that, as ever, rapacious accountants and lawyers are having a field day with what funds remain in the bank. That matter must be investigated.
Finally, there are some relevant questions about which I had hoped the Minister would speak. For example, the whole subject of regulation has a direct bearing on the report, whose publication coincided with increasing problems in the regulation of financial services. There have been many problems, and the Government will have to get a grip on the situation.
Next year the European directive will introduce a new area to consider. The Securities and Investments Board and its subsidiaries, if I may use that word, are relevant. The Minister will be aware that over the past few months there has been controversy, to put it mildly, over the amalgamation of the Life Assurance and Unit Trust Regulatory Organisation—LAUTRO—and the Financial Intermediaries, Managers and Brokers Regulatory Organisation—FIMBRA. Mr. Newmarch of the Prudential Assurance company made a speech on Tuesday 544 night which brought to a head a simmering row. It is difficult to see how the PIA—the new amalgamated body, the Personal Investment Authority—will be able to get off the ground if an organisation as large as the Prudential will have nothing to do with it. The Government must get a grip on the situation. They cannot allow the debate to become dominated by producer interests. There is a large public interest.
I believe that the hon. Member for Dover (Mr. Shaw) complained that small firms might be regulated. May I tell him that many of the problems arise from small firms—the kind that are set up in January and are gone by November, leaving a trail of devastation and hardship in their wake. The Government must consider that aspect, although it is extremely difficult. In some ways banks are easy, because one is dealing with one or two large players, whereas financial services involve many very small firms trading with hundreds of thousands of people. Nevertheless, the Government cannot allow the industry to carry on in its present state.
I know that Andrew Large of the SIB is due to present a report to Ministers in March, but I am not sure that the Government can wait until then before making preparatory plans. Even after the report is presented in March there will have to be consultation, and it may be 1995 or 1996 before new legislation is passed. The Government will have to legislate next year and, if they are to do so, some of the more difficult problems, such as the lack of compulsion available to the SIB for knocking heads together, could be tackled.
It is depressing to speak to people in banks and insurance companies and hear them say, "We know that we shall have to co-operate, but we shall not do so until we are forced to." The Government cannot allow that to continue, because every day somewhere in this country someone is selling duff policies to vulnerable members of the public. The public are entitled to expect that the Government regulatory regime will protect them. I hope that the Government will take that on board.
The Government must deal with the problem of the Investment Management Regulatory Organisation—IMRO—and the blot that the Maxwell affair has left on its record. And they really must resolve the problem of LAUTRO and FIMBRA.
The term "self regulation." is not only inappropriate but perhaps symbolic of an atmosphere that prevailed in the mid-1980s, and which is not relevant to the mid-1990s. Mr. Newmarch is right that the climate must change. That term is inappropriate—but, equally, statutory regulation should not mean a United States style civil service regulator, with the taxpayer picking up the tab when anything goes wrong. Industry should be allowed to regulate its constituent parts, provided that the interests of depositors and investors are looked after.
Parliament is entitled to lay down the framework of what it expects from the regulators—to ensure that companies are regulated, that interests are protected and that regulation means efficient and adequate policing of a regime, so that someone will knock on the door and say, "Where are your accounts? What policies are you selling? Are you deceiving people?" Yes, that will cost money, but in the long term it is a lot cheaper to have a proper regulatory regime in force than to allow the present situation to continue, claiming more victims every week.
The Government cannot avoid blame for what has happened, either with BCCI or in the financial services 545 regime. They created the culture of the 1980s, when a nod and a wink were given in the direction of regulation, but they made it clear that they did not want to know about it. That has changed. Indeed, some of the utterances of the Economic Secretary to the Treasury have contrasted favourably with some of those of his predecessors. That is why I am so disappointed that today he seems to be returning to the bad old days, saying, "This is a bit unfortunate; let us walk away and hope that it never happens again." We cannot do that; the culture must change. The Bingham report clearly illustrates what goes wrong when we have a culture of the soft touch. People will take us for a ride, and the Government must remember that.
I know that compensation is a difficult problem, but I strongly believe that, with proper regulation, it will be solved. I believe, too, that the fact that the industry will regulate itself makes abuses less likely. People will hear about things going wrong, so they will be more alert than they might otherwise be. I do not see why people who buy policies should have to pay for compensation in advance, by having it loaded onto the price of the product. That is equally wrong. The Government must get a grip on the situation, and show that they are prepared to regulate. At present, the industry is simply not doing the job.
Regulation is important for two reasons. First, the public, the depositors and the investors expect that when they do business with a regulatory body they are entitled to certain standards, which will be actively policed. Secondly, we must consider the reputation and standing not only of the industry but of the City and of United Kingdom financial services. The United Kingdom is still a world centre, partly because of that reputation, so it is important in terms of this country's income, GDP and employment prospects. If the Government accept that, they must accept that we need a regulatory regime that works. Those two aspects—the protection of the public, and the integrity and reputation of the industry in the United Kingdom—go together.
The Government must show that they are prepared to act quickly. Bingham and the Financial Services Act experience show that the Government and the House have been warned. We should take the opportunity that now arises. We cannot walk away from this. If we do, sooner or later we shall be back discussing the next catastrophe. I ask the Minister to bear in mind the fact that he has been warned. He may be the Minister responsible for such matters for a short time or for a long time, but he and the Government have been warned that there are problems, and that they must be tackled immediately.
§ Mr. Nigel Spearing (Newham, South)
On a point of order, Mr. Deputy Speaker. You will be aware that yesterday the President of the Board of Trade and Secretary of State for Trade and Industry made a statement on the GATT, which finished at 5.40 pm or thereabouts. Since then there have been considerable developments—the resignation of Mr. MacSharry and other matters concerning the President of the European Commission, who is responsible for the discharge of £25 billion of public money in connection with exports and agricultural support.
In answer to a question from me yesterday, as reported in columns 443–44 of the Official Report, the President of 546 the Board of Trade did not dissent from the proposition that he was the prime political person in this country, and throughout the Community, in his capacity as President of the Trade Council, responsible to the public here and in the Community.
The Government have said that they wish to bring the proceedings of national Parliaments closer to the people, so I expected that it would be their duty to arrange for a statement to be made. Looking at the clock, Mr. Deputy Speaker, I gather that you have received no such application. I should be grateful if you would tell me whether that is so and, if it is, how the House can express its concern at the Government's lack of action on behalf of the people of this country and of the rest of the Community in this crucial matter.
§ Mr. James Molyneaux (Lagan Valley)
Further to that point of order, Mr. Deputy Speaker. You will be aware that I have no vested interest in interrupting this debate, because I hope to catch your eye later. However, in the light of all the developments that have taken place in the House and the fact that the United Kingdom has held the presidency in Europe for the past six months, it is important that we should be given some information about what measures may be taken urgently to restrict the destructive tendencies of Mr. Delors, who has already done a great deal of damage to relations between the European Community and the countries across the Atlantic.
§ Mr. John Greenway
Further to that point of order, Mr. Deputy Speaker. Given the thin attendance that we normally see in the House on a Friday when we have an Adjournment debate of this nature, would it not be more satisfactory to the House for the President of the Board of Trade to make a further statement on Monday rather than today, when he should spend his time negotiating the GATT settlement?
§ Mr. Deputy Speaker
Order. Let us not have a debate on this matter. I have had no request for a statement on any issue, but I am sure that those on the Government Front Bench heard what the right hon. and hon. Members said and obviously took note of it.
§ 11 am
§ Mr. Terence L. Higgins (Worthing)
The disastrous collapse of BCCI has set a number of records, which stem from the sheer scale of the fraud. It is probably also on the way to setting a record for the number of inquiries and reports that have been made into it. We have had two reports from the Treasury and Civil Service Select Committee, together with the responses of the Government and the Bank of England. We have also had the reports of Senator Kerry's inquiry and that of Sir Thomas Bingham.
I am grateful to the Economic Secretary for his kind remarks about the report of the Treasury Select Committee, since, in one sense, it was my swansong as Chairman. I believe that it is a good report. I also noted with interest what he said about Senator Kerry's report. From reports in the press, I came to the conclusion that it was long on rhetoric but not very long on evidence or analysis.
The reports of the Select Committee and that of Sir Thomas Bingham provide the House with a sound basis for a debate on the relevant issues—which, if I may 547 presume to say so, has been apparent from the two speeches that we have already heard. There is a difference between the two reports, because the Committee's was based on evidence taken in public, which was an important contribution to the general debate on the issue, whereas Sir Thomas took evidence in private.
It is also true to say that, excellent though Sir Thomas's report undoubtedly is, it does not greatly add to the conclusions or recommendations that were made by the Treasury Select Committee. I am glad that the Government have been prepared to accept not only all of Sir Thomas's recommendations, but virtually all of those made by the Treasury Select Committee. It is vital that we should look forward in our consideration of this matter.
I should like to declare an interest; I am a consultant to a firm of accountants, and obviously the role of auditors was pretty important in this matter.
My first main point is a simple one. It is clear from the evidence that we have received that responsibility for bank supervision by statute rests with the Bank of England and not with the Government. Also apparent from the evidence we received was the extent to which the Governor of the Bank of England did—or, more accurately, did not —keep Ministers informed of what was going on.
There is no doubt that there has been a serious failure in the regulatory mechanism, so it is important that we analyse exactly what happened. I am aware that the Treasury Select Committee is now considering the issue of compensation, and I would not wish to comment further on that, except to note the rather extraordinary statistic that the Economic Secretary has already mentioned. About 42,000 claim forms have been sent out to depositors, but only 16,000 claims have been made. It might be relevant to consider what has happened to the other 26,000 claim forms.
§ Mr. Vaz
The right hon. Gentleman has highlighted part of our argument about compensation. The amounts of compensation that will be paid eventually, if the Government pay out to all the depositors, creditors, local authorities and former employees, would be a good deal less than the £6 billion mentioned, simply because people who want that compensation will under-claim.
§ Mr. Higgins
I understand that very well, but I am merely drawing attention to the large disparity between the two figures.
In the Treasury Select Committee report, we pointed out that IML—Institut Monetaire Luxembourgeois—and other regulators set up a unique system of supervision through a college of regulators, which was clearly a second-best solution with serious deficiencies. We said:We simply do not understand why BCCI should have been the only bank in the world to be given such preferential treatment".The response of the Bank of England to that point can best be described as pathetic. It said:The BCCI was a unique problem and the college a unique response to it, as Lord Justice Bingham acknowledges, so it was not a case of preferential treatment.I do not understand what the Bank is seeking to say. BCCI was the only bank in the world that was given a college of regulators, when all other banks were told that they should be dealt with on a normal basis by a single regulator. As my hon. Friend the Economic Secretary and the hon. Member for Edinburgh, Central (Mr. Darling) have already said, BCCI was not looking for a home: it 548 was trying to avoid having one. It singularly succeeded in that objective because of the special—and, I am bound to say, preferential—arrangement—the college of regulators.
I do not understand why the Bank of England followed that course of action. If it had taken a tough line at that time and had told the BCCI that if it could not find a proper home, it would not be authorised and it would have to close down, that would have been the crunch. I am bound to say that, if that had been done, the losses to depositors would have been far smaller.
The Treasury Select Committee also concluded that there should have been a single regulator. The Bank of England now accepts that, but it did not do so earlier. That reflects what we rightly criticised as the "climate of opinion" in the Bank, which caused a great deal of trouble. I noted with interest what the right hon. Member for Berwick-upon-Tweed (Mr. Beith) said about the session that the Select Committee had with the Bank of England the other day. I still do not feel that there has been a significant change in that climate of opinion, despite the proposals that have now been made for improving the regulatory system. The lack of change is cause for concern.
The Select Committee also said of the Bank of England's response:in our view the promise of additional funds from a major shareholder to make good any deficiencies does not exonerate a regulator from ensuring that the criteria for authorisation are met. We believe that it is important in future that a clear distinction should be made between solvency and probity, and that the 'minimum criteria for authorisation' should be strictly interpreted.The Bank of England seemed to be convinced that, because more money was being put in and BCCI might therefore be regarded as solvent, that was the end of the matter, and it had no further cause for concern. If BCCI had been entirely run by the mafia, which was prepared to put endless quantities of money into it, it would have been perfectly solvent. That does not mean that it would have been an appropriate bank for the Bank of England to authorise. That attitude once again reflects the climate of opinion that existed in the Bank of England.
In the light of the reports of Sir Thomas Bingham and the Treasury Select Committee, the Bank of England and the Government have accepted the need for a body to regulate the regulators. The Treasury Committee considered this matter in considerable detail, and it is especially important against the broader issues of the EC banking directives and the GATT Uruguay round. One must consider whether, in order to have freedom of competition across international boundaries, bodies that are authorised in one country should be authorised in others. In the EC context, that goes to the idea that, if one EC country authorises a bank, that should be accepted as a sufficient criterion for authorisation in the United Kingdom.
It is suggested that some changes should be made—some legislation, for example—to deal with the legal status of banks that are thought not to be capable of adequate regulation. The Minister referred to the proposed forthcoming legislation. There are, in addition, proposed amendments to the Basle concordat.
I am not clear whether the legislation that we introduce would be adequate to enable the Bank of England to say that it is not prepared to give authorisation, even though it has been given in another EC country. Will the national legislation be capable of overriding what, on the face of it, seems to be an absolutely free passport across the EC?
549 The Economic Secretary said that that would be discussed at the Edinburgh summit. It is extremely important for the point to be cleared up. It seems, for example, that a bank could be authorised by one of the successor states to the former Yugoslavia. If that were authorised there, we should be obliged to say, "That bank can operate here." If, under EC regulations, that law was supreme over the laws that we may make in the legislation which the Minister is contemplating, that would not be adequate protection for depositors in this country. We must be clear just what is the priority in one set of laws compared with another.
We must also consider, in relation to the Basle concordat, the question of peer pressure and so on. It is said that the concordat will cover the G10 and a wide range of countries. I suggest that it will not be adequate unless it is a universal set of rules and standards which can be applied. Otherwise, as happened in the BCCI case, a bank that wants to avoid effective regulation—forum shopping, as it is called—will go to a bank that is outside the Basle concordat.
Will there be some form of international blackball to enable signatories or parties to the Basle concordat to say that, in those circumstances, a regulatory authority will not be accepted as appropriate? That will be difficult, given that it may be located in a sovereign state. We must cover the point, because in many ways it reflects the problems exemplified by the tragic events that resulted in the collapse of BCCI and its aftermath.
The hon. Member for Edinburgh, Central wondered whether the present structure in this country was appropriate, given that the Bank of England is responsible both for broad financial issues and the regulation of the banking system. I am coming increasingly to believe that that combined role is not necessarily appropriate.
I was interested to note the evidence that the Governor gave to the Select Committee a few days ago. The point was raised with him in the context of alleged remarks—I know not whether they were true—by Bundesbank officials about the situation in this country. One supposes that the Governor had given much thought to the subject. So, when he was asked whether he thought that the responsibilities should be split and whether some authority other than the Bank of England should deal with the regulatory side as well as the financial side, one would have expected him to give a considered view.
In the event, he made two particular points. He said that the great advantage of having the two combined was that the Bank was operating in financial markets as well as in a regulatory way, and added:As a result of what we do in banking supervision, we have a very close picture of what is going on in the markets and the soundness of the financial institutions who are our counterparts, and as a result of what we do in the markets we get a very close picture of how things are going in the financial system itself.If that were a valid argument, we would consider it in the context of BCCI and conclude that we had doubts about it. I suppose that the most active part of the financial market is the discount market, and at least one of the main participants in that market never accepted the BCCI situation. If so, one would suppose that the Bank of England, looking carefully at the discount market every 550 week, might have taken some notice, in its role of regulator, of that fact. Indeed, if the Governor's argument is valid, it does not seem to have worked in that case.
The Governor's second point was that the Bank of England had close links with commercial banks and so on because it was a lender of last resort. That might be the case from the point of view of some of the clearing banks, but it blatantly was not the case in respect of BCCI.
Given that the Governor's term of office is coming to an end, this might be an appropriate time for the Economic Secretary to consider carefully whether the combined role is appropriate, whether the individual in charge of it can adequately give enough time to both roles, and, indeed, whether the same person should be in charge of both functions.
We are fortunate in having the Economic Secretary dealing with the issue. Many of the problems that have arisen in recent years have been due to the split between the Treasury and the Department of Trade and Industry. I hope that increasingly it will be concentrated in one Department, and the Economic Secretary's knowledge of these issues fits him well to consider the points that are being made today and, in a broader context, the points made by the hon. Member for Edinburgh, Central, who expressed concern about the way in which the present financial regulatory legislation of a broader kind is operating.
The subsidiary legislation has been in a state of flux since the present framework was set up. The House did not do a particularly good job when it looked at these matters a few years ago, and the time has come for us to look at them more broadly and to learn the lessons that have been shown, not least by the report of the Select Committee and the Bingham report. We are learning those lessons, but I have thought it right to express some of the doubts that I still have about what more needs to be done.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
I am glad to speak following the former Chairman of the Select Committee, partly because I can pay tribute to him for the work he has done on the two reports on this issue, and partly to urge the Economic Secretary to realise that the points made by the right hon. Member for Worthing (Mr. Higgins) show how perturbed many of us are.
We are perturbed not on any party political basis but because of concern over the integrity and status of banking regulation and other relevant matters. We are perturbed that so little acceptance should have been shown by the Bank of England of the scale of failing that has been revealed. The calls that we make are not born of a party political desire in some way to injure the Government by getting at the Governor. There could be no clearer testimony of our concern than the remarks of the right hon. Member for Worthing.
We have before us a well-prepared report into a ruinous catastrophe for many individuals. Terrible hardship has been caused, life savings have been lost and small businesses have been destroyed among enterprising people, many of whom had come from another background and were building up their place in British society by hard work and effort.
Of course, BCCI was not confined in its work to the ethnic minority community. Its tentacles, and the hardship, were spread much wider, from one end of the 551 country to the other, as is exemplified by the interest that is being shown in this debate by hon. Members from the southern tip of Britain to the Western Isles.
The involvement of local authorities was examined with care by the Treasury Select Committee, as was that of the brokers with whom they dealt. We found it significant that such a small number of brokers were involved in the BCCI business done with local authorities. By and large, the smaller local authorities, having less high-calibre professional advice, did that business.
As the Economic Secretary said, behind it all was massive fraud on a scale never seen in the banking system anywhere in the world before. The blame for what went wrong lies with that fraud and those who perpetrated it. However, it does not exonerate the regulatory authorities to say that they were simply regulators and not the evil men who planned the fraud, because a heavy responsibility rested on them.
The report contains a series of damaging criticisms of the Bank of England. They are stated modestly and carefully and set in context, but they are extremely serious. The fact that the report did not conclude with a recommendation that the Bank of England be abolished or its leading officials be sent to the stake is being adduced by the Governor and some of those officials as showing that those criticisms do not add up to much.
Nobody who goes through the pain of reading the whole report can come away from it without believing that the Bank has been the subject of fierce and wide-ranging criticism. I commend to anybody interested in the matter and who has not read the report in full to do so, because that is its impact. By failing to recognise the sheer extent of the criticism, one is in danger of not seeing the impact that runs from the beginning to the end of the story.
In the earlier stages, the report is telling when it looks at the report prepared by Brian Gent, deputy head of banking supervision, who argued strongly for the bank's location within the United Kingdom so that it could be dealt with properly by United Kingdom regulatory authorities, and dismisses the feasibility of any form of regulation not rooted in that. Paragraph 2.38 of the Bingham report says:This paper provoked no action.It was some time before it provoked real action, and there was much argument within the Bank. When other restructuring proposals based on a revised version of that paper were eventually put to BCCI with the authority of the Governor by that time the present Governor had taken over—far from insisting that its wishes be carried out in the traditional way, the Bankfell at the first fence".As the hon. Member for Edinburgh, Central (Mr. Darling) said, the Bank appeared to be a soft touch. The story is repeated time and again in the report:Supervisors tended to lose sight of their primary duty to protect the bank's UK depositors. There was a lack of interest in establishing the truth.Paragraph 2.120 says:the Bank's response was so off-hand as to suggest a lack of interest".Paragraph 2.161 says that, after the Tampa court case,the Bank showed a very marked lack of curiosity.Paragraph 162 says:A rigorous supervisor would have wished to know the answer.The report also says: 552We find that in August 1990 Mr. Quinn and Mr. Barnes were unaware of the serious doubts thrown by Price Waterhouse on the integrity of the bank's most senior management.They were unaware because they had not properly read documents in the Bank's possession at the time. Paragraph 2.257 says:I find it hard to understand why the fitness and properness aspects of this report"—Bingham was referring to the Price Waterhouse 1990 report—made so little impact on the minds of those who read it in the Bank.Paragraph 2.406 says:I have much more difficulty … in understanding the Bank's failure even to try to explore whether the allegations were true or not.Later in the report there appears the statement that some people in the Bank were reluctant to believe ill of BCCI—a banking institution which had, by that time, acquired a reputation, almost throughout the markets, as being at least questionable.
The total of criticism is massive. Why, then, do the Government seek to understate it? In the Economic Secretary's opening remarks today there seemed to be a deliberate understatement of the seriousness of the criticisms levelled against the Bank. The conclusion that people will draw from the understatement of the Bank's failings is that the Government are worried about the compensation aspect and do not want the failings to be stated too highly because that would strengthen the compensation case. The Government must dismiss that thought from their minds. The case for compensation will be argued on its merits. For the general good of our banking system, the Government must not ignore the scale of criticism in the report.
When the Economic Secretary talks, as the Governor did, about the duty to depositors, he seems to refer only to existing depositors. In all those circumstances there are potential depositors. Throughout the history of the BCCI case, those least protected were the people on the threshold of the bank, about to place deposits without the knowledge of what was known within the Bank of England and elsewhere. Banking regulators must have regard to the fact that on them rests the confidence and assurance of people who are about to place money with a bank that they assume has a supervisory or regulatory safeguard.
Reference has already been made to what the Chancellor said about blame being the basis for compensation and to what the Treasury Select Committee said about the case for compensation being dependent upon there being some failing in the exercise of supervisory duties. The Government must now consider that much more carefully than they have done so far. Legal action cannot be taken against the bank, as it could be taken against the financial advisers in the Barlow Clowes case for instance. There can be no recourse to the ombudsman. In the Barlow Clowes case, recourse to the ombudsman brought out a clear argument for compensation without regard to the possibility that legal redress might also produce compensation. The ombudsman was not deterred from recommending compensation by the possibility that investors could have got some of their money back by other means. The same applies to the bank deposit scheme. The fact that such a scheme exists does not remove the case for compensation.
553 I accept that 100 per cent. compensation has serious problems and I do not argue that case. However, failure to carry out supervisory duties generates a requirement for compensation and it is a matter of judgment what that level of compensation should be and how much regard should be had to what depositors will be able to obtain through other proceedings. If nothing is done, where is the discipline on the banking regulation system? Nobody resigns and nobody pays compensation, so what does it matter for those involved in it whether the banking regulation system works in the future? All that is at stake is that they do not lose their good name and are not subject to the criticisms contained in the Bingham report. If that is the only safeguard, it is clearly inadequate.
§ Mr. David Shaw
I understand the line that the hon. Gentleman has taken, but it is only fair that he should answer the question. The part of the report that he quoted refers to Price Waterhouse information that was available only on 3 October 1990. That was only seven or eight months before the closure took place. Surely that report led to the closure and, even if closure had taken place slightly earlier, most if not all of the money would still have been lost.
§ Mr. Beith
The failings that Bingham enumerates run through the whole history, from the earliest decision not to insist that the bank would not be authorised if it did not locate in the United Kingdom. That early key decision could have avoided far more of the losses. Failings exist at every stage and the case for compensation is therefore generated by failings that go back throughout the history of the matter.
If no one resigns when something goes as badly wrong as that, what discipline is there in the system? If no one takes responsibility to the extent of suffering the personal loss of resignation, where is the pressure, and where is the integrity of the system? There is a general feeling among the public that someone should go—whether it be the Governor or some of the senior officials most closely involved. When that does not happen, it weakens the system and the potential for future protection.
I do not wish to take up too much time or dwell on the many sensible and constructive changes made by the Bank following the recommendations of the Select Committee and the Bingham report, so I shall come to my final point. It relates to what the right hon. Member for Worthing said about the future responsibilty for banking supervision and the Bank of England's future position. I press the same point as he did for further consideration.
There is a strong case for separating the ultimate responsibility for bank regulation from the conduct of monetary policy. We have got it the wrong way round in this country. The central Bank exercises a largely independent responsibility for banking supervision, but is totally subservient to the Government on the matter of conducting monetary policy—the reverse of what should happen. There is a stronger case for closer accountability for banking supervision than for independence in monetary policy. There is a risk that the Bank's role in monetary policy, especially if it is more independent—as it must be under stage 2 of the European monetary system —could well be hampered by events such as that relating to BCCI and any that might occur in future.
554 A bank will occasionally slip through even the best-operated regulatory system, and its failure will cause problems. Even if all our best hopes for banking regulation are carried out, at some future time the central Bank may have another problem on its hands, which will cast doubt on its competence in the monetary sector, even if irrelevantly.
There is an argument for separating the two aspects. The Germans have an organisation located in Berlin—not even the banking centre—with responsibility for supervising the pursuit and prosecution of bank failings. That organisation draws heavily on the Bundesbank for guidance on what is happening in the banking sector, which would clearly have to be the case.
The Bank of England's day-to-day work involvement in the banking sector would always give it a role. In Germany, ultimate responsibility lies with the Bundesaufsichtsamt für das Kreditwesen. I hope that we can think of a more catchy title if we devise such an institution in this country. The Government should look at the case for the separation of responsibilities, just as they should consider the argument for a more independent central Bank. I know that the Economic Secretary has much sympathy with that argument.
The central Bank in this country—an institution which has served us well for many years—is presently deeply harmed by a series of well-founded and justified criticisms to which there has been no adequate response by those with responsibility who were in control at the time.
§ Mr. Roy Thomason (Bromsgrove)
The debate seems to have been dominated by those who, with the benefit of hindsight, criticise those who were in the front line at a difficult time. We must draw back a little, stop and recall some of the actions taken by the Bank when it became conscious of some of the difficulties surrounding the organisation.
In October 1988, when the potential Tampa prosecutions came to light, involving people who were not from the bank operating in this country but from a sister organisation abroad, the Bank of England introduced clear scrutiny arrangements. Every week it held meetings with the management of the bank here, and considered its statistics, liquidity and balance sheet. That does not constitute the degree of negligence suggested by some hon. Members in today's debate.
Paragraph 2.3 of the Bingham report states:The systematic frauds now thought to have been practised in BCCI were on a scale which had never been known before. It would, until the later stages of the story, have required considerable imagination to suppose that fraud was being practised on anything approaching the scale which has now been revealed.Those remarks do not demonstrate negligence or a disregard for the interests of depositors and shareholders which some people have implied existed in the Bank.
I am following others when I refer to parts of the report that state, as at paragraph 2.283, that Bingham makes it clear that the Bank's conduct was skilful and professional in the period from January 1990 to the closure in July 1991. Therefore, there is also a story of the Bank operating properly and carefully.
Every crime is wicked, and the one that we are discussing constitutes a particularly vigorous series of 555 attacks on the small as well as the larger investors and shareholders, and others. It is understandable that people wish to see compensation paid to those who have lost out.
Earlier contributions to the debate suggested that full compensation was not being sought. It appears that the conduct of the Governor of the Bank of England is being called into question. That is rather like someone expecting a policeman to stand on the corner of every street where mugging might occur and, when it does, complaining that a police constable was not present, and calling for the resignation of the Chief Constable.
§ Mr. Macdonald
Surely the whole point is not the effect of the fraud, which of course no one could imagine before, but the fact that the structure was such as to allow fraud to take place. As Bingham said, the Bank failed to regulate BCCI effectively and give it a different structure that would have made such fraud impossible. The hon. Gentleman referred to paragraph 2.283—
§ Mr. Deputy Speaker
Order. The hon. Gentleman is making long interventions this morning, and I believe that he is hoping to catch my eye.
§ Mr. Thomason
Thank you, Mr. Deputy Speaker.
Of course, we can all be wise now and criticise the opaque structure of the bank. We can say that the fact that it was operating here although registered in Luxembourg should have alerted us to take action. We could just as well say that there should be a police constable on the corner of the road where the old lady was attacked. After the event we can all speculate about what might have been, but we can rarely be so precise about the nature of the problems that we can take action to deal with them. That is what some hon. Members present today seem to want.
The closure of a bank or even the threat of an in-depth investigation of a bank is most serious action for the Bank of England to take. It is almost being suggested that the Bank of England officials get up in the morning, go to the office, decide whether to have tea or coffee, then decide whether to investigate a bank in depth. The system cannot work like that—there are serious issues to be addressed. The confidence required of any bank is such that to avoid a run on it officials cannot lightly take action that would prejudice its existence. They have a duty to the depositors and employees of the bank not to threaten their livelihoods, as well as not to threaten shareholders' investments. Any action by the Bank of England or any other regulatory authority with regard to other financial institutions must be exercised with the utmost sensitivity. Some hon. Members seem to be suggesting that the sensitivity of hobnailed boots is required.
It has been said that the number seeking compensation will be substantially fewer than the number of accounts. I must draw attention to an important distinction. My right hon. Friend the Member for Worthing (Mr. Higgins), who gave an excellent appraisal of the position as one would expect of him, perhaps overlooked the fact that while there may be 42,000 accounts, groups of them will be in the name of one investor. Therefore, the total number of compensation claims might well be fewer than 42,000, or might be nearer to the total number of alleged losses. That is a minor point of correction. The key aspect is that the issue cannot be taken as lightly as some hon. Members appear to think appropriate.
§ Mr. Keith Vaz (Leicester, East)
I welcome this debate and the publication of the excellent report. My only regret this morning is that the Chancellor of the Exchequer was not present to open for the Government, although I am glad to see the Economic Secretary here.
There has never been a scandal like BCCI. If it had been a work of fiction, we should have thought it bizarre. However, I have never regarded BCCI as merely a financial scandal; I have always seen it as a human tragedy. The lives of hundreds of thousands of individuals, their families and their businesses throughout the world have been terribly affected by the closure of BCCI by the Bank of England. It has had catastrophic social and economic consequences. That is why a year and three months ago, when BCCI was closed, the House demanded an inquiry.
In welcoming the debate and the report, we must recall that the Government and the Governor of the Bank of England initially refused the inquiry. Some 12 hours before the Chancellor announced the inquiry to the House, the Governor told a group of Conservative Members that there was no need for any inquiry. He has been proved, yet again, to be hopelessly wrong.
The Bingham report is a horrifying indictment of the role of the Bank of England. For any regulator to be called "deficient" and for its operations to be called a "tragedy of errors" should be enough to prompt the head of the organisation in honour to resign. Wednesday's fumbling performance by the Governor of the Bank of England before the Treasury Select Committee should have been the final straw. Three members of the Committee either called for or invited his resignation.
Two weeks ago, even the Evening Standard, not known for its radical instincts, joined the chorus. Its headline was, "Go Governor". Someone must take the buck and the buck stops with the Governor. The report has made the Bank of England the laughing stock of all the financial institutions in the world.
A year ago, Ministers could not believe that the Bank could have done any wrong. The Chancellor said on 19 July:I should like to make it plain that the establishment of the inquiry is not to be taken as a criticism of the Bank of England … I have repeatedly said that I am confident that the inquiry will find that the Bank of England discharged its duties in this matter competently and expeditiously.The Economic Secretary, as I reminded him, said:Many of us are confident that it will show beyond any question of doubt that the Government and the Bank of England acted wholly in a timely and proper fashion."—[Official Report, 19 July 1991; Vol. 195, c. 715–25.]On 22 July, even the Prime Minister said:The moment that there was evidence of fraud, the Bank of England acted very promptly and so did the Government." —[Official Report, 22 July 1991; Vol. 195, c. 759.]The Prime Minister, the Chancellor and the Economic Secretary exonerated the Bank even before Lord Bingham had begun his deliberations.
The publication of the Bingham report marks a watershed in the campaign for compensation for the victims of BCCI. It has been an astonishing campaign. It is the human consequences, not the fabulous statistics, which have moved me and which would have moved any hon. Member if he had seen what I have seen.
I met a widow in Hong Kong who put her weekly income into BCCI. She lived in a tenement block with her 557 two young children. After the closure, she could not afford to pay the rent and she was forced out of her home. I met 400 pensioners living in Gibraltar who had put their life savings into BCCI. I also met a man who, the week before, had won the Spanish lottery and who had put all his winnings into BCCI. All was lost when the bank was closed.
I have met people in Manchester, Bradford, Birmingham, Leeds, Sheffield, Bristol, Glasgow and other towns and cities in Britain. I have had 1,567 letters from 70 countries from people who deposited money with BCCI. Every one of them was in a state of shock after the closure. Every one of them had relied on the good name of the Bank of England.
I went to the Western Isles at the invitation of my hon. Friend the Member for Western Isles (Mr. Macdonald), who is present today, and of the trades council. I saw the projects that may have to close if compensation is not paid. Some 30 local authorities lost £81.8 million in BCCI, ranging from the northernmost part of Scotland through to Lisburn in Northern Ireland and down to Tory Guildford in Surrey.
In its response yesterday to the Treasury Select Committee, the Bank of England agreed to produce a health warning on its list of authorised institutions—the report was put very late into the Vote Office—which is another sign that the Bank had got it wrong when the report was initially commissioned.
Throughout the year, the campaign has been sustained by the work of the ex-employees of BCCI, some of the finest people whom I have ever met and many of whom are here today. The ex-employees of BCCI want an apology from the Governor for his statement that they were somehow responsible for the fraud. They were not part of what the Governor described as the "criminal culture", but, because of what he said, they cannot find jobs. A survey of 1,200 ex-employees of BCCI shows that families have been torn apart. There have been heart attacks, illnesses, nervous breakdowns and even a suicide. The ex-employees have collectively made more than 20,000 applications for jobs.
The publication of the report makes the case for compensation for the victims of BCCI, for the depositors, for the creditors, for the local authorities and for the staff, unanswerable. I rely on just two statements, to which other hon. Members have referred.
The first statement, by the Chancellor of the Exchequer on 19 July 1991, has been mentioned by my hon. Friend the Member for Edinburgh, Central (Mr. Darling). The Chancellor said that he would "consider the position" for compensation if any blame "applied to the authorities".
He then said:Plainly, we would then have to reconsider the matter, as happened with the case of Barlow Clowes."—[Official Report, 19 July 1991; Vol. 195. c. 722.]In its excellent report of 16 December 1991 at paragraph 76, the Treasury Select Committee made it clear that if there was a breach of statutory duty or supervisory duty, the losses incurred by local authorities should not be met by the local authorities or by their community charge payers.
Some 156 right hon. and hon. Members of all political parties have signed early-day motion 679 which calls for compensation. That is almost one third of all hon.
558 Members who are eligible to sign such motions. The signatories include representatives of all the parties, such as the hon. Member for Moray (Mrs. Ewing), who represents the Scottish National party, the leader of the Ulster Unionist party, the right hon. Member for Lagan Valley (Mr. Molyneaux), the president of Plaid Cymru, the hon. Member for Caernarfon (Mr. Wigley), the right hon. Member for Brent, North (Sir R. Boyson), a former Conservative Minister who, as I am sure the Minister will recall, because I saw his joyous mood on Wednesday night, saved the Government, and the deputy leader of the Liberal Democrats, the right hon. Member for Berwick-upon-Tweed (Mr. Beith), who also saved the Government on Wednesday. In view of the involvement of those two right hon. Members, I hope that the Chancellor and the Economic Secretary will look favourably on the campaign. I am not saying that those two votes were worth £6 billion, but I hope that the Economic Secretary will consider the case for compensation favourably because of the involvement of those two right hon. Members.
The Chancellor told me and the right hon. Member for Brent, North, when we went to see him last week—the Economic Secretary has repeated the point today—that he had considered the question of compensation and had concluded that he would not pay it, first, because Bingham did not recommend it and, secondly, because he did not conclude that things would definitely have been different if the Bank of England had not made mistakes.
I make several points in response to that. First, Lord Justice Bingham was not asked in his terms of reference to consider compensation. Secondly, there are many precedents that could be used. The Barlow Clowes case, to which the Chancellor referred, is a useful and acceptable precedent. The Chancellor should recall the statement made by his former colleague Lord Young, when he was Secretary of State for Trade and Industry, in response to calls to the Government for compensation. Like the Bingham report, the Barlow Clowes report was silent on the question of compensation. In fact, that report was not as strong as the Bingham report because it did not apportion blame.
On 20 October 1988, Lord Young said:The facts set out in Sir Godfray's report in the Government's view provide no grounds for concluding that my department's handling of the matter was unreasonable … and therefore provide no justification for using taxpayers' money to fund compensation."—[Official Report, House of Lords, 20 October 1988; Vol. 500, c. 1259.]Using different language, that is precisely what the Chancellor said about compensation for BCCI. What happened? In agreeing to pay compensation after the second report, the next Secretary of State said:The regulatory machinery was inadequate. It is also true that a large number of investors, many of them elderly, have suffered hardship. They were led to believe that their investment was safer than it was.By the use of a discretionary payment, victims of Barlow Clowes who had lost less than £50,000 were compensated for up to 90 per cent. of their loss. Those who lost less than £100,000 got 80 per cent. back and those who lost more than £100,000 got 60 per cent. back.
The Minister will recall that this year Lord Young admitted that at the time of the Barlow Clowes collapse the Government were reluctant to admit responsibility because of their concern about setting a precedent. As with Barlow Clowes so with BCCI, because the cases are strikingly similar. In the Johnson Matthey case 559 compensation was paid and, as the Governor of the Bank of England told the Treasury Committee on Wednesday, "every penny recovered".
In the Maxwell pension fund case the Government have used a discretionary payment to make grants of over £1 million to eight pension schemes and interest-free loans of £100 million. The campaign for more compensation goes on. The hon. Member for Dover (Mr. Shaw) is involved in that case.
When the right hon. Member for Brent, North and I met the Chancellor and the Economic Secretary last week the right hon. Member told them that there was a perception that the Government were being unfair and discriminatory. I hope that in his winding-up speech the Economic Secretary will refute those allegations and show why there is to be a difference between the two cases. I am heartened by the statement by my hon. Friend the Member for Durham, North (Mr. Radice), a senior and respected member of the Select Committee, that he believes that compensation should be paid. Will the Minister answer the question put to him earlier? If the Treasury Select Committee makes a recommendation for compensation will the Government pay it?
Compensation should mean full compensation for the depositors, creditors and ex-employees of BCCI. I put to the Economic Secretary a list of proposals that I think could help resolve these matters before the question of compensation is finally resolved by the Government. First, the Chancellor should examine representations for compensation from the affected groups. As I have said, I do not think that it will be as much as £6 billion, because the number of claimants will be considerably less than the current number of customers, which is about 285,000. As he said, there has already been a 50 per cent. under-claim on the deposit protection scheme.
Secondly, a committee should be established with representatives from the Department of Trade and Industry, the Treasury and the Foreign and Commonwealth Office to oversee the rapid conclusion of this problem and the co-ordination of Government activities.
Thirdly, the Department of Trade and Industry should be asked to act on the representations to it by creditors and staff about the way in which the liquidation is proceeding. I understand that the liquidators are currently claiming fees of between £1 million and £2 million a week. When creditors write to the liquidators asking how much money they are taking they are told virtually to get lost.
According to the liquidators' report, at the time of closure the total assets of the bank were $16 billion, including $3 billion in cash and due from other banks. According to Lord Justice Bingham, one of the reasons why the Bank of England did not tell Abu Dhabi about the closure was that it wanted the assets preserved and was concerned that, if given advance notice, Abu Dhabi might withdraw or disperse those assets. Where are those assets? In his evidence to the Select Committee last year when pressed on the position of United Kingdom branches, the Governor of the Bank of England said:We do believe that the branches may be asset surplus.I ask again: where is the money, what has happened to it since the bank closed? Nothing has been realised and nothing has been paid out.
As the House knows, the liquidators were appointed by a fax sent by the Secretary of State for Trade and Industry on the undertaking that a meeting of creditors would be 560 held within three months. No such meeting has taken place. It is no good the liquidators chasing the small customers in Britain. They should chase the big borrowers whose loans are parked in the Grand Cayman islands, because they are the people who can give back the kind of money that the depositors need. Why are the liquidators not returning to the staff the $150 million taken by the the bank from the staff benefit fund?
Last week I asked the President of the Board of Trade to produce a list of the liquidators' costs and information about some written-off loans. I asked those questions because I had asked Mr. Desmond Flynn, one of the President's senior officials, to produce this information. In front of five other people Mr. Flynn produced a file and said that because of the powers conferred on him by the Insolvency Act 1986 and because there has not been a creditors meeting, the Secretary of State has to approve all the write-off of these loans. Why is that information not made available to all hon. Members?
The first scandal in BCCI was the fraudsters profiting from the misery of ordinary people because the Bank of England failed in its duty to protect them. The second scandal will be the liquidators becoming rich on the victims' money while the Government stand by and watch. I say to the Minister, as I said to the Chancellor last week, that in a year we shall be here again debating another inquiry into the way in which the liquidation has been conducted. That is why the DTI must hold an inquiry now into the liquidation.
Fourthly, the Prime Minister should approach the Sheikh of Abu Dhabi, because it is clear that the Sheikh owns the whole bank. There is no question of his being the majority shareholder. In the light of the Bingham report, the Government owe the Sheikh an apology. When that apology has been given he should be asked in the gentlest, kindest and politest way through diplomatic channels to see whether his contribution can be increased. As the owner of the bank, he has a moral obligation to increase the amount available for compensation.
The Minister said that the Sheikh was giving $1.7 billion, but what does he get back? He gets $4 billion in promissory notes and the right to chase the big borrowers in the Grand Cayman islands. That means that any money realised after the agreement will go to the Sheikh of Abu Dhabi. At the end of next year the depositors will receive only 10 per cent.—not 30 or 40 per cent.—of their money back and they have no timetable for payment of the rest of the money because the liquidators refuse to state the timetable.
An approach must be made to Abu Dhabi as quickly as possible, especially now that an appeal has been lodged. I suggested to the Economic Secretary the name of a person who would be a good go-between who has the confidence of both sides.
This morning I received a cheque in the post. Initially I thought that it was a payoff inviting me not to continue my campaign but it was a copy of a cheque for $2.5 million. It was drawn on a private Swiss bank account and signed by the founder of BCCI, Abu Hassan Abedi, and payable to his excellency Mr. Ghanzim Mazrui, chief of staff of the Sheikh of Abu Dhabi. I realise that Mr. Mazrui is an important man and that, with all the current important negotiations, we cannot offend him. However, it is plain that in his evidence to the Select Committee last year the Governor of the Bank of England realised that 561 members of the household' who are close to the owner of the bank received some payment. It is important to clear that up and that is why the Sheikh should be approached.
Finally, the Serious Fraud Office should be allowed to interview those responsible. One of them who has been held in detention since last year died this week while in Abu Dhabi. These people are British citizens who could not only help in discovering the truth about what happened but could assist the liquidators by disclosing the location of the assets.
When I returned from Karachi in May I passed information to the Solicitor-General and invited him to ask the Serious Fraud Office to go to Karachi to interview people who wanted to give evidence but who, for a variety of reasons, were unable to come here. I hope that the Economic Secretary will pursue this matter to make sure that this information is made readily available, especially if the liquidators say that they cannot find some of the assets. If that is not done then, as in the case of the gentleman who unfortunately died this week, those people will be unable to help the SFO in its inquiries.
The solution to this terrible tragedy lies with the Government. The Prime Minister and the Chancellor were told what was to happen a week before the bank closed. Lord Justice Bingham, our most senior civil law judge, has found the Bank of England to be at fault. On Wednesday, the Governor, during one of his better moments, talked about the need for natural justice. Here is a case for natural justice.
Perhaps I am old-fashioned, but I believe that people and organisations should pay for their mistakes. The cost of the Bank of England's tragedy of errors is being paid every day and every hour by the victims of BCCI. When citizens place money in banks, they do so in good faith, believing that they are being properly supervised. BCCI was owned by one of the richest men in the world and supervised by one of its greatest financial institutions. Why on earth should people have doubted its integrity?
At the end of the Committee meeting on Wednesday, this exchange took place between my hon. Friend the Member for Durham, North and the Governor. My hon. Friend asked:Do you have any regret for what happened?The Governor replied:I have great regret that enormous amounts of money like this have been lost, yes.But do you feel that you have any responsibility?I cannot accept absolute responsibility. Banking is a risky business.In a democratic society, with power goes responsibility. There must be responsibility for both action and lack of action. With the failure of responsibility goes the duty to compensate those who have suffered. At paragraph 2.23 Bingham talks about the Bank's "duty to the depositors" overriding all other considerations. I agree.
Next week, one of the depositors of BCCI, a middle-aged woman who lives in Herne Hill, London, and who has lost everything she ever possessed in the closure of BCCI, will begin a hunger strike. I beg the Government not to draw out the suffering of these unfortunate victims in the way that they did over Barlow Clowes. I beg them not to push these people to the margins of their sanity. Repenting years later, as Lord Young did, cannot help victims now.
562 The Chancellor should accept his responsibility and stand by his commitments to the House. He must pay for the Bank's mistakes by paying compensation in full to those affected. If he refuses to do so, he will be impeaching the good name of this country, damaging the name of the City as a major financial centre and blighting a whole section of our community.
I can assure him that the campaign will go on and on until every penny is returned and every person, no matter how powerful or important, is brought to account, and justice is done.
§ 12.2 pm
§ Mr. John Greenway (Ryedale)
It is a pleasure to follow the hon. Member for Leicester, East (Mr. Vaz), because it gives me the opportunity to be the first to congratulate him on the role that he has played in following up the BCCI scandal. Those of us who have been here today to listen to his speech already knew how much work he had done, but the common touch that he demonstrated this morning as he showed the House how this scandal has affected the lives of many ordinary people speaks for itself. I compliment him on that.
I wish that I could support the hon. Gentleman's call for compensation, for which he made a compelling case. However, there is a fundamental difference between the Barlow Clowes and BCCI cases. In the former, the ombudsman found negligence on the part of officials of the Department of Trade and Industry, but there is no finding of negligence in the Bingham report. I accept that it is not an ombudsman's report, but, if anything, it is even more thorough than the report on Barlow Clowes. That is where the line needs to be drawn. However compelling the case made by the hon. Member for Leicester, East, and however much we all, in our hearts, would like to support that claim, if there is no finding of negligence, we are in some difficulty.
Equally, given that any compensation would come from the public purse, it is important to look at what Sir Thomas Bingham says about the role of officials and Ministers in the Treasury. He is specific on that, but he makes no criticism of them. There is some criticism of Price Waterhouse. Again, those criticisms are not sufficient to lead to calls for the resignation of the Governor of the Bank of England. Even if Sir Robin Leigh-Pemberton were to resign, those who might have been responsible for some of the events, perhaps for the lack of supervision to which Sir Thomas Bingham refers, would still be in place.
§ Mr. Greenway
I understand the right hon. Gentleman's point, but, if I remember correctly what I read in the report, Sir Thomas Bingham does not criticise or highlight individuals in such a way as to make it necessary for anyone to resign. I do not feel that the Governor should resign. The Bank has not been shown to be negligent. What the report demonstrates—this is what we have to conclude today—is that it was not the acts or omissions of the Bank of England that caused the loss: it was the unprecedented scale of the fraud carried out by those responsible for running BCCI. They must be called to account.
§ Mr. Wilson
Behind the guise of doubtless genuine concern, the hon. Gentleman is saying that nobody was responsible and that Sir Thomas Bingham has said that nobody was responsible. However, the report says:the Bank's supervisory approach to BCCI was in my opinion deficient.Does that apply only to vague and intangible institutions and not to the efforts of the people involved, from the Governor of the Bank of England downwards?
§ Mr. Greenway
The hon. Gentleman should bear in mind the fact that Sir Thomas Bingham also says that these criticisms are being made with the benefit of hindsight, and that nobody could possibly have been expected to anticipate the scale of fraud that was perpetrated by those responsible for running BCCI.
We should accept Bingham's findings. There is no justification for questioning his judgment or his conclusions, or the facts revealed by the inquiry, which, in any event, are similar to the conclusions reached by the Treasury and Civil Service Select Committee.
The role for the House is to concentrate on the measures needed to strengthen the arrangements for supervision. I welcome the comments about that by the Minister. He is right to conclude that some of these changes, particularly in relation to the role, duties and responsibilities of auditors, should apply right across the financial services sector, including insurance, the subject on which I wish to concentrate.
In doing so, I declare some interests. I have been involved in the financial services industry for almost 23 years. I am a director of a firm of insurance brokers, and I am an elected member of the Insurance Brokers Registration Council. I advise the Institute of Insurance Brokers. All these bodies will be greatly affected by what the Minister said about putting the role of auditors on a statutory footing. That is the key recommendation of Bingham, and the key point of the Government's plans for change.
The key is to end the uncertainty about how far an auditor can and should go in taking action to the detriment of the client, which undermines the auditor-client relationship. I am not an accountant, but I can understand the difficulty that Price Waterhouse faced in dealing with its responsibilities. To clear the uncertainty once and for all by means of the Minister's proposal is undoubtedly the right way forward. I hope that the House will welcome that course, and will welcome statutory clarification.
I said to my hon. Friend the Minister in an intervention that the practical effect of his legislative proposal is to a large extent the basis on which the Insurance Brokers (Registration) Council regulates insurance brokers. I shall remind the House of the provisions of the Insurance Brokers (Registration) Act 1977. Effectively, all insurance brokers are required to submit their audited accounts for the year end within six months of that year end. Accompanying them must be a declaration from the auditor about the way in which policyholders' moneys have been looked after and the solvency margins of the firm. These requirements have statutory force. I know from my own experience how seriously auditors take their responsibility in ensuring that the registration council receives exactly right detail and advice in relation to the management of the firm.
I remind the Minister that if an insurance broker fails 564 to discharge his responsibilities within the mechanism I have described, the registration council is required to take disciplinary action against the firm. That would almost certainly lead to the firm's being struck off the register of insurance brokers.
For many years, I have wanted these statutory requirements to be extended to cover the entire insurance and financial services sector. Intermediaries are affected, whether they are independent or dependent on or tied to one insurer. The far-reaching proposal that has been made as a result of the Bingham report should be set in the context of developments within the financial services sector to which the hon. Member for Edinburgh, Central (Mr. Darling) referred.
My right hon. Friend the Chancellor of the Exchequer asked the Securities and Investments Board in July to undertake a review of the Financial Services Act 1986. An agenda has been set out, and one which is apposite to this debate. One of the regulatory responsibilities of SIB—Andrew Large, its chairman, has put it on the agenda—is whether the balance or interaction between investor protection and caveat emptor is understood or appropriate. That question goes to the heart of the BCCI difficulty and the difficulty of compensation.
When we were faced with the Barlow Clowes scandal, the feeling emerged that if the Government put in place a regulatory framework for financial services and that framework is deficient in some way and found wanting, that is the Government's fault, and compensation should be paid.
The other side of the argument—the Minister outlined it at the end of his speech—is that every individual must take proper advice and, more than that, ensure that the company, bank or institution in which he is investing his money is sound and properly managed. In the SIB review we need to examine the boundaries of the two conflicting arguments to ascertain whether the balance is right, and on that basis to see what needs to be done in terms of investor compensation.
The SIB regulatory responsibility review will be concluded in March or April 1993. There will have been responses from the entire financial services industry. I warn the Minister that he is likely to find some pretty negative answers to some of the questions. For example, are the objectives that lie behind the Financial Services Act 1986 understood and appropriate? I am sure that they are not understood by the majority of the British people. They may be understood by those who work in the financial services industry, but ordinary investors do not have an understanding of them.
Let us consider the likely changes in the regulatory structure. The hon. Member for Edinburgh, Central talked about the prospect of a new self-regulatory organisation, the Personal Investment Authority. That interacts with a further development, which is the European Community's recommendation that there should be regulation of insurance intermediaries.
If we are to have a statutory duty imposed on auditors and that is to apply to intermediaries, it must apply to those in the financial services sector as well as to those in the insurance sector. I have already said that those who are registered brokers already effectively have to comply with the statutory requirement to make available their accounts and show their solvency. Under the Financial Services Act, all intermediaries must be regulated.
565 However, intermediaries who do not transact investment business are not properly regulated at present. The EC recommendation that genuine insurance intermediaries should be regulated provides us with an opportunity.
I accept that responsibility lies with the Department of Trade and Industry and not with the Minister. Nevertheless, I hope that he will recognise the logic of ensuring that insurance intermediaries are regulated. I can say from my experience as a member of the registration council that it fulfils its task with great professionalism and great thoroughness.
If that regulation were to apply:to all intermediaries, I do not believe that there would be anything like as much concern that there are regulatory gaps that need to be closed. There are gaps, but scandals would not emerge, with policyholders and investors losing their funds, if there were the regulation that I am advocating. I ask for my hon. Friend's support. A consultation paper will be issued shortly that will seek responses to the general proposition that I have outlined.
These matters have a strong bearing on what should happen in financial service regulation as well. Under the Insurance Brokers (Registration) Act 1977, the council has responsibility for regulating insurance brokers when they mediate in insurance. If that function is extended to all intermediaries who mediate in insurance, those who mediate in investments, which include life assurance, must come within the scope of the registration council's responsibilities.
To put the matter simply, many independent financial advisers who transact insurance business as part of their day-to-day work would come within the scope of any compulsory registration of intermediaries on the registration council. That must follow.
Equally, it must follow that, as the registration council is carrying out supervision under the Financial Services Act entirely to the satisfaction of the SIB—it is currently authorised as a recognised professional body—we must question whether we need to adhere to the 49 per cent. threshold, or whether that can be removed on the basis that the registration council regulates all intermediaries —subject to one caveat to which I shall come.
That would apply to all intermediaries, be they insurance brokers or whatever else they call themselves. They would be regulated to the same high standard that applies to insurance brokers. The regulation would cover all insurance services, and would be carried out under the terms of the Financial Services Act.
That must make sense, but I will enter one caveat. Many intermediaries advise clients to make investments that are not insurance investments—unit trusts, PEPs, and so on—and such firms would have to be regulated by the new Personal Investment Authority. The Minister will find that the insurance broking profession will give general support to that overall concept, subject to some conditions.
One is that PIA membership should not automatically be granted to firms currently regulated by FIMBRA and LAUTRO, but that a fresh application should be made with a view to re-examining advisers. The Minister will not be surprised to learn that insurance intermediaries will also want polarisation maintained, and a single public register 566 established and maintained by any new regulator such as the PIA, with sections for product providers and intermediaries.
A clear distinction should be drawn between intermediaries who are dependent and those who are independent. If the statutory basis of the declaration by auditors is to be made compulsory across the board, it is no use applying that practice only to independent advisers. Bad advice and the risk of investors losing life savings is more of a problem in the tied than in the independent sector. Authorised representatives often run firms independent of the product provider—but, because they have only one agency, they are tied agents and are regulated not by FIMBRA but by LAUTRO. They would have to be regulated by the PIA.
Any declaration by auditors relating to solvency and accounts must apply to such firms as well. It follows that the solvency margins imposed now on insurance brokers —and soon, we hope, on the entire independent sector —must apply to independent firms that are effectively dependent on one product provider. I am sure that the Minister acknowledges that important point. Unless that is done, there will be no proper polarisation or level playing field, as between the two sides of the industry.
It is crucial also that all advisers have professional indemnity insurance, because that is the best way initially of providing adequate protection for investors. That must be a requirement of the new PIA.
The Minister knows that there is much discussion in the financial services industry about those key points. He was absolutely right to outline the basic principles of best advice. I look forward to reading his five golden rules in Hansard, to see whether he missed anything out. If investors are not to put all their eggs in one basket but are to approach a number of different outlets and sources of advice, it is crucial that all are soundly based, secure, and fit and proper.
It was the fitness and properness of BCCI as a bank that gave rise to the problem—the Bank of England was examining BCCI's solvency, whereas we require fitness and properness. If the House genuinely wants to protect investors, nothing less will do.
§ Mr. Calum Macdonald (Western Isles)
I wonder whether the Minister has the courage to visit the widow in Hong Kong described by my hon. Friend the Member for Leicester, East (Mr. Vaz) and tell her his five golden rules —particularly that about always being sure to hire an adviser. That kind of response is hardly adequate in dealing with the scale of disaster and failure represented by BCCI's collapse.
I add my congratulations to Lord Justice Bingham on producing an excellent, comprehensive, and clearly written report. It allows one to follow in detail the long, damning history of the Bank of England's errors and failures in supervising BCCI. The Bank repeatedly failed to understand the Banking Acts of 1987 and 1989 and the powers that were available to it. Time and again, the Bank ignored warning signals and failed to act in the way that a supervisory body should have done.
As to the Bank of England's Governor, BCCI was surely a bungle too far. He has participated in the most humiliating devaluation since the war, presided over the biggest banking scandal in financial history, and 567 authorised the worst financial forecasts of any City institution. What more can he get wrong and still hang on to his position?
For a year, the ordinary people of the Western Isles and those throughout the country, who themselves carry no blame or responsibility for the BCCI, have had to bear the costs in cuts in services and extra local taxes—in effect, a Bank of England tax. The costs of the Bank's negligence should be carried by the Governor, who should resign, and by the Government, who should devise a scheme to provide fair and equal compensation for all who lost money or jobs.
The Government stick to the line that no negligence was shown in the Bingham report. When I wrote to the Chancellor of the Exchequer, he replied:my statements in July last year were about my willingness to reconsider the issue of compensation if evidence of negligence on the part of the supervisory authorities were to emerge. Lord Justice Bingham has found no such evidence.That same argument has been used today by Conservative Members. In fact, the report plainly shows evidence of negligence. I wondered whether Lord Justice Bingham would agree with the Chancellor's interpretation, and that of the Minister. I therefore wrote to him, enclosing the Chancellor's letter. I wrote:Mr. Lamont makes the bald statement that you found no evidence of negligence on the part of the Bank of England in respect of its supervision of the Bank of Credit and Commerce International … I would be very grateful if you could tell me whether you agree with the Chancellor's assertion.Lord Bingham replied:Thank you very much for your letter of 29 October 1992.Having been appointed to inquire and report by the Chancellor of the Exchequer and the Governor of the Bank of England, and having delivered my report, I do not feel that it would be right for me to comment on the interpretation which either of them put on it.I appreciate that the report, even without the appendices, is quite lengthy, but I did my best to make it clear and intelligible. It is not for me to say whether or not I succeeded. But I am afraid that the answer to your question must be found in the report.The sphinx has spoken.
The main point in that letter is that, at the very least, it is not possible for the Minister and other Conservative Members to state categorically that Lord Bingham found no evidence of negligence. At the very least, they must admit that we are forced to draw that conclusion, having read the evidence presented in the report.
I do not believe that any reasonable person could read the report without concluding that the Bank of England was negligent in the execution of its duties. According to Bingham, right from the beginning—in 1979, when the Bank of England authorised BCCI to accept deposits—the Bankwas not only entitled but obliged to refuse a licence".That is in paragraph 2.30. The Bank was obliged to refuse a licence, but it went ahead and granted one. Surely that represents a gross failure to understand the powers available to it—and, indeed, required of it—under the Banking Act 1979. It also represents negligence.
Paragraph 2.46 of the report, and the paragraphs leading up to it, reveal what is perhaps one of the strangest episodes to feature in the whole affair. In 1982–83, the supervision department of the Bank of England concluded that BCCI must be incorporated in London if the Bank was to be able to regulate it effectively. A memorandum to that effect was sent to the Governor; he signed it, authorising the Bank's conclusion. The Bank then called in Mr. Abedi, who was interviewed by the director of 568 banking supervision and told that the Bank wished him to incorporate in London so that BCCI could be regulated more effectively. Apparently, Mr. Abedi threw a tantrum and walked out of the office. That was the end of the affair.
With, as usual, mild understatement, Lord Bingham says in paragraph 2.46 that the Bank was "rather easily deterred". It is astonishing that the Bank of England, with its worldwide reputation for being able to bring other institutions into line simply by raising an eyebrow, could drop a course of action authorised by the Governor himself, merely because the person required to take that course had thrown a tantrum and declined at the very first interview. Has the Chancellor, the Economic Secretary or anyone else asked the Governor why he did not pursue more effectively the policy that he himself had authorised and approved?
That bizarre episode was followed by something equally strange: a complete change of policy. From 1985 onwards, the Bank of England shied away from any suggestion that BCCI should be incorporated in London. It declined all such offers, performing a complete flip-flop. The report does not explain why that happened. There is no explanation for the change of view by the Bank of England. One wonders whether that has anything to do with the information contained in appendix 8 relating to the intelligence services, and whether some of the blank pages—the black holes of logic or causality in this whole affair—could be explained if we had access to appendix 8.
A number of points have been made by the Minister and Conservative Members to explain why the Bank of England failed to carry out its regulatory role. Reference has been made to the last 15 months of BCCI's life. Whether the bank was closed down earlier or later is not the point: the structural problem was there from the very beginning, and the Bank of England had reason to act about that problem from the very beginning. It was too late by the last 15 months of BCCI's life.
Reference has been made to the unpredictable scale of the fraud. Again, that is not the point. Nobody could have predicted the exact scale of the fraud. Lord Bingham's point is that that fraud was made possible by the opacity, the vagueness of the structure of BCCI, which made it impossible to regulate the bank effectively. The Bank of England's failure was to allow such a structure to exist. By allowing it to exist, the Bank enabled fraud to be committed.
Revocation is another red herring that has been drawn across the path of this whole affair. It has been said that the Bank of England could not possibly pull the plug on BCCI because of the catastrophic consequences that would flow from its closure. But revocation is not the point, either. Lord Bingham pointed out time and again that the Bank of England has enormous powers to step in and exercise its influence, and that it clearly failed to do so in the case of the 1984 episode. One is therefore entitled to ask why the Bank of England did not exercise its influence.
Hon. Members have said that we see all this with the benefit of hindsight, but that is not what Lord Bingham says. Section 7 of his report covers the years from 1984 to 1986, well before BCCI's final collapse. In paragraph 2.57 of chapter 2, Lord Bingham describes the Bank's supervisory situation as highly unsatisfactory, adding:as should have been obvious at the time.That is not with the benefit of hindsight. According to Lord Bingham, it should have been obvious at the time that this was highly unsatisfactory.
569 Lord Bingham went on to describe some of the Bank of England's responses. In paragraph 2.62, he says:making, as I hope, appropriate allowance for the benefit of hindsight, I cannot regard this as an adequate supervisory response.It was an inadequate response, not with the benefit of hindsight but because of what was known at the time.
Lord Bingham refers in paragraph 2.66 to the Bank of England's failure to exercise its powers in an appropriate way and to exercise some formal control over the way the business was run:it is hard to think that SA in the summer of 1986 was not such a caseas to deserve some formal control over the way the business was run. Inadequacy of supervision should have been obvious at the time to the Bank of England.
Lord Bingham concludes paragraph 2.67 with what I believe to be one of the most damning sentences in the whole report:I think the supervisors tended to lose sight of their primary duty to protect the bank's UK depositors. I do not think that in this instance the Bank measured up to its task.When the Bank of England loses sight of its primary duty to protect BCCI's United Kingdom depositors, the Bank of England is thereby negligent of its duties.
The case for compensation for local authorities is especially strong. The authorised list has been mentioned, but in order fully to understand its import, one must understand its origins. The Local Government and Housing Act 1989 specifically restricted local authority investments to "authorised" investments. Investments would have to be made with authorised institutions, which included banks authorised by the Bank of England.
Why was that done? For no good reason? No, it was done for a specific purpose: the Government's express intention to end imprudent investments and so safeguard local authority funds. That was made clear in the consultative paper on capital expenditure and finance published by the Department of the Environment in July 1988, before the Act went through Parliament.
In paragraphs 37 and 38 of that paper, the Department of the Environment said:it is … a matter for concern that some authorities appear to have used their funds to undertake speculative investments … the new system will, therefore, specify a list of approved investments.In other words, the new system—the list—was intended to distinguish between speculative investments and non-speculative, presumably safer, investments.
Acting in that context, and according to those guidelines, local authorities throughout the country placed money with BCCI, which featured on the list of authorised institutions. To me that context is inescapable, and it makes the local authorities' case for compensation especially compelling.
Local authority compensation need not mean extra overall taxation in the country as a whole. Local authorities are already having to pass on the cost of the losses to local taxpayers, by means of higher local taxes. Compensation from central Government would mean that, instead of the burden being loaded entirely onto the shoulders of local taxpayers—many of whom, in areas such as mine, are suffering high unemployment and severe economic distress—the load could be carried more broadly across the nation as a whole.
570 Finally, on the subject of redress and compensation, it has already been said that BCCI depositors have no means of redress other than through the Government. The Bank of England has legal immunity and cannot be sued, except in instances of bad faith. I do not say that there was bad faith; there was simply incompetence and negligence. The ombudsman is not empowered to investigate the matter either, because it affects the Bank of England, so depositors can look only to the Government for some kind of compensation.
It is clear from the Bingham report that what has happened has been primarily a failure of national regulation.
If the Select Committee returns to this problem in a future report, and if it recommends the payment of compensation, will the Government accept that recommendation? The Select Committee is the only independent body able to make such a recommendation. The ombudsman and the courts could not; nor could Lord Justice Bingham, because it was not in his remit. The only independent voice to decide the verdict in this matter is the Treasury Select Committee. If it recommends compensation, will the Government accept that?
BCCI represented a huge failure of regulation by the Bank of England, charged by the Government with the task of supervising the banking system and ensuring the basic security for people's deposits. I believe that it is now the responsibility and duty of the Government to come forward with a fair and reasonable scheme of compensation to lift the burden from tens of thousands of innocent depositors and local taxpayers who are now carrying all the costs through lost savings, lost jobs and lost services.
I echo the question by other hon. Members—what is the price of failure on the part of the Bank of England? So far, we have had no apologies, no resignations, no compensation—just excuses. If there is no price, what incentive is there to do the job effectively and properly in the future?
More than 123 hon. Members have already signed early-day motion 727, calling upon the Governor to accept his responsibility for this failure and to resign. The longer he declines to do so, the longer he remains a Governor not just without credibility, but I am afraid—I am reluctant to say it—without honour.
§ Mr David Wilshire (Spelthorne)
I apologise to the House because the issue I want to raise may result in my failure to be present for the conclusion of the debate. I should declare an interest because I was one of the people who actually owed money to BCCI when it closed down. I used its credit card, which gave a percentage of turnover to green issues, and when the bank closed down I owed it £5.50. I hasten to add that I paid that rather promptly.
§ Mr. Wilshire
I do not believe that I had the debt long enough for interest to be added.
I must also explain to the House that I cannot possibly bring certain expertise to bear in this debate because I am neither a banker nor an accountant. I am also ready to admit to not having been closely involved as this awful 571 saga unfolded. However, in the past few days, I have become horribly involved because of a family tragedy in my constituency caused by that saga.
As time has gone by, we have all heard about the traumatic cases of financial ruin caused by BCCI—we heard about some more this morning. We have heard of the loss of life savings and the destruction of businesses. However, as the hon. Member for Leicester, East (Mr. Vaz) said, this week death has been added to the grisly catalogue of things that have gone wrong because of BCCI.
One of my constituents who worked for BCCI had been held for 14 months in detention in Abu Dhabi. He was held without charge, without access to proper lawyers and without access to proper medical care. He died in detention on Monday. Up until now his family and I have kept quiet, because, quite properly, his family's priority throughout this week has been to get his body back to the United Kingdom. Earlier this morning his body finally reached Heathrow. This is the earliest opportunity the family or I have had to speak out and, if the House will allow, that is exactly what I intend to do.
My constituent was aged 45. He was married with three young children living in my constituency. They are all British subjects. He was a United Kingdom officer with BCCI, and when the bank moved its headquarters to Abu Dhabi, he originally told the bank that he did not wish to go. The bank subsequently persuaded him to go, and on 8 September of last year, with 17 others, he was detained by the Abu Dhabi authorities.
My constituent was among those who had offered to return to the United Kingdom to give evidence to the Serious Fraud Office to help with its inquiries. His detention made it impossible for that to happen. The hon. Member for Leicester, East was right to point out that there are people still willing to help but who are prevented from doing so.
My constituent's detention was extended on a monthly basis. At no time since last September was there any charge and at no time, to the best of our knowledge, were he or the others allowed any form of exercise. I understand that at no time was proper legal support given to those detained and, to the best of our knowledge, no proper medical assistance was available, even though my constituent was a known diabetic.
Because of the loss of earnings, that family, unlike some others, could not go to Abu Dhabi to see him. His application to make telephone calls to the United Kingdom to speak to his wife and children was refused by the authorities, and the only communication received by the family was by way of letters smuggled out of Abu Dhabi and brought to this country.
I am grateful for all that the Foreign Office has done since last September. I am told by the Foreign Office that all of what I have explained to the House is in accordance with Abu Dhabi law. It might be, but it is not within my definition of human rights. I am appalled and disgusted at the treatment that my constituent received. My heart goes out to his family for what has happened this week.
I call on the British Government—I appreciate that the Economic Secretary is not responsible in this context and will probably not be able to respond directly—to lodge the strongest possible protest with the Abu Dhabi authorities about what has happened. We should redouble our efforts to obtain the release, or at least the charging, of the other British subjects who are still held in Abu Dhabi.
§ Mr. Vaz
Everyone involved in the campaign will be delighted with what the hon. Gentleman has done for the family in question. When, with members of the campaign committee, I visited Abu Dhabi, we asked, through the ambassador, to see the people in detention. We were forbidden to see them. In appealing to the Minister, we urge him to remember that there are still 17 British citizens in detention. We appeal on behalf of them and their families.
§ Mr. Wilshire
I was seeking to make that point and I echo what the hon. Gentleman said. No form of compensation that we could discuss and no form of help could now assist my constituent or do any good for his family. But I agree that we must do all we can to assist the others.
Any comments that I make on the BCCI affair are general in character. I have not been as closely involved as perhaps some might say I should have been, and I am no expert. But as a lay person, I must ask what the public have a right to expect when doing business with banks. I suggest that they have a right to expect an adequate framework of control, and only the Government and the House can provide that. The public also have a right to expect an adequate standard of supervision. We as lay people, when dealing with such issues, cannot deliver that supervision. We must rely on the experts.
It is worth underlining the fact that the public have no right to expect that anybody, anywhere can guarantee that such a thing will never happen again. We must debate whether everything possible has been done to minimise the risk of its ever happening again. The question that should be answered is: did the Government, the Bank of England and the individual experts do everything possible to minimise the risk? Given the scale of the disaster, I well understand why many people say, "No, somebody, somewhere did not do everything possible to minimise the risk".
I do not feel qualified to answer that question, so I looked to the Bingham report to see what answers are given to that question of minimising risks. Much to many people's relief, the Bingham report appears to exonerate the Government and the Treasury from blame. I then notice from the report the suggestion that the general system of supervision seems to be all right. Finally, I note that the Bank of England does not seem to be quite all right. I, too, am relieved about the message that I receive on the role of the Government and the Treasury, but it is hard to accept that a system of supervision is basically all right when something so horrendous has gone wrong.
I note the point about split responsibility, but it does not need an expert to understand that the system of divide and rule applies here. If lots of different people or even two groups have joint responsibility, it is hardly surprising that sooner or later the responsibility falls—plop—between the two. That appears to be what has happened. I also note that, if the general system of supervision is national, the international dimension will never adequately be taken care of. I raise that matter to enter the caveat in the response that I see being put about: that we should now beef up the EC system of banking regulation. I cannot resist the temptation to point out that countries such as Switzerland are not members of the EC, so it is difficult to believe that asking the EC to resolve an international problem will get us far. Even if the EC could do something, I have no doubt that if the Council of Ministers came up 573 with a grand scheme, Mr. Delors, in his bid to be President of France, would say, if it suited his purpose, "Tough. I shall sabotage it." That is what he now does when he does not like what is going on within the EC.
Finally, I am forced to look at what the Bingham inquiry report says about the Bank of England. It makes serious criticisms—even a layman can understand that they are serious. Earlier in the debate, my right hon. Friend the Member for Worthing (Mr. Higgins) described the Bank of England's response as "pathetic", and the hon. Member for Western Isles (Mr. Macdonald) used the word "negligent". All that I have read and heard smacks of going through the motions, in the hope that one would get away with minimum effort.
That was bad enough for those who have suffered financial loss, but, now, going through the motions and not necessarily doing the job properly have reached the bottom line of at least one death. I hope that those concerned will think carefully about that consequence. In the past—and even recently in the case of the London ambulance service—shortcomings, even if they were not wilful, resulted in resignations. I deeply regret that resignations are no longer fashionable. I hope that those involved will once again consider the role that they played or did not play and consider their consciences again and again. They should then act in the honourable way.
The BCCI saga is about fraud on a scale which the world has not often seen before. It is about financial disaster for thousands of people. And now it is about death, for which we cannot sensibly talk about compensation. When we have such debates I hope that, as well as cataloguing what has happened and seeking to apportion blame, we shall spend most of our time ensuring that we minimise the chance of the disaster ever happening again.
§ 1 pm
§ Mr. James Molyneaux (Lagan Valley)
The House has listened with much sympathy to the account given by the hon. Member for Spelthorne (Mr. Wilshire) of the tragedy that has befallen his constituent and family. On behalf of my right hon. Friend and hon. Friends who are not present today, I tender our sincere condolences.
The Economic Secretary will recall that the Chancellor reminded the House on 22 October of Lord Justice Bingham's terms of reference, which included the words:to consider whether the action taken by all the UK authorities was appropriate and timely".I would be inclined to reverse those words to read, "timely and appropriate".
From my comparatively neutral position in the House —depending on the issue before us on any given day—I have noted that the sordid story began back in 1972. For 15 of those 20 years Conservative Governments were in charge, and for five years a Labour Government were in charge. At least there is some excuse for the Labour Government, as at one period they had no majority and during another they were in alliance with another party in the House. To some extent the wheel has turned full circle. If representatives of the allied party had been present I might have given them a few tips about how to do a deal: "Get all you want, without giving anything in return." I speak as an old hand in such matters.
574 Lord Justice Bingham concluded that the conduct of Treasury Ministers and officials was not, in his view,open to criticism in any respect.I am not qualified to differ from that conclusion, even if I wanted to. It is unfortunate for the present Government that they are answerable and accountable, which is why —for constitutional reasons—we are having today's debate. I think that we feel grateful to the Treasury Ministers for co-operating and securing a debate so soon after the report's publication.
As hon. Members have said, section 1(4) of the Banking Act 1987 appears to grant the Bank of England immunity from liability for damages unlessit is shown that the act or omission was in bad faith.To my simple mind it would seem that as Parliament granted such immunity and produced defective laws, it must collectively accept some liability. In this case the agency of Parliament is the Treasury. It is my view—I think that it is shared by other Opposition Members—that the Treasury must make generous contributions to those organisations, institutions and, most of all, individuals who were not only unprotected by defective legislation, but encouraged to invest in a bank, which was known to be unstable for approximately two years—that is to put it mildly.
In the case of Lisburn borough council, the bulk of the £3 million investment was made in those last two years. That investment was recommended and fully approved to the council on the basis of the continued inclusion of BCCI in the quarterly bulletin, which is compiled by the Bank of England, but circulated by the Department of the Environment.
The Minister said that Her Majesty's Government and Ministers are exonerated, which is true. The report concludes that Treasury Ministers are blameless. But can the same be said of the Department of the Environment? I am convinced that at least a section of that Department —I am talking about two Departments, the big brother over here in Whitehall and the smaller brother in Northern Ireland—would have been aware of the doubts about BCCI.
Yet the bank remained on the approved list and its retention on the approved list undoubtedly misled local authorities, especially those in the more remote parts of the United Kingdom. It is no accident that local authorities in the Greater London area, which would independently have picked up the little whispers, the suspicions and the gossip, steered well clear of the trap. The Department of the Environment may claim that it was acting as postman by simply distributing the quarterly bulletin which contained the list, but that action conveyed to councils and to other institutions—to individuals as well, I suppose—the impression that BCCI continued to be officially approved.
The Economic Secretary rightly advised against confusing authorisation with guarantee, but the existence of the list suggests that the Department of the Environment had committed the error of making that confusion. Investments were made on the basis of what was a form of Government approval. I am especially mindful of private investors, but I realise that local authorities were more directly influenced by that information. Local authorities saw themselves as accepting the advice and guidance of their parent—the Department of the Environment.
575 In recent years, councillors have been compelled to regard themselves as creatures of the Department of the Environment. I have here a code of conduct which has just become effective in Northern Ireland. The same straitjacket has been applied to many local authorities in Britain. The code of conduct contains 31 directives to local councillors and they are all based on the theory that they must obey their superior authority without question.
I hope that the Government will devise an early warning system on the lines of the Minister's final words of advice and the words of the final passage in the Select Committee report.
The Bingham report refers to financial institutions in the Isle of Man and in Gibraltar. In addition to the activities of BCCI in those areas, there is a parallel scandal of the Gibraltar-based company International Investments Ltd., the subject of early-day motion 747. There is a United Kingdom angle to that about-to-burst scandal. The Director of Public Prosecutions in Northern Ireland is currently pursuing that connection and the Crown solicitor is considering extradition proceedings in regard to an Irish banker, Mr. George Finbar Ross, who has become the central figure in a book published last month entitled "Gibgate", about which we shall hear more in the near future.
There is some overlap between the two scandals. A family residing in Antrim, East had invested £200,000 in International Investments Ltd. and had made a smaller investment in BCCI. That family suffered a double blow and, as in the case quoted by the hon. Member for Spelthorne, a death has resulted. I do not suggest that the death was caused entirely by the double blow.
To be fair to the hon. Member for Edinburgh, Central (Mr. Darling), he did not attach blame to the Government —nor do I. Responsibility rests with successive Parliaments and we must all face the consequences of the failure of responsibility. Whatever our views on the Bank of England, the House must hasten to ensure that such disasters are not repeated, in so far as that is possible in this computer age when currencies do not change hands, but become merely blips on a computer screen. As there has been no political point scoring in the debate, let us all combine to do all in our power to mitigate the resulting hardship on individuals and institutions who quite unwittingly become victims of a massive fraud.
§ 1.9 pm
§ Mr. David Shaw (Dover)
As small financial services firms have been mentioned in the debate, I shall declare my interest as chairman of the Back-Bench smaller businesses committee and my association with a small financial services company. I am an ex-banker and a chartered accountant.
The BCCI fraud is not about small firms. The nature and the enormous size and scale of that fraud is totally unprecedented in the history of banking. It is clear that a small number of people, aided and abetted by some senior managers and possibly one or two people outside the company, are to blame for the fraud. The fraudsters have still not been brought to justice and I can understand the concern of my hon. Friend the Member for Spelthorne (Mr. Wilshire) about the way in which his constituents are suffering. Perhaps some innocent members of BCCI staff are suffering because of the over-zealousness of some 576 people to protect themselves. It would certainly be wrong for such suffering of British subjects to continue without the opportunity for a fair trial.
I pay tribute to the hon. Member for Leicester, East (Mr. Vaz) for his assiduous work in the interests of many. I do not share all his views on the matter, but he has certainly worked hard, especially in his quest for information. On the Select Committee on Social Security I experienced the need for information to understand what is going on and what went on in the Maxwell affair. I totally support the hon. Gentleman in his quest to get to the bottom of what happened to the billions of pounds that were paid into BCCI.
We all agree, as Bingham clearly identifies, that the fraud did not suddenly happen at the last minute but went back many years into the 1970s. Billions of pounds went into BCCI. Where did it all go, because little of it was left at the end? Cheques for billions of pounds cannot be writen overnight at the end of a bank's life. Cheques taking money out of BCCI must have been written over many years and there must still be stories to be told. It is disgraceful that the hon. Member for Leicester, East has not had answers to his questions. The Government must do everything in their power to persuade the liquidators and others to answer those questions because it is important for the information to be brought into the open.
Part of the problem about the prevention of future frauds is that people can hide behind a veil of confidentiality. In the case of Polly Peck, Cyprus was the veil, and Liechtenstein and Switzerland hide people in the Maxwell affair. There must be a stronger effort to discover where the money went in all those frauds. I shall certainly support the hon. Member for Leicester, East in that quest.
People have a right to know and to have an answer to the question whether more could have been done to prevent the BCCI fraud. It could be said of every fraud that more could have been done to prevent it and there is always a legitimate claim that more should have been done. But such claims are always made with the benefit of hindsight and we have to examine them carefully to see what could have been done. In the case of BCCI, it is easy, and Bingham has done so, to say that more could have been done, but it is difficult to conclude that the outcome, even if more had been done at an earlier stage, would have been any different, because the fraud seems to go back so far.
The role of the auditors has been questioned. As I am a chartered accountant, the House will not be surprised to hear me say that I have some sympathy with the auditors. The House will know that I have been in the forefront of criticising my profession when I think that members of the profession or the profession itself stray further than is justified by the public interest. However, this case pushed at the limits of auditing.
The public must understand that an audit can never guarantee that there will be no fraud, particularly when such a sophisticated international fraud involving about 200 people in the know is being perpetrated. Frauds normally involve no more than one or two people, because to involve more puts the whole fraud at risk—someone makes a mistake or leaks some information or leaves a document lying around. That is why BCCI's fraud is so unusual and odd.
When I did my auditing courses, we always went through the procedures showing how frauds could be put in place. The frauds that we went on courses to investigate 577 usually involved a small number of people, either with one or two large transactions or with a large number of small transactions. Unusually, the BCCI fraud involved large numbers of large transactions. The auditor is a watchdog, not a bloodhound. It would have needed a rottweiler to cope with the BCCI fraud.
There have been criticisms of the Governor and the Bank of England. In particular, hon. Members have asked whether closure should have come earlier. However, many —depositors and employees alike—argued against closure. I heard their arguments in the Grand Committee Room at a meeting hosted by the hon. Member for Leicester, East. There is no doubt that many claimed that the closure was a political act, and even professionals questioned the closure. Paragraph 2.468 of the Bingham report shows that on 4 July—the day before closure was decided upon—Price Waterhouse thought that closure might have been precipitate.
We know that, a year before that, the authorities in Abu Dhabi and the majority shareholders invested some £4 billion in the bank to support it. They did not think that closure was appropriate, Ahmed Al Sayegh sent hon. Members a letter, dated 16 October, from Abu Dhabi and the majority shareholders. Even today, they are not happy with the closure. The letter says:The Majority Shareholders continue to believe that, had their restructuring plans been allowed to succeed in July 1991, the grievous losses and hardship resulting from the closure would have been prevented.Even today, people question whether closure was sensible.
I am not one of them. The report and the evidence make it clear that the fraud was deep and widespread within the company, and there is no question but that the bank was unfit to continue in existence. Therefore, the Bank of England cannot be criticised either for being too late in closure or for not closing early enough.
The blame cannot be laid upon the Governor either, because most of the fraud was initiated, and the basis for it set up, before he became Governor. There was false book-keeping in the Cayman Islands, for example, and in other areas where the Governor is not responsible. I am sure that the Governor would never want to be responsible for fraud havens such as the Cayman Islands. To ask the Governor to resign over the BCCI fraud is about the same as asking the Leader of the Labour party to resign because Robert Maxwell was a member of the Labour party.
§ Mr. Vaz
First, I thank the hon. Gentleman for his kind comments about me. I thank him also for his involvement in the campaign over the past year. I do not want it to seem as if there is a mutual admiration society, but the hon. Gentleman has been extremely active in the Maxwell pensioners' campaign.
Leaving aside the resignation of the Governor—I know that the hon. Gentleman disagrees with that call—does he accept that there is a case for compensation that is similar to the one that he has advanced on behalf of the Maxwell pensioners? Where an authority has been criticised—even the Governor accepted on Wednesday that the report is highly critical, and the Economic Secretary has accepted that as well—there is surely a case for compensation, just as there was for the victims of Barlow Clowes, and just as there is a case—indeed, a strong and compassionate one —for the Maxwell pensioners, which the hon. Gentleman has been prosecuting.
§ Mr. Shaw
I shall be coming to that issue. I want, first, to make two small points about the Bank before talking about compensation.
We must recognise that the Bank of England was not the primary regulator. Other regulators were no better at regulating BCCI than the Bank of England was. As far as I can judge from the Bingham report, the Bank started to get a smell that something was seriously wrong on about 3 October 1990, which was less than a year before BCCI was closed. The criticism, if any can be levelled at the Bank in terms of the report that it received on 3 October 1990, is that it was not entirely streetwise in its reading of that report. The Bank, however, is not always there to be streetwise. Sometimes it has to be above the street and to assume that the banks in the City are basically honest institutions.
The report on 3 October 1990 highlighted some wrongdoing, but it was not a comprehensive report about every aspect of BCCI. It was not produced to meet the terms of section 41—the relevant section—of the Banking Act 1987. Therefore, it was not a basis for total closure. It was, however, a basis for the Bank proceeding in the way that it did. I am sure that there are many in the Bank who look back on the report and say to themselves, "Could we have done more? Perhaps we should have done more."
Surely that is not a fundamental basis on which to say that the Bank completely failed in its obligations. I do not believe that the report identifies enough to show that the Bank was negligent or wrong.
It was the Bank which finally closed down BCCI. It was the Bank which finally commissioned the report that closed it down. It is interesting that that report was never finalised. The Bank closed BCCI on the basis of a draft report. In other words, it was closed extremely quickly when real evidence was found to exist. As the Bingham report makes clear, BCCI was closed before the auditors had had enough time entirely to verify all the evidence that they had found. I do not think that the Bank can be blamed for taking the correct action on a timely and proper basis. Those who say that earlier action was possible have to say when that earlier action was possible. They must put themselves in the Governor's shoes and those of others in the Bank and ask, "What decision would we have made and when would we have made it?"
They must question also how much more money would have been saved for depositors. Because this country's deposit scheme is comprehensive, it is doubtful whether more would have been saved.
The Abu Dhabi authorities must carefully review their actions. Sheik al Nahyan Zayed is unquestionably an honest, respectable and respected man who was conned by a so-called friend—Mr. Abedi. However, there were failures on behalf of Sheik Zayed's staff, and it would be wrong if members of the British public and British citizens suffered as a consequence. I was particularly concerned by the story the House heard today from my hon. Friend the Member for Spelthorne (Mr. Wilshire). The Abu Dhabi authorities have put in billions of pounds, but they were too closely involved in some of the bank's decisions.
I believe that all who have spoken today accept that the Government played no role in BCCI's downfall, and that the Bingham report identified no failure on the Government's part. The previous Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock), tried to pin something on my right hon. Friend the Prime Minister. That was a despicable and unjustified 579 smear—made before the general election campaign, for electoral purposes. Bingham did not establish any justification for that smear. There was no substantive failure either on the part of the Bank of England.
§ Mr. Molyneaux
Whatever may have been said and done in the House in the past, there is a consensus that past and present Governments were not to blame. I hope that I did not offend any right hon. or hon. Member when I suggested, however, that all Members of Parliament must take some blame for defects in the law.
§ Mr. Shaw
I agree with the right hon. Gentleman that parliamentarians must accept often a degree of responsibility when things go wrong because—despite our exhaustive legislative procedures in Committee and on the Floor of the House—the laws that we introduce are not always effective and efficient. If the Government had to pay compensation every time that Parliament failed to introduce effective laws, no one would ever be held responsible for financial losses, and the Government and taxpayers would for ever be paying compensation.
The question that must be asked in the case of BCCI —and of Maxwell, when Government compensation is considered in that case—is whether taxpayers should forgo the equivalent of a hospital or more in resource terms, in favour of paying compensation in this instance of wrongdoing. Sadly, for the employees and depositors concerned, I find no justification for doing that.
There is, however, every justification for the Government and others trying to ensure that certain persons are brought to justice, and that any resources they may have are taken from them. There is evidence that there are some very wealthy people out there guilty of significant wrongdoing. The Government should wind up the machine a crank or two and put on a bit of pressure. I pressed the Government hard to work on Liechtenstein, and now I press them to become involved, through diplomatic channels, with Abu Dhabi and others, so that the persons responsible for BCCI's collapse can be brought to justice and money can be squeezed out of those wrongdoers who still have it.
Nevertheless, I must point out to many of BCCI's depositors that this was a dangerous bank. The case is not like that of the Maxwell pensioners, who put their money into what everyone would have regarded as a safe haven. In the case of the companies, the pension funds were administered by IMRO, a self-regulatory body, in the City of London. In that instance, City banks—often based overseas—abused their responsibilities and the trust placed in them by engaging in transactions that were often illegal or fraudulent; if not that, they were at least questionable transactions which any sensible bank manager would have known to be wrong, and I hope that the banks involved will be brought to account.
As I have said, the case of BCCI is different. When people made deposits, they could see a set of accounts at the local branch. They would thus have seen the connection with the Cayman Islands and with fraud havens, and might then have been in a position to ask themselves whether they really wanted to invest large amounts of their money in a bank with such connections. The Maxwell pensioners had placed a good deal of faith and trust in the City, and in the banks that were involved 580 in trading with Maxwell and looking after the pension fund moneys. BCCI, however, had a number of questionable features from day one.
Many of Bingham's suggestions for the future are potentially good news, in regard to ensuring that the banking industry is better regulated from now on. Unquestionably, the Bank of England needs explicit powers to close down banks, for it has not proved adequate in the past. It should not hesitate to close down banks that engage in substantial transactions with tax and fraud havens, because they are probably not fit and proper banks to be based in the City of London. We should ensure that the primary regulator of a bank is not only well known, but in a reliable country that has proper means of investigating banks.
I am pleased to see that Bingham's recommendation for a special investigations unit at the Bank of England is to be adopted, and that such a unit is to be active in investigating banks such as BCCI in the future.
Sadly, Government compensation cannot be justified in this instance. The problems of BCCI boil down to a single key issue: the question of timing. At what point was enough known for it to be proved that the whole bank was a fraud—not part of it, but all of it? I do not think that substantive evidence has been discovered—and none has been reported by Bingham—that an earlier closure would have been realistic. I therefore conclude that, although mistakes may have been made, on balance the authorities operated in the best way possible, given the complex and difficult circumstances. Considerable pressure was exerted for the bank to be kept open, not only by the auditors but by others in the banking and regulatory world—and in the political world. I believe that the Bank of England operated legally and properly, as soon as it could properly do so.
§ Mr. Peter Hain (Neath)
I see Lord Justice Bingham's inquiry into the supervision of BCCI as yet another nail in the coffin of City self-regulation. As Bingham confirms, the self-regulatory framework for banking in Britain has failed abjectly. That view is not confined to City critics; just two days ago, Mick Newmarch—chief executive of Britain's biggest investor, the Prudential Corporation—called for the Government to take over regulation. He said:It is time to face up to the fact that this approach has not worked, and to revert to the conventional, proven statutory basis for regulation.If the man from the Pru is now saying such things, it is surely time for the Chancellor to ask the old lady of Threadneedle Street to hang up her dancing shoes and make way for a younger, more alert and more inquisitive partner.
The main charge against the Bank of England in the BCCI affair is that if the Bank knew for some years that BCCI was riddled with fraud, why did it wait for so long to act? More important, why did the Bank allow innocent customers to continue to make deposits when it knew that the end was near? The answer is partly, in my view, that the Bank is a venerable British institution and that, as such, it expects everybody else to follow its own officer's and gentleman's code when, in real life, City fraud, insider dealing, financial incompetence and so on are now endemic. The problem is that the Bank's Kiplingesque 581 culture has made it an international laughing stock, as my hon. Friend the Member for Leicester, East (Mr. Vaz) so aptly remarked.
BCCI is at the end of an ever-lengthening list of scandals where the Bank and the other authorities either have turned a blind eye, have failed abysmally to discharge their responsibilities or, in some cases, have deliberately concealed matters of critical importance from public scrutiny. Although it is politely couched in Old Etonian code, Lord Justice Bingham's criticism of the Bank is devastating. The problem is that there is absolutely nothing in the Bingham report to suggest that another BCCI will not happen again. Therefore, can the Minister tell me what the Government intend to do? I found the Minister's introductory speech bland, smug and almost offensively complacent. There is absolutely no reason to believe that something on the scale of BCCI could not turn up yet again, given the Minister's suggested policies.
Bingham is being used by the Government to let the Bank of England off the hook. The only way to send a clear signal to the apprentice banking fraudsters and innocent depositors alike is for the Chancellor to demand the immediate resignation of Robin Leigh-Pemberton, the Governor of the Bank of England. I see from the Bank's charter that his five-year tenure runs out in June 1993 and that he cannot be sacked. He can vacate his office only if he becomes bankrupt—an unlikely eventuality, although the precedent set by the former Tory party treasurer, Lord Beaverbrook, is interesting in that respect—or if he is convicted of an offence, or if he is absent from meetings of the court—the Bank's board—for six months, or if he resignsif he be found lunatic or become of unsound mind.There may be views about the latter part of that quotation.
It is important to recall when we analyse the Government's role in the BCCI scandal that the Governor of the Bank of England was only appointed in 1982 because he was an obedient member of the Thatcher mafia —the "thafia", if one likes. The Governor's early career mirrored Lady Thatcher's. They briefly overlapped at Oxford in the late 1950s. They were both called to the Bar in the same year, 1954. During the 1950s they were part of the inner circle of Conservative Kent politics. Lady Thatcher fought the parliamentary seat of Dartford. She married Denis, another Kent Conservative. The Governor still lives in Kent, on a 2,000 acre estate at Milstead, near Sittingbourne. While she went on to higher things, the Governor, as a Conservative councillor, worked his way up through the ranks to the dizzy height of chairman of Kent county council between 1972 and 1975. He and Denis Thatcher became golfing chums, playing regularly at Lamberhurst golf club in Kent.
Is it any surprise that Margaret Thatcher, in the face of fierce criticism in 1982 that it would be an entirely inappropriate appointment, thought that Robin Leigh-Pemberton was the obvious choice for Governor? The Governor's incompetence, negligence and dishonesty over BCCI is testimony to the bankruptcy of the distasteful political patronage that disfigured the Thatcher era.
If, however, the Chancellor stands by his Governor and if the Minister does so again today, what about the failure of the Board of Banking Supervision over BCCI? My hon. Friend the Member for Edinburgh, Central (Mr. Darling) referred to that issue. This august body is directly 582 responsible for uncovering and exposing illegal and dubious practice. That body consists of accountants, solicitors and leading business men, most of whom have alternative sources of income, and whose resignations would be widely received as a principled course following the BCCI scandal. Why did they not resign? Is it because, again, they are part of the umbilical cord between the City and Conservative party coffers? The right hon. Lord Swaythling, for example, as chairman of Rothmans International plc, donated £100,000 to the Conservative party election fund in 1991–92 alone.
Who chaired the Board of Banking Supervision? It was Mr. Brian Quinn—another Bank of England establishment man, who has been in post for more than 20 years. As early as 1986, blithely ignoring the mounting evidence of corruption in BCCI, he decided against withdrawing the bank's licence becausethe closure of the 45 UK branches would cause substantial political and diplomatic problems".That was grossly negligent. But where is Mr. Quinn now? Has he left his job? No, he is exactly where he was five years ago. After Bingham, the Bank established a new investigation unit headed by an outsider, Ian Watt. That was a step to be welcomed. Mr. Quinn has been effectively sidelined—but why has he not been sacked? I believe that this is another shameless example of the Bank protecting itself, another example which suggests that if one is part of the Bank's inner charmed circle one can carry on regardless of how incompetent or negligent one is.
The whole sorry spectacle has lifted the curtain on a murky world in which the City closes ranks while ordinary citizens are bankrupted or destroyed, as they have been in their thousands as a result of the BCCI scandal.
Another aspect of the report is equally disturbing, if not more so. The report was filed with the Treasury in July, yet it was published only on 23 October—without appendix 8, which covered MI5's involvement in the scandal. We know of that not through our Government, but through the efforts of United States Senator John Kerry, whose 800-page report revealed that British intelligence was up to its neck in BCCI.
As Kerry's report reveals, MI5 took away sealed documents from BCCI's records. The House should ask what was in those documents? Did they show that MI5 or MI6, like the CIA, was laundering funds through BCCI to promote Saddam Hussein in Iraqgate, during the Iran-Iraq war? Did they show that MI5 was using BCCI in the Irangate scandal? We know that Colonel Oliver North used BCCI. Did British intelligence use it in the same way? If so we have not only a City scandal but a major political and security scandal with international implications.
As the Kerry report says:A British source has told the Bank of England and British investigators that BCCI was used by numerous intelligence agencies in the United Kingdom. The British intelligence service, the MI5, has sealed documents from BCCI's records in the United Kingdom which could shed light on this allegation.Kerry also reports that documents sealed by MI5 concern the financing of terrorism—such as the activities of Abu Nidal, assisting the builders of Pakistan's nuclear bomb, financing Iranian arms deals, and other related matters. Those are important issues, because, as Kerry confirms, BCCI was a vehicle for dirty tricks and deniable operations in the middle east by various intelligence agencies, especially the CIA, and possibly MI6—with or without the involvement of MI5.
583 If the appointment of Stella Rimington as head of MI5 is to be more than a window-dressing operation for open government, the Minister must publish appendix 8 in full and place it in the public domain so that the information contained in the files which Stella Rimington has ordered to be sealed can be revealed. If the Minister is not 'willing to do that fully, openly and publicly, perhaps he will follow the precedent set by the Prime Minister earlier this week by placing that information in the Library.
Before I finish I shall quote another extract from the Kerry report, taken from page 462:By agreement, the Bank of England had in effect entered into a plan with BCCI, Abu Dhabi and Price Waterhouse in which they would each keep the true state of affairs at BCCI secret in return for co-operation with one another … from April 1990 forward, the Bank of England had now inadvertently become partner to a cover-up of BCCI's criminality.That is a devastating indictment of the Bank and one which Lord Justice Bingham confirms in rather more circumspect language. In its own way, Lord Justice Bingham's report carries just as strong an indictment, but he prefers to use more polite language.
If the Chancellor does not fire the Governor, if the chair of the Board of Banking Supervision does not go and if Ministers do not open the MI5 secret files, the Government will be guilty of complicity in a cover-up that could make even Watergate look like chicken-feed.
The Government must also take this opportunity to institute a thorough-going reform of City regulations to rid us once and for all of the spivs who openly ridicule the arcane, old-boy style of self-regulation, which means that the City has now become an international laughing stock. The prospects of the City attracting overseas finance and the European central bank, as well as other important future initiatives, are gravely jeopardised, if not irretrievably prejudiced by the Government's behaviour over the BCCI scandal.
§ Lady Olga Maitland (Sutton and Cheam)
The Opposition have chosen the wrong target by trying to suggest that the Government should pay compensation to the victims of BCCI. If one took that argument to its logical conclusion one could therefore say that the Labour party should compensate Maxwell pensioners because many of its leaders were spokesmen for and, indeed, in charge of the Maxwell pension fund. We should concentrate on the real cause of the problem and the fact that crimes were committed by those inside BCCI—that is where the blame lies.
§ Mr. Hain
Is the hon. Lady seriously suggesting that the relationship between Robert Maxwell and the Labour party was in any way comparable to the relationship between the Governor of the Bank of England—given his overall supervisory duties—and the BCCI? If so, she should spell that out explicitly. I believe that it is an absolute nonsense and that she should withdraw that shameful allegation.
§ Lady Olga Maitland
I certainly will not withdraw those remarks, because people in the Labour party were responsible for the Maxwell pension fund.
How was it that BCCI was able to continue as it did? We must accept that it was subject to poor banking supervision. Although the Bank of England was empowered by Parliament under the Banking Acts of 1979 584 and 1987 to supervise the banking system, it was rightly condemned for BCCI's conduct, which was described as the greatest fiasco in history. It is absolutely correct to describe BCCI as a tragedy of errors, misunderstandings and failure of communications. I would go even further and blame the Bank of England for weak handling and positive negligence.
What really angers me is that I have not seen a single sign of remorse from the Bank of England. We have witnessed an appalling catalogue of errors and delays when one considers that leaks about BCCI's standing began to creep into the public domain from 1976. The background of the bank's founders should have raised alarm here as it did in America.
It makes one wonder whether it is right for the Bank of England to continue to supervise the financial sector. Perhaps, as my right hon. Friend the Member for Worthing (Mr. Higgins) suggested, that responsibility should be given to another, tougher, outside body, which would run it on a more stringent basis.
It is ironic that the Bank of England sanctioned a dodgy bank in 1980. It turned down BCCI's request for recognised status under the Banking Act 1979, but decided to give it licensed deposit-taker status. By 1986 the alarm bells were ringing loud and clear, but they were ignored.
Although the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott) is not in the Chamber today, I supported her comments to the Select Committee when she said that the Bank of England had been passive, timid, amateurish and sloppy. I would add that it had been arrogant and complacent. The buck stops with the Bank of England and its Governor. But in the light of his evidence to Bingham, Mr. Robin Leigh-Pemberton has not ducked his responsibility, although I regarded his comments as reluctant and hesitant.
As we consider the scale of the anguish that has been caused to the victims of the BCCI affair, we must accept that those concerned are not always the most articulate. They are in many instances not powerful with great lobbies supporting them. They have been mugged—that is the only way I can describe their plight—and they are rightly angry because of the great abuse of trust that has occurred. In addition to the grave injustice that has been done to thousands of innocent people, 30 local authorities in Britain have suffered.
I object to the way in which it is suggested that it is not the responsibility of the Government or anyone else to warn local authorities when things are not right. That is a dog-in-the-manger attitude; they have the information, they are sitting on it but they do not have the guts to bring it into the open. They would rather let others suffer in consequence.
The victims of the BCCI affair comprise in large measure people who have built up a cornerstone in Britain. The Asian community has enjoyed the fruits of burning the midnight oil, opening corner newsagents and providing endless services, including round-the-clock shops and restaurants. Is it suggested that what happened was their fault or that they should have recognised that trouble was coming?
Let us not forget the 1,200 BCCI employees. They were not the perpetrators of the major crime. They were caught in a web, although innocent, and they, too, because they placed their faith in BCCI and in many instances put their savings in the bank, have lost all. I am told that many of 585 them are finding it difficult to get other jobs because they are tarred with the brush of the comments made by the Bank of England.
§ Mr. Vaz
The hon. Lady is making a powerful and eloquent speech. I agree with everything she has said so far. May I tempt her a stage further and ask her to agree that, in view of the breach of supervisory duty that occurred and the passionate way in which she has put the case for the victims, the Government should consider the question of compensation? Does she further agree that people should be able to make representations so that the while matter may be examined, directly by the Government or in conjunction with Abu Dhabi?
§ Lady Olga Maitland
I do not regard it as the Government's responsibility to pay compensation, which would come out of the taxpayers' pockets. The real source for compensation must be the BCCI founders, ultimately Abu Dhabi. But we should make sure that the people who have suffered do not lose out.
I have a considerable Asian community in my constituency, including many former BCCI employees, depositors and a number of charities. It is cruel that charities, which invested in good faith, should be cheated. The Muslim Cultural and Welfare Association has many families on its books in Sutton. That association spent seven years raising £47,000 through jumble sales, fairs and so on, and at a stroke that money was swept away. I welcome the fact that, under the Government scheme, they received £15,000 compensation, but I hope that the Abu Dhabi Government will see them through further.
The irony is that nobody would have put money into BCCI, had the bank not been propped up by the Bank of England. When the closure was happening, the Bank of England was discussing with BCCI's British operation its restructuring in the light of a variety of international scandals. The Bank's presence and involvement had the misleading result of persuading potential customers, investors and depositors that their money would he safe with BCCI. So the bank's integrity was believed. It is typical of people to say that the British way of doing things must be right.
The anger also lies in the fact that no heads have rolled. It is unbelievable and astonishing that no one has taken personal responsibility. The Governor of the Bank of England amazed me by saying that the Bank could not afford to lose scarce talent. That was cant of the highest order. What about people's life savings? Tell that to a family that has been beggared by the Bank of England's incompetence.
Many lessons can be learned. I welcome the setting up of a new fraud probe clearing body, the special investigation unit, designed to co-ordinate, exchange and collate information of all potential fraud on a regular basis, Let us ensure that it really works and that it is tough, resolute and meets regularly. We want to know how often, where and when it will meet and to ensure that it reports. Otherwise, the best endeavours of producing this important Bingham report will simply come to naught.
§ Mr. Clive Betts (Sheffield, Attercliffe)
I wish to concentrate my remarks on the local authorities that got into difficulties with BCCI and to draw two conclusions from that.
In 1990, when I was leader of Sheffield city council, I was approached through members of the Asian community in Sheffield to suggest that BCCI was an appropriate institution for the council to invest money in, for two reasons. First, it was offering a good financial deal and, secondly, a significant part of Sheffield's population originates from the Asian sub-continent. Those people felt that, as the bank had strong links with and lent to that community, it was right that the city in which they lived should make some of its money available for investment in BCCI.
I approached the professional officers in the city council and a meeting was arranged between the chair of finance, the deputy city treasurer and myself. We went to Bradford to meet senior officials of BCCI to tell them that an approach had been made to us and that we felt it right at least to investigate the matter.
Sheffield city council has a large treasury department with well-qualified and professional officers for whom I have the highest regard. Following the meeting, the council carried out an investigation of its own to see whether that institution was a proper place for the city to invest its money. On the basis of that investigation, the deputy city treasurer wrote to me and the chair of finance in April 1990 giving us advice, based on the information that the city council had found.
It was found that, although the bank was incorporated in Luxembourg, it was based in London. It was the largest private bank in the world with no clear lender of last resort. In 1979, when licensing arrangements for banks had changed in this country, BCCI had not immediately obtained a licence because of certain worries about it. In 1980, the Bank of America—one of BCCI's major funders —had pulled out. In October 1988, the Bin Mahsouz family, who controlled the National Commercial Bank in Saudi Arabia and had also been big funders of BCCI, had also pulled out. In 1988, the bank has been indicted of laundering drugs money in Florida. It had eventually come to a deal and accepted guilt.
The council's investigation found that there were links with Noriega; it found that the state of Florida had revoked BCCI's banking licence; it found that Luxembourg, where the bank was incorporated, was currently investigating BCCI. If that investigation had resulted in the closure of the bank in Luxembourg, it would have had a consequence for its banking arrangements in Britain. It found that the bank had been guilty of currency regulation breaches in several countries and that in 1988 the bank had lost $48.7 million.
The deputy city treasurer told the chair of finance and me that he could not recommend BCCI as an appropriate institution in which to put public money from Sheffield city council. I draw two conclusions from that. First, some might ask why, if Sheffield city council could find out that information, other city councils that invested money could not discover that information. The reason is that the Sheffield city council is a large authority with a large treasury department; it employs specialists and it has contacts in the City. The council used those contacts to gather the information about BCCI.
587 Many of the authorities that ran into difficulty are small and do not have the same sort of in-house expertise as Sheffield city council. The authorities that got into difficulty looked at an authorised list from the Bank of England, which was circulated by the Department of the Environment. Whatever the Government say about it now, I believe that at the time many local authorities thought that the organisations on the list were approved and accepted as ones in which to place public money.
Even if that were not the case, the Bingham report accepts that the Department of the Environment was not approving the organisations on the list, but was circulating the list to assist in the progress so that the authorities could issue more accurate returns to the Government, showing the organisations from which they were borrowing and to which they were lending. The Department of the Environment and the Treasury must have been aware of which local authorities were investing in BCCI and the amounts that were invested.
If Sheffield city council's treasury department could discover that list of information about BCCI—which would have led any lay person to conclude that it was not a satisfactory institution in which to invest—why did our national Treasury not come to a similar conclusion? On the basis of its information about local authorities investing in BCCI, why did the Treasury not take steps to warn and advise the authorities of the potential risks that they were running? Why did it do nothing? If the advice was available to Sheffield city council treasury, why did not the national Treasury—which was far more able to obtain that advice—take steps to warn local authorities about what was happening? Instead, it sat back and watched. That is an indictment which gives all the local authorities involved the right to say that they should be compensated for investing in an institution about which they were not warned, but should have been.
My second conclusion is that the difference between Sheffield city council and the authorities that got into trouble was that Sheffield city council had its own in-house financial investment advice and did not rely on brokers. The Government are considering extending compulsory competitive tendering into white collar services in local government, including financial advice.
The Government should think carefully. Local authorities have a right to independent financial advice, which enables councils to carry out their fiduciary duty. It is important for that advice to be given by people who work for the authorities, not to them, and whose sole loyalty is to the council for which they work. If the Government push ahead, force competitive tendering in that sector, and force local authorities to look for the cheapest solution and use brokers when they believe that their in-house advice is better and more appropriate, they will begin to run the risk of encountering more difficulties involving local authority financial organisations and investments. The Government should think hard before abolishing the right of local authorities to take their in-house financial advice. Authorities such as Sheffield city council, which had that advice, did not make the same mistakes or encounter the same difficulties as those authorities that used private sector brokers.
§ 2.4 pm
§ Mr. Piers Merchant (Beckenham)
I will make a couple of brief points, including the issue of compensation. As I represent a constituency which is—at least in terms of postal area, if not administratively—in Kent, I was somewhat miffed that the hon. Member for Neath (Mr. Hain) did not include me in his far-reaching Kent political conspiracy theory.
I compliment the hon. Member for Leicester, East (Mr. Vaz) on the effectiveness with which he has pursued the campaign, especially in defence of the victims of BCCI, with whom I have the most profound sympathy. The better the compensation deal that can be given to those victims, the more satisfactory will be the position in relation to this and any future banking or financial scandal. The victims must get the best protection that the law can give them.
I cannot support the idea of total compensation. In classic economic terms, interest is partly a payment for risk taken. If we remove the risk entirely, we take responsibility away from individual decisions, and we take out of the banking system the differentiation between the various forms of investment which drives the system. There must be an element of risk and responsibility left to individuals, although I agree that compensation schemes should be generous.
It is worth considering strengthening the existing compensation to give a greater percentage for the first £5,000. The figures could be 90 per cent. for the first £5,000, 85 per cent. for the next £5,000 and 75 per cent. for investments above that.
The closure of BCCI was a disaster for many, and it was essential to have a full inquiry. The report shows that that was carried out. The report is not complacent or weak, arid it includes significant findings and important recommendations. The House should not play politics with this issue; to do so will not cause amusement for the people most affected. Instead, we should move swiftly to implement the recommendations of the report, and we should put into law adequate levels o protection and investigation.
§ 2.6 pm
§ Mr. Darling
With the leave of the House, Mr. Deputy Speaker, may I say that one feature of the debate is that it has been remarkably free of political bias.
First, does the Minister understand that almost every hon. Member who has contributed to the debate has stressed that the Bank of England was found to be at fault? Almost every hon. Member has made the point that the Governor should take responsibility for what has happened. Will the Minister convey that fact to the Governor? The Governor and the Government have not grasped the scale and nature of the problem.
Secondly, will the Minister tell us specifically whether the Government will consider the establishment of a separate regulatory organisation away from the Bank's other activities? Thirdly, although I appreciate that he is not here to answer for the Foreign Office or for the Department of Trade and Industry, will the Minister undertake, if he cannot answer the points made, that the appropriate Secretaries of State will communicate to those who attended the debate their views on two points?
No one in the Chamber can have failed to be moved by what the hon. Member for Spelthorne (Mr. Wilshire) told us about the difficulties being faced by British citizens who 589 are now in gaol and about his constituent who died earlier this week. My hon. Friend the Member for Leicester, East (Mr. Vaz), who deserved every plaudit he was given for his efforts, has made a powerful point about the fact that the Government, especially through the Department of Trade and Industry, have information which should be made available unless there are good reasons for not doing so. Will the Minister attend to that?
The hon. Member for Beckenham (Mr. Merchant) suggested that we cannot remove the element of risk. Of course we cannot. An individual always has to exercise judgment. However, the risk that people took in putting money into BCCI, whether individuals or local authorities, was a risk that they took in the light of the fact that BCCI was regulated by the Bank of England. The regulator has let them down. That must have some bearing on the question of compensation and we cannot walk away from that.
Will the Minister tell us when he expects that the Government will bring forward legislation or, if he has a White Paper in mind, when it will be produced? As I said earlier, we simply cannot wait much longer for a clear indication of the Government's intentions.
§ 2.9 pm
§ Mr. Nelson
With the leave of the House, I shall reply to this most interesting debate. I am grateful to the hon. Member for Edinburgh, Central (Mr. Darling) for his measured winding-up speech for the Opposition. I am also grateful to all hon. Members for their thoughtful contributions on this most important issue. Their words will be heard outside the House with interest, not just by those who were affected by the collapse of BCCI. For the most part, the quality of the speeches has been outstanding and, on behalf of the Government, I express my appreciation. The issues are wide ranging and complex, but I hope that I shall be able to answer most points. I am anxious to refer to all those hon. Members who spoke.
The hon. Member for Edinburgh, Central said that the signs should have been read earlier and that options other than closure were available. I acknowledge that, because restrictions and measures short of revocation of authorisation can be imposed by the Bank of England. As I said in my opening speech, the Bank did that in other cases, to the advantage of employees and depositors alike. Like many hon. Members, the hon. Gentleman called for the resignation of the Government—[Interruption.] I mean the Governor. This must be the only day when there has not been a call for the Government's resignation. This place is getting rather like Turandot because it is the fashion to call for heads every day. It is also the fashion to resist such calls, and I do so now.
The hon. Member for Edinburgh, Central asked who would accept responsibility. In his response to the Select Committee on the Treasury earlier this week and in other ways the Governor has behaved in a wholly proper manner in answering the criticisms in the Bingham report and in bringing forward measures of redress. The hon. Gentleman and many other hon. Members, including, in particular, my right hon. Friend the Member for Worthing (Mr. Higgins), spoke about the case for separating central banking responsibilities from authorisation and supervision. I acknowledge that a case can be made for that, but 590 the Bingham report does not conclude that there is such a case on the basis of BCCI. Bingham does not say that such a case should not be considered more generally, but does not believe that it is justified on the findings of the supervision of BCCI. Many hon. Members have expressed that view from time to time and it is a matter of record that I did so perhaps as much as seven years ago and more recently in the House. However, it is not the Government's view at this time that such a separation is called for and it is not being considered.
As I said earlier, it is not my view that by changing structures we necessarily get better decisions. I would far rather have better human judgments with a defective structure than poor human judgments with an ideal structure. At the end of the day, it is people judgments that matter. I am sure that everyone agrees, although some hon. Members have said that people judgments have been brought into question.
Those who argue for a banking commission, a separation of powers, do so on the basis that it would perhaps provide a permanent core of expertise and professionalism in supervision. They argue that an independent supervisor would improve communication with other regulatory bodies such as the Securities and Investments Board which is also concerned about similar judgments on such matters as fit and proper persons. Often the same fit and proper persons are in banks and financial services companies. The SIB sees logic in a similarity of commission of supervision.
It is also argued that there is a conflict of interest between a central bank and the supervision of banks. That was mentioned by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) and by my right hon. Friend the Member for Worthing. It is said that a banking comission would be more accountable to Parliament and might be able to detect a problem bank rather earlier. Some have said that even a strengthened Board of Banking Supervision is not the best way to spot the bad apples in the tray. It has also been pointed out that other countries in Europe, such as Germany, France and Switzerland, have banking commissions. I acknowledge also that there is an argument that, if and when the evolution towards a European central bank is completed, the responsibilities of such a central bank, as far as I am aware, would not encompass supervision of banks, so some changes might be necessary in the light of that.
It remains the Government's position that they do not favour, and do not believe that the report makes the case for, such a separation of powers. A separation would undoubtedly involve a great deal of administrative upheaval and loss of continuity. Bingham and the Government consider that the case for separation is not made by the report, that no system of banking supervision is perfect in detecting dodgy banks, and that there is already an established expertise and authority in the Bank of England that we would be reluctant to unsettle.
The hon. Member for Edinburgh, Central spoke about the need for common standards of supervision in the European Community, and I agree about the importance of that. My right hon. Friend the Member for Worthing made a similar point when he spoke about the passporting of banking facilities both within the European Community and from without into this country and other EC states. The second banking co-ordination directive will enable such passporting. That is to say, other banks within EC countries will be able to passport their services into here, 591 and our banks will be able to go to other EC countries. The foreign subsidiaries of banks in other EC states will be able to have branches in this country.
Given all that, it is important that we have common and high standards of banking supervision and prudential control. The second consolidated supervision directive, tied together with the solvency directive, the own funds directive and the deposit guarantee directive, all of which have either been agreed or are in the process of being negotiated, are directed to this end. They should ensure that the high standards that we insist on are more widely promulgated within the European Community and that we are able to withhold from the Community authorisation for banks that do not meet those standards. Outside the Community, one relies much more on the Basle concordat for high and common standards of supervision. The work that is being done and the recent improvement in minimum standards, which was agreed in July, will mark a major step forward in this direction.
§ Mr. Higgins
Will we be able to withhold authorisation if, in our view, another Community country does not impose standards that are sufficiently high?
§ Mr. Nelson
We shall not be able to withhold authorisation from a bank that has been authorised elsewhere in the Community. Where we are not satisfied with the system of authorisation and supervision in a country, we intend to address that through the system of peer group review, to which my right hon. Friend referred, by the system within the Community of observance of the directives and infraction proceedings and by the other challenges that can be made. The basis of the peer group review is checking on each other's systems to our own advantage to ensure that they comply with the high standards set by the directives and are common to all EC states.
The hon. Member for Edinburgh, Central spoke, like others, about local authorities, and some have spoken about the list. The Select Committee on the Treasury and the Civil Service has made it clear that the existence, by itself, of a list of banks that have been authorised does not absolve local authorities of the responsibility to husband their resources and to be careful. It is not a guarantee of credit worthiness that an authorised bank appears on a list. It is a point which the hon. Member for Sheffield, Attercliffe (Mr. Betts) also made. It is said that if a local authority, such as Sheffield city council, can learn that it is perhaps not the best-quality deposit to make, why should the Treasury not provide that information? I suggest that it is not the Treasury's job to draw up credit ratings of banks or other investment businesses. It can provide to the best of its ability, through an agency such as the Bank of England or others, an authorisation procedure, but individuals and local authorities still have to make their own decisions.
What is proper—it is the recommendation of the Select Committee—is that local authorities should perhaps get together for some central advice on these matters, either through the Chartered Institute of Public Finance and Accountancy or the local authority associations. In the Government's response to the Select Committee's report there is an acceptance and endorsement of that proposal.
The hon. Member for Edinburgh, Central spoke about the limit under the deposit protection scheme and whether it should be raised. The limit is rather more generous than 592 that proposed in the European directive. I know that it is less under the compensation scheme in the investment sector, which is regarded as being a different area in which people put all their money into investments. We are talking, of course, about a compensation scheme that is paid for by the rest of the banking community.
The hon. Member for Edinburgh, Central, with others, raised the wider issue of regulation. There is the prospect of a personal investment authority in the light of some recent remarks. The review that is being conducted by Mr. Andrew Large of SIB's supervision is not a wider review of the entire regulatory system. It is a follow-up to the IMRO investigation of Maxwell. It is an attempt to ascertain whether there is a proper implementation of responsibilities under the Financial Services Act 1986 and whether there are ways in which the SIB can sharpen up its act and improve communication. The review is not a re-look at the fundamentals of our statutory-based system of practitioners self-regulation. A separate case may be made for and against that, but Mr. Andrew Large is not engaged in that exercise.
My right hon. Friend the Member for Worthing spoke about the quality of regulators and asked whether special treatment was being provided in the case of BCCI. Indeed, it was special treatment. The Government's response to my right hon. Friend's Select Committee's report concluded that the existence of the college of regulators was in the end responsible for unearthing—
§ Mr. Nelson
That was the Government's conclusion. In my view, a reading of the report suggests that it was only when the college got together and was able in consolidation to look into BCCI more adequately that the worms started coming out of the can and became rather more apparent.
My right hon. Friend asked whether there would be blackballing of certain states under the Basle concordat. The answer is no. There will not be blackballing, but there will be new minimum standards, which have been promulgated since 6 July by the Basle arrangements. My right hon. Friend talked also about the case for separation, on which I have already responded.
The right hon. Member for Berwick-upon-Tweed said that the Bank of England was undoubtedly at fault. He said that nobody resigns and nobody pays. We have heard that refrain recently. I hear what he says, but I believe that the conclusions of the Bingham report justify the view that while serious mistakes were made, they have been addressed. The report does not conclude that there was negligence. It is for others to assess the extent to which the mistakes, faults and criticisms are serious or less serious. The Government and the Bank have taken the findings of the report extremely seriously, as is reflected in the range of measures announced by my right hon. Friend the Chancellor of the Exchequer.
My hon. Friend the Member for Bromsgrove (Mr. Thomason) said that there is a record of the Bank acting properly and carefully. I was grateful to him for saying that. On a day when there has been much criticism, understandably, cast about the Bank of England, it is important to recognise that it has an outstanding record of supervising our banking system. It is easy to criticise in a case where things may have gone wrong, but it is appropriate to remind the public that the Bank has a good 593 record, over a long period, of fulfilling difficult responsibilities and statutory duties with great ability, sensitivity and confidentiality.
The hon. Member for Leicester, East (Mr. Vaz) has taken an active part in the BCCI affair for a long time, and I pay tribute to him for his interest. He felt that the Governor of the Bank of England should go, and drew attention to the human plight of those affected by the BCCI fraud. We were all moved by the cases that he recited, and we understand the difficulties confronted by those who lost out, as well as by those who cannot find jobs.
Most reasonable people accept that there are good and bad in any organisation. It is unusual for a company's employees to be wholly bad or wholly good. That being the case, it is unfair and disappointing that many BCCI employees who attended to their duties with great diligence and integrity should be besmirched by events.
The hon. Member for Leicester, East spoke also of compensation and cited Barlow Clowes. I explained in an intervention earlier why I thought that case was different. The hon. Gentleman mentioned the important issue of liquidation fees, as did other hon. Members. I will disclose a few facts, because I feel strongly about that issue. I have tried to do my homework, and the House and the public are entitled to more information.
I understand the restraints and difficulties that confront liquidators, and I must be careful about Government involvement in pressurising or leaning on them. That would be quite improper—but a request to know the facts is not unreasonable. The fees and expenses of the liquidators to date amount to some £69 million. Of that sum, some £28 million was incurred in respect of their role as provisional liquidators prior to the winding-up order on 14 January, and some £48 million since then. The court has approved the payment of fees up to 15 April 1992, since which time—with the authority of the court and the approval of the creditors' committee—they have drawn on account of fees yet to be formally approved.
Fees are currently running at approximately £1 million a week, not all of which is accounted for by the liquidators. Legal and other professional fees amount to some £22 million
My information is that the cash book receipts of the liquidators in respect of BCCI SA England amounted to just over £325 million, and that cash book payments amounted to £124,684,000—leaving a balance at 15 July 1992 of £200,318,000.
§ Mr. Nelson
I am sorry, but I must insist on replying to other hon. Members.
My hon. Friend the Member for Ryedale (Mr. Greenway) said that the Bingham report found no evidence of negligence on the Government's part, and I am grateful for that. He welcomed the proposals on auditors 594 and spoke with great knowledge about the PIA, the Insurance Brokers' Registration Council, and the 49 per cent. limit—to which he has drawn my attention before.
The hon. Member for Western Isles (Mr. Macdonald) said that although the report did not find evidence of negligence, its findings pointed to that. He said that the Bank of England was too easily deterred by BCCI in 1984. The reasons, though not wholly accepted by Lord Justice Bingham, are given in paragraphs 244 and 245. The hon. Gentleman said that not all criticisms were made with the benefit of hindsight, and I believe that that is accepted.
My hon. Friend the Member for Spelthorne (Mr. Wilshire) spoke of the death of a constituent. He said that the treatment in Abu Dhabi was appalling and that he wanted a complaint lodged. There have been discussions at the highest level.
The right hon. Member for Lagan Valley (Mr. Molyneaux) said that as the legislation was defective, compensation should be paid. He also raised the case of Mr. George Finbar Ross. I shall take both his comments very seriously, and examine them carefully.
My hon. Friend the Member for Dover (Mr. Shaw) made a thoughtful and realistic speech. I am most grateful to him for the way in which, in measured tones, he defended both the Bank of England and its Governor. In contrast, the hon. Member for Neath (Mr. Hain) attacked self-regulation and City ethics. He made wounding remarks to me personally, describing me as bland and complacent; and he called the Governor dishonest, a charge which he should certainly withdraw. I think that every other hon. Member will agree that, without doubt, the Governor is a man of total integrity. He needs to be defended, and I consider that what the hon. Gentleman said went way over the top. He was paranoid about the role of British security.
I am grateful to my hon. Friends the Members for Sutton and Cheam (Lady Olga Maitland), to the hon. Member for Attercliffe—
§ It being half past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.