I am grateful for the opportunity to raise in the House tonight the long-running saga of the liquidation of the Bank of Credit and Commerce International. I am delighted to see on the Front Bench my right hon. Friend the Minister for Employment Relations and Postal Affairs, who will reply to the debate.
The bank was founded in 1972. At its peak in 1990, it operated in 73 countries, had more than 400 branches, and had assets in excess of $20 billion. It had approximately 6,500 depositors in Britain and a million depositors worldwide, 40,000 employees worldwide and, reportedly, £4.7 million actually in the bank in the United Kingdom. The decision to close down BCCI was primarily taken by four men: Eddie George, then Governor of the Bank of England; Brian Quinn, the head of banking supervision at the Bank of England; John Major, the Prime Minster; and his Chancellor, Norman Lamont. It was closed because the Bank of England, which of course was then the regulator of the banking system, said, in effect, that the bank was full of fraud.
The customers were in shock. The depositors included small depositors in places such as Leicester and West Bromwich, many local authorities—most significantly Western Isles council in Scotland—Channel 4 and many other household names. Right hon. and hon. Members joined me in meetings with Mr. Major, Mr. Lamont, Mr George and the liquidators. We attended many of the hearings and listened to many of the judges in what I regard as a successful campaign to bring the attention of the world to the victims of BCCI. I remember the words of Prime Minister John Major that there was a big black hole in the bank and that creditors would get no money from it—a position supported by the liquidators, Touche Ross, which told depositors not to hold their breath and expect any payments.
With its owner, the Sheikh of Abu Dhabi, one of the richest men in the world, its exotic locations, its colourful stories and its sheer size, it remains a mystery to me why no one has made the story of BCCI into a Hollywood movie. At the time of the closure, the Sheikh of Abu Dhabi undertook to underwrite the entire losses in the bank in order to ensure that nobody would face hardship. It was as if he and his advisers had foreseen what the Government would subsequently do in relation to Northern Rock 17 years later.
There is still a great deal of suspicion about why BCCI was actually shut down. Abu Dhabi was even persuaded by the Bank of England to remit the last amount of more than $600 million that would have enabled the bank to re-emerge as a strong and more viable international banking group. That took place the day before the bank was actually shut. The decision to close down the UK operations was a greater mystery in the light of the fact that BCCI's UK operations had a high liquidity ratio—the ratio of deposits to lending was 60:40—and were declared clean and untainted by the Bank of England. BCCI's UK operations could easily have been ring-fenced, but that option was ignored, whereas some countries ring-fenced BCCI local operations in order to protect the deposits and employment of their own citizens.
The then Chancellor set up the Bingham inquiry, chaired by one of this country's most influential jurists. The definitive report, although not dealing with the reasons for closure or apportioning blame, set up the current system of banking supervision. The Financial Services Authority was born out of BCCI, and we were assured that never again would banks be unregulated.
Thousands of people lost access to their savings without notice, causing some of the greatest of human tragedies—the break-up of homes and marriages, cancelled medical operations, lost jobs, ruined careers and, in some cases, suicide. Thousands lost access to their bank accounts and saw their businesses collapse. Just in case hon. Members think that the issue is not as relevant now as it was 17 years ago, let us look at what is happening in Iceland. It may take years to get back all the money frozen in the Icelandic banks when they went bankrupt earlier this year. The parallels with what happened in the aftermath of BCCI are very clear, although they are not on the same scale.
Local authorities are drawing on the BCCI example as a warning of the situation they could find themselves in. Mark Finch, head of finance at Breckland council, told members of the council's audit committee last Friday that the present situation could become as drawn out as the one involving BCCI, saying:
"BCCI has not yet been resolved. These things can take years and we have no idea how much we can expect to receive back or when it is likely to be received. We will wait and see with bated breath but we do not yet know how we will be treating it on our balance sheets at the end of the year."
Deloitte Touche, appointed the BCCI liquidator, was quick to judge immediately after closure that it would not be able to recover any money, and suggested a payment of zero to 10 per cent. on the dollar for the company's worldwide depositors. Although the liquidation may have proved complex and involved a number of jurisdictions, in excess of $1.2 billion has been charged in worldwide fees. The liquidation has made multi-millionaires of the accountants and lawyers. Some $700 million of those fees have been spent in the United Kingdom, where Deloitte and Touche has billed for about $296 million, while Freshfields Bruckhaus Deringer and Lovells, two firms of solicitors, have earned themselves $173 million. To be fair to them, I should say that Ralph Preece, a Deloitte and Touche partner, defended the size of the fees, claiming that creditors would not have seen such high returns without the firms' litigation work. However, that is disputed by members of the creditors committee and by former employees, who objected to the unsuccessful litigation that the liquidators mounted against the Bank of England. I pay tribute to the former employees who led that campaign, including Runi Kahn, Qaiser Malik and Mohammed Qayun.
The liquidators have realised a total of about $7.7 billion to date, and a reported further $800 million is being held back for future fees. On that basis, the liquidators' fees would represent about 25 per cent. of the recoveries. In many quarters, including some of the accountancy fraternity, such high fees are considered obscene. On several occasions, the depositors and former employees have called on the Insolvency Service at UK Trade and Investment to launch an investigation into the liquidators' fees.
It is strange that a $20 billion bank, which allegedly lost $10 billion in a black hole, according to its liquidators, and has liquidation costs well in excess of $1 billion, has still been able to pay almost 90 per cent. of the money to its depositors. All that money has been found from somewhere, and the depositors have been paid back, albeit in dribs and drabs, over the past 17 years. One wonders where the bank would have been today if it had not been forced into liquidation and had taken the Sheikh of Abu Dhabi's generous offer, which was rather like the injection of cash that some other Gulf royals recently gave to our own Barclays bank.
Even if we give the liquidators the benefit of the doubt, we find that what disappoints so many is the apparent unwillingness of successive Governments—not just the present one—to intervene to bring the liquidation to an end. Over the past 17 years, I have met every Minister with responsibility for insolvency matters to try to get them to use their good offices to halt the haemorrhaging of money, but every one of them, advised by the Insolvency Service, has declined to do so. At ministerial meetings, they have offered tea, biscuits and sympathy when I have taken BCCI employees and creditors to see them, but they have claimed not to have a relevant interest. I therefore look forward to meeting the present Minister about the case. After many requests, he has kindly agreed to see me on Monday, and I hope that, apart from tea, biscuits and sympathy, he will give us some positive news.
Like the liquidators, Ministers feel that the size, complexity and difficulties of the case mean that it has had to carry on for a long time. The Insolvency Service, the regulator of insolvencies, has stood by and done absolutely nothing, and final statutory responsibility rests with the Secretary of State, but either he is unwilling to intervene or he has been advised not to do so. It is perfectly acceptable for Ministers to intervene to help Northern Rock, HBOS-Lloyds TSB and, as we heard just a few moments ago on our televisions, Royal Bank of Scotland; but, for some reason, it is not acceptable for them to help to end this liquidation. Ministers in the Department for Trade and Industry have been described as the Pontius Pilates of this very sad story.
However, there is some news—just before Christmas. The global liquidators of BCCI have announced that the payment of a seventh interim dividend of 2.5 per cent. to admitted creditors will be made in December. I welcome this. It brings the total dividend to date to 86.5 per cent.. and at least one further dividend will be paid, although the amount and the timing remain uncertain. That is the problem—the uncertainty and mystery about how things have been done.
There has only ever been one full creditors' meeting. It was at the Wembley conference centre more than a decade and a half ago—
It being Six o'clock, the motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn. —[Mr. Spellar.]
Every time the creditors' committee and other creditors have asked that the creditors be brought together to hear from the liquidators about what has been happening during the liquidation, they are told what they have always been told—"Sorry. The list is too long. We can't send out letters because it will cost too much." Yet the liquidators are still prepared to charge the bank for the liquidation. I hope that one of the things that the Minister will do is say to the liquidators that there should be another creditors' meeting so that the creditors themselves can question what the liquidators should be doing. However, why should the liquidation stop when there is so much more to squeeze from the carcase in liquidators' and lawyers' fees?
It may have gone unobserved, but if the liquidators' fees had been properly audited and found to be excessive, the depositors might have already received almost 100 per cent.—if not the full 100 per cent.—of their money. Perhaps it is time for the Business and Enterprise Committee to hold an investigation into the longest running liquidation in history. Surely Parliament—which, frankly, has also been sitting on its hands in dealing with this matter—should want to discuss why the liquidation has gone on for so long, so that we could at least learn the lessons and make sure that things are not done in the same way in future.
Next Wednesday, I will be 52, but I live in hope that while I am still a Member of this House, and still alive, such an investigation can take place. If it can, those who have stood by and sat on their hands will finally be called to account. The BCCI liquidation needs to be brought to an end. We need to ensure that such a thing does not happen again and to examine thoroughly how the Insolvency Service operates. Clear legislation is needed to protect the interests of the public, no matter how a bank closes, and to monitor the work of liquidators when they feel that they cannot hold creditors' meetings.
The Chancellor was right to take the stance that he did in protecting and preserving Northern Rock and to take the other measures to protect this country's failing banking system. UK taxpayers are now stakeholders in a number of banks. A repetition of the final catastrophe and human tragedy that was the closure of BCCI was avoided by the Government this time. However, the Government should not forget the victims of BCCI.
I rate this Minister as one of the best in the Government, and he will be able to claim his place in history by being the Minister who finally ended the liquidation of BCCI. I ask my right hon. Friend whether he is ready for the cloak of history to be put on his shoulders.
I congratulate my right hon. Friend Keith Vaz not only on securing this debate but on his determination and tenacity during the many years since the liquidation of BCCI, to secure justice for its creditors. I wish him in advance a happy birthday next Wednesday and thank him for his kind comments. As he would expect, I have read some of the previous Adjournment debates on this issue, and I give no weight to the fact that he said some very kind things about the Ministers who preceded me in this role.
My right hon. Friend has campaigned with great energy to keep the issue in the public eye, and throughout that period his objective has been simple—to ensure that the hard-working savers, businesses, local authorities and others who, in good faith, deposited their funds in BCCI get as much of their money back as possible. I assure him that the Government share that objective, and we will certainly not forget the victims of the whole process. He set out the history and the scope of the bank's operations at their height. He also made comparisons between what happened then and the more recent banking troubles that the Government have been dealing with. I want to return to that later.
The main focus of my right hon. Friend's speech was a series of perfectly legitimate questions about speed, the fees involved, and the role of the Department for Business, Enterprise and Regulatory Reform and its predecessor Department. Let me begin with the issue of time scale. The liquidation of BCCI was, as he said, one of the largest and most complex ever seen in this country. It involved a bank that operated in many different jurisdictions around the world—I think that he said 70 countries, which is broadly in line with our understanding. That complexity has of course contributed to the length of time that the liquidation has lasted. It is not the longest in the country's history—there have been examples that have lasted many decades—but 17 years is a very long time on anyone's time scale.
The next question is what that 17-year period has resulted in. As my right hon. Friend said, when the bank first went into liquidation, there were fears that creditors might see very little of their money returned. However, the success rate has been greater than was initially feared. The creditors have now received about 84 per cent. of their debts and, as he remarked, they will receive a further 2.5 per cent. before the end of this year. Although the process has indeed been very lengthy, it has not been one that has not yielded the results for depositors for which he has campaigned with such skill and determination over the years.
The UK liquidation's domestic receipts, together with its share of global receipts, amount to some $4.18 billion, which includes a sizeable payment from the bank's majority shareholders. Significant realisations have also been raised from legal actions taken against third parties on the basis of fraudulent action. In addition to the next dividend, the liquidators hope that it may be possible to pay a further, final dividend to creditors at the end of the liquidation.
When the liquidators informed the Minister of that fact, did they indicate when the end of the liquidation would be?
I do not have a date, but, as my right hon. Friend is aware, the liquidators hope to pay a further dividend beyond the one that is due before Christmas.
In order to realise such sums, it has been necessary for the liquidators and their legal advisers to expend considerable amounts of time, effort and money. Let me say something about the fees to which my right hon. Friend referred. The fees involved are large—there is no doubt about that. The English liquidators charged remuneration fees of just under $350 million and incurred legal costs of a further $232 million in the 16 years ending in January this year. Those are very large amounts of money in anyone's language, and I understand why he draws attention to them. The issue is not just the fees, but what is recovered as a result of them. As I said, substantial sums, certainly more than was expected at the start of the process, have been recovered for the creditors.
In addition, my right hon. Friend presses me to intervene in the process, and I have no doubt that he will do so again when we meet to discuss the matter next week. I shall say a little more on the Government's role, the relationship between creditors and liquidators in the setting of fees and the scrutiny of the ongoing liquidation process. Under English insolvency legislation, the setting of the liquidators' basis for remuneration is a matter for the company's creditors, either in a liquidation committee or at a meeting. It is not set by the Secretary of State. If creditors feel that the remuneration charged by a liquidator is excessive in the context of a case, they are able to challenge that remuneration at court. In this case, the committee could go even further. It approves the liquidators' remuneration on a quarterly basis. It is clearly right that those with an economic interest in the outcome of a liquidation have the greatest influence over its processes.
My right hon. Friend referred to meetings and how they are supervised. The BCCI's liquidation committee, which represents the creditors, has played an active role in the course of the liquidation and has overseen the actions and conduct of the liquidators. It is the committee's responsibility to ensure that they are satisfied with the level of remuneration that the liquidators have charged.
My right hon. Friend must know that every time the creditors' committee wants to challenge the liquidators' fees, it has to go to court and do so before a judge, which means more money being spent out of the bank. It has to pay its lawyers, the costs involved and the liquidators' costs, if it loses. Every time it makes a challenge, more money is spent on fees. That is the problem.
That is consistent with what I said. It has the option to go to court; that is how insolvency law operates. If creditors wish to challenge such fees, they must go to court to do so.
My right hon. Friend stated that the liquidators are holding back a further $800 million for future fees, if I heard him correctly. I am informed that that is not the case, and that a lesser sum is being held back, in respect of unclaimed dividends and dividends declared where the relevant creditors have yet to confirm their claims.
It is certainly more than $100 million less than the figure my right hon. Friend quoted.
The liquidators meet, consult and correspond with the committee on a regular basis. There may be a suggestion that the committee is not able to exercise its scrutiny role, and that the liquidators are free to proceed, if I may use the vernacular, in their own way and in their own sweet time, but it is worth stressing that the committee, which is representative of the body of the bank's creditors, receives its own independent legal advice funded by the liquidation itself. If one looks at the make-up of the committee, one finds that it does not look like a body of people who would be easily duped. The committee meets quarterly and may also have ad hoc meetings in the year. It receives its own independent legal advice, which the court has authorised as an expense of the liquidation. The committee receives a full set of accounts each quarter, together with a report on the liquidators' activities in that period. Aspects of the liquidation can be very complex and the independent legal advice ensures that the committee can understand the content and the import of the reports that it receives. The liquidators' remuneration is approved by the committee on a quarterly basis.
My right hon. Friend may wish to take issue with that, and he is perfectly free to do so, but it is not a process in which the creditors have no voice, or only a passing voice. The liquidators prepare an annual budget for their activities, and their performance is measured against that on a quarterly basis.
That is most helpful and useful. All we ask is that ministerial minds be focused on that issue from time to time and that the Minister write to the liquidators regularly. If necessary—if the Government are hard up—I will give him the stamp, but he is the Minister for post offices, so that should not be a problem; some remain open in this country. Will he write to the liquidators and ask what the current position is and why things are taking so long? A letter from the Minister carries so much more weight than a letter from a Member of Parliament or anyone else. It concentrates the minds of the liquidators. He simply has to put in his diary every two months a reminder to ask what is going on.
I assure my right hon. Friend that I do not want the process to last longer than necessary, but, when it comes to closure, there are interests to be weighed in the balance about the recovery of moneys for the creditors. It is important to bear that in mind. He asks me to bring the matter to a close as soon as possible and I appreciate his desire for closure because 17 years is a long time. I also appreciate the anxiety that those who lost money through no fault of their own as a result of having deposits in the bank at the time of the liquidation have experienced. However, let me make a couple of points about closure. It is not determined by me or the Secretary of State. The problem of time scale—long as it has been—must be balanced with the creditors' interests.
If the creditors judge that the well of recovery has not run dry and that some sums could still be recovered, and push up the anticipated 86.5 per cent. recovery rate to which my right hon. Friend referred even higher, it may not be in their interests to bring the matter to a premature close. The creditors and the liquidators must make that judgment. The Department and the Secretary of State have not turned their eyes away from the problem. Throughout the period, the Secretary of State has received an annual report from the liquidators on the conduct of the liquidation.
The closure of such a liquidation, which has run for nearly two decades and realised billions of dollars for creditors, is not a simple process. It must also be borne in mind that the English liquidation is not the main procedure. Bank of Credit and Commerce International was registered in Luxembourg, and the main proceedings are the Luxembourg liquidation. Consequently, Luxembourg liquidators, Luxembourg law and the Luxembourg court have the most important say in when and how the liquidation is closed. It is essential to the efficiency of the global liquidation that all three liquidations close in an orderly and co-ordinated fashion when the time comes.
I repeat that the process should take no longer than necessary, but I stress that it must be consistent with the creditors' interests and the possibility that further moneys may be recovered for them. The English liquidation must close before the Luxembourg liquidation, but that can happen only when the winding-up process is complete. Deciding on the right time to close down the liquidation is a matter for the liquidator and the liquidation committee, working with the other global liquidations.
Potential further recovery is a live issue. As I understand it, one recovery involves the enforcement of a judgment that exceeds $300 million. Any recoveries from that would be paid into the liquidation for the benefit of creditors. All parties would like the liquidation to finish as soon as is reasonably practicable while continuing to act in the creditors' best interests. When they are pursuing such moneys, we must ask whether it is in their interests to engineer the closure of the liquidation. I am happy to meet my right hon. Friend next week, as has been arranged, but I want to be clear about my role in such situations and to stress the interests of the creditors.
I turn to the parallels that my right hon. Friend drew with the banking crises that we have seen in recent months. He mentioned Northern Rock and some other cases. However, I suggest that there is a legal difference between the Government's role in stopping a collapse of the banking system—that is what has driven the recent interventions, which started with Northern Rock and was followed by some others—and the Government's legal position in respect of the running of an individual liquidation many years after it began. As I have said, insolvency legislation gives that role to creditors and liquidators. I appreciate my right hon. Friend's point about intervention, but I am not sure that we are talking about a parallel situation. However, I am happy to discuss that with him further when we meet next week.
In conclusion, I again pay tribute to my right hon. Friend's tenacity and to the compassion that he has rightly shown for those who had deposits in the bank. The Government have not turned a blind eye to the problem; nor do we intend to do so. We operate within the insolvency legislation, which gives a role to the liquidators and a role to the creditors through the liquidation committee. That is the context in which the liquidation is being done. Substantial sums have been recovered, and I hope that more can be recovered for the creditors affected. When discussing how long such a long-running liquidation should take, it is important to bear that interest in mind, as well as our legitimate desire to bring the process to a close within no longer a time scale than is necessary.
Question put and agreed to.
Adjourned accordingly at twenty-two minutes past Six o'clock.