BCCI liquidators sue Bank of England: Governor could face cross-examination over alleged failure to regulate collapsed institution properly

THE BANK of England is being sued for damages that could reach dollars 10bn by the liquidators of Bank of Credit and Commerce International 'for failing to regulate BCCI properly in accordance with the Banking Acts of 1979 and 1987'.

Lawyers representing BCCI's creditors said last night that the legal action could lead to both the Governor of the Bank of England, Robin Leigh-Pemberton, and the Governor-designate, Eddie George, being cross-examined in open court over the Bank's role as BCCI's regulator.

Labour MPs called for both Mr Leigh-Pemberton and Mr George to step aside from their duties until the action is resolved.

The move may prompt other parties to take legal action against the Bank. A representative of the state of Abu Dhabi, which owns 77 per cent of BCCI, said yesterday: 'We have been actively looking at what claims we may have against the regulators including the Bank of England, and these investigations are at an advanced stage.'

Liquidators at the accountants Touche Ross served a writ against the Bank of England yesterday afternoon on behalf of a small number of BCCI depositors who have agreed to assign their claims to the liquidators.

BCCI was shut down by the Bank of England and regulators worldwide in July 1991 following the discovery of massive long-term fraud. Creditors have received partial compensation from the Bank of England's Deposit Protection Board, but nothing yet from the liquidators.

No sum is mentioned in the Touche writ, but it is understood that any claim for damages would be similar in scale to those already made by the liquidators against other parties in the BCCI saga. Touche has already issued writs for damages of more than dollars 8bn against the accountants Price Waterhouse and Ernst & Whinney, now part of Ernst & Young, for their role as auditors to BCCI, and for dollars 10.5bn against the National Commercial Bank of Saudi Arabia and Sheikh Khalid bin Mahfouz, its former chief executive, for alleged fraud and racketeering.

Touche said: 'The English liquidators have obtained directions from the Vice-Chancellor that liquidation funds may be used to take legal action against the Bank of England on behalf of depositors provided that any damages received if the claim is successful will be distributed to all creditors in proportion to their claim in the liquidation.'

This means that depositors wishing to take part in the action must assign their claims over to the liquidators. Touche yesterday sent out letters to thousands of depositors seeking their approval. Enough creditors by value have to agree to the move before 20 June for the Vice-Chancellor to allow the action to go ahead.

A spokeswoman for the Bank of England said: 'We cannot comment in detail until we have seen the statement of claim. However, we have been aware for some weeks that the liquidators were considering whether proceedings could be brought against the Bank, and we believe that we would have a complete defence.'

The writ comes before Thursday's mass meeting of BCCI creditors at Wembley Arena. Observers were expecting Touche Ross to be criticised for lack of progress in making payments to creditors while charging tens of millions of pounds in fees.

Keith Vaz, the Labour MP who has campaigned on behalf of BCCI's creditors and employees, said: 'The liquidators were worried about the meeting, and the timing of the writ is a ploy to deflect criticism on Thursday.'

Despite this, Mr Vaz insisted that issuing the writ was 'a brilliant decision and the most significant act taken by the liquidators in the 15-month campaign. 'At last the Bank of England will be held to account in a court of law for its appalling handling of the BCCI issue.

'I believe this will greatly boost the case for government compensation. And, because of the personal involvement in the supervision of BCCI, both the Governor of the Bank of England and the Governor-designate should step aside from their duties until this action is resolved.'

A repayment plan agreed between the liquidators and Abu Dhabi, which would give 30p to 40p in the pound to BCCI creditors, has consistently been stymied in the Luxembourg courts by a group of depositors led by Adil Elias, a Florida-based engineering consultant who lost more than dollars 1m at BCCI's Edgware Road branch in London.

Mr Elias has demanded a bigger payout and his latest appeal against the repayment plan will be heard in Luxembourg this Wednesday.

Mr Elias yesterday welcomed the writ against the Bank of England.

David Greene, a partner with the London law firm Edwin Coe and secretary of the national solicitors' BCCI co-ordinating committee, which represents creditors, said: 'It is good news that Touche Ross are taking a stand against the Bank of England. I think it gives backing to criticism voiced by creditors since BCCI went down.'