§ The Economic Secretary to the Treasury (Mr. John Maples)
With permission, Mr. Speaker, I should like to make a statement about the Bank of Credit and Commerce group.
My right hon. Friend the Chancellor is today attending a meeting of the Economic and Finance Council in Brussels, which is discussing a number of issues that occupied the recent meeting of the European Council. He has asked me to give his apologies to the House for being unable to make this statement himself.
The Bank of England, along with the authorities in a number of other jurisdictions, took action on Friday to secure control of the assets of the Bank of Credit and Commerce group.
The BCC group operated in this country through a Luxembourg incorporated company, BCCI SA, which had a number of branches in the United Kingdom, mostly in the London area. On Friday, the directorate of the Luxembourg Monetary Institute took action under Luxembourg law to secure control of the assets of the company. This was done in consultation with other regulatory authorities concerned, which have taken appropriate action against other subsidiaries and operations of the BCC group.
The effect of these actions was to place the assets and liabilities of the entities concerned under the protective control of the supervisory authorities or of the courts, as appropriate, of each country. In the United Kingdom, following a petition made by the Bank of England, the United Kingdom courts have appointed Touche Ross as provisional liquidator. The effect of this action is that deposits with the United Kingdom branches of BCCI SA are frozen.
The action taken by the regulatory authorities resulted from prima facia evidence, contained in a report commissioned by the Bank of England and recently received, of widespread fraud in a number of jurisdictions stretching back over a number of years. The action was taken in order to safeguard the interests of depositors, other bona fide creditors and the shareholders of the BCC group. A copy of a press notice issued by the Bank explaining its action has been placed in the House Library.
The principal supervisory authorities are seeking the co-operation of other authorities in other countries in which BCCI has been in business, with a view to securing a rundown of the group. They are seeking co-operation to identify and take appropriate action against those responsible for any wrongdoing. Relevant papers have been passed to the Serious Fraud Office.
Within the United Kingdom, the immediate effect of the supervisors' action is that United Kingdom depositors cannot withdraw their funds. Sterling deposits in the United Kingdom branches are covered by the deposit protection fund to the extent of 75 per cent. of deposits up to £20,000—that is, up to£15,000 per depositor. The Bank of England has issued a notice explaining the position of United Kingdom depositors and the operation of the funds. A copy has been placed in the House Library. The 661 deposit protection fund will be activated as soon as a winding-up order is made in the United Kingdom courts. Claims will be processed as quickly as possible.
The Bank held a meeting with the main high street banks and the liquidator this morning. As a result, arrangements are being set in place for the liquidators to aid the banks in their assessment of applications from small businesses for alternative facilities. Although that assessment is a commercial matter for the banks, I hope that they will respond as sympathetically as possible. The banks are also urgently discussing with the liquidators whether comparable arrangements can be made for small depositors who find themselves in immediate difficulties. In addition, Touche Ross is willing for six weeks to give free advice to any small business affected by the BCCI winding-up.
Under the Banking Act 1987, the Bank of England has sole responsibility for authorising and supervising banks and the Government have no locus in its decisions. The Government were, however, kept fully informed of the proposed action and it has our full support.
§ Mr. John Smith (Monklands, East)
Is the Minister aware that the most disturbing feature of the whole affair is that the system of regulation which applied to the BCC group appears to have failed with serious losses for individuals—and companies—who were the customers? In a world in which, following the deregulation of the 1980s, money is permitted to flow in colossal amounts across continents and frontiers, is it satisfactory for financial institutions to be able to minimise scrutiny by locating parts of their operations in jurisdictions in which regulation is deliberately less rigorous? Will the Government pursue at international level through, for example, the Bank for International Settlements and the European Community, the need to make supervisory controls more effective so that a sad outcome is made less likely in future?
On the bank's depositors, do the Government consider that the deposit protection scheme is sufficient, bearing in mind the limitation that only 75 per cent. of the first £20,000 lost can be recovered? Is it not anomalous that the investors' compensation scheme pays far more generous compensation—the first £30,000 in full and 90 per cent. of losses between £30,000 and £50,000?
Can the Minister explain why the audits of the bank do not appear to have revealed the problems that are now apparent? Should there not be a tightening of the audit requirements in respect of banks, for which the regulatory system is rendered less effective by international complications? Can the Minister tell the House when the Bank of England first became aware of the serious problems at the bank? Can he assure us that it is not necessary for a complaint to be made before action is taken?
Does the Minister appreciate that many firms, especially among our enterprising Asian community, which have already had to face the ravages of the recession may now be put out of business through no fault of their own? Given that it was not their fault that regulation failed in this case, what action do the Government propose to take to help those businesses to survive the disaster that has befallen them? Does the Minister appreciate that it is impossible for people to run a business if they have lost the bank that they used and they do not have another bank to 662 provide the facilities? Surely it is possible for the Government to do more than ask the liquidators to advise the banks to accept applications from those business men.
Is not the situation near to a disaster in many Asian business communities? Is it not necessary for the Government to take emergency action, perhaps in co-operation with the Bank of England and the clearing banks, and to give emergency assistance to the businesses? The most important facilities that they need are banking facilities so that they can carry on. Does the Minister appreciate that it is not enough to get free advice from Touche Ross for six weeks? Something more substantial is needed to help businesses, especially Asian businesses, in this community, which are in difficulty through no fault of their own and which are responsible for many thousands of jobs, especially in our inner cities.
§ Mr. Maples
I do not think that the right hon. and learned Gentleman should be quite so dismissive of the generous offer of Touche Ross to provide advice about making alternative banking arrangements to businesses that are in difficulties. The Bank of England and the liquidator are trying to put in place arrangements to help businesses in that position. This morning the Bank of England and the liquidator had a meeting with the nine major high street banks to discover what can be done.
Although there are technicalities which must be overcome—I hope that it will be possible to overcome them—the banks are trying to put together a scheme whereby if a business which is in difficulties and is trying to establish alternative banking facilities approaches one of the nine major banks and releases the liquidator from the requirements of confidentiality, the liquidator will then act as quickly as possible to make available to that bank details of how the business has conducted its affairs with BCCI and their status, and generally provide a substantial amount of information.
As to whether the other bank would be prepared to take on that business, we must bear in mind that different firms may be in different positions. They could be borrowers, have deposits with the bank or simply be seeking alternative banking facilities. However, in all those circumstances, I hope that the arrangements will be brought to fruition. If they are, they would help to deal with the serious problems described by the right hon. and learned Member for Monklands, East (Mr. Smith).
The right hon. and learned Gentleman suggested that there were problems with the way in which the group was organised, that international co-operation was necessary to supervise international groups and that the system of regulation has not performed as well as it might have done. He also wanted to know when the Bank of England first knew about the problem.
As we all know, there had been rumours surrounding BCCI for a very long time, but there had been no hard evidence—of which the Bank has said it is aware—of any reason for it to withdraw its licence. The evidence of very serious fraud came to light about 10 days ago in the Price Waterhouse report, about which there has been a good deal of publicity in the newspapers. The Bank acted extremely quickly after that.
There is certainly difficulty with international supervision; that is what the current efforts on the second banking directive and co-ordination of those matters at Bank of International Settlements level is about. However, 663 the Bank of England played the leading role in putting together the international college of supervisors which for the past two years supervised BCCI's affairs.
The right hon. and learned Gentleman also suggested that the deposit protection scheme was insufficient. The level of compensation under that scheme was set by the House deliberately to protect small depositors and not to give a carte blanche Government guarantee on all deposits. It would be extremely expensive and somewhat foolhardy from a prudential point of view if the Government were to give very extensive guarantees. The scheme guarantees everyone 75 per cent. of their money up to a maximum of £15,000 and that can be said adequately to cover small depositors. Larger depositors are, of course, in a very unfortunate position and they will have to wait for the outcome of the liquidation.
The right hon. and learned Gentleman referred to the audit procedures. There are difficulties in auditing an international group like this, but the Bank of England took the lead in insisting a few years ago that the group should have one auditor, and that has played a large role in bringing the problems to light.
§ Mr. Terence L. Higgins (Worthing)
Will my hon. Friend confirm that the protection fund does not cover commercial deposits? As it is not a British bank, will my hon. Friend confirm that the contributory institutions will all be liable to contribute to the fund, unlike the situation under the Banking Act 1987? Will he publish a list of those in the Official Report? In light of the overall situation, will he keep the House informed?
§ Mr. Maples
I will certainly continue to keep the House informed if there are any developments about which I think the House would be interested to hear.
The deposit protection fund covers all sterling deposits with the bank up to a maximum compensation of £15,000. It covers non-resident sterling deposits and commercial sterling deposits, but it does not cover resident non-sterling deposits. As I understand it, the deposit protection board can raise the necessary money either by borrowing it or through a levy on the other licensed banks in the United Kingdom which would share that in proportion in some way to their size. It would hope to recover the bulk of any money disbursed from the liquidation in which it would be an unsecured creditor.
§ Mr. Peter Shore (Bethnal Green and Stepney)
The Minister said that the major purpose of the Bank of England's action was to safeguard the interests of depositors. Clearly the action that has been taken and the compensation available will not be sufficient to safeguard the interests of depositors. It is not simply a case of individual savings being limited to compensation of £15,000. Small businesses, which clearly use sums of money in excess of that, will face grievous losses. A substantial part of the Bangladesh cyclone relief fund had been deposited in that bank and that is now to be limited to £15,000 compensation. Will the Minister again look at the regulations in the Banking Acts 1979 and 1987 and see whether they can be adjusted to a more realistic level to take account of the undoubted needs and problems of thousands of people, savers and small business men, particularly in the Asian community?
§ Mr. Maples
I said that that action had been taken to protect the interests of depositors, because, if it had been allowed to continue and serious fraud had continued, the interests of the creditors of the bank would have been seriously endangered. The action protects their interests.
As to small businesses, I completely agree with the right hon. Gentleman, as I agreed with the right hon. and learned Member for Monklands, East (Mr. Smith), that many of them have a very serious problem. That is why I outlined the arrangements which the Bank of England, the liquidator and the main high street banks are trying to put in place to help those people. I said that I hope that the banks would look at that sympathetically. I outlined what the arrangements would be, but there are some technicalities which must be overcome. I hope that they will be overcome very shortly.
On the adequacy of payments under the deposit protection arrangements, I said that they were deliberately set by the House in such a way as to protect small depositors. It would be very unwise if the House and the Government were to underwrite at public expense all the depositors with a bank in the United Kingdom. That could be very expensive indeed. Depositors of large amounts of money should perhaps be aware that they will not qualify for compensation whereas small retail depositors will.
§ Sir Peter Tapsell (East Lindsey)
While no one, I think, would suggest that deposit protection arrangements should be unlimited, will my hon. Friend give further thought to whether they are sufficient at a level of £15,000, bearing in mind that the United States equivalent is $100,000? Also, is the Abu Dhabi investment authority following these matters very closely and has it said whether it accepts any responsibility in view of the fact that it is the controlling shareholder of the bank?
§ Mr. Maples
I hear what my hon. Friend says about the adequacy or otherwise of the deposit protection fund, but I can only reiterate what I have already said twice. The level was deliberately set by the House in such a way as to offer protection to small depositors. One should think very carefully before extending that on a much wider basis. I do not think that we would want to be in the position that the United States is in, with lavish deposit insurance which effectively underwrites any banking activities.
The major shareholder has played a constructive role in the bank over the past few years and has injected capital on several occasions. The Bank of England is, of course, in contact with it, and it expects tonight to meet representatives of the shareholders, the Government of Abu Dhabi and the central bank of the United Arab Emirates.
§ Mr. Keith Vaz (Leicester, East)
Earlier this afternoon, I met members of staff and investors outside the Bank of England. They were desperately worried because they had not been kept informed of the decisions that had been taken. Will the Minister urge the Governor of the Bank of England to keep the staff and investors informed of precisely what is happening? Will he look also at the emergency relief procedure? The procedure that he outlined will take several weeks. I met a person who believed that his life savings had gone because of the decision of the Bank of England. Frankly, in my view, he was potentially suicidal. What action are the Government proposing to take to help such people on an emergency basis?
665 Will the Minister confirm whether the Sheikh of Abu Dhabi, together with the federal reserve bank and the Bank of England were, until very recently, negotiating the possibility of launching a new bank? How was that possible at the same time as an investigation was going on into BCCI?
§ Mr. Maples
Negotiations have been taking place for some time between the supervisors and the shareholders to see whether the bank could be reconstructed in an acceptable way, but that was before the evidence of the serious frauds came to light. In the opinion of the Bank of England, it is now quite clear that no such reconstructed bank could possibly be acceptable to the supervisors involved. Therefore, that line of thought is no longer being pursued.
The hon. Gentleman asked me about the staff. The liquidator met the staff at 2.30 pm today and hopes to be able to pay them last week's wages as soon as possible. For the time being, all those people are still employed by BCCI. The liquidator will clearly need to keep some of them on, but the others will be entitled to whatever they would have been entitled to under their terms of redundancy if the bank had not been liquidated. I understand that employees are preferred creditors for overdue wages and for some, if not all, of their redundancy rights. Therefore, although there is obviously considerable concern and uncertainty among the employees, at the end of the day, they are likely to be looked after as well as can be expected in the circumstances.
The hon. Gentleman then asked about small depositors, as well as about small businesses. The bank is attempting to put in place similar arrangements for small depositors to those that I have described for small businesses. That issue was discussed at the same meeting with the high street banks. If a BCCI depositor gives the confidentiality release to one of those banks—so that BCCI can inform the new bank of the size of the deposit and whether it was secured in any way against a loan or was a free deposit—it is hoped that it will be possible to construct arrangements under which part of the compensation which the depositor could expect to receive from the deposit protection fund could be advanced to the depositor if he or she is in serious need of funds. Again, there are considerable technicalities to be overcome. 1 t is a big and difficult job—
§ Mr. Maples
1 shall deal with the question of how long in a moment.
The scale of the problem means that it is a big and difficult job. We do not know how many depositors there are, but as there are certainly several thousand, it will be a substantial job. Again, I hope that the banks will look at that matter sympathetically and that it will be possible to construct such a scheme.
On the question of a timetable, the deposit protection board cannot be activated until a winding-up order has been made by the courts. The moment that the Bank has a provisional winding-up order, there is a statutory minimum period of 15 days before the application can be made, although an expedited hearing has been applied for. I assure the hon. Gentleman that we and the Bank will do everything that we can to ensure that that hearing takes place as soon as possible. Immediately the hearing is held, 666 the deposit protection board will announce the procedures for making claims and, again, we shall try to ensure that the claims are processed as quickly as possible.
§ Mr. Patrick Ground (Feltham and Heston)
In conjunction with the Department of Employment, will my hon. Friend look into the issue of work permits for this and other foreign banks in this country? Will he pay particular heed to the representations that have been made on the subject by employees in the banking industry?
§ Mr. Maples
I am not quite sure what point my hon. and learned Friend is seeking to make, but I shall ensure that my right hon. and hon. Friends at the Department of Employment are aware of what he said. My understanding is that foreign employees who have work permits from banks are in exactly the same position as foreign employees on work permits from any other organisation. I am sure that they will be treated similarly.
§ Ms. Diane Abbott (Hackney, North and Stoke Newington)
The Minister said that there have been rumours about BCCI for some time. Has it slipped his mind that BCCI was successfully prosecuted in the United States for laundering drug money on a massive scale? Does he accept that, while reservations about BCCI might have been common knowledge in City establishments, they could not have been known by the small investors and the small business men, many of whom are Asian, who put their money into that bank in good faith? Will he now answer the question that he was asked earlier about the Bangladeshi cyclone relief fund? Does he accept that the arrangements that he has outlined for helping small business men are not adequate and that the regulatory bodies have failed and now owe a responsibility to the people who are facing bankruptcy because of mismanagement and misaccounting?
§ Mr. Maples
I am sorry that I omitted to deal with the Bangladeshi cyclone relief fund earlier. It is in exactly the same position as any other depositor. It will receive compensation—[Horn. MEMBERS: "Oh, no.") Well, I do not think that it would be right for the Bank of England or the Government to have to pick and choose between the relative merits of different depositors. I understand from what I have read in the newspapers that the sum involved is about £50,000. The fund will be entitled to £15,000 compensation and will then rank as an unsecured creditor, along with the others, in the liquidation. It is far too early to have any idea what, if anything, those depositors will receive, but I hope that there will be some payment for them out of the liquidation.
I turn now to the question whether the Bank of England should have known about this matter earlier. The hon. Lady cited the case of the two people who worked at a branch in Florida and were prosecuted. Under American law, companies are vicariously liable for the criminal activities of their employees in a way that they are not in this country. On that basis, the bank was also prosecuted and pleaded guilty. As I understand it, there is no connection with those who are responsible for running the bank's affairs in the United Kingdom, so the information was not thought sufficient for taking the matter further. I also point out that those convictions took place at the beginning of last year—not all that long ago.
§ Sir Peter Hordern (Horsham)
Was it wise to allow the bank to open retail branches? Is my hon. Friend satisfied with the degree of co-operation among European central bankers on the matter? Should there not be a full inquiry?
§ Mr. Maples
I am satisfied with the degree of co-operation among European central banks—that is what has brought the matter to its present conclusion. When the supervisory European authorities—some of them central banks, some of them different authorities—became aware of the problem, they acted quickly, within a week, to achieve the result that we now have.
We can discuss whether the bank should have been allowed to open so many branches, but when it started business it was authorised in Luxembourg and, as I understand it, the Bank of England had no powers to stop it opening branches here. Under subsequent legislation, the extent of the bank's activities was restricted because it was felt that the group was too complex and was opening branches too fast.
My hon. Friend asked a third question, but I cannot remember what it was.
§ Mr. Maples
Our first priority is to get an orderly rundown of the group's affairs under way. Further investigations are being carried out by the Bank and presumably considerable further investigations will be undertaken by the liquidator. As I have said, the papers have been passed to the Serious Fraud Office, which will investigate the possibility of criminal prosecutions. It is far too early to say whether we need to go further.
§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)
Is the Minister aware that, when the Treasury and Civil Service Select Committee visited the bank regulators, including the Governor of the Bank of England, four or five years ago, I told them that, if they looked into BCCI's books, they would find a financial cesspit, only to be met with the reply, "You are aware, Mr. Sedgemore, that this is not a British bank." Does that not suggest that there is something fundamentally wrong with bank supervision?
§ Mr. Maples
I do not know what facts the hon. Gentleman has to back up that assertion, but if he had facts and he presented them—[Interruption.] The hon. Gentleman is in the habit of making unsubstantiated assertions in the House and I should not be surprised if he did so at the Bank of England as well. I am sure that if he had had substance to back up his allegation, the Bank of England supervisors would have investigated.
The situation was complicated because BCCI operated in several countries, but with regard to the operation in England, the Bank of England had the necessary powers to act. As soon as it was satisfied that it had the evidence to justify taking such action, it took it.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
Does my hon. Friend accept that two questions out of many arise? One concerns the deposit protection scheme. Bearing in mind the fact that many small traders and depositors are at risk, if the money can be reclaimed later, should we not, as as matter of urgency, at least help those people in the short term?
The second question is about the problem caused by the fact that any bank that opens in Europe under European 668 regulations can open a branch here at any time and at its will. As the European schemes are all different, before we allow foreign banks to open here, which means that money can come and go without the Bank of England knowing where it is, should we not make certain that all our regulations are the same? Otherwise, fraud can take place, as we have seen time after time.
§ Mr. Maples
The problem in this case went well beyond Europe, but part of the second banking co-ordination directive, to which I believe my hon. Friend refers, whereby a bank authorised in one EC country can open branches in others, aims to ensure that common standards of prudential supervision are established. There is already close co-operation among the supervisory authorities and my hon. Friend is right that it is important to ensure that that part of the arrangements is in place, to ensure common supervisory standards.
My hon. Friend also mentioned the problems of small customers—both businesses and depositors. I have described the arrangements that the Bank of England, the liquidator and the high street banks are trying to put into operation. There is no point in repeating what I said, but I hope that those arrangements will be possible. If they are, it will be a considerable help to those two groups of customers. The deposit protection board will be activated very shortly—as soon as the winding-up order is obtained.
I cannot give a timetable for that. I have said that it would be difficult—although perhaps not impossible—to have a hearing within two weeks, but I certainly hope that the deposit protection board arrangements will be activated very shortly.
§ Mr. D. N. Campbell-Savours (Workington)
Can we have some dates? Can the Minister tell us when Price Waterhouse was first aware of irregularities, whether the Department of Trade and Industry was informed and on what date, and on what date the Bank of England was first informed of irregularities?
§ Mr. Maples
The Bank of England obtains information in respect of banking supervision which it then has to treat with considerable confidentiality. It is not open to the Bank of England simply to give the information out to people unless there is legitimate cause, and the person receiving the information then becomes subject to the same sanction. As far as I know, therefore, there was no communication to the Department of Trade and Industry.
The hon. Gentleman asked when the information was received. As I said, the Bank of England received Price Waterhouse's report disclosing the extensive fraud at the end of the week before last—about 10 days ago.
§ Mr. Speaker
Order. We have more than 144 Lords amendments to debate this afternoon. I therefore ask hon. Members to ask brief questions and not to repeat questions that have been asked before.
§ Mr. Anthony Nelson (Chichester)
Has it not been apparent for some time that those who deposited money with the bank needed their heads testing? It is only because the Government changed the laws governing banking in 1987 that the Bank of England could investigate and close down BCCI and that the auditors were able to deliver important information about it. Does my hon. Friend agree that, so far from our needing to increase the 669 compensation due to depositors, the sum is quite adequate for the large range of small depositors, and that the larger depositors should have known better?
§ Mr. Maples
I agree with my hon. Friend. I do not think that there is any reason to believe that the Bank's supervisory arrangements and powers under the 1987 Act are inadequate.
§ Mr. Alfred Morris (Manchester, Wythenshawe)
What can the Minister say to the House about the link between BCCI and Barlow Clowes on which, as he will know, there has been some sharp public comment? When did his Department and/or the Department of Trade and Industry know of that obviously very disturbing link, and also the Bank of England?
§ Mr. Maples
These are two different cases. What unites them is that large amounts of money were stolen in both instances. I do not think that there will ever be a system of bank supervision that will stop sophisticated frauds taking place. One hopes that one can limit the incidence of frauds by trying to ensure that only suitable people run banks, that their affairs are properly audited and that proper supervisory powers are in place. I am afraid, however, that it will not be possible completely to eliminate fraud, and in this case the fraud was extremely sophisticated and complex.
§ Sir Ian Stewart (Hertfordshire, North)
Having introduced the Banking Act 1987, may I, through my hon. Friend, commend the Bank of England on the way in which it conducted its role on the international scene in bringing this unfortunate matter to a head? Does my hon. Friend recognise, however, that there are genuine concerns about the fact that a bank whose management and business have widely been known to be in a mess for such a long time should have been able to remain in business for so long?
Will my hon. Friend look again at the provisions of the banking legislation which make it automatic that authorisation in one member state of the European Community is effective in every other member state—irrespective of the fact that, in this case, it was clear that the authorisation procedures in Luxembourg were inadequate to deal with the bank?
§ Mr. Maples
Under the second banking co-ordination directive—as I told my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark)—it will be important to ensure that those common standards of supervision are in place. That is an essential ingredient of the arrangements and I do not think that it would be satisfactory simply to allow branch banking on the basis of a home country passport unless we were all satisfied with each other's standards of supervision.
I shall ensure that my hon. Friend's comments about the conduct of the Bank of England in this matter are passed to it, and I am sure that those concerned will be happy to hear them.
As to my hon. Friend's strictures on the way in which the bank has operated in the past, I must point out that, although there has been a good deal of rumour, there has not been very much fact, and it is not possible for the Bank of England to operate on anything other than evidence. If the Bank decides to exercise the draconian powers conferred on it in the Banking Act 1987 to put a bank into liquidation or revoke its licence, its decisions are subject to 670 appeal to a banking appellate body and it has to be able to justify its decision by reference to hard evidence. The Bank acted as soon as it felt that it had that evidence.
§ Mr. Bob Cryer (Bradford, South)
But is the Minister telling us that anyone can come to Britain with a bank from Luxembourg and rip off depositors without any intervention from the Bank of England? As it has become clear from comments in the Chamber that a large number of people had informed the Bank of England, the Bank of England must have been aware of BCCI's shortcomings, so why was no action taken? Does the Minister agree that it would be handy if the depositors who are being short-changed as a result of this fraudulent operation sued the accountants—whose attention the complexity of the fraud apparently escaped because of their incompetence or complicity?
§ Mr. Maples
That is a travesty of the facts. It is not for me to comment on the accountants' role in the matter. I am sure that they are more than capable of defending themselves—and no doubt if the hon. Gentleman repeats his remarks outside the House, he will find that they do so.
On the question of small depositors being ripped off. I repeat that there are compensation arrangements, which. I have already described, under the deposit protection fund arrangements.
§ Mr. Maples
I do not think that £15,000 is peanuts. Anything under £20,000 should be compensated. That decision was taken by the House deliberately to protect small depositors. As I said in answer to the right hon. Member for Manchester, Wythenshawe (Mr. Morris), I do not think that it will ever be possible to institute supervisory arrangements that preclude any chance of complicated, sophisticated fraud taking place.
§ Mr. Iain Mills (Meriden)
May I ask my hon. Friend a simple question? As a result of the Bank of England's decision, the high street banks will have to provide large sums of money under the protection scheme. Can my hon. Friend assure me that that will not affect those banks' policies towards other small businesses that they fund locally in the United Kingdom?
§ Mr. Maples
My hon. Friend makes an interesting point. I do not see why that business should be affected, but I shall ensure that my hon. Friend's comments are communicated to those concerned. Any funds that the banks have to advance to the deposit protection board are recoverable out of any proceeds available on liquidation and one therefore hopes that funding that they might have to provide to the deposit protection fund will be by way of a loan. I shall ensure that my hon. Friend's point is communicated to the Bank of England.
§ Mr. Matthew Taylor (Truro)
The Liberal Democrats join hon. Members on both sides of the House who have urged the Minister to take further steps, particularly to help those small Asian businesses threatened by bankruptcy at present—not least because Lord Harris, speaking from the Liberal Democrat Benches, raised his concern about BCCI on an unstarred question more than a year ago. No action proceeded from that. Does the Minister agree that, in view of the obvious failure to stop the fraud taking place and in view of the long timescale in which concerns were being expressed—particularly from 671 the Liberal Democrat Benches—it would be appropriate to have a full independent inquiry into why the Banking Act appears to have failed in this case?
§ Mr. Maples
The points made by Lord Harris in the other place were to do with the prosecutions in Florida of those involved in laundering drug money. Lord Harris made no suggestion that a complex fraud was taking place at the bank; that came to light only very recently.
The hon. Gentleman asked whether it was appropriate to have an inquiry. As I said, the priority at the money is to ensure that an orderly running down of the bank's affairs gets under way. That is the priority of the Bank, the liquidators and, I hope, the shareholders. The Bank, the liquidators and the Serious Fraud Office will be conducting further investigations. There is already a lot on the agenda and it is too early to decide whether it is necessary to do anything else.
§ Sir Robert McCrindle (Brentwood and Ongar)
Has the Minister had the opportunity to discuss with his colleagues at the Department of Trade and Industry the BCCI insurance group, which is a wholly owned subsidiary of BCCI? As the DTI, a Government Department, is the regulator of that company, will he have some conversations with it, if he has not already done so, and seek to reassure the House that BCCI insurance group's investors—many of them, in all probability, the same people who had investments with the bank—are secure?
§ Mr. Maples
The Bank has communicated the grounds for its action to the DTI, and it is in that Department's power and up to it to decide what to do about the associated insurance company. I am sure that it will take whatever action is appropriate under its regulatory powers to protect the interests of customers and clients of that insurance company.
§ Mr. Peter Hain (Neath)
This is a case in which the Government have watched with abject complacency while a group of shady bankers walked off with millions of pounds of ordinary people's money. Yet those who indulge in what in south Wales is called "hobbling"—topping up one's benefit with a tenner or so from gardening—immediately invite the attentions of fraud officers. Why are the Government so keen to regulate and prosecute the poor while they are so indifferent to a proper regulatory mechanism for the financial world?
§ Mr. Maples
It seems to me that we spend half our time in this House discussing regulatory arrangements for the financial world. What the hon. Gentleman describes is not recognisably the position with which we are dealing. I said that the papers had been passed to the Serious Fraud Office. It seems clear from the evidence that serious criminal offences have taken place. If so, the people responsible will undoubtedly be brought to justice.
§ Mr. Spencer Batiste (Elmet)
Is my hon. Friend aware that many successful businesses, including many in Leeds, which are financed by borrowings from BCCI, will now look to other bankers to set up new financial arrangements and will have heard with interest my hon. Friend's comments today? One problem they face is that their assets are charged to BCCI. Will my hon. Friend ensure 672 that the liquidator acts promptly to implement any change in banking arrangements made by those companies so that they can survive?
§ Mr. Maples
I said that certain technicalities had to be ironed out to enable the arrangements to be put into effect. The point that my hon. Friend made is one of them. It may be necessary for the new bank to advance to its new clients sufficient money to discharge the debt to BCCI and thereby have the security released so that it can be charged to the new bank. Alternatively, it may be necessary for the new bank to put a second charge on those assets. That is a technicality which needs to be ironed out I am sure that the liquidators and the banks will address that problem constructively. I hope that that will result in the type of action that I have described.
§ Mr. Alan Williams (Swansea, West)
In which year was the £15,000 figure felt to be adequate? What would be the equivalent real value of that money today? Will the Minister confirm that, if the figure was set in 1987, the figure now would be nearer £20,000 and that, if is was set in 1979, it would be over £30,000? As adequacy seems to be the criterion, would not it have been logical for the figure to reflect changes in the value of money?
§ Mr. Maples
I am afraid that I cannot tell the hon. Gentleman the date on which the figure was set. It would have been since and under the powers of the Banking Act 1987, so the figure would certainly have been set during the past four years. I shall write to the hon. Gentleman and let him know when it was set.
§ Mr. Phillip Oppenheim (Amber Valley)
Is it not the case that, although many people said that BCCI was dodgy, obtaining hard evidence was difficult? Is it not also the case that, of the 69 countries in which the bank operated, including its home base of Luxembourg, it was Britain which finally uncovered the serious fraud? Does not ultimate responsibility for helping depositors lie with, not British taxpayers but the Sheikh of Abu Dhabi, whose large shareholding in BCCI instilled the confidence in it without which BCCI would not have been able to operate on the scale that it did?
§ Mr. Maples
I am sure that the Bank of England will be grateful for my hon. Friend's comments about the role that it played in the international supervision of the bank. It put together the college and, as he said, uncovered a fraud. The shareholder to whom my hon. Friend refers has a constructive record with the bank. He has injected additional capital on several occasions. As I said, representatives of the shareholders, the Bank of England, the liquidator, the Abu Dhabi Government and the United Arab Emirates central bank are meeting this evening. It remains to be seen what will come our of those discussions.
§ Dr. John Reid (Motherwell, North)
May we return to the question of dates and in particular what the Minister knew and when? The Minister said that the report with some conclusions was presented 10 days ago. Can he confirm the statements made at the end of last week that there was hard evidence aroung the beginning of the year and, as we have heard today, suspicions and rumours for a considerable period before that? Can he tell us exactly when Price Waterhouse first alerted the Bank of England and/or the Department of Trade and Industry that there 673 were prima facie grounds for suspicion and an investigation? When was the first time that Price Waterhouse told either of those bodies?
§ Mr. Maples
There certainly were rumours such as the hon. Gentleman describes about BCCI, but few were substantiated by any fact.
§ Mr. Maples
I will come to the point—[Interruption.] As far as I know, none of the rumours was substantiated by the sort of facts that would be required to enable the Bank of England to act. The facts which eventually came to light and the grounds on which the Bank has acted were evidence of a sophisticated and complex fraud which was not part of the rumours and which, by its nature, could not be evidence of rumour. A new officer of the bank told the Bank of England that she thought that there were some strange goings-on and unrecorded transactions in the bank at the beginning of this year. Very shortly afterwards, Price Waterhouse was asked by the Bank of England to conduct an investigation. As I said, it reported to the Bank of England about 10 or 12 days ago. The Bank acted within about eight days of receiving that report.
§ Mr. Jacques Arnold (Gravesham)
My hon. Friend may know that one of the unusual characteristics of this bank is its considerable international network of banking branches, notably in Africa, and that in some of those countries it is a large player in the local commercial banking market. Could he perhaps bring it to the attention of the Bank of England and the other international regulatory authorities that in winding up the institution they should do their utmost to avoid damage to growing private enterprise in such countries and to local economies?
§ Mr. Maples
I hear what my hon. Friend says. I am sure that the Bank of England will also hear what he says. The lead liquidator is the liquidator of the holding company in Luxembourg—Touche Ross. The liquidators in the various other countries are—perhaps this is not a proper, technical, legal description—their agents. The Bank of England is fully occupied with looking after matters in Britain and with the depositors and customers of the business here, who were referred to in other questions. However, I am sure that the bank will have heard what my hon. Friend says.
§ Mr. Tam Dalyell (Linlithgow)
Was it not a little more than rumours—to go back to the answer to my hon. Friend the Member for Motherwell, North (Dr. Reid)? Was not the issue raised in questions from the former Prime Minister, Lord Callaghan? That should have alerted the authorities. Will the Minister clearly confirm that Price Waterhouse told the Bank at the beginning of the year? What did he mean in his answer to my hon. Friend when he referred to "strange goings-on"? Could he explain that phrase? If there were strange goings-on in the bank, is it not odd that there was such a lack of curiosity on the part of the Government?
§ Mr. Maples
I went on to say that there were unrecorded transactions. Immediately after that was reported, drastic action was taken which has resulted in the bank being put into liquidation.
§ Mr. Kenneth Hind (Lancashire, West)
My hon. Friend will be aware that BCCI appears on the Bank of England's list of approved banks for investment. Will he consider the position of the 10 local authorities which have substantial investments in the bank? What priority will be given to them when they require funds for local authority services?
§ Mr. Maples
One clearly appreciates and sympathises with the difficulties in which any depositors find themselves. However, I am afraid that, in the liquidation, large depositors such as the local authorities to which he referred will rank as unsecured creditors, alongside the other depositors. They will be entitled to £15,000 compensation from the deposit protection fund if they meet the relevant criteria. I hope that the liquidation will result in some pay-out to those depositors, but I am afraid that it will not be possible to make special arrangements for one group of depositors.
It would be invidious for the bank, the Government, or, for that matter, the liquidators to choose on some grounds of objective merit between categories of depositors. There are only two categories. There are small depositors who will receive perhaps the bulk of their money back—up to £15,000. Larger depositors will also receive £15,000, but for them it will represent a much smaller percentage of their deposit.
§ Mr. Dennis Skinner (Bolsover)
Don't this Government ever learn? In September 1984, a similar incident occurred with Johnson Matthey. Some of us, including my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), raised the matter. We raised the very question of whether auditors and accountants should act as whistle-blowers in order to let the people and the Government know about banks which were still touting for custom when they had almost gone down the pan. Yet here we are seven years later with a repeat exercise of almost the same thing that happened then. The truth is that this bank would not have been told by the Bank of England to stop trading if it had not been for the Americans—just like in the Guinness scandal—realising that it was uncomfortable and sensitive for them with the drugs scandal and Noriega and deciding to tell the British Government that they had better pull their finger out. That is the reason why the bank was closed.
§ Mr. Maples
If the hon. Gentleman suggested at the time of the Johnson Matthey scandal that auditors should be allowed to blow the whistle on their clients, it must be one of the few constructive suggestions that he has made in the House. It must be of some satisfaction to him that his suggestion was acted on and that, in the Banking Act 1987, auditors were given the power to do exactly that.
§ Mr. Campbell-Savours
On a point of order, Mr. Speaker. During the questions on the statement I am sure that you noticed the repeated suggestion from my hon. Friends and Conservative Members that something major was wrong with the bank. I wonder how it is possible then that Conservative Members did not exert pressure on the right hon. Member for Brighton, Pavilion (Mr. Amery) who has been an adviser to that bank for years?