Bank of credit and Commerce International>

HC Deb 19 July 1991 vol 195 cc714-27 2.30 pm

The Chancellor of the Exchequer (Mr. Norman Lamont)

With permission, Mr. Speaker, I should like to make a statement about the Bank of Credit and Commerce International. My hon. Friend the Economic Secretary informed the House on 8 July of the action taken by the Bank of England and the supervisory authorities in a number of other jurisdictions to secure control of the assets of the Bank of Credit and Commerce Group. Subsequently, in the course of our proceedings on the Finance Bill, last week my hon. Friend answered points put to him by a number of hon. Members. The Governor of the Bank of England has met a number of Members to explain the background and reasons for the action, and I met the hon. Member for Leicester, East (Mr. Vaz) and a group of other hon. Members yesterday to discuss the matter.

The immediate priority following the closure has been to bring about as orderly a rundown of the bank's operations as possible to help the many individuals and businesses which had accounts at the bank. I can assure the House that we are doing everything that we can do to resolve their difficulties. In particular, the Bank of England is putting an enormous effort into bringing the deposit protection scheme into action as soon as is humanly possible. The Deposit Protection Board will be writing to depositors immediately, inviting them to make claims. Our latest estimate is that the United Kingdom branches at the bank had some 50,000 sterling accounts, although some customers may have had more than one account. The arrangements to make payments cannot commence until the winding-up order has been granted, but the bank has obtained an expedited hearing for the order which is to take place on Monday. Once the order has been granted, the board will act as quickly as possible to meet valid claims.

As my hon. Friend the Economic Secretary has explained, the provisional liquidator, the Bank of England, and the main high street banks have put in place arrangements to aid the banks in assessing applications by BCCI customers for alternative facilities. I am glad to hear that a number of the high street banks have set up special centres for dealing with applications from such customers and I hope very much that they will be able to respond helpfully in these cases.

The Bank of England and the liquidator have also kept in close touch with the majority shareholders in BCCI to seek their co-operation in securing an orderly rundown of the company and to minimise losses to depositors.

Looking further ahead, the Government and the Bank of England will be considering carefully what lessons this case has for the system of banking supervision in this country and for the framework of international co-operation among banking supervisors.

A number of questions have been raised both in the House and elsewhere about the events leading up to the authorities' action on July 5. In particular, it has been suggested that the Bank of England ought to have taken action earlier to seek the closure of BCCI. Others have argued that it acted prematurely and should have sought the co-operation of the shareholders in restructuring BCCI and putting it on a sound footing. There have also been questions about the Government's role in the affair although, as the House knows, under the 1987 Banking Act the supervision of banks is unambiguously the duty of the Bank of England and not of the Government.

My hon. Friend in his earlier statement set out the general grounds for the Bank of England's action and for its timing. However, in the light of widespread public concern, the Governor and I have agreed that there should be an independent inquiry into the supervision, under the Banking Acts, of the Bank of Credit and Commerce International, to establish the facts and to make such recommendations as arise from them.

The report will be made public subject to such restrictions as may be needed to avoid prejudicing any criminal proceedings and subject to the provisions of the Banking Act.

I will announce shortly the precise terms of reference of the inquiry and who will conduct it.

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 no reason to doubt that the Bank acted properly and promptly in the best interests of the depositors. Unfortunately, it will never be possible to prevent fraud and deceit. None the less, both the Governor and I believe that an independent assessment of the case is appropriate and I hope that all those who have evidence bearing on the matter will co-operate with it fully.

Mr. Gordon Brown (Dunfermline, East)

I thank the Chancellor for his statement. I welcome the Government's agreement to an inquiry, for which we have been calling in the past week, particularly in the letter from my right hon. Friend the Leader of the Opposition to the Prime Minister.

Will there be an interim report on the inquiry? Should not the inquiry's remit and the published report include —this is not yet in the remit—whether current regulatory procedures provide adequate protection to the customer, whether banks should have a statutory responsibility themselves to insure customers' deposits, what the role of auditors has been in this sorry affair and—this, too, is not included in the remit—what has been the Government's role? Does the right hon. Gentleman accept that, as well as questions about the supervision of banking, there are questions which must and, indeed, can be answered immediately on the Government's role in this affair?

Will the right hon. Gentleman tell us when Ministers first knew of the problems at BCCI, what they knew, what action was taken and, if no action was taken, why not? Will he explain why no action was taken after prosecuting authorities in America asked the Bank of England for assistance over BCCI, why no action was taken after BCCI pleaded guilty in the United States in January 1990, why no action was taken after the Federal Reserve Board asked for help in its inquiries and, especially, why no action was taken after the Price Waterhouse report 14 months ago? Will the right hon. Gentleman confirm that the Prime Minister was Chancellor at the time when written warnings were first given to the Treasury and that if mistakes are found to have been made Ministers will accept full responsibility for what has gone wrong and will not shift the blame to junior officials?

Will the right hon. Gentleman explain why the Treasury ignored warnings in the letters of 12 June and 19 June 1990, one from an inspector at BCCI about a possible fraud? Will he now tell us why Government Departments have engaged in the unseemly episode of buck passing from the Treasury, to the Department of Employment, to the Department of Trade and Industry, where its "couldn't care less" attitude means that the letter appears to have disappeared, so that while Ministers were losing letters, small and large investors were losing thousands of pounds? Will the right hon. Gentleman explain what actually happened? Will he confirm—I want a specific answer—whether, when the bank applied to the Investment Management Regulatory Organisation for a full licence as an investment manager, it was turned down as long ago as April 1990—the only applicant to be turned down? Should not that have been the cause for alarm bells to ring over the bank's activities?

Does the right hon. Gentleman now agree that the Prime Minister was not only unfair but wrong to prejudge events when he attempted last Thursday in the House to shift the blame to local authorities for being imprudent? Does the right hon. Gentleman accept that local authorities and small investors, including hundreds of business men and women—some now at risk of losing not only their bank but their businesses—cannot be held to blame if the failures are found to be those of communication between Government Departments and of inadequate regulation? Will the right hon. Gentleman now explain in more detail what practical steps are being taken to help small investors in difficulty and to help small businesses facing hardship? Will he demand an urgent review of the compensation scheme currently being offered by the banks? Does not he agree that this is a sorry and shameful episode of a Government slow to act and even slower to come to the aid of small investors, quick to blame others and even quicker in passing the buck among themselves?

Mr. Lamont

I am grateful to the hon. Member for Dunfermline, East (Mr. Brown) for at least welcoming the fact that the Government have decided to set up an inquiry to examine the lessons that may be learnt from this affair. However, his remarks might have been more complete if he had referred to the massive, unprecedented fraud on a worldwide scale which is the real source of the problem facing us and the many other people who have lost money as a result of this sorry episode.

The hon. Gentleman raised the issues of regulatory procedures, the terms of reference and the role of auditors. I shall, of course, make the House aware of the terms of reference and I intend that the investigation should be able to examine the issues raised by the hon. Gentleman. I know that he never wants to make political points, would never wish to exploit matters and always wishes to be fair, so I am sure that he will bear it in mind that, statutorily, the responsibility for banking supervision rests, as I said fairly in my statement, with the Bank of England.

The hon. Gentleman mentioned what happened in the United States. The Bank of England made a judgment having considered the facts of what happened in the United States. It concluded that what had happened there was a local matter—[Laughter.] I may also say that that was the view taken in the United States. Other agencies remained open in the United States and no branch of BCCI was closed down. The judgment had to be made by the Bank of England. That matter can be examined by the inquiry, as can the issue of whether alarm bells should have been ringing earlier, as he put it. Those issues can and will be investigated by the inquiry. I shall make an announcement to the House about the terms of the inquiry. As I said, we intend its findings to be made public.

As for the compensation scheme, we have already made it clear in the House what the position is. My hon. Friend the Economic Secretary to the Treasury made a statement about that, and I have nothing to add.

Mr. Terence L. Higgins (Worthing)

Does my right hon. Friend accept that the Treasury and Civil Service Select Committee will wish to consider the timing and the extent of its own inquiry in the light of his statement? Will he clarify several issues? First, what is the timing of the inquiry likely to be? Are its hearings likely to be public? As for the terms of reference, are they likely to be narrow or will they cover the whole range of subjects which he mentioned? Will the judicial inquiry have access to the auditors' reports which would otherwise be restricted under the Banking Act 1987? Will the composition of the inquiry be such that it can make recommendations on matters that go far beyond legal considerations with regard to the broader issues of international and general banking supervision?

Mr. Lamont

On the timing of the report, I should hope that the conclusions could be arrived at as speedily as possible, but we must be realistic. This is a highly complex matter, but I am sure that it is right for the inquiry to be set up and conducted as soon as possible.

On recommendations about the supervisory regime, we shall of course look to the inquiry to see what it says about the regime and, indeed, that is one of the purposes of setting up the inquiry.

As for the type of inquiry, I have not yet decided under what powers the inquiry will be conducted. Of course, that affects whether or not the proceedings will be held in public. I will report to the House on that matter.

I omitted to reply to one important point made by the hon. Member for Dunfermline, East. He referred to letters received in Government Departments and to a letter received in June 1990 in the Treasury, which was passed to the Department of Employment because it enclosed a letter addressed to the Department of Employment. The correspondence also drew attention to the losses made by BCCI which had already been published in audited accounts. The letter contained unsubstantiated allegations about corruption similar to those that had already been made. The Bank of England, received a similar letter shortly after the Ambrose correspondence was replied to. That was passed to Price Waterhouse. The Treasury heard a number of similar allegations and rumours over the period in the House and from other sources. Those allegations were, of course, passed to the Bank of England.

Mr. Menzies Campbell (Fife, North-East)

Does the Chancellor understand that although his statement may have satisfied uncritical loyalists, it will not have satisfied public opinion or the hapless depositors who have lost money? Why is the inquiry that he proposes so restricted in scope? Why does he not establish a comprehensive inquiry under a High Court judge under the terms of the Tribunals and Inquiries Act 1971? If such an inquiry were to establish incompetence on the part of Government or the Bank of England, would not it be right for him to undertake that all depositors would be fully compensated?

Mr. Lamont

I have already told the House that we have to make a decision on the powers under which the inquiry will be conducted. The House has been pressing for an inquiry and I hoped that hon. Members might have welcomed it warmly. Of course, unfortunately, the setting up of an inquiry cannot solve the many problems that have arisen from this very unhappy and very sorry affair in which we have seen fraud on a massive and probably unprecedented scale, and on a worldwide basis. We face a very difficult situation, as do many small business men. It is right to stick to the position that Parliament has laid down and it is important, as the House has said, to establish the facts of what has happened in this case.

Sir Geoffrey Finsberg (Hampstead and Highgate)

As the headquarters of the bank is in Luxembourg, does it not make one consider again the problems of a European central bank? The regulations in Luxembourg are so minimal as to be laughable. Is my right hon. Friend aware that I have a substantial number of Asian constituents, many of whom have telephoned me to complain that the Liberal Democrats and socialists are making party political capital out of their misery?

Mr. Lamont

I note my hon. Friend's point. It would be very regrettable if people just seemed to exploit a very unfortunate situation to make party points.

My hon. Friend referred to Luxembourg and other European supervisors. I hope that he will bear in mind, before he makes any criticism of them, the evidence that we have that this was an extremely sophisticated fraud and was extremely difficult to detect. My hon. Friend is quite right that there are matters that come out of this which raise questions about the international regime. I do not think that what has happened in this case enables us just now, before we have the results of the inquiry, to be critical about the EC regime post-1992. The EC banking directives then will be established on the basis of common high standards of supervision in the Community and on closer co-operation between supervisory authorities in member states. Again, these are issues that we shall want to consider when we have the results of the inquiry.

Mr. Stuart Bell (Middlesbrough)

I am grateful to the Chancellor of the Exchequer for coming to the House this afternoon to make a statement and announce an independent inquiry. Will he confirm that, under the Banking Act 1979, BCCI was a licensed deposit taker only and that from 1987 it became a full bank under the Bank of England? Will he also confirm that, although the Banking Act 1987 gives the Bank of England responsibility to supervise banks, it is nevertheless answerable to Parliament?

Will the Chancellor also confirm that the terms of reference of the inquiry will enable the inquiry to have power over persons and to interview the former Chancellor of the Exchequer, the former and present Secretaries of State for Trade and Industry and the present Secretary of State for Employment? They were all in the Cabinet at some stage and had responsibility for their Departments when they received a letter from the banking inspector of BCCI—not merely from a person in the street —who drew attention not only to the loans to which the Chancellor referred but to corruption. What happened to the letter once it was received by the Department of Trade and Industry?

Mr. Lamont

On the first point, I confirm that BCCI was established as a licensed deposit taker in 1979 and then became a full bank in 1987. The hon. Gentleman is also right to stress that although the supervisory authority is the Bank of England, the House is entitled to and will rightly ask questions about those matters. That is why the Governor of the Bank of England will go to the Select Committee next week. As head of the supervisory authority, he will be able to give a full account of the matter, in so far as he can under the restrictions of the Banking Act 1987. I am sure that the hon. Gentleman would not wish any possible criminal proceedings to be compromised in any way. However, I am sure that the Governor will want to assist Parliament in every way that he can.

Mr. Tim Smith (Beaconsfield)

Will my right hon. Friend confirm that when Parliament agreed, only four years ago, to the Banking Act 1987, it made a clear distinction between the roles of the Treasury and the Bank of England. Prime responsibility for banking supervision lies with the Bank of England. Therefore, is it not right that the inquiry, which I welcome, should focus on the role of the Bank of England?

Does my right hon. Friend agree that not a shred of hard evidence has yet been adduced by any critic on the Opposition Benches or elsewhere to show that the Bank of England acted other than competently? That is confirmed by the fact that some people say that it acted too slowly while others say that it acted too quickly.

Mr. Lamont

I am grateful for my hon. Friend's comments and agree with what he says. No evidence has been produced to suggest that the Bank of England, in a very difficult situation, did not act promptly and competently. However, because I am fully aware that strong concerns have been expressed by hon. Members, I feel that it is right to respond to them and set up this inquiry. It is not sufficient simply that the duties of the Bank of England should be competently discharged; they must be seen to be competently discharged.

Mr. Max Madden (Bradford, West)

Does the Chancellor understand that it would be much better to have no inquiry at all than a cosy little inquiry, limited in its terms of reference, designed to bury this nasty scandal until after the next general election? Will he, therefore, urgently reconsider the widest terms of reference to enable a full investigation of the roles of the Bank of England, the Treasury, the Department of Trade and Industry and the Department of the Environment, including Ministers? We are now faced with a bank within a bank, and massive fraud and corruption largely based in the United Kingdom. Many people are wondering why there have been no arrests or charges and why no one even seems to be helping the police with their inquiries.

Will the Chancellor ensure that the Price Waterhouse reports of last October and June are published immediately? The Governor said last night that they have been made available to a number of people, with deletions to avoid identification and possible legal repercussions and there is no reason why they cannot be published. Does the right hon. Gentleman understand that there is mounting suspicion that the Government, including the Prime Minister, failed to act on the matter last year so as to smooth the succession in the leadership of the Conservative party? Does he understand that no action was taken at the beginning of this year to ensure that Arab unity was maintained prior to the Gulf war?

Mr. Lamont

This is a serious matter and I am afraid that the hon. Gentleman injects a tone of farce into the proceedings. The hon. Gentleman came and discussed the matter with me in the Treasury and was fairer in that meeting than he chooses to be in public. He is wrong to say that we are setting up a "cosy" inquiry. We do not intend or want anything to be covered up. It is in the public interest that we should have an inquiry. It should be as full as possible, and as much as possible should be published. That is my objective.

Mr. Patrick Ground (Feltham and Heston)

Does my right hon. Friend agree that the primary responsibility for running BCCI lies with the owners and management of the bank? In relation to the advertisements that have appeared today, is it still open to the Sheikh of Abu Dhabi to provide funds to meet the deficit, particularly for the protection of small deposit holders? A number of us heard yesterday evening from the Governor of the Bank of England that small deposit holders who were protected were unlikely to receive payment until at least four weeks after the winding-up order. Will my right hon. Friend explore with the Governor of the Bank of England and others involved whether that period can be shortened?

Mr. Lamont

I will pursue that matter, but I doubt whether the period can be altered very much. The Bank of England has chosen to press ahead with the liquidation. That is the judgment that it has made in the light of the evidence it has about the extent of the fraud in this case.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Is the Chancellor of the Exchequer aware that, when I used to sit on my mother's knee, she used to say, "Brian, If ever you have billions of dollars to spare, whatever you do, don't invest it in a fraudulent bank"? That being so, can the Chancellor think of any conceivable motive why the Sheikh of Abu Dhabi invested vast sums of money in a fraudulent bank, when he and his advisers must have known, like the rest of us, that it was fraudulent? Will the Sheikh be invited by the inquiry to submit himself to cross-examination? Should the inquiry find out that the Prime Minister, other Ministers and the Governor of the Bank of England were partially negligent in this affair, can the Chancellor assure us that both individual depositors and local authorities will be bailed out by the Government?

Mr. Lamont

On the question of what the implications would be if maladministration were found or criticisms were made, I have said to the House that I have no reason to think that the Bank of England has not discharged its role and duty properly and competently. If other evidence came to light, I would then have to consider the implications of that. The matters raised by the hon. Gentleman relating to the Sheikh of Abu Dhabi are not for me; some of them could conceivably be part of the inquiry.

Sir John Wheeler (Westminster, North)

Does my right hon. Friend accept that the decisive satement that he has made today will be particularly welcome because the independent inquiry will identify a worldwide fraud on a massive scale and probably raise significant implications for banking regulation on a worldwide basis? Will he do his utmost to ensure that the inquiry is so constructed that those who give evidence to it will not be immune from criminal proceedings in the United Kingdom?

Mr. Lamont

I note my hon. Friend's last point. I am sorry that I have to keep repeating to the House that we are considering the powers under which the inquiry will be set up. That matter has a bearing on various others. I entirely agree with my hon. Friend's first point, that there may be implications for the international supervisory regime and the co-operation between national Governments. We shall listen carefully to what the inquiry says and to the conclusions that it draws.

Dr. Norman A. Godman (Greenock and Port Glasgow)

The finance officers of the Western Isles council—one of the four Scottish local authorities caught up in this scandalous affair—committed a grave error of judgment in their reward/risk decisions about this bank. However, they were culpably misled by their brokers, who should surely be investigated. Will the Chancellor urge his colleagues at the Scottish Office sympathetically to consider the request by Western Isles council for additional borrowing consent? If the Secretary of State for Scotland agreed to that request, the burden inflicted on all the people of the Western Isles would be eased to some extent.

Mr. Lamont

I note what the hon. Gentleman says about the position of that local authority. Comments on that have already been made by the Secretary of State for the Environment and the Minister for Local Government. The hon. Gentleman spoke about the role of the brokers. I shall examine what he said, but I do not think that that is a matter for the inquiry.

Mr. David Sumberg (Bury, South)

I warmly welcome my right hon. Friend's statement and congratulate him on coming so promptly to the House to say what he found. I urge him to include the role of local authorities in the inquiry's terms of reference. Unfortunately, my local authority in Bury did not take Brian's mum's advice, but invested the staggering sum of £6.5 million in BCCI in 1988. My constituents are angry about that and want to know from the council's Labour leadership why they did it. The inquiry would be an ideal way to find out.

Mr. Lamont

I note what my hon. Friend says. No doubt that his observations have considerable force, but I do not think that the behaviour of local authorities would be a suitable subject for the inquiry. The inquiry will be into what has happened, particularly with regard to the supervisory regime as it applies to banks. It would be a mistake for the inquiry, which will, I know, be looking into an extremely complicated matter, to go wider than that.

Mr. Donald Anderson (Swansea, East)

The Chancellor must allay the suspicion that for political reasons the Government will want to play this long to overload the inquiry's terms of reference. This is a complex matter and might get entangled in sub-judice rules. To allay that suspicion, will he consider detaching from the main part of the inquiry those elements that are specifically referrable to the letters of June last year, which have clearly precipitated today's hasty decision? Will it look specifically at the role of the Treasury and the Department of Trade and Industry which, when it is not leaking letters, appears to be losing them?

Mr. Lamont

The hon. Gentleman accuses me of having political motives, but his motives in his questions seem a little suspect. I assure the hon. Gentleman that we have no motives such as he ascribes to us. It is in the public interest for there to be an inquiry and it is also in the interests of the supervisory authority, the Bank of England. I have confidence in the Bank of England, but I also think that it is right to have this inquiry. Obviously, it will look at the role of the supervisory authority, but it will also look at the role of the Government.

Mr. Neil Thorne (Ilford, South)

Does my right hon. Friend agree that allegations by the Opposition about letters being lost between Government Departments is a red herring, because all this information was already known to the Bank of England and it was for that Bank and not for the Government to take decisions? Will my right hon. Friend take this opportunity to say that the junior staff of BCCI are hard working and honest? In their difficult task of finding new employment, we should not allow them to be tainted by what has happened with their superiors. We should be giving those hard-working people every encouragement to make a new start elsewhere, because they are excellent employees, of the sort that should be snapped up by another bank.

Mr. Lamont

It is excellent that my hon. Friend has made that point. Many tragedies arise out of this affair, among which are the bank employees who have lost their jobs and face uncertain prospects. It would be monstrously unfair if they were tainted because they had worked for BCCI. I hope that everybody outside the House will note what my hon. Friend has said. I have said all that I wish to say about the letters. I do not believe that the letter to which we were referring contained something material that was not already in the public domain.

Mr. Peter Shore (Bethnal Green and Stepney)

Given the content of the June 1990 Price Waterhouse report, which led to the president and chief executive of the bank resigning when they received a copy of it, it would have been a scandal if the Chancellor had not announced today a wide-ranging inquiry into the events that led to this disgraceful situation. Will the Chancellor answer some of the questions that he has so far failed to answer? First, will the inquiry have the power to summon before it Ministers and ex-Ministers who may be able to contribute to an understanding of what has happened? Secondly, if there is any serious finding of blame or of negligence or failure to carry out their duties by those who are charged with the invigilation of banks, will he say that the depositors of the bank will be fully and amply compensated?

Mr. Lamont

The right hon. Gentleman's last point is the same as that made by the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). I 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. Plainly, we would then have to reconsider the matter, as happened with the case of Barlow Clowes. I assure the right hon. Gentleman—he would not expect anything less—that Ministers will co-operate fully with the inquiry. It is in the interests of Ministers that there should be an inquiry.

The right hon. Gentleman also referred to the resignation of the president and chief executive of the bank. That is a fact. Unfortunately, it did not prove to be the turning point or the end of the matter, as was hoped at the time. I understand that the idea was that restructuring and a new injection of capital would enable the bank to be able to continue as a thriving organisation. That emphasises how important it is to have this full inquiry and to get to the bottom of the facts of what happened.

Sir Peter Emery (Honiton)

I thank my right hon. Friend for coming, at the close of play of the week, the moment that he decided that an inquiry should be conducted, to announce it to the House. We should all be pleased about that. Will my right hon. Friend look at the terms of reference to ensure that, when they are decided, they do not limit, legally, the provisions of the Banking Act 1987 in relation to the deposit protection scheme and therefore will not limit payment under that Act? We would not want the inquiry to limit the provisions of that Act. If the criticisms of Opposition Members of Parliament were analysed carefully, would not the logic of them be that if they do not like the Bank of England carrying out this task, the only alternative is for the Treasury to be the inspector? Do they believe that that would be any better or more reasonable? I would find it terrifying if the Treasury were the banking inspector for England.

Mr. Lamont

It might be terrifying to my hon. Friend, but it is also a pretty terrifying prospect for me. I think that he is right in the conclusions that he has drawn. The 1987 Act was drawn up after prolonged and careful consideration and study of the regimes in other countries, and I am sure that it is right to place the responsibility with the Bank of England.

I entirely accept what my hon. Friend said about the terms of reference and the need not to cut across any compensation that will be paid to depositors.

Mr. Keith Vaz (Leicester, East)

I welcome the inquiry, but does it not represent an implied criticism of the Bank of England? At 8 o'clock yesterday evening, the Governor informed hon. Members on both sides of the House that he felt that an inquiry—a public inquiry, an independent inquiry—would be unhelpful to the depositors and to the liquidator. Will the Chancellor of the Exchequer tell us what he has said to him in the past 15 hours that has managed to change his mind?

The Governor told Members of this place that in regard to the report in October 1990 he kept the Chancellor of the Exchequer fully informed. The Chancellor at that stage was the present Prime Minister. He told us also that on 28 June, at a special meeting at Downing street, which the Chancellor and Prime Minister and the Governor attended, he informed them that there was to be a closure of the bank. In view of what the Sheikh of Abu Dhabi said today, does not the Chancellor bitterly regret not contacting him to see whether anything could have been done to bail out the bank before it closed?

Has this not been a fiasco of lost letters and missed opportunities? Does not the Chancellor think it important that we have a timetable for the inquiry before the recess? Will he confirm that he will be in the House on Monday to reply to the debate on these matters?

Mr. Lamont

As regards the most important point, which the hon. Gentleman raised with me when we met —whether there should have been an attempt to get the Sheikh of Abu Dhabi to put more money into the bank before it was closed down—that was obviously something which the Bank of England considered. However, as I have emphasised to the House, when the report was received it contained evidence—I can say only that, unfortunately, I am not free to say very much to the House about it—of massive and widespread fraud. In considering the conclusions of that report, it was the Bank's view that the bank should be closed down. That is a matter for the Bank of England and it is a judgment that no doubt the independent inquiry will also want to examine.

As for the dates, and when I and my right hon. Friend the Prime Minister knew about the discovery of fraud, I was informed in general terms that fraud had been uncovered on 26 June. I was given some details of the section 41 report on 28 June, and the Treasury sent a report to No. 10 on 28 June. The final decision was taken on 4 July. On the first point that the hon. Gentleman raised, that this does not imply a criticism of the Bank of England, I discussed this fully with the Governor, and he has agreed with our conclusion. I believe that it is in everybody's interest that we have the investigation.

Several Hon. Members

rose—

Mr. Speaker

Order. I will endeavour to call all those who are rising in their places, but I ask them to ask brief questions and not to ask questions which have previously been asked and answered.

Mr. Anthony Nelson (Chichester)

I join in welcoming the announcement made by my right hon. Friend that an inquiry will be set up. 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. Does my right hon. Friend agree that in some instances there is a substantial difference, when exercising a statutory responsibility to close down businesses, between rumour and suspicion on the one hand and firm evidence on the other? Does he agree also that it is impossible to construct banking legislation on the basis that some shareholders in banks shall be informed shortly before a bank has to be closed down? The possibility of haemorrhaging would be unfair to some depositors while giving others an unfair advantage. These are matters that the inquiry should take into account rather than the attitude of the Opposition, who seem to want to undermine confidence in the Government, the Bank of England and the banking system, which amounts to a public disgrace and a political scam.

Mr. Lamont

I am grateful to my hon. Friend. I agree with his second point. Of all the criticisms that have been made, the one that has struck me as a little bizarre is the complaint that the bank had been closed rather precipitately without warning. As my hon. Friend said, that would hardly have been possible in this situation, and is hardly possible in the nature of banking. As my hon. Friend said, and as the Governor has repeatedly said, it is one thing to hear rumours and suspicions, but it is quite another to have the hard evidence on which the regulatory authority can exercise its functions as laid down by Parliament, and as subject to judicial review.

Mr. Alan Williams (Swansea, West)

Does not the Chancellor recognise that, despite his answer, there is a certain incongruity in his saying that the inactivity of the Treasury and the Bank of England was justified because the rumours were unsubstantiated, but in the next breath saying that council treasurers and local shopkeepers should have acted on rumours about the rumours? Does he accept that all who have heard his statement today will know that the Governor of the Bank of England has been nominated as an official Government fall guy? Has not the decision already been taken that, if anyone is to hang as a result of the inquiry, the Governor will be suspended and not the Chancellor?

Mr. Lamont

I entirely reject that imputation. 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.

On the hon. Gentleman's other point, we have repeatedly pointed out that it is not for the Government, the Treasury or the Department of the Environment to recommend to individual investors where they should put their money. That is a judgment for which each investor is responsible.

Sir Nicholas Bonsor (Upminster)

I very much welcome my right hon. Friend's decision to hold an inquiry, and I hope that it will be both speedy and comprehensive. I ask my right hon. Friend to ensure that it especially considers two matters. The first relates to a point already made by my hon. Friend the Member for Ilford, South (Mr. Thorne), and that is the treatment of the employees. Not only is it important that they should not be tainted by the activities of their superiors, but it must be put on record that they have been treated shoddily since the closure of the bank. For several days they were kept in complete bewilderment about what their future might be and whether they would be paid. I hope that the inquiry will specifically consider the way employees are treated in such circumstances.

The second matter relates to the role of the auditors, which needs close examination. Is it not extraordinary that Price Waterhouse apparently certified the accounts of that company as true and fair, at a time when virtually everybody else who had any knowledge of the company was deeply suspicious about its activities?

Mr. Lamont

As I said, in framing the terms of reference we shall obviously take into account everything that has been said today and other representations that have been made. As my hon. Friend said, it is possible that questions may be raised in the inquiry about the role of the auditors.

A number of my hon. Friends have referred to the difficult time that employees have experienced, but I am afraid that that is a product and a consequence of the terrible and massive fraud that has been perpetrated. Of course, I shall bear in mind what my hon. Friend said about the employees, but it cannot be a matter for the inquiry. On his first point, we shall endeavour to ensure that the inquiry is as speedy as possible, but it will be dealing with a complicated matter.

Mr. Diane Abbott (Hackney, North and Stoke Newington)

Opposition Members have listened with interest to the Chancellor's compliments about the Bank of England. We are persuaded that poor Mr. Robin Leigh-Pemberton is now unassailable in precisely the way that the right hon. Member for Blaby (Mr. Lawson) was unassailable before he, too, took a nosedive.

On the question of auditors' reports, for the past two weeks Ministers have insisted that the only sign of fraud in BCCI, until three weeks ago, was based on rumour. Is not the Chancellor aware that a series of auditors' reports—notably the Price Waterhouse October report commissioned by the College of Regulators—had documented fraud, and specifically a series of billion dollar loans to a clique of Saudi and Gulf so-called business men? Fraud is clearly documented in those auditors' reports. Will they be made public? The Chancellor will be aware that, if the Government are unwilling to make them public, it is within the power of the Treasury and Civil Service Select Committee to call for them.

Mr. Lamont

I will certainly consider the hon. Lady's latter point. Her second point is a matter for the inquiry and I have already answered her first point.

Mr. Ivor Stanbrook (Orpington)

When all is said and done, will my right hon. Friend try to ensure that whoever has to pay for the consequences of the misconduct, it will not be the British taxpayer?

Mr. Lamont

We have said that the existing compensation scheme should operate as it is now constituted under the Banking Act 1987.

Mr. Tony Banks (Newham, North-West)

I welcome the inquiry, in common with other right hon. and hon. Members, but does not the real blame lie with the Government, with their rush towards deregulation in the banking and finance industries, of which crooks and shysters took advantage—just as happened with savings and loans banks in the United States following deregulation under Ronald Reagan? The Chancellor should have learnt some of those lessons. Is not it time to establish an independent supervisory body for the banking industry? Can the Chancellor say when he will announce the inquiry's terms of reference? Will we know of them before the House rises for the summer recess next Thursday? The last thing that anyone—in the House or outside—will accept is yet another cover-up. We do not suddenly want to find that the letters that were lost in the Department of Trade and Industry ended up being used as cigarette lighters by the then Secretary of State, who was under some pressure and about to resign.

Mr. Lamont

I am grateful to the hon. Gentleman for introducing a touch of lightness to the proceedings. Having announced an inquiry in response to popular demand, the last thing of which we can be accused is a cover-up. That is an odd accusation to make. I will announce the inquiry's terms of reference as quickly as I can. The fraud in this case goes back a long time before the deregulatory process began and was perpetrated in many countries—not just the United Kingdom.

Mr. Phillip Oppenheim (Amber Valley)

Can my right hon. Friend confirm that £17 million of the £23 million deposited with BCCI by the Western Isles council was itself borrowed by that authority on the money markets, not for the purpose of meeting the council's legitimate obligations, but to gamble on BCCI's higher interest rates? If so, does not that call into question the behaviour of too many councils in gambling with their charge payers' money and should not that aspect come within the inquiry's remit?

Mr. Lamont

It is not for me to comment on a particular local authority's investment policy, although no doubt my hon. Friend's points have a general application. I do not believe that the behaviour of the local authorities concerned should be part of the inquiry, which concerns the fraud at BCCI and the way in which the supervisory regime operated. However, I am sure that my right hon. Friend the Secretary of State for the Environment will consider my hon. Friend's comments.

Mr. Dennis Skinner (Bolsover)

Does the Chancellor expect us to believe that for more than 12 months, the authorities could not find out about the drug-laundered money that was slopping about in BCCI, when, only seven years ago, the same Government managed to trace in 48 hours the National Union of Mineworkers' money in Luxembourg and other capitals throughout the world? The Chancellor moves from one squalid, shabby manoeuvre to another. We read in the Evening Standard on the eve of today's statement that Freshfields, the lawyers acting for the Bank of England, are acting also for the liquidators, Touche Ross. That is a direct conflict of interests. It is like a defendant going into court and being told, "You're going to be looked after by the prosecuting solicitor." I tell the Chancellor this—get that conflict removed, or it will be another scandal.

Mr. Lamont

I shall look at that. The hon. Gentleman's first point was really the same as the one raised by other hon. Members, and I can only tell him what I have told them—that we are setting up the inquiry precisely to investigate whether the fraud could or should have been discovered earlier.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

A number of questions remain unanswered. Let me mention three of them.

First, can the Chancellor confirm that, on 28 April 1990, IMRO decided that those who were running BCCI were not fit and proper people to have an IMRO licence? I understand that they were the only people who were subject to such a decision. Surely, if that was the case, the Government would have known about it.

Secondly, can the right hon. Gentleman confirm that, if necessary, the inquiry will produce an interim report, bringing as much information as possible into the public domain? Thirdly—although we were reassured to learn that Ministers wished to co-operate with the inquiry—a key question has not yet been answered: what did Ministers know, and when did they know it? I do not know whether the Chancellor has been able to consult his colleagues at the Treasury and to ask them whether they knew that allegations were being made by letter last year, but he could at least make a start and tell the House what he himself knew, and when he knew it.

Mr. Lamont

I have already told the House what I knew. As for the hon. Gentleman's second question, we can consider the possibility of an interim report when we announce the terms of the inquiry to the House. The matters that the hon. Gentleman raised in his first question—about IMRO and 28 April 1990—are for the inquiry to consider. We are setting it up to investigate whether IMRO's decision should have been taken into account.