§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sackville.]
§ 10 pm
§ Mr. Keith Vaz (Leicester, East)This is only the second time that the House has been given an opportunity to debate the momentous consequences of the closure of the Bank of Credit and Commerce International. The past three months have seen almost daily developments, and a 15-minute speech and 15-minute reply cannot do justice to the huge amount of information that must be shared and analysed.
Over the past few months, I and members of the campaign team visited depositors and BCCI staff members all over the world. We visited Abu Dhabi and Dubai, where we met members of the royal family and other officials; Hong Kong; Gibraltar; and other towns and cities in Britain.
We met people who remain stunned and bewildered, like victims after some great natural disaster. It is impossible to comfort them. We heard stories of such sadness and desolation that it was difficult not to be moved to tears. Those are the innocent victims, who knew nothing of the serious fraud. They put their faith and money in a bank that was being monitored and restructured under the close supervision of the Bank of England.
During the campaign, we met the Governor of the Bank of England, three times; the Chancellor of the Exchequer, twice; the Foreign Secretary; and the Economic Secretary to the Treasury, twice. We had numerous meetings with the provisional liquidator, Christopher Morris; the majority shareholders' solicitors, Simmonds and Simmonds; and the restructuring advisers, Schroder Wagg. My right hon. Friend the Leader of the Opposition and the leader of the Liberal Democrats were by far the most supportive. People were unfailingly courteous and showed great sympathy—but throughout, all eyes were firmly on Abu Dhabi.
I pay tribute to the tireless efforts of members of the campaign committee. Associations were formed and meetings held to get people organised and to keep them informed. Only last night, at a meeting chaired by Ahmed Shazad at Brent town hall, depositors and staff reaffirmed their commitment to the campaign. Bankers and international business persons are not supposed to be natural campaigners, but they have proved themselves a match for this moment.
The expectations and hopes of those people and of many others, which were given life by the excellent judgment of the Vice-Chancellor of the High Court on 30 July, were cruelly dashed by the decision of the major City shareholders that the bank could not be reconstructed. That decision, announced on 3 October, was a bitter disappointment. We were told later that the fraud was so enormous—a total of $10 million—that reconstruction was impossible, and that any money the majority shareholders could put in would soon disappear into a large hole. We were told that one cannot reconstruct something that is not there.
From being the bank that refused to die, BCCI became the bank that ceased to exist. It was merely a shell with glittering branches at the best addresses in London.
Has the Minister any information as to what has become of that $10 million? Nobody seems to know. I am 303 informed that the bank's liquidation will probably occur on 2 December, and I have a number of specific questions, of which I have given the Economic Secretary notice.
Will he outline for the record what steps the Government took to support the reconstruction process, and what approaches were made prior to 3 October to the majority shareholders, to see what could be done to help?
Has the Minister met, or received a report from, his hon. and learned Friend the Minister of State, Foreign and Commonwealth Office concerning his visit to Abu Dhabi? Members of the campaign called for that visit, which we saw as a vital step on the road to an acceptable settlement.
Did the Minister ask the majority shareholder whether he was prepared to assist in finding a solution to the problem? I am certain that the BCCI issue was raised; what issue in the whole saga did the discussion centre on, and who exactly did the Minister meet?
Does the Minister not agree that the package to members of staff was shamefully low? Will he support their reasonable request for a reasonable redundancy package that will take into consideration their length of service and undoubted loyalty to the bank?
Will the Minister take this opportunity to confirm that the Governor has now retracted his blanket criticism of members of staff on the ground that they were involved in a criminal culture? Has he seen the BBC's "Money Programme" of 27 October? He will know that the programme disclosed that, on 26 April, the Bank of England issued a section 39 notice which required the production of named documents. The case came to court and was decided on 10 May. In his affidavit to the court, Roger Barnes, the head of banking supervision, demanded that the 6,000 files—the so-called Naqvi files, which were held by Allen and Overy, the solicitor of the Sheik of Abu Dhabi—be handed over to the Bank of England.
Mr. Barnes said that BCCI appeared to have made false and fraudulent statements to the governors of the Federal Reserve Bank in America. He said:
if true … these matters are of concern to the Bank as supervisors of the defendant and raise questions as to the continued fulfillment of the minimum criteria for authorisation under the banking act".Before that time, Federal Reserve investigators were in London, and they went to Abu Dhabi between 16 and 22 March this year. In view of that information, has the Minister called for a report from the Bank of England?This afternoon, I spoke to Mrs. Barbara Mills, the head of the Serious Fraud Office. She confirmed that the SFO had received documentation concerning the BCCI fraud only on 4 July; yet on 10 May the head of banking supervision was referring to false and fraudulent statements. Does the Minister not agree that the SFO ought to have been involved at that early stage? Does he not also agree that, as the matter was not raised before the Select Committee, it would be helpful if the Governor gave evidence to the Committee again?
The Bingham inquiry, of course, needs to consider that and other points. Last week, I received a letter from Lord Justice Bingham in which he said that he was prepared to visit Abu Dhabi, provided that he was able to see individuals who would help his inquiry, and as long as it was within his terms of reference. Will the Minister confirm that the Government will assist in any way possible to arrange any meetings that are necessary for Lord Justice Bingham?
304 Lord Justice Bingham went on to tell me that he could not predict when his report would be published, but that he would report as soon as "humanly possible". Will the Minister join me in urging that the report be prepared as quickly as possible?
Will the Minister tell the House when he expects the Prime Minister and the Chancellor to give evidence to the inquiry? The Bingham inquiry is important, because it is the only way in which we shall be able to get to the truth of these important matters.
Does the Minister agree that there is a very strong case for temporarily relieving the Governor of the Bank of England of his duties, so that he can give even greater assistance to both the Bingham inquiry and the Treasury Select Committee? It must be extraordinarily difficult for the Governor to deal with the aftermath of BCCI as well as with his other important duties. A secondment, with the Government's blessing, may be the answer.
Let me make it clear that I am not calling for the removal or resignation of the Governor. In my view, however, it may well speed up the entire process if he makes himself available in the way that I have suggested. Will the Minister consider my suggestion?
Does the Minister stand by his statement, which was confirmed by the Chancellor, that, should the Bingham inquiry show that the Bank of England was negligent, he will consider the question of compensation?
There are only 28 days left before the crucial hearing on 2 December. This has been a catastrophe for so many people. I believe that the worst is yet to come. Does the Minister have any estimates of the likely impact of the closure of BCCI on the British economy? We know how many staff jobs have been lost, but does the Minister have any idea what the knock-on effect will be? It has been put to me that, after 2 December, billions of pounds could be lost in exports and lost orders, and that business closures will result in job losses, which will be an even greater burden on the employment benefit and social security system.
Both official and private bodies that import goods from the United Kingdom have lost substantial sums. Does the Minister seriously believe that what is perceived as a default by British regulators will have no impact on British exports? As of today, only 9,000 of the 40,000 depositors have made claims under the interim scheme. There are two trusts still in existence.
There is, in my view, a strong case for applying what remains in those trusts for the benefit of staff and others who will suffer hardship, notwithstanding the deposit protection scheme. Will the Minister consider an amendment to the law that would activate the deposit protection fund on provisional rather than full liquidation?
The depositors protection association has raised with me a number of concerns about the operation of the scheme. First, the scheme is mean, compared with the scheme in the United States. The compensation limit was fixed at 75 per cent. of £10,000 in 1979. It was raised to 75 per cent. of £20,000 in 1987, and that limit remains the same. Secondly, only sterling deposits were covered. More than half the United Kingdom deposits, by value, were by non-sterling depositors, for whom there is no protection.
Are the Government prepared to commit themselves to improvements to the scheme? In the United States, the 305 cover is for up to $100,000 in any currency. Is British protection to be second-class? What signal does that give to our overseas clients about the British banking system?
This House ought to be concerned about the reputation of the United Kingdom as a banking centre. We must also be concerned about this country's reputation in the Gulf. The Minister of State is quoted as saying that there is no lack of confidence in Britain as a result of what has happened but, as we found on our visit, officials are very polite in public but voice many concerns and criticisms in private.
The chairman of the depositors protection association has had discussions with many substantial depositors who have lost money and who are now actively reconsidering where they should place their deposits in future and whether or not other European Community states may provide more beneficial protection than the United Kingdom. That could have a serious impact on the funds available to United Kingdom lending institutions.
Will the Minister spare a thought for the depositors in Hong Kong, Gibraltar and the Isle of Man? There was a conditional purchaser in Hong Kong. I should like to praise the efforts of Mr. David Doo and others who campaigned for that. However, Gibraltar and the Isle of Man are not protected, and they need protection.
Finally, what steps are being taken by the Secretary of State for the Environment to help the local authorities which relied on the authorised investment list and lost millions of pounds? Will they be given permission to take steps to prevent their losses from burdening the poll taxpayers in their area? From the Western Isles in Scotland, through Bury, down to Southwark in London, local authorities and directors of finance acted in good faith. They should not be left to face the consequences, unaided by the Government.
I was heartened this afternoon to hear from the provisional liquidator, Christopher Morris, that negotiations are still going on in Abu Dhabi to see whether anything above realistic assets could be raised by the majority shareholders to provide a better deal than the deal on offer by means of the deposit protection scheme. I welcome those negotiations. They need the Government's support. Will the Minister give his full support tonight to the negotiations?
I urge the Government, through the Chancellor of the Exchequer, to convene an emergency meeting between representatives of the majority shareholders, the Bank of England, the provisional liquidators, the depositors and former members of staff to see what can be done to help both the depositors and the former members of staff. Only the Chancellor of the Exchequer has the political clout to do so. The Government cannot sit by and watch the lives of so many people being destroyed. I implore the Minister not to abandon those who have suffered and who will suffer if the Government do nothing. To fail to act now will only compound the tragedy.
§ The Economic Secretary to the Treasury (Mr. John Maples)The hon. Member for Leicester, East (Mr. Vaz) eloquently stated the problems that this bank fraud has caused its employees, depositors and customers. He asked what has happened to the $10 billion. That is the crux of 306 the matter: it has been stolen. The bank has been defrauded of that sum. The section 41 report, which is broadly in the public domain, shows how those frauds were perpetrated, and I hope that, as the Serious Fraud Office investigation continues and as prosecutions in this and other countries are initiated, other details will be revealed.
The hon. Gentleman asked me to say what steps the Government took to support reconstruction. We made it clear that the Bank of England would consider any proposal for reconstruction. As he knows, no such proposal was made. Shareholders took the advice of a leading London merchant bank but decided that they were not in a position or were not prepared to put a proposal to the bank. It would not have been proper for the Bank to promote a reconstruction, because it would have had to sit in a quasi-judicial capacity and decide whether its proposals should be allowed a banking licence.
Nor would it have been appropriate for the Government to play a positive role in such a reconstruction. Again, if the Government were the applicant or were behind the application, the bank would have been placed in a difficult position. In addition, that was not necessary, because shareholders and their advisers knew what had to be done to put a proposal for reconstruction to the bank, and there was nothing that the Government could have added to that.
The hon. Member for Leicester, East asked what my hon. and learned Friend the Minister of State, Foreign and Commonwealth Office discussed on his visit to Abu Dhabi. He did not specifically discuss BCCI, although he raised the subject while he was there. He returned only last week, and I understand that he has said that he will write to the hon. Member and presumably let him know what was discussed. It became clear that relations between the United Kingdom and the Emirates are still close and cordial and that the BCCI affair, although sad, will not be allowed to affect our relations adversely.
Reconstruction was not raised while my hon. and learned Friend was in Abu Dhabi, but he mentioned the plight of BCCI depositors and staff in the United Kingdom, and he made it plain that, although he recognised that the majority shareholder had suffered greatly, many in the United Kingdom were also suffering. He arranged for letters from the BCCI depositors protection association and the BCCI campaign committee to be handed to the Abu Dhabi authorities.
The Abu Dhabi Government are as keen as we are for the depositors to get back as much money as possible and for employees to be given fair severance terms. The authorities made it clear to my hon. and learned Friend that they had set up a committee to handle those issues.
The hon. Member for Leicester, East asked about redundancy terms for staff. I do not think that anybody would pretend that the terms are generous, but they meet the statutory obligations. Anything more generous is a matter for the shareholder. I understand that the insolvency and redundancy payments that are made before the winding-up order is passed will not be subject to any deduction or set-off for loans that are owed by employees to the bank.
There is a dispute about whether redundancy payments made after the winding-up order has been made are subject to set-off, and the Department of Employment is taking legal advice to establish a joint position with the liquidators. At the moment, they disagree about that, and 307 for the time being, any insolvency or redundancy payments are not subject to set-off for loans owed to the bank.
The other matter which might interest employees involves mortgages. There was some concern that mortgages would be called in January when the preferential terms period expired, but I understand that that is not the liquidators' intention. On 2 January. when the period of the extension of the favourable terms expires, they will write to the people who have borrowed from them and say that they are free to continue those mortgages, but on commercial terms, not preferential terms.
It is not the liquidators' intention to call the mortgages. That is good news for the borrowers, because it should mean that they will not be asked to repay their loans at short notice. Those who at that time are still unemployed will probably qualify under the social security rules For the interest on those mortgages to be paid out of social security funds. For the first 16 weeks, one gets only half the interest and, after that, all of it. Many people will have gone through the 16 weeks by that time.
The hon. Gentleman again referred to the criticism of the staff. As my right hon. Friend the Chancellor and I have made clear, that criticism applies only to the senior management of the bank. On 4 October, I issued a press release in which I said:
I hope the staff will find work again soon. In July, the Chancellor commented in the House that it would be monstrously unfair if honest, hardworking employees of BCCI were tainted by the actions of their superiors. I hope that prospective employers will not hold the fact that they worked for BCCI against them.My right hon. Friend the Chancellor made that point strongly in the summer, and I am happy to reiterate it. We believe that the criminality in this bank was confined to very senior management. It is not suggested that those at branch level were involved, or that everyone was tainted by those actions.The hon. Gentleman referred to the investigation into the ownership of First American bank shares and Credit and Commerce American Holdings, the BCCI subsidiary that was thought to have acquired those shares, and to the BBC 2 item on the "Money Programme". There was a little misunderstanding on this point. The American authorities were looking into the ownership of the bank to see whether BCCI had breached American law in acquiring it. They asked the Bank of England to help them to acquire some documents that might assist in those investigations, and those were the documents that were the subject of the section 39 notices issued by the Bank of England. As the hon. Gentleman knows, in effect there were three sets of documents, because some are protected by an injunction.
The reference in the official affidavit of the Bank of England to "false and fraudulent statements" said that, if what was alleged were true, it would be clear that BCCI officials would have had to make false and fraudulent statements to the American authorities. It was not saying, "We now have hard evidence that false and fraudulent statements were made." In any event, this related only to what was in effect a breach of American regulations, not British regulations. It is not the same fraud that was the subject of the removal of the $10 billion from the bank; it was a fraud in the United States, involving lying to the authorities there, and was not the same as the fraud that resulted in the bank collapsing.
308 I wish to illustrate that point. It was clear that, on their own, the papers that the Bank of England acquired and handed over to the federal authorities would not provide the Bank of England with evidence relevant to the authorisation criteria—the fit and proper people running the bank. The Federal Reserve, however, set that new evidence alongside the information that it had already gathered to try to establish what had happened and whether United States law had been breached.
Plainly, it was more sensible for the Federal Reserve rather than the Bank of England to be left to pursue the investigation. After all, it was an investigation into a possible breach of American law. The Bank was therefore content to await the Federal Reserve's conclusions and those of the Price Waterhouse investigation, which was already in train. As it happened, the Federal Reserve did not come to its conclusions on the acquisition of First American bank shares until 29 July, by which time the Bank of England had already closed BCCI.
The hon. Gentleman asked me whether I thought that the Serious Fraud Office should have been involved at that stage. I do not think that it should have been. This was an American legal issue—a question whether American law had been broken. There was no suggestion in this context that British law had been broken. However, the Serious Fraud Office was told, within a few days of the receipt of the section 41 report from Price Waterhouse, of the evidence of that fraud.
The hon. Member for Leicester, East also asked me whether it would be helpful if the Governor gave evidence to the Select Committee on that issue. That is a matter for the Select Committee. I am sure that, if it were to call upon the Governor and ask him to deal with that question, he would attend and answer any questions asked of him.
The hon. Member asked me a series of questions about the Bingham inquiry. We shall assist in any way we can with facilitating the judge's trip to Abu Dhabi, and we have helped—we have passed on his letter to the Abu Dhabi Government through our embassy there, and the embassy will assist him in any way possible.
I have no idea when the Prime Minister and the Chancellor will give evidence to the inquiry. The answer to that question is, when they are called. The Prime Minister has made it clear that all Ministers will be available to give evidence to the inquiry, if the judge so requires. Therefore both or either of them will give evidence if called to do so, but they have not yet been called.
§ Mr. VazAre they going to submit written evidence before the judge considers whether they should be called?
§ Mr. MaplesThe inquiry has already had an enormous number of documents both from the Treasury and from the Bank of England. Neither the Chancellor nor the Prime Minister has been asked for a written statement, but if they are asked, I am sure that they will provide it, as the Prime Minister has said that Ministers, including himself, will co-operate in every possible way with the inquiry.
I do not think that the Governor is having any difficulty in performing his normal duties as well as assisting the Bingham inquiry.
The hon. Member mentioned compensation. There has been some misunderstanding, because when we last met. we corrected a statement which he had made to the press about that. At the end of his statement, he said that all he 309 got from me was "tea and sympathy", so perhaps he will agree that he did not get the offer of compensation as he is suggesting.
What I said then was that we have to await the Bingham inquiry and its report. What we would do if that report says this or that is a hypothetical and academic question. It may say a lot of things about bank regulation. It would be entirely pointless for me to attempt to deal with the sort of hypothetical questions that might arise. I cannot anticipate the report or its conclusions, and, as I have told the hon. Gentleman and the House before, I have no reason to believe that the inquiry will find any fault with the Bank of England's conduct.
§ Mr. VazI accept that, and I accept that that was what the Economic Secretary said. However, we sometimes have to deal with hypothetical situations. Is he ruling out compensation now and for ever, or is he saying that he will read the report and, even though he thinks that it will clear the Bank of England, if there is a semblance of a recommendation or a conclusion that the Bank of England was negligent, he will consider compensation then?
§ Mr. MaplesI do not think that it is reasonable to ask me to go any further than I went. I am not prepared to deal with hypothetical questions about what the report might or might not say. In a few months, we shall discover what it says, and then it will be perfectly proper for the hon. Gentleman to ask me to respond to any criticisms that the report makes of the Government or of the Bank of England.
The hon. Member for Leicester, East asked whether I had any estimates of the likely impact upon the British economy. Clearly this affects a particular section of the business community, and it is a serious matter for them. There will undoubtedly be some lost exports and lost business as a result, but the hon. Gentleman probably overestimated that.
As we have only three minutes left, the hon. Gentleman asked me to deal with his questions fairly quickly. He asked me whether we would consider amending the law to activate the deposit protection fund on provisional rather than full liquidation. Yes, we will consider that, but we would only be prepared to consider changing it in respect of an application by the regulator. We could not be put in a position where the deposit protection fund could be activated on a frivolous or vexatious application by somebody other than the regulator, but we shall certainly consider the matter.
310 Are we prepared to commit the Government to improvements in the deposit protection scheme? As I said before, the answer to that question is no. There are no immediate plans to do so, but, as the hon. Gentleman probably knows, the European Community is negotiating a directive on this issue which will establish minimum standards of compensation across the Community, and it is now generally accepted that those should be kept at modest levels. Nevertheless, that may involve some changes to the British scheme, but the present draft would not do so.
The hon. Member for Leicester, East is wrong to draw too much comfort from the United States scheme. The moral hazard created in the United States and the problems for savings and loans institutions there were an almost direct result of the very generous compensation schemes available, which remove any risk to the depositors.
As far as local authorities are concerned, the Secretary of State for Scotland has given permission for Western Isles council to borrow for the time being to continue to provide services. The Department of the Environment is still considering what action would be appropriate, if any, in respect of the English authorities, which lost much less, and even less than that on a proportional basis. They should not have anything like the same difficulty in dealing with it.
Finally, the hon. Gentleman asked me about depositors who have lost money in branches in Gibraltar, Hong Kong and the Isle of Man. While one obviously feels incredibly sorry for such people, it is not the responsibility of the British Government. It was not a British bank, and the branches where those people lost money were not in the United Kingdom. In those circumstances, I do not think that there is any moral or legal responsibilty on the British Government or the Bank of England to do anything about it.
This sad and sorry saga has been at a great cost and loss to many people, and we are extremely sorry about that, especially as it has affected one group of people in our society. I hope that I have answered most of the hon. Gentleman's questions, and I am sure that we shall return to the subject again.
§ The motion having been made at Ten o'clock, and the debate having continued for half an hour, MR. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at half past Ten o'clock.