§ 4.4 pm
§ The Chancellor of the Exchequer (Mr. Norman Lamont)
The collapse of the Bank of Credit and Commerce International was a severe blow to many thousands of depositors all over the world. It was the result of a fraud unparalled both in scale and cunning. Many hon. Members have seen the problems that it has caused and is still causing to businesses and individuals alike.
It was against that background that I decided, with the Governor of the Bank of England, to ask Lord Justice Bingham to carry out a full and rigorous inquiry into the conduct of the authorities that supervised BCCI.
Lord Justice Bingham had access to all the material that he needed from the Government and the Bank. Nothing was withheld. Much of the evidence was confidential and the inquiry was held in private to avoid any prejudice to criminal proceedings and to encourage witnesses to give evidence.
Since receiving the report, I have had to weigh carefully the public interest in maintaining that confidentiality against the public interest in disclosure. After taking legal advice, I have concluded that the balance lies firmly in favour of publishing Lord Justice Bingham's report unamended and in full but without the supporting appendices.
Once hon. Members have had the opportunity to digest the report, there will be a debate in Government time in the House on the matter.
Lord Justice Bingham's terms of reference were:To enquire into the supervision of BCCI under the Banking Acts: to consider whether the action taken by all the United Kingdom authorities was appropriate and timely; and to make recommendations.Accordingly, Lord Justice Bingham's report does not attempt to describe the full story of BCCI's activities, nor does it seek to judge how overseas authorities, the directors of the companies, or the auditors, carried out their duties. What the report does provide is a clear and thorough account of the role of every official United Kingdom authority which had any involvement in the affairs of BCCI.
Lord Justice Bingham concluded that the conduct of Treasury Ministers and officials was not, in his view,open to criticism in any respect".However, the main focus of the report is banking supervision. With the Banking Acts of 1979 and 1987, Parliament placed that responsibility on the Bank of England. So the bulk of the report deals with the way the Bank discharged its responsibilities from 1972, when BCCI opened its first branch in London, to its closure last year. It may be helpful to the House if I summarise briefly the report's main conclusions.
First, I should make it clear that the closure of BCCI was instigated by the Bank after it had received a report last June from the auditors which revealed the largest fraud in banking history. Responsibility for that fraud and the consequent losses rests squarely with those criminals who devised and carried it out. They are being pursued by the authorities in a number of countries.
Secondly, BCCI's opaque structure was established before there was a statutory system of banking supervision in this country. The report accepts that a bank established today 575could scarcely hope to assume the form it did or last so long".But Lord Justice Bingham is critical of a number of judgments made by the Bank over the years. He argues that the Bank was slow to impose on BCCI an appropriate supervisory regime, and concludes that the Bank continued for too long to rely on the Luxembourg authorities to play the leading role.
Next, the report concludes that communication between supervisors, auditors, and shareholders was not as good as it should have been. The Bank did not grasp the scale of the fraud that the majority shareholders and auditors had uncovered until it received Price Waterhouse's report in June last year. The report came as a surprise to the Bank, but Lord Justice Bingham argues that it should not have done.
He concludes that it would not have come as a surprise had Price Waterhouse more plainly and comprehensively brought the various elements of the fraud to the notice of the Bank as they emerged, or had the majority shareholders made a full and timely disclosure of all the facts known to them. But Lord Justice Bingham also concludes that the Bank itself should have been more alive to the significance of those messages it did receive and that it should have pursued more vigorously the leads it was given.
Turning to the summer of 1991, he concludes that the Bank's action in closing BCCI was an appropriate course of action, as it was its decision not to give effective advance notice to the majority shareholders. In his view, all the options were unattractive and the Bank had to act on its judgment of what was in the interests of depositors.
In the last 18 months, some wild allegations have been made—both in this country and abroad—about the Bank's role in the affair. Lord Justice Bingham's report shows that there was no duplicity or bad faith; that the Bank was party to no conspiracy or cover-up.
§ Mr. Lamont
The hon. Gentleman is mistaken. Those allegations were made.
None the less, Lord Justice Bingham concludes that mistakes were made and that in certain respects the Bank's supervision was deficient. That is a matter of very serious concern and I am determined that all the lessons from this case should be learnt.
It is to the key question of how to make the supervisory system more effective in the future that Lord Justice Bingham turns in the final chapter of his report. He does not call for any radical recasting either of United Kingdom legislation or of the international framework developed by the GIO group of countries. Nor does he find any substantial flaws in the new regime for banks within the European Community that comes into effect next year. He believes that the Bank of England's traditional supervisory techniques have generally served the community well, and he does not recommend any change in its responsibility for supervision. None the less, he makes a number of recommendations for strengthening our current arrangements. The Government and the Bank accept them all.
First, we must ensure transparency of structure. Lord Justice Bingham says that the most important lesson of the affair is that 576banking group structures which deny supervisors a clear view of how business is conducted should be outlawed.To put the position in the United Kingdom beyond doubt, I will introduce legislation to give the Bank explicit powers to refuse or to revoke authorisation of banks whose supervision is obstructed by a complex structure or by undue secrecy in the financial centres in which they operate.
In Europe, I will urge our Community partners to agree that similar powers should be taken by all banking supervisors, and we will press for the adoption of similar standards more widely.
Next, we need better communication and co-operation between supervisors internationally. Few substantial banks now operate only in one country, or even on one continent. It is vital that all the supervisors concerned with a single group should communicate openly, co-ordinate their efforts, and impose similar standards.
The latest Basle concordat is an important step forward, as is the European Community consolidated supervision directive, but we need to go further in strengthening the arrangements for exchange of information internationally. We will ask our European partners to look again at the confidentiality provisions of the banking directives to ensure that they do not impede the exchange of information between supervisors and other authorities.
We will also propose a system for reviewing supervisory standards within the Community and more widely.
But it is not just a matter of co-operating internationally. An increasing number of banks form parts of wider financial conglomerates. Fraud is by no means confined to banks, so we must also ensure that all the different authorities at home that are responsible for deterring, investigating, and prosecuting fraud co-operate to the greatest effect. I am therefore establishing new machinery within the United Kingdom to strengthen communications and co-operation between supervisors and all the other relevant authorities.
Fourth, BCCI has emphasised how vital it is that auditors should speak plainly and freely to the Bank. Hitherto, their duties have been laid down in professional guidance. Lord Justice Bingham has concluded—as, indeed, did the Treasury Select Committee—that it would be better for the duty to be statutory. I accept that conclusion. I have decided that a similar approach would be appropriate for financial services and building societies, and the President of the Board of Trade considers that it should also be extended to insurance companies. The necessary consultation with the professional auditing bodies and others on the formulation of such a duty and its enforcement will be taken forward urgently.
Finally, Lord Justice Bingham concludes that it would be a mistake to respond to BCCI by intensifying supervision of all banks. The overriding need is to ensure that the supervisors' attention is concentrated on suspect banks, and that, where appropriate, vigorous action is taken. The Governor and I take very seriously the criticisms that have been made of the Bank; so the Governor is announcing today important organisational changes and a strengthening of his supervisory team. A special investigations unit and a legal unit are being set up. As recommended by the Select Committee, the Bank's capacity for on-site examination is being strengthened. Greater use will also be made of the Board of Banking 577 Supervision, which brings outside expertise to bear on the Bank's work, and training for supervisors is being enhanced.
An effective system of banking supervision is essential to any advanced economy. It cannot eliminate risk, but it can make bank failures less likely and frauds more difficult. In that way it sustains the confidence on which sound banking, and the economy more generally, depend. BCCI was not typical in any respect, but its failure has caused great damage and distress. It was important to review the United Kingdom authorities' role in the affair dispassionately and thoroughly.
I am sure that the House will join me in thanking Lord Justice Bingham for producing a masterly account of a complex subject. He has not hesitated to make criticisms where he considers them appropriate, but he has been constructive in his recommendations for the future.
The Government are determined to learn all the lessons from this unhappy affair. As I have said, we accept all the Bingham report's recommendations, and we intend to pursue them vigorously.
§ Mr. Gordon Brown (Dunfermline, East)
We are dealing with the biggest banking fraud in history. Because of criminal activity, thousands of hard-pressed depositors lost millions of pounds and were left stranded; £78 million was lost to local authorities alone; and there was also the human cost—14,000 people worldwide lost their jobs. Lord Justice Bingham has concluded that the supervisory approach of the regulatory authorities was deficient. He has also said that they failed to take strong and resolute action, and that they did not pursue the truth about BCCI with the rigour that BCCI's market reputation justified.
Given all that, will the Chancellor answer the central question of this affair: who is going to accept responsibility for the regulatory mistakes and misjudgments that Lord Bingham has uncovered?
Is it not the case that BCCI, approved and authorised by the Bank of England, was involved not just for months but for years in fraud, the laundering of money, bribery connected with terrorism, arms trafficking and income tax evasion? Is it not the case that the Bank of England knew in 1988 of the charge of laundering billions of pounds of drugs money; knew in March 1990 that terrorists held bank accounts in the United Kingdom at BCCI; knew from Price Waterhouse in April 1990 that statements and transactions by the bank were "either false or deceitful"; knew in October 1990 of detailed inappropriate transactions, including hundreds of millions of pounds of insider loans, and prima facie evidence of fraudulent documentation; and knew also that the minimum criteria for authorisation were being breached under schedule 3 to the Banking Act 1987? Yet the bank continued to be allowed to trade right up until July 1991.
Does the Chancellor agree that, after being advised that there were serious irregularities worthy of further investigation in 1988, 1989 and 1990, the Governor of the Bank of England's statement in April 1991 that the bank was "in pretty good shape" was something of a misjudgment, as was the judgment to allow BCCI to remove, by charter plane, the records and evidence of its misdeeds to the middle east, out of the jurisdiction of the United Kingdom authorities?
Given what has been uncovered by Lord Bingham, does the Chancellor consider it right, in the light of this catalogue of mistakes, that junior officials in the Bank of 578 England should alone shoulder the blame? Will he not confirm that ultimate responsibility in the Bank of England rests with the Governor? Will the Chancellor tell us whether he has asked for the resignation of the Governor of the Bank of England?
When, throughout, the Prime Minister and the Treasury have continually sought to distance themselves from both the Bank of England and their responsibility for the regulation, when the Treasury witnesses and the Chancellor did not tell us, but told Bingham, that there was no need for the Treasury to be informed, yet when Bingham reports in paragraph 2.513:I would find this view more persuasive if the Bank had chosen to tell the Treasury nothing about BCCI … But it was not the line which the Bank took",and when Bingham also says:Particularly after the Tampa arrest"—that is, three years before the bank was closed—BCCI was a fairly regular subject of reportto the Treasury, is not the correct position that, far from the Treasury and the Prime Minister, when Chancellor, being uninformed—as has been claimed—and therefore blameless, the Treasury and its Ministers knew full well that there was a problem but chose to do nothing more? For this the Prime Minister must accept a share of the blame.
Was it right for the Prime Minister to tell the House on 18 January 1990, when so many problems were already obvious, that he was satisfied with the supervision of the bank? Was it right, after being told in April 1990 of drug laundering and in May 1990 of the seriousness of the problems, that he, by his own admission, despite having been put on notice, took no further action in the matter for 16 months, as problems accumulated, until he was told that the bank was to be closed the next day?
Is not the position this: that the Prime Minister and the Treasury say that they relied on the Bank, that the Bank says that it relied on Price Waterhouse, that Price Waterhouse says that it relied on information from BCCI and that, therefore, no one is accepting responsibility for misjudgment and mistakes in regulation? Everyone, as usual, as happens under this Government, is blaming someone else.
In these circumstances, will the Chancellor tell us when he replies why the Prime Minister, who gave the House an undertaking on 22 July 1991 that he would personally publish the report and answer for it, has singularly failed to honour that promise by coming to the House today?
Does this sorry episode not show that, while Ministers paid lip service to regulation, their ideological attachment to crude free market dogma meant that effective and tough regulation was never taken sufficiently seriously, with the result that the Bank of England's so-called "light hand" made it a soft touch for a crooked bank? Are we not paying a heavy price for the free-for-all of the 1980s which denied regulation its proper place in the management of our financial institutions?
Will the Chancellor now tell us that he will hold a full debate on the report and on the Bingham recommendations? Will he explain which sections of the appendices have been deleted and whether any of the deletions refer to the Government and the Bank of England's role in this affair? I welcome the fact that auditors will be obliged to report fraud, something that we have been urging upon this Government for some time.
579 Will the Chancellor tell us what new arrangements he will propose to review the compensation scheme, whether he will consider putting it on the same footing as institutions regulated by the Securities and Investments Board and whether he will speed up compensation for the many small businesses that went out of business and for the individuals who entrusted their life savings to BCCI in the belief that the Bank of England would protect their interests, as did the local authorities which relied upon the Bank of England's approval and which would have been penalised, surcharged, or debarred from office if they had been guilty of the regulatory failures, now the responsibility of the Bank of England? Will he therefore reform the approved list for local authorities borrowing from banks?
As this is the latest in a series of failures in the Government's free-for-all approach to the regulation and management of the economy, for which others are again apparently shouldering the blame and paying the price, is not it time for a separate wholesale review and overhaul of the regulation of banks and our financial institutions, and will the Chancellor agree to the proposal for an inquiry now?
§ Mr. Lamont
I answered some of the hon. Gentleman's questions in my statement. I said that we shall provide a debate in Government time. I further said that we fully accept the recommendations of the report. I appreciate that the hon. Member for Dunfermline, East (Mr. Brown) has had only a couple of hours to glance at the conclusions.
§ Mr. Lamont
It is the first conclusion. The conclusion of the report is that Lord Justice Bingham does not recommend a radical recasting of the legal structure of banking supervision. Our conclusion, therefore, is that it would not be appropriate to take such action. I have explained that we accept every one of his recommendations, that we are strengthening the legislation, where necessary, to ensure more co-operation between supervisors internationally and within the United Kingdom and that we are implementing what Lord Justice Bingham says is the single most important lesson of the affair—that where a bank's structure is opaque and difficult to supervise, the authorities should be able to refuse it authorisation. I have made it clear that we accept that.
The hon. Member for Dunfermline, East mentioned the appendices. I have published the report in full. I explained to the hon. Gentleman that I have had to bear in mind the risk of prejudicing prosecutions and the fact that much evidence and information is given confidentially to ensure the supervision of banks. I have accepted legal advice on that point. I am sure that, when the hon. Gentleman has time to read the report, he will see that it is an extremely full and detailed examination of the role of supervisors, of the Bank and of the Government.
The hon. Member for Dunfermline, East seemed not to be aware that Parliament has quite unequivocally laid down that responsibility for the supervision of banks lies with the Bank of England. Lord Justice Bingham says that he believes that that is right and that it should continue. Obviously, the Bank of England accepts responsibility for the supervision of individual banks: that is its job.
580 The hon. Member for Dunfermline, East has been extremely critical of the Governor. It is true that the report makes some telling criticisms of the supervision of the bank over many years, but I point out that it existed in 73 countries, had 400 branches and $20 billion-worth of deposits. It goes right back to the early 1970s. When the Bank of England took the lead and closed it down, it was still operating in 60 countries. It was still operating in New York and California.
The hon. Member for Dunfermline, East referred to the Tampa prosecutions, money laundering and the drug incidents. But even after those, the bank continued to be allowed to operate in the United States because the view taken there, as here, was that this had been something confined to local management. That was the view taken at the time.
The hon. Member for Dunfermline, East should recognise that Lord Justice Bingham says that the Bank of England's general approach to supervision has served the country well, and he commends the supervision of the United Kingdom branch. However, as the hon. Gentleman has rightly emphasised, the report makes some strong and telling criticisms of what happened at particular moments of time, when information was made available on which, at it turned out, wrong judgments were made.
Surely the key point is the recommendation of the report. Lord Justice Bingham has said what he thinks ought to be done, and we have wholly accepted that those are the appropriate responses. I do not believe that it would be right to call for the resignation of the Governor of the Bank of England.
The hon. Gentleman made some legitimate points, which did not greatly surprise me, but what he said about my right hon. Friend the Prime Minister fell below the level of events, and astonished me. It was absolutely disgraceful. The report makes it quite clear that the conduct of Treasury Ministers, including the Prime Minister, is not open to criticism in any respect. The hon. Gentleman has attempted to resurrect the allegations made by the former Leader of the Opposition, who in July 1991 said:It … is a matter of regret that 200,000 people continued to trade with the BCCI … when … the then Chancellor of the Exchequer"—he was referring to my right hon. Friend the Prime Minister—knew about serious irregularities in that bank, but did nothing to warn anyone."—[Official Report, 23 July 1991; Vol. 195, c. 1028–9.]The hon. Member for Dunfermline, East has repeated those allegations.
Lord Justice Bingham makes it clear that the Prime Minister read the report over the weekend of 29 and 30 June, and that that was the first that my right hon. Friend had heard of the fraud, either as Prime Minister or in his previous office as Chancellor of the Exchequer. The hon. Member for Dunfermline, East and his party should withdraw their disgraceful allegations.
§ Madam Speaker
Order. The House will understand that I cannot allow this to develop into a debate, which I fear it may be likely to do. The Chancellor of the Exchequer has made a statement, and I am looking for short questions and short answers. I have to keep in mind 581 and safeguard the remainder of the day's business. I hope that I shall have the co-operation of all hon. Members on those matters.
§ Mr. John Watts (Slough)
I welcome my right hon. Friend's decision to publish the report in full and to implement all its recommendations. In view of the importance of the transparency of structure, which is central to Bingham's recommendations and to those made by the Treasury Select Committee in the previous Parliament, will my right hon. Friend tell the House how quickly he intends to introduce legislation to strengthen the Bank of England's power to refuse or revoke authorisation where the structure of a bank is designed to make supervision difficult?
In view of the European dimension, will my right hon. Friend make it a priority of the British presidency to ensure that similar legislation is enacted throughout the European Community so that we do not face the prospect of a bank inadequately regulated in another Community country, such as Luxembourg, being able to operate here under the passporting procedures?
§ Mr. Lamont
My hon. Friend has put his finger on what Lord Justice Bingham says is the most important issue arising from the affair—that we should be able to supervise banks which have opaque structures. We shall introduce legislation to deal with that as quickly as we can. Some such measures have already been enacted under European legislation but have not yet come into force. The second consolidated supervision directive, which comes into operation next year, will help greatly.
My hon. Friend's second point was made in the context of the European Community, but it also applies more widely. The standards of supervision everywhere should reach the same high level—and we intend to pursue that goal through the supplement to the Basle concordat. We also intend to press for machinery within the EC to ensure that that is precisely what happens. That is most important and, as my hon. Friend said, it will become especially so when the passport system comes into existence.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
Is it not clear that at least some of those who suffered misery and ruin as a result of the fraud would not have done so if the banking supervision side of the Bank of England had not been slow, irresolute, dilatory, incompetent and naive, and if it had not had, as the report says,a deep-rooted reluctance to believe ill of BCCI"?Does the Chancellor remember that the Treasury and Civil Service Select Committee suggested that, if the Bank of England had failed in its supervisory duties, there would be a case for compensation, and that he said that, if the conclusion was that blame applied to the authorities, the Government's view of compensation would have to be reconsidered? Is it now being reconsidered?
§ Mr. Lamont
The report does make criticisms, as I have acknowledged, of particular incidents and of particular individuals. The right hon. Gentleman quotes a sentence relating to a particular official in the Bank of England. We already have a system of compensation through the hank deposit protection scheme. Through the scheme, £50 million has been paid out to almost 9,000 people. Up to £85 million could be paid out under the scheme.
582 I have, of course, considered the matter, but I do not believe that we should have a system of 100 per cent. compensation. That carries great dangers, as the experience in the United States demonstrates.
§ Mr. Terence L. Higgins (Worthing)
The Chancellor will be aware that the Treasury and Civil Service Select Committee report went wider than Bingham and, after deep investigation into the matter, made a number of recommendations. Can my right hon. Friend confirm that he proposes to accept all the main recommendations of the Select Committee as well as those of Bingham, although Bingham duplicates some of them?
As the main danger now is that, as a result of the second banking directive and, perhaps, the Uruguay round, our market will now be opened up far more widely than it was, is it not essential to have someone to regulate the regulators? Do we not especially need some arrangement whereby not only the G10 countries and the European countries but all countries are covered'? Will my right hon. Friend bear that point in mind ahead of the debate?
§ Mr. Lamont
We have published today our response to the Select Committee, and our reply goes a long way towards meeting its recommendations. There is an overlap between some of the Committee's recommendations and some of the recommendations in Lord Justice Bingham's report.
I agree with my right hon. Friend's second point. It is extremely important that we have a proper regime for the supervisors—the point made by my hon. Friend the Member for Slough (Mr. Watts). The matter goes wider than the European Community and wider than the G10 countries, because there are many offshore financial centres which may branch out into other countries. That is why we have said that we will take legislative action to ensure that we are capable of supervising banks if their structure is impenetrable and opaque.
Another point, which was made in the Select Committee's report, is that we should have the right—not necessarily the obligation—to insist on incorporation for non-European Community countries' banks rather than branches simply being established.
§ Mr. Keith Vaz (Leicester, East)
The Chancellor may not know that one of the largest single depositors in BCCI lives in Kingston, Surrey, in his constituency.
Will the Chancellor stand by the statement he made to the House on 19 July 1991 at column 722, when he said that, if blame or negligence attached to the Bank of England, he would consider the case for compensation in exactly the same way as the compensation given to those who suffered in the Barlow Clowes affair?
Paragraphs 2.480 and 2.484 are scathing attacks on the credibility of the Governor of the Bank of England. Taken with the report of Senator Kerry, the credibility of the Governor of the Bank of England is no more. It is not a question of calling for his resignation. I believe that he should apologise to the victims of BCCI for what has happened, and that the Chancellor should sack him.
§ Mr. Lamont
I do not accept that. That comment goes beyond what is justified by the report.
I do not accept the findings of Senator Kerry's report. He did not have access to the documents to which Lord 583 Justice Bingham had access and he did not take evidence from the Bank of England. I believe that some wild and incorrect allegations were made in that report.
Secondly, the hon. Gentleman seeks to draw an analogy with Barlow Clowes. However, there is a considerable difference.
§ Mr. Lamont
I have reflected on the point and I am answering the hon. Gentleman. I freely acknowledge and respect the hon. Gentleman's great interest and the great energy that he has shown in pursuing the matter. By the way, I did know that one of the largest depositors lived in my constituency. There are several of them.
It seems to me that there are very significant differences with Barlow Clowes. First, in the Barlow Clowes case, no compensation scheme existed. There is a scheme to protect depositors in banks. Secondly, that was something which was specifically recommended by the Parliamentary Commissioner when he inquired into what had happened with the handling of Barlow Clowes. That was not one of the recommendations of the Bingham report.
§ Sir Michael Grylls (Surrey, North-West)
Since my right hon. Friend referred to the quite disgraceful slur against the honour of my right hon. Friend the Prime Minister, which was repeated from the Opposition Front Bench this afternoon, has he any knowledge that the Opposition wish to make a statement to the House to apologise for the incorrect slur on my right hon. Friend and clear the matter up once and for all? It is quite wrong for the matter to be left as it is.
§ Mr. Lamont
It is not in the report. The report makes it quite clear that my right hon. Friend the Prime Minister did not know of the contents of the section 41 report and the fraud in the United Kingdom until he received a report from me at the end of June. I must tell the hon. Member for Dunfermline, East that, when one has made one scandalous allegation, one should not make another.
§ Ms. Diane Abbott (Hackney, North and Stoke Newington)
The Chancellor will be aware that some people believe that the Bank only moved against BCCI in the end because it was well aware that the New York authorities under Mr. Morgenthau were about to unveil the results of their investigation which would have reflected very badly on the dilatory and incompetent supervision that the Bank had given BCCI. However, with regard to the auditors, this is not the first instance when big City accountants have proved to be unable to recognise fraud when it is being practised under their noses. Hon. Members will recall the Maxwell pension fund and the role that auditors played in that.
It seems that Price Waterhouse had a particular problem in the BCCI affair. On the one hand, it was supposed to be BCCI's auditor, while on the other hand it was earning huge fees from other parts of BCCI as management consultants. Will the Government take a 584 further look at the role of auditors and perhaps take steps to ensure that auditors are not faced with potential conflicts of interest in future?
§ Mr. Lamont
On the last point, Lord Justice Bingham considered the issue that the hon. Lady has raised, and he concludes that the so-called conflict of interest is not something that he believes action should be taken upon. However, as I have told the House, we intend to impose a duty on auditors in future to report to the supervisory authorities when they have good reason to believe that fraud is taking place.
The hon. Lady referred to Price Waterhouse, and there is a criticism of Price Waterhouse in the report. However, in fairness to Price Waterhouse, it should also be stressed that on other occasions—for example, in April and October 1992—when the firm had made its audit report to the directors of BCCI, it ensured that some information was passed on to the Bank of England. Lord Justice Bingham concluded that perhaps that could have been done more fully, but a careful reading of the report discloses that on several occasions that is precisely what Price Waterhouse did.
The hon. Lady's first point was that the Bank of England acted only because of what the district attorney in New York was about to reveal. That is not correct. What finally triggered the action of the Bank of England, which Lord Justice Bingham concludes was appropriate, was the Price Waterhouse report. I stress that BCCI continued to operate in New York and California when it was closed by the Bank of England. That ought to be seen in the context of the fact that the bank operated worldwide in 60 countries with 400 branches. I do not believe that it is correct to pin it all on the Bank of England just like that.
§ Mr. John Townend (Bridlington)
Does my right hon. Friend agree that many Conservative Members welcome the immediate response of the Bank of England and would feel that it was in everyone's interest that the Governor should be able to introduce the reforms suggested in the Bingham report? Does he also agree that depositors will always lose money when a bank closes down in such unfortunate circumstances? A difference in the timing only means a difference in who loses their money. Does he also agree that people who deposit money in overseas banks can never expect them to be 100 per cent. risk-free?
§ Mr. Lamont
I agree with my hon. Friend, but I do not wish to cast slurs on overseas banks in comparison to any other banks. Obviously it is very important that people should take a view about banks with which they deposit money as they should take a view about any financial institution to which they entrust their capital. However, I very much agree with the general thrust of my hon. Friend's comments.
It is important that depositors and savers should have some responsibility. No system of supervision can guarantee safety or eliminate fraud. There will always be a risk of that. We have an example of a gigantic fraud which had gone on for well over a decade and throughout the world. I entirely accept what my hon. Friend said about the need to press ahead with the legislative changes and accept the implementation of the Bingham report.
§ Mr. Dennis Skinner (Bolsover)
Does the Chancellor recall that, when this fraud was becoming apparent around 1984–85, some other money in a bank was being 585 transferred from Luxembourg and various other banks from the National Union of Mineworkers? Somehow or other, they managed to trace that genuine, real money—not fraudulent money—which the NUM was trying to save for the miners. The bankers represented by the Government managed to find that money when they could not find the fraud in BCCI. I find it very strange that there is a gang of people on the Government Front Bench, most of whom come from the belly of the banking establishment, who cannot detect fraud over a period of eight or nine years.
It is very odd that the Government can supervise the 400 local authorities and check every penny they spend, but they cannot supervise or look into massive fraud. I do not think that it is just a question of the boss of the Bank of England resigning—the whole lot on the Treasury Bench should get out of the way.
§ Mr. Lamont
The hon. Gentleman expressed something like that view yesterday. He thinks that every debate is about the miners. This one is not.
§ Sir Peter Tapsell (East Lindsey)
Before we debate this unhappy subject, will my right hon. Friend give further careful thought to whether he is quite sure that the Bingham recommendation is correct in advising that we should make no change in the institutional method of bank supervision bearing in mind that the Bundesbank does not have responsibility for such supervision? I have held the view for a long time that, with the deregulation of financial institutions and the complete internationalisation of money markets, bank supervision is an extraordinarily difficult task. While I am certainly not one of those who are in favour of making the Bank of England independent, I am very strongly in favour of its prestige being maintained as strongly as possible—
§ Madam Speaker
Order. We are now getting into an Adjournment debate. I have asked hon. Members to ask questions.
§ Sir Peter Tapsell
Therefore, may we not continually put the Bank in a position which is likely to recur, that of in being involved in such scandals because of its supervisory role?
§ Mr. Lamont
I note what my hon. Friend says, although in many countries the central bank has responsibility for supervision. That point has been examined in detail by Lord Justice Bingham. He has come to the conclusion that there is no reason to change the existing arrangements. I have announced that I am accepting those changes that he thinks should be made, but obviously I will reflect on what my hon. Friend, who has very considerable experience of these matters, has said. I note what my hon. Friend says about the Bundesbank, because he was not so friendly about it a few weeks ago.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The report recommends that attention should be concentrated on suspect banks. That is a very elementary proposition. We must ask why on earth suspect banks were not supervised properly from the beginning—right from 1979. I myself was asking others why the conditions of the Banking Act 1979 were not applied to BCCI. It was a highly disreputable operation and there was great concern about it. The powers to approve and authorise should have been used against that bank right from the beginning. What 586 concerns me most is that the Bank of England has failed miserably in this matter, and its reputation must concern us all.
§ Mr. Lamont
Because I have had to reply to some rather extreme points that have been made by the Opposition, I do not wish in any way to deny that very serious criticisms have been made. I do not wish to give that impression.
The right hon. Gentleman asks, "Is it not rather obvious that resources should be concentrated on suspect banks?" The point that Lord Justice Bingham is making is that he feels that there is not a great deal of point in intensifying supervision generally. Supervision has to deal not just with fraud but with matters such as capital adequacy and the resources that shareholders put into banks. He is saying that, when it comes to fraud, there is room for being even more selective and for having machinery that responds more rapidly and more sensitively than has happened in the past to some of the receipt of information that has occurred.
§ Mrs. Judith Chaplin (Newbury)
My right hon. Friend has said that the supervisors should be more flexible and discriminating. What will the Bank of England do to ensure that that happens?
§ Mr. Lamont
The Bank of England intends to increase the resources devoted to supervision. It also intends—this is the point that I was making to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—to set up a special unit to deal with allegations that are made against particular suspect banks. It is also increasing the staff and setting up a legal unit within the Bank. In addition, it is going to take the initiative in making sure that we have a lead supervisor when banks are spread across several countries. That is one of the key points that come out of the report. It is extremely important to have a lead supervisor in all cases.
§ Mr. Calum Macdonald (Western Isles)
As regards the Chancellor's intention to give the Bank of England the power to revoke or refuse authorisation when the structure of a bank is opaque, does not Lord Bingham, in paragraph 3.1.5, say that it already has that power and that it simply refused to exercise it? Given that that is the case, it is not a lack of power that caused this debacle but a failure to exercise that power. Is not there a moral obligation on the Chancellor to come forward with a scheme of compensation for all those who have lost money in this disaster?
§ Mr. Lamont
What Lord Justice Bingham says—[HON. MEMBERS: "Lord Bingham."]—Lord Bingham, the Master of the Rolls, Sir Thomas Bingham now—is that it is his legal opinion that that power exists but that, if there is any ambiguity, the Government should consider action. We have considered it. We think that there is some ambiguity and that therefore we should take the legislation to make the situation absolutely crystal clear. I hope that that answers the hon. Gentleman's point. I do not think that the conclusion that he drew about compensation follows from what the hon. Gentleman has said.
I deeply regret that so many people have lost as a result of what has happened, but let the House be absolutely clear—I wish hon. Members would just occasionally say it—that responsibility for what has happened lies with the criminals and those who perpetrated the fraud. Not one 587 Opposition Member has made that point. They just seek to get whatever miserable political advantage that they can out of the situation.
§ Mr. David Shaw (Dover)
Will my right hon. Friend the Chancellor confirm that what is unusual about this fraud is not that it was massive or that it was international but that it involved the collaboration of a large number of individuals on an international scale? How did that happen in such a way that no authority in the world managed to discover it? Therefore, is it not logical that the British Government should lead in bringing together a number of regulatory authorities in the world so that we will have a better international regulatory system? What will the British Government be doing about that?
§ Mr. Lamont
My hon. Friend is right, and that is why we propose to take such an initiative within the European Community. That is why we also intend to use the supplement to the Basle concordat to ensure, as I have said, that there is always a lead supervisor.
One of the most powerful points in the report is that for a long time there was no lead supervisor. One of the criticisms that Lord Bingham makes is that the Bank of England was unwilling to assume the role of lead supervisor and relied too long on Luxembourg. We must ensure that there are arrangements that make it absolutely certain that in all cases in future there is a lead supervisor, and we will be doing precisely that.
§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)
Bearing in mind that, years before the Governor of the Bank of England tried to close down BCC!, he had been told that the management was incompetent, that the directors were hopeless, that the accounting methods were so dreadful that one firm of accountants, Ernst and Whinney, had simply given up and that there had been serious fraud in the treasury department of BCCI in 1985 and further serious fraud through Capcom Financial Services, would it not be seemly if the Governor of the Bank of England were to give way to someone else who is better able to enforce not only the decencies and proprieties of public life but the provisions of the Banking Act 1987—or does the Governor stand outside the laws of England?
§ Mr. Lamont
I have explained why I believe that it is absolutely right that the Governor, while he assumes responsibility for this matter, should remain the Governor, and I have every confidence in him.
The hon. Gentleman makes a point that is made repeatedly by hon. Members, which is that, at various times in a decade and a half, information has entered the public domain of wrongdoing in BCCI in different parts of the world. There were the arrests over the Tampa incident and treasury frauds in 1985. Hon. Members have made that point repeatedly and then asked why then something was not done about it.
What they have omitted to mention, which in fairness should be mentioned, is that, on several occasions in the long history of that bank since 1972, there have been changes in the management and changes in the shareholder. There have been attempts to reconstruct the bank. On each occasion, the Bank of England faced the dilemma of either closing it down or attempting remedial 588 action and reconstruction. It attempted that reconstruction of the bank on several occasions, even though we knew—the hon. Gentleman knew; everybody knew—that there had been some wrongdoing in the bank in different parts of the world.
The fact that things went wrong in this case should be placed against the fact that, in the past five years, there have been about 34 occasions on which the Bank has actually succeeded in reconstructing banks or bringing about remedial action, which has saved depositors and worked to the advantage of everybody. That was the motive of the Bank of England. It is very easily condemned with the advantage of hindsight.
§ Mr. Tim Renton (Mid-Sussex)
It was obviously right to publish Lord Bingham's report, and I congratulate and respect my right hon. Friend on his frankness and openness in doing so. Clearly, the supervision of the Bank of England has been lax, but does my right hon. Friend not agree that the difficulty for the central supervisory authority where there is an international bank with what he described as an opaque structure is for the central bank to know the precise moment at which it is right to step in and close branches? If that step is taken too early, for whatever reason, it can lead to far greater loss for creditors and depositors than would otherwise be the case. I noticed in Beirut last week that BCCI was still operating freely and openly because the authorities, depositors and creditors did not wish to close it.
§ Mr. Lamont
I am grateful to my right hon. Friend, especially for his opening remarks. He makes a powerful point, which is similar to that which I made about the dilemma facing the Bank. It has been well illustrated that Opposition Members have, at various times, criticised the Bank either for closing BCCI or for not closing it—they have made both criticisms together.
§ Mr. Alistair Darling (Edinburgh, Central)
Will the Chancellor address himself to paragraph 2.512 and the following paragraph of the report dealing with responsibility of both the Treasury and the Bank? Does he accept that no Opposition Member or anybody else is suggesting that the Prime Minister knew of the alleged fraud until very near the time when the bank closed. No one is impugning his conduct or that of any other Minister. The point that Lord Bingham is making is that the Bank, the Treasury and its Ministers knew for a considerable time before the bank was closed that there was a problem. Does the Chancellor not accept that the responsibility of the Treasury and its Ministers is an important matter for both this case and the future, and for the issue of compensation? Many people think that it is high time that those who take decisions stand up and accept responsibility when things go wrong.
§ Mr. Lamont
The report clearly says that the conduct of Treasury Ministersis not in my view open to criticism in any respect.The hon. Gentleman says that nobody is alleging that my right hon. Friend the Prime Minister knew about the fraud until a very late date, but that is not what the former Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock), said on 23 July 1991, when he repeatedly accused my right hon. Friend of covering up and knowing about the position. The right hon. Gentleman said: 589The Prime Minister has already misled the House once today by saying that he referred to the irregularities, when it is in the recall of this House that he did not say a word … Despite what he knew as Chancellor of the Exchequer, he did nothing to warn innocent people of the trap into which they were moving and of a bank that was near bankruptcy,"—[Official Report, 23 July 1991; Vol. 195, c. 1029.]My right hon. Friend knew nothing about that, and the report makes that crystal clear.
§ Madam Speaker
Order. We must now move on. I have given the matter quite a long run, and Ministers have already made it clear that we are to have a debate on it.