BCCI CASE
Introduction:
On July 5, 1991, an incident that has been described as the biggest bank fraud in history came to a head when regulators in seven countries raided and took control of branch offices of the Bank of Credit and Commerce International (BCCI). Monetary losses from the scandal were huge, with estimates ranging from $10 billion to $17 billion though many billions have since been recovered for creditors by the banks liquidators, Deloitte & Touche.
The scandal had been developing for nearly two decades and encompassed an intricate international web of financial institutions and shell companies that had escaped full regulation. BCCIs activities, and those of some of its officers, included dubious lending, fraudulent record-keeping, rogue trading, flouting of bank ownership regulations and money laundering in addition to legitimate banking activities. The banks structure and deal making was so complex that, a decade after the institution was liquidated, its activities are still not completely understood.
One way to think of the BCCI saga is as an attempt to create the polar opposite of a firm with integrated risk management practices. In this case, certain senior bank personnel and interested parties did not simply overlook risks, but manipulated gaps in the banks risk management structure and between its subsidiaries, to serve various purposes. This put at a disadvantage other stakeholders, such as the million or so small depositors around the world and certain institutional depositors attracted by BCCIs relatively high rates, who provided much of the banks funding. Meanwhile, other bank officers had little understanding of the banks structure and overall financial position, and were encouraged not to question bank practices, or ...