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Liquidators to Take Over Luxembourg Bank : Finance: Today's action is the latest in a wave of legal efforts to freeze the assets of the scandal-hit Bank of Credit and Commerce International.

July 08, 1991|From Reuters

LUXEMBOURG — A court will place the Luxembourg-based Bank of Credit and Commerce International SA in the hands of appointed liquidators today to unravel the affairs of the scandal-hit financial institution.

The Court of Justice's move, called "controled administration," is the latest in an unprecedented wave of legal action to freeze the bank's estimated $20 billion in assets in almost 70 countries amid allegations of fraud.

Pierre Jaans, director of Luxembourg's Monetary Institute, told a news conference Saturday of the impending legal action.

He said the bank had been on the verge of collapse when authorities moved Friday. There was evidence of organized fraud linked to huge losses, he said.

Financial authorities in 14 countries, including Britain, Japan, Germany and the United States, effectively shut down BCCI's activities in a coordinated effort.

Jaans said the bank, hit by another scandal involving laundering drug money last year, had posted a "huge operating loss" for 1990, which had not been made public.

"It had to take up loans to cover (the loss). . . . The bank probably has no capital left," he said. "By next week, it would not have had a future either in Luxembourg or Britain."

BCCI had planned to move its headquarters from Luxembourg to London by the end of this year. Routine investigations linked with the reorganization of the bank's structure had revealed the disastrous state of its finances, Jaans said.

So far, BCCI officials have kept silent. "There will be no comment from us," said one bank official in Luxembourg.

Robin Leigh-Pemberton, governor of the Bank of England, said Friday that the fraud arose from attempts by senior executives to conceal losses from BCCI's lending and treasury operations.

The bank's deposits have been frozen as part of a coordinated attempt to secure the assets of BCC Group, parent company of BCCI.

Since last year the bank has been 77% owned by Abu Dhabi interests, mainly by the family of Abu Dhabi ruler and president of the United Arab Emirates, Sheik Zayed ibn Sultan al Nuhayan. It was founded in 1972 by Pakistani banker Agha Hassan Abedi, who had heart surgery three years ago.

The British government has asked the ruler of Abu Dhabi to inject fresh cash into BCCI, the Bank of England said Sunday.

"The shareholders in BCCI, that's mainly the royal family, have injected capital into the bank in the past, and it is hoped they will do so again," a spokesman for the British central bank said.

The spokesman said Britain's ambassador in the United Arab Emirates put the request for funds to Zayed. There has so far been no formal reply.

The money would be used to help ensure the orderly winding up of the bank's operations.

The UAE news agency WAM said Zayed left for Europe Saturday but did not say where he was going.

Gulf bankers say Abu Dhabi may face huge costs to save its reputation and prevent depositor panic following the shutdown.

There was a taste of that Sunday when hundreds of people besieged BCCI branches in Pakistan to withdraw their savings, despite pledges their money was safe.

Armed police were posted outside the main branch in Karachi to control 400 customers demanding their money. In Bangladesh, depositors found the bank's branches shut.

In Spain, the government decided Friday to revoke the banking license of Bank of Credit and Commerce SAE and put the bank's operations there into liquidation.

In London, British court-appointed liquidators moved in over the weekend to try to sort out BCCI's finances but warned that it was a complex task and could take time.

Luxembourg had suggested that BCCI move to London, since many of its worldwide activities are conducted from there. The bank had agreed to do so by the end of this year.

Jaans said the problems might have remained hidden if BCCI had decided to stay in Luxembourg, which has tight banking secrecy laws. "It was due to pure chance that this scandal was uncovered," he said.

He declined to say how much the bank had lost last year. The authorities had decided to step in to protect shareholders and creditors from BCCI's imminent collapse.

The Luxembourg Institute notified central banks in other countries of the move Friday. A copy of the letter, obtained by Reuters, said action had been taken because of " prima facie evidence of widespread fraud over a prolonged period." But it added the bank's accounts were already overdue and the auditors had reservations.

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