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What spooks told Old Lady about BCCI

MI6 and the Bank had suspicions, so why was nothing done, creditors ask in the High Court. By Conal Walsh

Sunday January 18, 2004
The Observer

On a spring day in 1989, Roger Barnes of the Bank of England's supervisory division sat down for a meeting with officers from MI6. The officers asked him to tell them what he knew about the Bank of Credit and Commerce International.

Rumours of fraud were starting to swirl around the giant Pakistani-Arab bank, whose main office was in Leadenhall Street in the City.

Barnes's reply was unsettling. According to the MI6 officers, he told them that BCCI had 'no natural or established customer base [and] there was no obvious, respectable explanation as to how it came to grow so quickly and became so profitable ... it was widely assumed that the BCCI management were less than meticulous as to what funds they handled'.

Other Bank of England officials were more forthright, telling MI6 of allegations linking BCCI to drug gangs in Colombia and to the military regime of General Manuel Noriega in Panama.

But if the Bank knew of alleged unsavoury dealings at BCCI, why didn't it investigate them? That is the question at the heart of the blockbuster legal case that began at the High Court in London last week.

Two years after the meeting between Bank officials and MI6 (the Secret Intelligence Service), BCCI collapsed in the world's biggest- ever banking fraud, leaving £7 billion in undeclared debts and thousands of depositors empty-handed. BCCI's creditors are suing the Bank, which regulated the financial industry at the time, accusing it of deliberately failing to protect them.

The Bank denies the claim, saying that it had assumed BCCI should be supervised by Luxembourg, where it was officially registered, rather than by the authorities in Britain, where it did most of its business.

But Gordon Pollock QC, the barrister leading the creditors' case, spent last week arguing that the Bank had early warning of trouble at BCCI, and is likely to seize on further evidence of this from the intelligence community.

The Observer's account of Barnes's 1989 meeting with MI6 comes from a top-secret document compiled by Lord Bingham, whose official investigation into the BCCI debacle was issued in a report in 1992. The document - known as 'Appendix 8' - deals with the role of the intelligence services in the BCCI affair. Unlike the rest of Bingham's report, it has never been made public - until now.

Some passages in the 30-page appendix remain 'blacked out' for security reasons. However, the document makes it clear that the Bank received a host of additional warnings from intelligence agencies about alleged misconduct at BCCI.

In August 1989, the Bank was made aware of intelligence suggesting that BCCI was in serious financial difficulty and had only been bailed out by a valuable Abu Dhabi oil account. Officials at Threadneedle Street appear to have done nothing to investigate BCCI's solvency.

According to Bingham, the Bank was also told twice that 'the Panamanian Ambassador to the UK, a Noriega appointee, was engaged in moving funds from accounts held with BCCI in London to other accounts elsewhere held by Noriega front companies and nominees'.

Further reports claimed that BCCI branches in Pakistan, Luxembourg, Argentina, Colombia, Panama and Paraguay were suspected of money-laundering and drug-trafficking. Some of the suspects in the Paraguayan operation were based in the UK. But in no case, apparently, did the Bank send in its investigators.

If the Bank of England was sometimes relaxed in its approach, so too were the intelligence agencies themselves. In 1990, an unnamed source told them that BCCI's Gibraltar office was involved in a vast money-laundering exercise which the Gibraltar government itself was happy to tolerate. This disclosure was described by the British Embassy in Madrid as 'important and depressing', but there is no evidence that the UK acted on it.

According to Bingham, spy chiefs also discovered that Abu Nidal, the notorious Palestinian terrorist, held accounts worth at least $50m in a London branch of BCCI (see below), but decided to discreetly monitor the accounts rather than freeze them.

The US authorities disagreed with this tactic. But the British insisted that they should not step in, even when it became apparent that the accounts were being used to sell military equipment to Poland, in breach of arms export controls.

In the end, however, the affair ended embarrassingly: Nidal's organisation got wind of the British surveillance and emptied the accounts before they could be seized.

A mole in the bank

Bingham's newly declassified intelligence archive reveals a ham-fisted attempt by British intelligence to 'turn' a senior BCCI employee in an attempt to get details of what was going on inside the crime-riddled bank.

This employee was Ghassan Qassem, the Jordanian manager of BCCI's branch in Sloane Street, London. Part of Qassem's job was to look after multi-million-dollar accounts held on behalf of Warsaw-based SAS Trade. This company, Bingham reports, wassecretly identified by Western intelligence agencies in 1986 as a front for the Abu Nidal terrorist organisation.

For a time, Qassem was not approached by intelligence agencies, because he had been arrested in Syria in connection with a kidnapping. Some of the details Bingham gives of this bizarre episode remain classified, but apparently the BCCI man was not charged, and returned to London.

In July 1987, he was contacted by MI5 and MI6 officers, who told him what they had discovered about the SAS Trade accounts. A surprised Qassem agreed to pass on information about the accounts.

He turned out to be a loose cannon, however. From the start, Bingham writes, Qassem failed to disclose all he knew. By June 1989 'the Security Service [MI5] were becoming a little unsure that they were receiving Qassem's full co-operation, and thought that an additional source would be valuable'.

They recruited his assistant, but he 'did not prove a satisfactory informant' and was eventually suspended by BCCI for alleged misconduct.

At the end of that year, Qassem began to claim his life was in danger as a result of his co-operation with the intelligence services.

He also became involved in a dispute with his line manager and filed an employment tribunal case against BCCI, claiming the bank was victimising him 'for his role in looking after the [Abu Nidal] accounts and the accounts of drug traffickers, even though he had acted in accordance with the bank's wishes'.

Before these allegations could be made public, BCCI - to the likely relief of British intelligence - settled the case out of court, paying Qassem £36,700 if he agreed not to publicise his claims.

He did not stay silent for long, however. In July 1991, Qassem caused a stir by appearing on BBC Panorama, describing his MI5 contacts. 'Much of what he said,' concluded Bingham, 'was factually correct.'