July 5 will mark the beginning of the twenty fifth anniversary of the forced winding-up of the Bank of Credit & Commerce International (BCCI). Created in September 1972, in a short span of 19 years, this bank expanded into 64 countries, bulk of them being the under-developed countries that it helped enter and benefit from the global markets - a success that also became the reason for its winding-up.
On July 5, 1991 when BCCI was closed, its global branch network comprised of 438 branches covering Asia Africa, Europe, Canada, the US, and South America. This network provided Third World countries access to the global markets instead of being forced to sell their produce - essentially, raw materials - for pennies to their former colonial powers, and also helped 17 developing countries repay their expensive World Bank loans.
The founder of the BCCI, late Agha Hassan Abedi, had earlier created Pakistan's United Bank after leaving Habib Bank because, in his perception, Habib Bank wasn't liberalising its policies fast enough to materialise the huge potential Pakistan's economy offered, as reflected by the fact that during 1960-64, its economy's growth rate had averaged 6.4 percent of the GDP - the second highest in Asia after Japan.
Creation of United Bank was a great achievement, but the 1965 war with India and the saga of 1971, and the way the PPP nationalised Pakistan's business, industry and financial services sector changed the governance profile of the economy. This change convinced him that, to serve humanity at large, he could do much more by stepping out of Pakistan's constrained landscape.
This idea prompted him to create BCCI in September 1972, which then became the world's largest privately owned bank, as well as the only bank focused on helping the Third World countries in containing their miseries by making effective use of their human and material resources, and gradually setting-up industrial bases that could assist them in exporting value-added version of their raw materials.
Within six years of its coming into being, BCCI launched its "North-South Monitor" in co-operation with the Institute of Commonwealth Studies, University of London, for analysing the state of the North-South dialogue, and for that purpose BCCI began funding under-graduate scholarships and post-graduate research in this area at the London School of Economics.
To create awareness among Third World countries about the developing global economic realities, BCCI set up the Third World Foundation, and the research papers produced by University of London and the London School of Economics were published in a quarterly journal called The Third World, and Pakistan's renowned journalist and bureaucrat Altaf Gouhar was appointed its editor.
BCCI was equally concerned about developing the skills of its staff in line with the emerging needs. Therefore its International Management Development Division set up training centres in 7 countries across the globe to train bankers from across the world using live case studies with the aim of preparing them for purpose-oriented hard-core banking. Today many of them hold senior positions in better-managed banks across the world.
As early as 1979, Agha Hassan Abedi was the only corporate executive who visualised the challenges posed by the changing profile of the world in the 21st century, and mustered the support of gentlemen like the former US President Jimmy Carter in creating awareness about these challenges, and for this purpose BCCI created a think tank called "Vision-2000" chaired by Jimmy Carter.
Talking of Agha Hassan Abedi's vision, he was also the first banker to give the software designing company NCR the idea of linking global branch networks to consolidate books of accounts (and therefore risk) in real-time. BCCI was among the first banks to successfully experiment with and implement this system that offered much improved prospects of risk management.
BCCI began its operations in Pakistan in 1973 and, in 1975 it entered into an agreement with the government of Pakistan whereby BCCI was exempted from taxation on the condition that the profit of its Pakistan operations won't be transferred to its Head Office, but spent on poverty alleviating projects, and an independent institution would be set up to undertake this task.
The institution created to carry out this task was the BCCI Foundation (now called Infaq Foundation). Millions of rupees were donated to hospitals and schools besides financing of projects such as the Orangi Pilot Project, the GIK Institute of Technology, and the IT training institution FAST (first of its kind in Pakistan), all reflecting BCCI's sense of Corporate Social Responsibility.
Pakistan was not the only country where BCCI made arrangements for offering socially beneficial services; they were provided in many under-developed countries. Even in the UK, BCCI acquired the Cromwell Hospital, where the major portion of services was reserved for the needy, and many of them were helped to travel to the UK from abroad for treatment at this hospital.
Agha Hassan Abedi thought that, given this philosophy rooted in the desire to reduce poverty, his bank could possibly become the largest bank in the world. But that was not to happen because the regulatory lapses of the 1970s permitted development of serious weaknesses in the global banking system because central banks in the recently de-colonised countries weren't cognisant of these weaknesses.
It is frightening to recall the pace at which central banks allowed bank network expansion ignoring the gaps it left in their risk management capabilities. BCCI's weaknesses too were rooted in the pace at which it expanded, and these weaknesses were compounded by the fact that bankers from overly regulated markets (Pakistan and India) were exposed to deregulated environments.
In his report on BCCI's collapse, Lord Bingham blamed the bank's trading losses that reflected "incompetence, and errors of unsophisticated amateurs venturing into highly technical and sophisticated markets". He pointed to two key losses - US $650 million on lending to Gokal Shipping, and US $285 million on delayed covering of currency and commodity option contracts. But he didn't find any proof of involvement in criminal activities.
In late 1991, CNN telecast live an inquest into the collapse of BCCI by a sub-committee of the US Senate. After detailed depositions by Masih-ur-Rehman (BCCI's ex-CFO), and representatives of the Fed, Comptroller of Currency, FBI, DEA and CIA, and examining the evidence presented before the committee, its chairman concluded that BCCI should have been re-structured, not closed.
He then asked the CIA representative "why then was the bank closed down?" Despite being monumentally brief, the CIA representative's reply was colossal in what it covered up; he said "Sir, we had decided that the bank should be closed", 'we' denoting the US that, since 1942, decides what should or shouldn't happen on this planet. I am sure CNN still has a copy of the recording of this senate meeting.
Also, there is no proof of BCCI's role in insurgencies because it never had any political affiliations. But the roles of Banca Commercial Italiana in the alleged Vatican-sponsored insurgencies against Latin American regimes, BankAmerica in toppling socialist regimes in Latin America, Chase Manhattan in acting as a conduit for arming Afghan Mujahideen, and Barclays in sustaining apartheid in Britain's African colonies, are no secret. And that's not all. According to The Economist magazine, in the 1990s Barclays, Morgan Guaranty and Citibank were involved in transferring state funds into Swiss bank accounts of Russia's Boris Yeltsin and his cronies. Half of these funds were IMF loans for badly needed structural adjustments to help Russia overcome its Balance of Payment problems.
Banking sector's history remains tarnished to-date but now banks with massive records of criminal supervisory neglect and of injecting corrupt practices into the financial markets, are not closed. Instead, they are helped to survive. Just recall what BNP Paribas, Barclays, J.P. Morgan Chase, Goldman Sachs, Standard Chartered, and HSBC have gone through. The accusation of 'money laundering' whereon BCCI was found guilty by the US authorities was based on $14 million lying in BCCI's Florida branch in the account of Robert Mazur - an undercover agent of the US Drug Enforcement Agency. Mazur, who belatedly became morally-conscious, exposed this truth in his book titled "The Infiltrator: My secret life inside the dirty banks and behind Pablo Escobar's Medellin Cartel"
Besides its supervisory failures (mostly due to weak central bank regulation), what BCCI paid for was its desire to help humanity, but the examples of Corporate Social Responsibility it set, will continue to be remembered for years to come - an admirable record that keeps alive the memory of BCCI.
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