Bcci Case Study for Auditing
Introduction In July 1991, the largest scandal in the financial history exploded when the branch offices of the Bank of Credit and Commerce (BCCI) has been seized by regulators in seven countries. The closure of the bank is mainly due to massive fraud and corruption that happened at the heart of the bank. BCCI also involved in other illegal activities such as money laundering, dubious lending, fraudulent record-keeping and support in terrorism. The BCCI was a supranational bank founded in London in 1972 by a Pakistani financier, Agha Hasan Abedi. Overall, BCCI was expanded from 19 branches in five countries in 1973 to 108 branches in 78 countries in 1976 with excess assets of around US$20 billions at its peak.
BCCI has been set up deliberately to avoid consolidated supervision and operated in bank secrecy jurisdiction. BCCI was chartered in Luxembourg and the Grand Caymans, but neither its holding company nor the subsidiaries has conducted any banking activities there. Thus, Luxembourg did not regulate it. Its real home which was BCCI’s headquarter and where most of the operations were carried out was actually in the UK. Because it was chartered in Luxembourg and Grand Caymans, Bank of England (BOE) thus thought itself as a secondary role in supervising BCCI, thereby reducing the level of scrutiny imposed on BCCI. In addition, BCCI has an uncommon auditing system. Price Waterhouse (PW) was the accountants for BCCI overseas, while Ernst & Whitney in charged of BCCI holdings. Two sets of auditors being used was to avoid them from publishing a meaningful consolidated accounts and make sure neither of the audit team had full jurisdiction over it.
BCCI’s founder, Abedi and his assistant, Naqvi were the critical leader of its rapid growth and a guarantee of its final collapse. By fracturing its corporate structure and record keeping, the complex BCCI group was able to avoid regulation on the transfer of capitals and goods between its internal banks.
BCCI has been set up deliberately to avoid consolidated supervision and operated in bank secrecy jurisdiction. BCCI was chartered in Luxembourg and the Grand Caymans, but neither its holding company nor the subsidiaries has conducted any banking activities there. Thus, Luxembourg did not regulate it. Its real home which was BCCI’s headquarter and where most of the operations were carried out was actually in the UK. Because it was chartered in Luxembourg and Grand Caymans, Bank of England (BOE) thus thought itself as a secondary role in supervising BCCI, thereby reducing the level of scrutiny imposed on BCCI. In addition, BCCI has an uncommon auditing system. Price Waterhouse (PW) was the accountants for BCCI overseas, while Ernst & Whitney in charged of BCCI holdings. Two sets of auditors being used was to avoid them from publishing a meaningful consolidated accounts and make sure neither of the audit team had full jurisdiction over it.
BCCI’s founder, Abedi and his assistant, Naqvi were the critical leader of its rapid growth and a guarantee of its final collapse. By fracturing its corporate structure and record keeping, the complex BCCI group was able to avoid regulation on the transfer of capitals and goods between its internal banks.