BCCI: now the Old Lady falls into the frame

THE SEARCH for the guilty men in the Bank of Credit and Commerce

International collapse took on a new impetus yesterday with the

publication of the Bingham report into the supervision of BCCI by the

Bank of England.

Lord Justice Bingham's much-delayed report on the affair appears to

have given the depositors which lost millions in the collapse new

ammunition with which to attack the Bank of England for its failing in

regulating the Bank of Cocaine and Conmen International.

Some of the blame for the disaster is now being quite firmly pinned on

the Bank of England. Whether these accusations of guilt stick, and

compensation flows to depositors as a result, remains to be seen.

In Scotland, in the UK as a whole, one the biggest losers in the bank

collapse was the Western Isles Council and it now seems that just who

was responsible for that part of the disaster story has not been finally

settled either.

Until yesterday the search for scapegoats in the Western Isles never

really went further than the front doorstep of the council headquarters

in Stornoway. Councillors, sent spinning by the news that they had #23m

to lose in the first place, collapsed in a spiral of recrimination in

July '91 which absorbed their energy long after BCCI had faded from

national headlines.

The ''culture of blame'' -- which Professor Alan Alexander identified

this week in his report on the council's workings -- first claimed

council leader the Rev. Donald MacAulay, and then sent his colleagues

into disarray and factionalism when they chose the controversial figure

of councillor Donald MacLeod as his replacement.

None of the elected members responded to numerous calls to resign en

masse for their handling of the BCCI affair and initial blame fell on

five officials. Inquiries by the local government Controller of Audit,

Mr John Broadfoot, and the Accounts Commission eventually found two men

negligent -- Mr Donald G. MacLeod, the council's finance director, and

his deputy, Mr Brian Lawrie. Both were found negligent by the Accounts

Commission which recommended to the Secretary of State that they be

surcharged for the losses.

Mr MacLeod, sacked from his job and ostracised in his home town of

Stornoway, left for a new life in central Scotland where he awaits the

decision of the Secretary of State. It is, it seems, a decision he will

have to wait longer than he expected for.

As a result of the Accounts Commission inquiry Mr Lawrie was dismissed

from his post as finance director of North East Fife District Council, a

job he had secured just before the BCCI storm broke over the Western

Isles. As well as appealing against his dismissal, Mr Lawrie has now

taken legal action which could result in the Accounts Commission having

to re-examine the whole affair.

The Herald has learned that Mr Lawrie has petitioned the Court of

Session for a judical review of the Accounts Commission findings, a move

without precedence in the Commission's experience. The review is not

expected to be heard until early in the New Year.

Despite dire predictions, the economic effects of the loss in the

Western Isles have, so far, been remarkably light. The massive cuts in

council spending and redundancies have not gone ahead but it may be that

the council is storing trouble for a later date.

Because of previous overspends the council, when it meets next week,

has to consider cuts of between #300,000 to #600,000 to balance this

year's books and cut anything up to #2m in the next financial year. This

is on top of repayments for the BCCI losses which will run at #2.7m for

30 years. The

islands population, already having had their poll tax more than

doubled, are likely to suffer further reductions in services in the

years to come.

In all of this the council are only considering legal action against

Williamson and Dunn, their own former external auditors, for allegedly

failing to uncover several improper transactions which went through the

council's finance department since 1988.

All the council's #23m investment in BCCI, and several other local

authority deposits, were channelled through R. P. Martin, the Edinburgh

broking firm run by the cousin of sacked finance chief D. G. MacLeod.

Asked by the Commons Treasury committee to re-investigate their role in

the Western Isles deposits, the Bank of England could find no conclusive

evidence that the brokers had influenced the financial policy of the

council money dealers.

The council claim they were assured by R. P. Martin that BCCI was

''sound'', an allegation denied by the brokers. R. P. Martin have

steadfastly refused to answer questions on their relationship with the

council and the bank.

The Western Isles Council have proved remarkably unsuccessful in

shaking off the blame for its misfortune, though with the publication of

Bingham it looks, at last, as if someone can start carrying the can for

disaster other than the council itself.

Yesterday -- the day the authority might have been best placed to make

a national media pitch for compensation from the Bank of England -- the

council's top officials were locked in a meeting of a local revenue

sub-committee.

A simple statement from the council called for a Government

compensation scheme for depositors and deplored the delay in releasing

the partially censored report. ''The effects of the Bank of England's

negligence will be felt by every man, woman and child for some 20 years

to come if the Government fails to live up to its responsibilities and

compensate depositors,'' stated the council release.

It remains to be seen what chance they, and other depositors have, of

obtaining compensation. Chancellor Lamont appears to have ruled out such

a scheme but Government policy, as recent events demonstrate, can be

changed.

The criticisms of the Commons Treasury and Civil Service committee and

the Kerry report -- the US Senate inquiry into the BCCI collapse -- all

add to the depositors' case against the Bank of England. Now, with the

Bingham report out, Bank of England Governor Sir Robin Leigh-Pemberton

must be feeling the noose tighten.

Western Isles MP Calum Macdonald has taken the lead in calling for his

resignation. ''Having presided over the biggest banking scandal in

financial history, and the most humiliating devaluation since the war,

he must go,'' said Mr Macdonald.

He added: ''For a year the ordinary people of the Western Isles, who

carry no blame and no responsibility for this affair, have had to pay

its costs in extra local taxes -- in effect a Bank of England tax.''

Mr Macdonald now says that the BCCI depositors have a stronger case

for Government compensation than the victims of the Barlow Clowes or the

Maxwell scandals.

To what degree the Bank of England failed in its role as regulator of

BCCI will be pondered as interested parties pore over the details of the

voluminous report. Bingham's charge that it did not pursue the truth

about BCCI with the rigour which the scandalised bank's reputation

justified cannot be easily dodged.