More BCCI Offices Closed; U.S. Exposure Called Small

LONDON - The seizure of offices of Bank of Credit and Commerce International in eight countries on Friday was still sending shock waves through the world's banking community Monday.

The key developments:

* Foreign exchange specialists warned that banks with open positions in currency trading - believed to total up to $2 billion - may lose most of their money. The banks would become unsecured creditors. And another $2 billion in interbank liabilities could be lost. But U.S. regulators said the exposure of American banks was relatively small.

* Banks in Britain may face a bill of up to $370 million to compensate BCCI depositors under British deposit protection, officials said.

* BCCI began closing its offices in several other countries around the world.

BCCI Closes in Japan

In Japan on Monday, the Ministry of Finance said it had received notice from BCCI's Tokyo branch that it had closed temporarily.

BCCI also suspended operations in Sri Lanka, where all four branches around the capital of Colombo were closed, and did the same in Seoul, South Korea, and Nicosia, Cyprus.

Germany froze the bank accounts at BCCI's two German branches; authorities in Hong Kong closed BCCI's subsidiary in the British colony, and the Netherlands closed the BCCI unit in Amsterdam.

In Pakistan, where the bank was founded, BCCI's three branches remained open.

Authorities in Pakistan said the bank had not violated any rules, leaving the government unable to close the branches. The head of BCCI's Brazil unit said it was not immediately affected by the seizures.

The concerted move against BCCI resulted from evidence of widespread fraud at the group, which operated in 69 countries.

The regulatory authorities involved so far are the United States, Britain, Luxembourg, Switzerland, Spain, Canada, France, and Argentina, as well as the Cayman Islands, a British protectorate in the West Indies.

Wrongdoers Targeted

They also want to secure cooperation in order to identify and to take appropriate action "against those responsible for any wrongdoing."

The Bank of England, the co-ordinating regulator in the BCCI shutdown, said that so far 18 other countries were cooperating to shut BCCI's operations.

British investor protection safeguards depositors with a payout of 75% of any one deposit up to a maximum of $24,000, according to the Bank of England.

Many banks had became leery of doing business with BCCI last year when it was fined $15 million by a Forida court after pleading guilty to laundering drug money.

So far the oil state has not indicated what action it will take. Britain has asked the Sheik of Abu Dhabi, who owns a majority interest in BCCI, to inject more funds. The sheik was reported to be on the way to Europe for conferences.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.