Great frauds in history: BCCI – Agha Hasan Abedi’s dodgy bank

To all appearances, BCCI – set up by Agha Hasan Abedi – was a legitimate bank. But it was a haven of crooks and criminals, and went bankrupt owing investors $20bn.

Agha Hasan Abedi was born in Lucknow, India, in 1922, and went on to graduate from Lucknow University before taking up a position at Habib Bank. Following Indian independence, then partition in 1947, Abedi moved to newly independent Pakistan and in 1959 founded United Bank Ltd. When that was nationalised in 1972 he moved on and set up Bank of Credit and Commerce International (BCCI), starting up with money from Bank of America (which sold its shares in 1980) and the ruler of Abu Dhabi (in the UAE). Abedi based the bank in London, but registered it in regulation-light Luxembourg. By 1991, BCCI would have 417 offices in 73 countries.

What was the scam?

To all appearances, BCCI was a legitimate bank. Later investigations, however, revealed that it did business with a whole host of dubious figures, including Iraqi despot Saddam Hussein, international terrorist Abu Nidal and various criminals. Losses from currency speculation and bad loans to various business figures in the Middle East pushed the bank into insolvency. BCCI tried to cover this up by inventing phoney loans and following a Ponzi-like strategy of taking in new money to pay off existing depositors.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

What happened next?

Regulators, impressed with BCCI’s apparent success, took a hands-off approach initially. The Bank of England, for example, did not act when discrepancies were discovered in the accounts of its options-trading business. When evidence emerged of illegal activities and BCCI made moves to take over a US bank, however, the US authorities were prompted to act. By July 1991 regulators had shut the bank down, forcing it into bankruptcy, owing $20bn. Most of BCCI’s major executives were jailed; Abedi, who nominally relinquished control the year before, dodged extradition. He died in Pakistan in 1995. Abu Dhabi and the rest of BCCI’s shareholders were wiped out, notwithstanding an unsuccessful attempt to sue the Bank of England for negligence. Depositors got 90% of their money back by 2012. By that time, however, inflation had shrunk the value of the recovered money by half. 

Lessons for investors

Seek the safest home possible for your savings and avoid institutions with poor reputations. Well before its collapse, BCCI was known in banking circles as “Bank of Crooks and Criminals International”. Consider such talk a straw in the wind.

Advertisement

Recommended

Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/investments/investment-strategy/601050/great-frauds-in-history-jack-clarks-nursing-homes
Investment strategy

Great frauds in history: Jack Clark’s nursing homes

Jack Clark invented sales, inflated profits and produced fraudulent accounts at his chain of nursing homes to swindle investors out of hundreds of mil…
31 Mar 2020
Visit/investments/investment-strategy/601078/how-to-shield-your-portfolio-from-dividend-disaster
Investment strategy

How to shield your portfolio from dividend disaster

As the coronavirus shutdown hammers corporate earnings, many dividends have been cut or face being suspended. John Stepek explains what to do if you’r…
31 Mar 2020
Visit/investments/investment-strategy/601075/the-moneyweek-podcast-your-questions-answered
Investment strategy

The MoneyWeek Podcast - Your questions answered

Merryn and John tackle some of the questions sent in by readers - including what they expect to happen to house prices; how much are dividends likely …
30 Mar 2020

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/economy/small-business/601073/furlough-what-does-it-mean-and-how-does-it-affect-me
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020