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

published 27 January 2020

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.

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.

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri