Yet over a dozen years later, liquidators have recovered most of the creditors’ lost money — 75 cents on the dollar. How did they do it?

Deloitte was appointed as BCCI’s liquidator in London and the Cayman Islands, where some of the most dubious loans were referred. To handle the BCCI case, the largest insolvency assignment in corporate history, about 500 of Deloitte’s staff were assigned to work on the job, including about 150 Canadians. (Deloitte’s Canadian operation had built up deep experience liquidating financial institutions after winding up several trust companies, and a bank in the 1980s.)

Poor prospects for recovery
One of the Cayman liquidators was Mike Mackey, a Toronto-based partner in Deloitte’s financial advisory practice. His task was daunting: Recover the funds and pay the proceeds to the creditors. It was one of the most complicated insolvency assignments ever, he explains, for several reasons:

• The records were unreliable
• A lot of cash was tied up in the U.S., where BCCI had used nominees to secretly buy U.S. banks, circumventing legal restrictions. Shortly after the shut down, BCCI was charged with federal and state criminal offences; all of its US assets were subject to forfeiture, and the Federal Reserve assessed a $200 million penalty
• The government of Abu Dhabi, the largest BCCI depositor and owner of 77% of the bank shares at closing, charged that BCCI had stolen more than $2 billion of its money. This meant that the liquidation could have been locked in litigation for years to come.
• BCCI operated in 70 countries. Now there was the risk that local authorities would insist local creditors be paid first — a practice known as “ring-fencing.”

Liquidators take innovative approach
To deal with these formidable obstacles, Mackey and fellow liquidators took an innovative approach:

• Rather than competing with or even suing each other, the liquidators agreed to pour all recovered assets into an international pool. Claims would be admitted under local rules, and creditors would receive the same percentage dividends.
• They opened the door to recovering money in the U.S. by entering into a Plea Agreement, in which they would cause the BCCI companies to plead guilty to charges of racketeering, drug running and money laundering. “I suspect that it is unique for liquidators to plead guilty to such offences as part of a recovery program,” said Mackey. It was worth it: “We’ve gotten a billion dollars back.”
• Although many executives in the bank were reluctant to provide solid information, Deloitte personnel located some reliable bank officials from various levels of management.
• The liquidators convinced Abu Dhabi to drop its claims against the bank, apart from the claim for return of its deposits. The negotiations were delicate, said Mackey. “Abu Dhabi felt betrayed by the Bank of England,” and it was hard to tell from the general conversations whether Deloitte was making any progress. But the liquidators had a big stick — a potential suit against the Abu Dhabi government. That was dropped with all the other threats of legal action when the deal was done.

Dedication and perseverance: Key ingredients for Deloitte’s success
The Deloitte liquidators’ innovative approach — and their ability to manoeuvre around a multitude of technical and political hazards — enabled them to recover far more money than anyone expected.

Before assuming the BCCI job, Deloitte’s Canadian team was well established in the industry for its abilities to take over a financial institution, access important information, deploy a team, set up creditors’ claims, review loan files, and collect the money.

But the BCCI case was on an international scale, with novel challenges. Recovering the money took tremendous dedication from the hundreds of Deloitte employees who sacrificed considerable family time to track down the information.

“People had to go with very little notice to work long hours in far off places,” said Mackey. “And there weren’t many trips home.”