BCCI's decision to divide its operations between two auditors, neither of whom had the right to audit all BCCI operations, was a significant mechanism by which BCCI was able to hide its frauds during its early years. For more than a decade, neither of BCCI's auditors objected-to this practice.
BCCI provided loans and financial benefits to some of its auditors, whose acceptance of these benefits creates an appearance of based on the possibility that such benefits could in the independent judgment of the auditors involved. ts included loans to two Price Waterhouse partnerships in. the Caribbean. In addition, there are serious questions concerning the acceptance of payments and possibly housing from BCCI or Its affiliates by Price Waterhouse partners in the Grand Caymans, and possible acceptance of sexual favors provided by BCCI officials to certain persons affiliated with the firm.
Regardless of BCCI's attempts to hide its frauds from its outside auditors, there were numerous warning bells visible to the auditors from the earlv years of the bank's activities, and BCCI's auditors could have add should have done more to respond to them.
By the end of 1987, given Price Waterhouse (UK)'s knowledge about the inadequacies of BCCI's records. it had ample reason to recognize that there could be no adequate.., basis for certifying that it had examined BCCI's books and records and that its picture of those records were indeed a "true and fair view" of BCCI's financial state of affairs.
The certifications by BCCI's auditors that its picture of BCCI's books were 'true and fair' from December 31, 1987 forward, had the consequence of assisting BCCI in misleading depositors, regulators, investigators, and other financial institutions as to BCCI's true financial condition.
Prior to 1990, Price Waterhouse (UK) knew of gross irregularities in BCCI's handling of loans to CCAH, the holding company of First American Bankshares, was told of violations of U.S. banking laws by BCCI and its borrowers in connection with CCAH/First American, and failed to advise the partners of its U.S. affiliate or any U.S. regulator.
There is no evidence that Price Waterhouse (UK) has to this day notified Price Waterhouse (U.S.) of the extent of the problems it found at BCCI, or of BCCI's secret ownership of CCAH/First American. Given the lack of information provided Price Waterhouse (U.S.) by its United Kingdom affiliate, the U.S. firm performed its auditing of BCCI's U.S. branches in a manner that was professional and diligent, albeit unilluminating concerning BCCI's true activities in the United States.
Price Waterhouse's certification of BCCI's books and records in April 1990 was explicitly conditioned by Price Waterhouse (UK) on the proposition that Abu Dhabi would bail BCCI out of its financial losses, and that the Bank of England, Abu Dhabi and BCCI would work with the auditors to restructure the bank and avoid its collapse. Price Waterhouse would not have made the certification but for the assurances it received from the Bank of England that its continued certification of BCCI's books was appropriate, and indeed, necessary for the bank's survival.
The April 1990 agreement among Price Waterhouse (UK), Abu Dhabi, BCCI, and the Bank of England described above, resulted in Price Waterhouse (UK) certifying the financial picture presented in its audit of BCCI as 'true and fair, " with a single footnote material to the huge losses still to be dealt with, failed adequately to describe their serious nature. As a consequence, the certification was materially misleading to anyone who relied on it ignorant of the facts then mutually known to BCCI, Abu Dhabi, Price Waterhouse and the Bank of England.
The decision by Abu Dhabi, Price Waterhouse (UK), BCCI and the Bank
of England to reorganize BCCI over the duration of 1990 and 1991. rather
than to advise the public of what they knew, caused substantial injury
to innocent depositors and customers of BCCI who continued to do business
with an institution which each of the above parties knew had engaged in
fraud. From at least April 1990 through November 1990, the Government of
Abu Dhabi had knowledge of BCCI's criminality and frauds which it apparent."
withheld from BCCI's outside auditors, contributing to the delay in the
ultimate closure of the bank, and causing further injury to the bank's
innocent depositors and customers.