During the course of the study group's discussions, the implications of the BCCI closing on payment and netting issues were reviewed. This has relevance to the work of a number of the committees of the G-10 Central Bank Governors relating to cross-border, multibranch netting issues. However, based on the experiences of the three liquidation proceedings reviewed, there is not a great deal to report at this stage of those proceedings. Nonetheless, some observations can be made.
As is true with any business, mistakes will be made; a number of mistaken payments were made involving BCCI. In the United States, some parties transferred funds to BCCI accounts by mistakenly using BCCI's account number at the receiving bank, as opposed to the intended beneficiary's account number. To the relief of the parties involved, it is likely that the funds will be returned by the liquidator but only after great effort and expense to prove the mistake. In the criminal RICO proceeding, there is a question whether transferors may obtain the return of their funds mistakenly paid. They may be left to a general claim on the estate. Similarly, payments made to BCCI as intended beneficiary after closure may not be returned. Some banks incurred Herstatt loss on foreign exchange transactions by paying BCCI but not receiving payment from BCCI. While there are only a few instances of this occurring, the amounts involved were not minor.
BCCI was not a major participant in payment and settlement systems; there was little, if any, systemic impact on such systems. To date, no issues seem to have arisen in connection with BCCI's off-balance-sheet activities, other than foreign exchange contracts and letters of credit. It appears that most foreign exchange contracts were closed out. Moreover, it appears that no issues have risen in connection with netting agreements or master agreements, such as the International Swap Dealers Association's master swap agreement.
The fact that there is so little anecdotal information available is not a great source of comfort. It may well be that BCCI had little involvement in these systems or with these instruments. On the other hand, it is possible that, over time, as the liquidators take steps to enforce claims held by BCCI, more issues may surface.
