LONDON, 14 January 2004 — The Bank of England was in court yesterday facing accusations of dishonesty in its dealings with the Bank of Credit and Commerce International (BCCI), which collapsed spectacularly more than a decade ago.

BCCI liquidators Deloitte and Touche are suing the British central bank for at least 850 million pounds (1.23 billion euros, $1.57 billion).

The hugely complex case, which began yesterday morning in the ornate gothic surroundings of the high court in central London, is expected to drag on for a year or more.

Bank of England officials stand accused of turning a blind eye to the wrongdoings at BCCI, which imploded in 1991 with debts of $10 billion (7.8 billion euros). The central bank was Britain’s financial regulator at the time.

The prospect of a marathon legal battle threatens to deal a blow to the carefully guarded reputation of the “Old Lady” of Threadneedle Street.

No one has ever successfully sued the 300-year-old central bank, and for good reason: Britain’s premier financial institution is immune from all claims of negligence.

The liquidators’ lawyers must therefore show that the central bank is guilty of “misfeasance”, meaning that it knew it was acting dishonestly.

The Bank of England has refused to comment officially on the case, but sources close to the institution have said it is confident of being cleared.

The BCCI collapse, described by Britain’s Serious Fraud Office (SFO) as “the biggest fraud in banking history,” sent shockwaves through London’s cosy financial establishment long before recent scandals such as Enron and Parmalat.

The court battle is the culmination of a decade of efforts by Deloitte to win compensation for BCCI’s 6,000-plus British-based depositors.

Among a string of heavyweight witnesses the Bank of England plans to call to defend its honor are three previous governors, including Sir Edward George, the central bank’s head until last June.

The liquidators do not intend to summon any witnesses. Instead they are relying on cross-examination and piles of the Bank of England’s internal documents.

They argue that the Bank of England was aware that BCCI’s main place of business was London - giving it a duty to regulate the bank - even though BCCI was officially based in Luxembourg.

While BCCI had little more than a two-strong team and a brass plaque in Luxembourg, in London it had 1,000 employees, a huge office just around the corner from the Bank of England and 49 British branches, the liquidators say.

A former British government minister called yesterday for the case to be decided less expensively out of court. “I think it should be settled. This has gone on now for 13 years,” lawmaker Keith Vaz told BBC radio. Pressing ahead with the case “will mean more money for the accountants, more money for the lawyers and the creditors will lose out,” he said.

BCCI was set up in the 1970s by a group of high-ranking Pakistanis including its head, Agha Hasan Abedi.

Among the many misdeeds which led to its collapse, BCCI secretly channeled many millions of dollars into Gulf Group, a Geneva-based shipping giant, even though the senior management of both companies knew that Gulf Group was insolvent.

Gulf Group head Abbas Gokal and his fellow conspirators falsified documents on a vast scale and engineered an intricate money laundering operation.