Breaking the Billion Dollar Barrier — Learning the Lessons of BNL, Daiwa, Barings and BCCI

Publication Date01 Jan 1997
AuthorThomas C. Baxter
subjectMatterAccounting & finance
Breaking the Billion Dollar Barrier Learning the
Lessons of BNL, Daiwa, Barings and BCCI
Thomas C. Baxter, Jr
Journal of Money Laundering Control 1/1
Corruption in banking the topic of this paper,
is at the very heart of such practices as money
laundering. To illustrate this point, examined
below are four specific cases, encountered by the
author as an official of the US Federal Reserve.1
These cases are Banco Nazionale de Lavoro
The Daiwa Bank, Barings Bank and, of
course, the Bank of Credit and Commerce Inter-
national (BCCI).
These four cases are famous, or perhaps
infamous, because with respect to each one an
official was able to cause a loss in excess of $1bn
through unauthorised, fraudulent or otherwise
unlawful conduct. Of course, it is no surprise that
unlawful conduct happens within banks. The leg-
endary American bank robber, Willie Sutton,
explained it best with the observation 'that's where
the money is'. The reason that the BNL, Daiwa,
Barings and BCCI cases are exceptional is not the
solitary fact that bad acts occurred in a banking
house, but for two other reasons. These reasons
concern the magnitude of the loss suffered by the
houses more than a billion dollars and that
no governmental entity saw those losses until they
reached their gargantuan proportions.
We study these cases to learn the lessons of our
experience so that we might detect such losses at a
much earlier point and act decisively before they
can break through this incredible billion dollar
barrier. In undertaking such a study, it is useful to
adopt a competitive analogy, because in a very
broad sense what we have is a competition
between right and wrong. On the government
we deploy our bank supervisory forces to see
that banking organisations operate safely and
soundly and in compliance with law. On the mal-
efactor's side, they must operate in shadows and
must be sufficiently manipulative to avoid being
detected by us. We are their adversary and we are
in competition; we want to observe their conduct
and they want to conceal it.
Because the competitive analogy is useful, it will
be applied to assess the performance of the bank
supervisors in each of these four cases. If you will,
consider for a moment what it takes to be a world-
class competitor. If you remember the Olympic
Games during July, you no doubt recall some of
the great track-and-field events. The world-class
runners who competed there capitalised on their
strengths, recognised their weaknesses and trained
to compensate for them, and paid close attention
to the external factors (temperature, wind speed
and humidity, for example) that affect perform-
In assessing the performance of bank supervisors
in these four cases, I will not dwell on who it was
that won and who it was that lost. But no one
should understand me as suggesting that the com-
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