Day the bank went broke

But behind the closed doors of the finance department, panic was breaking out. Explosive news had arrived that would ripple out of the building and across the whole region.

Ten years ago tomorrow, the Bank of Credit and Commerce International closed the doors of its branches around the world and five days later the news finally came out that Comhairle nan Eilean, the Western Isles Council, had suffered the largest loss in the UK, some #24m. The council and all connected to it quickly became the subject of international ridicule. The risible mistake of putting all one's eggs in one basket had been made.

Even 10 years on it is hard to forget images of the council in chaos flashing across TV screens. The chief executive had returned, albeit at a fairly leisurely pace, from a holiday he had begun three days earlier. As he talked to reporters out of his car window, he seemed unsure whether he would be resuming his holiday or not.

The council convener appeared reluctant to take control. Officials were shying away from cameras or diving into their cars and speeding off, as though having something to hide. Councillors tried to make the right noises, but nobody really knew what these noises should sound like. The media very quickly became the enemy. The overall impression was one of utter incompetence reinforcing prejudices, or at least caricatures, many held of the Hebrideans.

There were predictions that the poll tax would increase by #1000, that the suicide rate would rise. The Presbyterian churches on Lewis and Harris held a special prayer day. It was called a day of humiliation. This seemed to amuse greatly some elsewhere in the land who would never normally have considered laughing at other minorities' ways.

The convener resigned and two senior officials were sacked, but one was reinstated only to retire early. The Commission for Local Authority Accounts recommended that the director of finance and his deputy be surcharged for their role; that they had been negligent and were involved in actions of borrowing and lending on money to BCCI which were contrary to law. The commission found that #5m had been borrowed from Scottish Widows and on-lent to BCCI and the sum of #11.5m was borrowed in advance of need and deposited with BCCI. A further #6.6m was placed on deposit with BCCI ''without any regard to any requirements concerning limitation to be placed on sums lent to any single institution or the need to ensure that the institution met any predetermined ranking criteria.'' Not only were all the comhairle's eggs going into one basket, it was putting borrowed eggs in as well!

The problem was that the council had been specifically warned against borrowing to on-lend money in 1988, but the BBCI returns looked so attractive. From the Butt of Lewis to Vatersay, islanders shook their heads in confusion and utter disbelief. A Hebridean farce worthy of Compton Mackenzie, one councillor described it. For all that, the then secretary of state, Ian Lang, decided against any surcharge. Perhaps that wasn't so surprising. There was incompetence elsewhere in the BCCI debacle. Serious questions had been raised internationally about the bank's activities, revelations about it laundering drug money. These things were known, yet BCCI appeared on the Bank of England's list of approved banks a matter of days before the crash. There never has been a respectable explanation why.

Ten years on, the island archipelago has not sunk into the sea. There are still profound economic problems, but not because of BCCI. There have been some encouraging indicators and very visible European assisted signs of progress: a #6.4m bridge between the islands of Harris and Scalpay; a new #4.5m ferry service across the Sound of Harris; a #7m causeway to the island of Berneray, and, most recently, one costing #9.4m to Eriskay. There are new faces on the comhairle, and the older ones look more relaxed.

The financial recovery of the council was aided in the first place by special consent to borrow #24m to be repaid over 30 years. Then the Western Isles were included for the first time along with Orkney and Shetland in the Special Islands Needs Allowance. The council also recovered three dividends totalling 60% of the original #24m. This has been repaid to the Scottish Office to cover the cost of the original loan, of which only #4.5m remains to be serviced.

Alex MacDonald, the present council convener, said last night: ''The comhairle has made a remarkable recovery in the 10 years since BCCI. The authority is now regarded as one of the most prudent local authorities in Scotland. The comhairle is regularly the first in Scotland to submit accounts, receives no qualifications on those accounts, and has been praised by the local government watchdog, the Accounts Commission, for its financial reporting and practices.'' But what of the people who were at the eye of the BCCI storm? Do they progress and prosper? What do they see when they look back 10 years?

The most prominent figure was the affable director of finance, Donald G Macleod. At the age of 52 he was sacked from his #40,000 a year job, which he had held since 1974 when the comhairle was created in local government reorganisation.

His deputy in the comhairle's finance department was Brian Lawrie. He had been due to leave the islands for a new job as director of corporate services at North East Fife District Council and was working his notice as BCCI broke around Hebridean heads. After the Accounts Commission reported, recommending that he and Mr Macleod be surcharged, Mr Lawrie unsuccessfully sought judicial review of the recommendation and was dismissed by his new employers in September 1992. Three months later he won his appeal against dismissal. Today Mr Lawrie is head of financial services at Fife Council, apparently content with his new lot, if rather uncommunicative: ''I have never spoken to anybody about BCCI or what happened afterwards and I never will. Although if somebody could tell me when I was going to die, I might speak about it the day before, but not until then. I am just being consistent. I have never

spoken and won't now.''

The Rev Donald Macaulay, the Church of Scotland minister who was the council convener 10 years ago, was more forthcoming: ''The loss of the money at the time was not as big a blow as the reputation the council

got for losing it. It discouraged councillors. I think out of fear they started writing to the press in praise of themselves and condemning others. It created a

difficult situation, a difficult atmosphere within and without the council. I resigned in sympathy with the people of the Western Isles. Somebody had to stand down. I retired as a minister about the same time but I am still preaching every Sunday in life. There are so many vacant churches here.''

Dr George Macleod, the chief executive who was sacked, then reinstated so he could retire early, meanwhile is said to be running a very successful engineering consultancy on Lewis, but would say little on that, or anything else for that matter: ''I have no reflections on the BCCI episode whatsoever and no comment to make.'' But you are enjoying life now? ''Indeed I am!''

So, is recovery complete? One islander who was close to the BCCI drama doesn't believe so: ''I think it will take another decade at least before the relationship between the people of the different islands and the comhairle is repaired, before trust is restored.

''On the surface everything looks fine, but you scratch that surface and there is still deep embarrassment both within the comhairle and within the communities over BCCI. The comhairle was as much sinned against as sinning, well almost, but BCCI is still the backcloth to everything that goes on here. It is often unsaid, but it is still there at the back of everybody's mind.''