Abu Dhabi Reportedly Knew of Fraud : Probe: Auditor’s report says Gulf emirate, the majority shareholder of BCCI, was aware of its widespread ‘manipulation’ and ‘collusion.’

Members of the Abu Dhabi government, which owns the majority share in the discredited Bank of Credit & Commerce International, knew the institution was operating fraudulently, according to details of an auditor’s report published in newspapers here Saturday.

Price Waterhouse, an international accounting firm, told the Bank of England that its investigation of BCCI “revealed widespread fraud and manipulation of accounting records . . . conducted in collusion with representatives of the bank’s major shareholders.”

The government of Abu Dhabi, which is one of the United Arab Emirates, and members of Abu Dhabi’s ruling family control about 77% of the shares of BCCI, and they were informed about severe irregularities early last year, the published details of the audit report said.

But, according to Price Waterhouse, the files of Swaleh Naqvi, former chief executive of BCCI now living in Abu Dhabi, indicated “widespread fraud and manipulation of accounting records conducted in collusion with Abu Dhabi government representatives.”

The 45-page report by Price Waterhouse, the result of four months of investigation, was ordered by the Bank of England last year when charges against the bank surfaced, officials said.

On Saturday, Neil Kinnock, leader of the opposition Labor Party, sent a letter to Prime Minister John Major asserting that the government’s investigation of the BCCI scandal appeared to be a “whitewash.”

Kinnock said Labor fears that the government-ordered investigation into BCCI--which is officially based in Luxembourg but which conducted many of its operations out of London--is covering up the government’s failure to monitor the institution’s activities.

In addition to defrauding legitimate depositors, BCCI is accused of serving as a conduit for Middle East terrorists and arms dealers, who were encouraged to open accounts.

BCCI’s founder, Pakistani financier Agha Hasan Abedi, has maintained in his retirement villa outside of Karachi that he was unaware of the bank’s role in widespread bad loans and money laundering.

But the Price Waterhouse report indicates that Abedi and his chief lieutenants were indeed aware of the Byzantine manipulations that over the years converted bad practices and banking losses into the appearance of successful banking operations.

Delivery of the Price Waterhouse report earlier this summer led to the Bank of England’s decision to shut down BCCI, triggering its crisis around the world.

London representatives of Abu Dhabi denied that they knew of the bank’s problems, although Bank of England Governor Robin Leigh-Pemberton insists that “representatives of the shareholders” of Abu Dhabi were implicated.