My first reaction to the news that Sean Quinn is standing down as director and chairman of Quinn Insurance following breaches of regulatory requirements is – Suspicion.
The punishment meted out to Quinn Insurance is what we would expect to see imposed by a real regulator in a functional democracy. And this is what bothers me – The Irish Financial Regulator doesn’t really regulate but rather acts as facilitator to help financial institutions get out of trouble.
We know, for instance, that for years the Financial Regulator stood idly by as various financial institutions robbed millions from consumers. We also know that the regulator strictly enforces draconian secrecy laws that are designed to protect the financial institutions to the detriment of consumers.
Last week, for example, I rang the regulator to confirm reports that the chairman of Anglo Irish Bank, Sean Fitzpatrick, was under investigation over allegations of insider trading.
I was firmly told that section 33AK of the Central Bank Act 1942 that was inserted by section 26 of the Central Bank and Financial Services Authority of Ireland Act 2003 prevented the regulator from answering my question.
This law and its strict enforcement protects Sean Fitzpatrick and Anglo Irish Bank but puts consumers and especially shareholders in Anglo Irish Bank at a very serious disadvantage.
Keeping all this in mind let’s look at some of the details of the Quinn case and how it was handled.
The Financial Regulator imposed a fine of €3,250,000 on Quinn Insurance and fined Sean Quinn €200,000 because it had
“reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL.”
What? The largest fines ever imposed in the history of the State on the basis of a ‘reasonable cause to suspect’. Over the years the Regulator has had incontrovertible evidence of widespread fraud in the financial sector and failed to take any action whatsoever.
So what, according to the Regulator, was the great crime committed by QIL?
“These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.”
This seems pretty tame stuff in comparison to other breaches of the law throughout the Irish business world. For example, in 2004 the Director of Corporate Enforcement (ODCE) reported that directors and connected persons returned approximately €100 million in loans from their companies.
The law prohibits directors from taking loans from their companies in excess of 10 per cent of relevant assets yet some of these directors had potentially illegal loans in excess of €1million from their companies.
According to the ODCE:
“In a number of individual cases these loans were for substantial sums or represented a large part of the value of the company and were very substantially in excess of the permitted limits.”
To my knowledge no action was taken against any of these directors, they just paid back the money and all was forgiven.
I suspect that there’s more to all this than meets the eye, it’s all too pat. Substantial details are thin on the ground and the manner in which the whole matter has been dealt is very suspicious.
Quinn himself is far too relaxed in the face of such a massive fine, even if he’s a billionaire. The ODCE is also very coy about the whole matter, simply stating that he was informed of the regulator’s sanction.
Can we take a clue from Quinn’s auditors and lawyers when they say that there are no corporate governance issues? Could the imposition of these extraordinary sanctions be a cover for something even more serious? Time may tell.