Banks & Finance – Page 32

Hilarious claims of honesty and integrity in Irish banking sector

Watching the Irish performance at Eurovision was very funny. Finding out that the religious fanatic Jerry Falwell disapproved of Tinky Winky, one of the Teletubbies, on the suspicion that he was gay was very, very funny. But the funniest thing I’ve heard in years has to be the report today that the basic currency of (Irish) banking was honesty and integrity. (Also reported in the Irish Independent)

Here’s the background. For over a decade National Irish Bank, in a premeditated and well executed criminal plan, robbed millions from its customers and the state. After six years of investigation by two High Court inspectors (Irish police don’t ‘do’ white collar crime) a report was published outlining the full extent of the serious crimes committed.

In keeping with the great Irish tradition of never prosecuting white collar criminals it was decided to let the entire criminal gang off without charge.

Enter poor old Paul Appley, Director of the hilariously named Office of Corporate Enforcement. Paul’s organisation is just one of dozens of so called ‘enforcement agencies that, for various reasons, are really just toothless tigers with fancy names.

Anyway, to his credit Mr. Appley decided at least to try and get some of the NIB mafia banned from involvement in the management of any company on grounds of unfitness.

But his modest efforts were thwarted by Mr. Justice Roderick Murphy who decided it would be ‘inappropriate’ to make a disqualification order against Kevin Curran who was a regional manager and later head of retail banking at NIB. The judge gave the following reasons.

There were no findings against Mr. Curran in relation to the commission of any improper practices within the bank (‘Improper practices’ is white collar speak for massive theft and tax evasion.).

It appeared that Mr. Curran did not have the authority to bring about a cessation of certain improper practices at the bank (If a senior manager doesn’t have the authority to stop major criminal activity, who has?).

He did not appear to have a line of communication to the audit committee or the Board of Directors (Telephone had yet to be invented?).

He had to work “within organisational difficulties” (Ah, so vague. Perhaps it means – spill the beans and you’re fired?).

Mr. Curran’s defence was that “given that the basic currency in banking was honesty and integrity” his career would come to an end if a disqualification order was made against him.

So, Mr. Curran, who failed to take effective action against serious criminal activity when he was a senior manager at NIB, is claiming that he should not be disqualified because his honesty and integrity might be damaged.

What makes his defence so funny and bizarre is the idea that honesty and integrity are even remotely connected with Irish banking practices.

A tale of two victims

The Garda Bureau of Fraud Investigation has started an inquiry into an alleged irregularity at Vodafone (9th item). The police were called in after an internal investigation suspected that a large sum of money may have been misappropriated.

On the face of it there is nothing unusual about this story. Suspected crime; police called in; investigation: If a crime was indeed committed then the next step will be the justice system, possibly resulting in severe penalties perhaps even prison. That’s the way things are done in every accountable democracy in the world.

But Ireland is not an accountable democracy; white collar crime is very rarely investigated by the police. Irish financial institutions, for example, rob their customers on a regular basis with confident impunity. The so called Irish Financial Regulator never acts against these rogue institutions. When caught, they are merely required to return stolen monies.

What is it about this alleged crime that is different from the many other white collar crimes that are never acted on? A quick comparison may help to provide an answer.

On the 16th March last, the RTE Investigative Unit reported that a customer had been defrauded of about €585,000 by Friends First. The company, like Vodafone, carried out an internal investigation and found that a crime had been committed. But unlike Vodafone, they did not report the matter to the police.

Instead, they informed the Financial Regulator who also decided not to inform the police. The Friends First fraudster was quietly disqualified from the provisions of financial services for a period of five years. No action was taken against the company. The customer/victim was ignored.

The crucial difference seems to be that in the Vodafone case the company is the alleged victim whereas in the Friends First fraud it was the company who defrauded the customer. The comparison speaks volumes.

Insider watchdog

I read in the Sunday Independent that former Financial Regulator CEO, Liam O’Reilly got a job as an insider watchdog with Merrill Lynch Capital Bank.

According to O’Reilly, Merrill Lynch needed someone to

“make sure that they were doing things right”.

He would

“be like a watchdog for them inside.”

The mind boggles at what these people were/are up to that they feel the need for an internal watchdog.

Nasty suggestions of a conflict of interest when a top civil servant moves across to work for a company he once regulated were quickly put to bed.

According to the Central Bank Act former chief executives of the Financial Regulator’s office may not disclose any matter arising in connection with the performance of the functions of the Central Bank/Financial Services Authority of Ireland or the exercise of its powers.

So there, all you doubters.

And to further reassure all those nasty sceptics out there, Sources have suggested that O’Reilly’s role at Merrill Lynch excludes any involvement in regulatory matters or for lobbying on its behalf.

O’Reilly was also recently appointed as the first chairman of the Chartered Accountants Regulatory Board (CARB), an organisation set up by accountants to, er, regulate accountants. I wonder does Merrill Lynch have accountants.

The Financial Regulator, banks and credit unions

There’s something very odd going on between the Financial Regulator and the League of Credit Unions.

It was recently reported in the Irish Independent that the regulator is demanding all 435 credit unions in the country conduct an audit of their investments. This is despite the fact that the valuation of investments is already included in the annual report of each credit union.

I’m not sure of this but I think the critical words here are ‘valuation’ and ‘audit’. Valuation suggest that the regulator has a total value figure for investments but no detailed list of named investments held by each credit union. An audit, I presume, would provide such valuable details.

Obvious questions arise.

Why does the regulator need this information?

Would the information be made available to credit union competitors?

Has the regulator demanded such information from banks and other financial institutions?

To my knowledge, this is not the case.

Credit unions have always been seen as the ‘poor man’s bank’ and certainly that’s how the regulator treats this important social organisation, the League was not consulted on this latest demand.

A spokesperson dismissively commented that while the regulator consults with the League on policy matters is does not do so on operational matters and this was an operational matter

(Translation: How dare you question the regulator, obviously you people don’t know your proper place in the scheme of things).

Tension has been building for some time now between the regulator and the League. In April 2005 the League called on the regulator to clarify its approach to regulating the movement, demanding that it should “clearly annunciate what exactly it means by an appropriate regulatory system.”

Again, in July 2006 Financial Regulator CEO, Pat Neary questioned what he called ‘aggressive lending’ by some credit unions.

League CEO Liam O’Dwyer said that the way the movement was being regulated was a serious concern to members of the league. He comprehensively rebutted Neary’s comments with the following points.

Credit union lending had grown by 7pc last year compared with mortgage lending of 26pc and bank driven personal lending of 28pc. Mr. O’Dwyer wondered where the emphasis of the regulator needs to be put.

Savings in credit unions were protected by an insurance scheme.

50% of the population were members of credit unions.

The organisation was not for profit and is staffed by volunteers.

Mr. O’Dwyer pointed out that banks were increasingly targeting credit unions and that that is the motive behind the pressure being put on the organisation by the regulator.

I agree with O’Dwyer. Credit unions are becoming a major challenge to the banks and there is plenty of evidence to suggest that the regulator will do whatever is necessary to protect the interests of the banking sector.

Irish Financial Regulator – Betraying the consumer

The core claim at the heart of this blog is the assertion that Ireland is a corrupt state. Every country in the world suffers to one degree or another from the disease of corruption but some countries are in themselves corrupt entities.

The failure of a state to take proper and effective action when corruption is uncovered is one of the clearest indicators that it is a corrupt entity. Last Friday, RTEs Investigative Unit, headed by journalist Philip Boucher-Hayes provided us with a perfect example of how the Irish State fails in this regard and as a consequence, protects the corrupt.

THE FRAUD: In the early 1990s retired business man, John O’Mahony contacted a Mr. Stephen Donnelly of Friends First about investing £750,000. Mr. Donnelly was only cleared to guarantee a rate of 28% over five years but in order to get the business he forged a policy document guaranteeing Mr. O’Mahony 40% with a bonus on termination depending on how the policy performed.

When the policy matured in 2002, Mr. Donnelly convinced Mr. O’Mahony to roll over his investment into a new policy so it wasn’t until 2005 that Mr. O’Mahony found out that he had been defrauded. When O’Mahony confronted Donnelly he made a written confession of guilt and when all the information was given to Friends First Mr. O’Mahony was told that if everything he said was true their next phone call would be to the fraud squad.

At this point, in a law enforcing jurisdiction, the police would be called, there would be an investigation and if sufficient evidence was produced the case would be processed through the courts. In a law enforcing jurisdiction Mr. Donnelly would almost certainly have gone to jail and, at the very least, Friends First would have suffered severe sanctions.

THE REACTION: Here’s what happened in corrupt Ireland. Friends First knew of the fraud in February 2005. Two months later they informed the Financial Regulator. Nearly two years later, (Yes, two years) just coming up to Christmas 2006 (20th December) the regulator quietly announced on its website that Mr. Donnelly had been disqualified from acting as a director of a financial services provider for five years. There was no mention of fraud, no mention of forged letters, no mention of the sums of money involved and most notably there was no mention of police involvement.

AFTERMATH AND CONSEQUENCES: Mr. O’Mahony is a victim of fraud by Friends First. According to his figures he is still owed about €250,000 but he is in poor health and Friends First, who are aware of his health problems, have indicated that they will strongly contest any legal action. He has indicated that he is unlikely to put himself through the trauma of lengthy legal proceedings.

Friends First acknowledge that the fraud took place but incredibly they claim that Mr. O’Mahony suffered no loss and penalised him (legally) €25,000 for early withdrawal of his investment. (Necks don’t come much harder than that)

The fraudster, Stephen Donnelly has not suffered any punishment, although to his credit, he has attempted to make good the loss and to date has repaid €170,000. He currently sits on the board of Arley Ltd., a Friends First property company. He sits in company with two Friends First directors who are apparently happy to be associated with a self-confessed fraudster.

The most serious aspect of this case is the failure of the so called Financial Regulator to protect and inform consumers. This government organisation

• failed in its duty to protect the interests of a consumer who was defrauded of his hard earned money.
• It apparently failed in its duty to report an alleged criminal offence to the police.
• It failed in its duty to inform and warn consumers that a major financial services group was happy to tolerate a self confessed fraudster on its staff
• It failed in its duty to inform current customers and potential investors of the low standards of honesty at Friends First.

Bank robbers and bank robbers

Three Romanians were recently jailed for four years for what a Garda called “a sophisticated and nasty fraud”. The gang had conspired to rob bank customers by skimming ATM cards and stealing the customer’s money.

The Garda Bureau of Fraud Investigation became involved in the case after several banks complained. Eventually, the thieves were arrested and brought to court where they were found guilty and appropriate justice was dispensed.

There is nothing unusual about this case. A group of people got together and devised a system that enabled them to rob bank customers of their hard earned money. When they were caught, the State took strong and immediate action. Any self respecting country would be seen as deficient if it failed to take such action against bank robbers.

Yet, Ireland is such a country. Groups of people in Allied Irish Banks and National Irish Bank got together and devised a system that enabled them to rob, not just their own customers, but the State as well.

These fraudsters robbed millions over many years and when they were caught, the State took no action against them. They were merely asked to pay back the money robbed. The Financial Regulator refers to this well planned fraud, operated over many years as “improper charging of interest and fees” (Annual Report, page 36).

Many Irish citizens are under the impression that such crimes could not happen today because the Financial Regulator is there to protect the interests of consumers.

Wrong, the Financial Regulator has one overriding mission – to protect the financial institutions, usually at the expense of ordinary consumers.

Let me give you an example. Recently, I asked the Regulator for a list of all financial institutions that were guilty of robbing or ‘overcharging’ consumers in the last two years. This is a perfectly reasonable request and critical for those assessing the credentials of a financial institution before deciding to open an account.

They ignored my email. When I insisted, they referred my query to their Press Office who referred me to page 35/36 of their Annual Report where I found brief mention of fraudulent cases already in the public realm.

In other words, the information I requested is treated as a State secret. This policy of secrecy coupled with the absolute refusal of the so called regulator to punish wrong doing in the financial sector creates an environment of great benefit for the financial institutions and puts consumers at a serious disadvantage.

Rampant corruption – rampant profits

The latest profit figures announced by Allied Irish Banks put into perspective the pathetic powers of Ifrsa, the so called Irish Financial Regulator. Allied Irish Banks, Ireland’s biggest bank, saw its profits before tax reach an average of €9.5m per day as overall pre-tax profit levels reached €1.2 billion.

A maximum fine of €5 million can be imposed on an errant financial institution. This represents about 4 hours profit at AIB. Up to €500,000 can be imposed on an individual which represents about 15 minutes profit at perhaps one of the most corrupt banks in Ireland.

Of course, fines have never been imposed on any Irish financial institution despite revelations of massive theft, tax evasion and other illegal activities in recent years. The only requirement imposed by the toothless Irish regulator is that monies stolen or ‘overcharged’ must be paid back.

Former AIB executives settle with Revenue for €323,313

Be with AIB.

Four former top management figures in AIB, the State’s largest bank, have made tax settlements with the Revenue for a total of €323,313 as a result of their dealings with an offshore investment scheme that breached tax law.

They include the bank’s former chief executive and former Irish Stock Exchange chairman, Gerry Scanlan, who is a non-executivedirector of the fruit importer Fyffes.Former Irish Life & Permanent chairman RoyDouglas made a settlement, as did Diarmuid Moore, former AIB director of strategy, and the estate of the late Patrick Dowling, former AIB deputy chief executive.

All were investors in Faldor Ltd, a British Virgin Islands company managed by AIB Investment Managers, whose affairs were made public by AIB in May 2004 soon after the bank became embroiled in a scandal about over-charging in its foreign exchange unit.

Later that year, the Irish Financial Services Regulatory Authority said Faldor was a beneficiary of “inappropriate favourable deal allocations, by way of artificial deals” worth some €48,000 from the funds of AIB Investment Managers. The regulator said then that it had “no evidence to indicate that the beneficiaries of Faldor influenced or were aware of these allocations”.

AIB said yesterday that it could not comment, beyond saying that the settlements related to “followup action” by Revenue following the regulator’s investigation. Revenue disclosed the Faldor settlements in its defaulters list for October-December last year, which included the names of 148 individuals and companies who paid a total of €28.11 million to settle their tax liabilities. Among those who made settlements was former Kerry GAA star Jack O’Shea, who paid €19,419 in respect of underdeclared income tax on foot of an offshore assets investigation. Unpublished settlements brought the total collected from defaulters to €125.26 million.

In relation to Faldor, Mr Scanlan paid €206,010, comprising €103,120 in underdeclared income tax and capital gains tax and €102,890 in interest and penalties.

The Irish Times was unable yesterday to contact Mr Scanlan and a spokesman for Fyffes declined to comment. Fyffes regarded the settlement as a “personal matter” for Mr Scanlan, he said.

US taxmen look to Ireland as alleged scams are revealed

This is something that has gone largely under the radar of the Irish media establishment. Perhaps the hacks think that all that corruption is in the past. It is certainly not. Sean O’Driscoll had a good piece on this, an exception to the rule. Highlighted bits too.

United States federal prosecutors in New York are continuing to investigate the use of Irish companies following one of the alleged biggest tax scams ever recorded in US history.

It has emerged that a company called Sligo (2000) Co was allegedly used by accountants KPMG to shelter tens of millions of dollars for wealthy US investors.

The US attorney’s office in southern Manhattan has indicted two senior accountants and a lawyer attached to KPMG for setting up bogus currency trades through Sligo (2000) Co Inc, which allegedly ran a tax “sham” through a Dublin-based company called Epsolon Ltd.

One Dallas financier and his wife put $39 million into the scheme. The couple claimed they did not have to pay US taxes on an Irish company but then allegedly reimported the money to the US just six days later, claiming a net loss for tax purposes.

They are also alleged to have converted their Irish company, Epsolon, to an American partnership in the same week.

According to records in the Companies Office in Dublin, Epsolon was incorporated on November 6th, 2000, but was dissolved on October 29th, 2004. Two directors are listed: Franklin Montgomery of 25 West 54th Street in New York and Keith Tucker of Turtle Creek Boulevard in Dallas, Texas. The registered office in Dublin was 2 Argyle Square, Morehampton Road, Donnybrook.

The Irish Times has been shown e-mails from one lawyer indicted in the scheme in which he allegedly tried to have the Irish shelter approved by his law firm without properly assessing whether it was legal.

The Internal Revenue Service (IRS), the US equivalent of the Revenue Commissioners, now claims that the couple who benefited from the scheme, Mr Tucker, a Dallas-based financier, and his wife, Laura Bynum Tucker, owe $21.7 million in unpaid tax and penalties for involvement in the scheme.

KPMG, the fourth largest accounting firm in the US, has admitted that it was involved in setting up illegal schemes through which wealthy clients avoided over $11.2 billion in taxes.

The three indicted for using Irish companies in the scheme were at the very top of KPMG’s tax service, including the former vice-chairman of KPMG’s tax services, a KPMG tax partner and a partner at the New York legal giant Brown & Wood.

While federal prosecutors in New York prepare to bring the three to trial in New York in September, their clients have sought to distance themselves from any wrongdoing.

In a petition filed at the tax court in Washington DC, the Tuckers have sought to overturn the demand from the IRS for $15.5 million in unpaid taxes, plus $6.2 million in penalties.

The IRS has insisted that the Tuckers must paid the tax and fines after deducting over $39 million from their tax bill in 2000 based on what the IRS claimed in court documents was a “sham” in which the Tuckers claimed to have lost tens of millions on currency trading though the Dublin company, Epsolon, but which was really a front for a tax-avoidance scheme.

In its petition to the tax court in Washington DC, the Tuckers say Sligo (2000) bought 99 per cent of Epsolon Ltd from a company called Cumberland Investment Ltd on December 18th, 2000.

Three days later Epsolon bought $156 million of “multiple foreign currency options” from an investment company and sold them back to the same investment company on the same day.

The Tuckers’ petition argued that the sale of the foreign currency options resulted in Epsolon gaining $51.26 million, which they claimed was subject only to Irish tax law.

However, six days after that sale Epsolon was converted to a partnership in the US, liquidating its Irish assets and recording a $39.5 million tax-deductible loss. The IRS claims this was nothing but a “sham” to avoid paying US tax.

The lawyer who approved the scheme, R.J. Ruble, a former partner of KPMG’s legal advisors Brown & Wood law firm, was “centrally involved” in the preparation of the Dublin scheme, according to the indictment.

The US attorney’s office claims that in a letter on June 28th, 2001, Mr Ruble told the Tuckers that the Irish scheme was the best way for them to avoid tax. Prosecutors have also obtained an e-mail that Mr Ruble sent in which he said that he would “need to write opinions to Sligo (2000) Company Inc”. Mr Ruble has since been dismissed by the firm.

Others indicted for the Dublin scheme include Jeffrey Eischeid, who was head of KPMG’s “innovative strategies group”, and Jeffrey Stein, who was vice-chairman of KPMG tax services.

KPMG has admitted that it was involved in a massive illegal tax scheme for years. It agreed in August 2005 to pay $456 million to the US government to avoid criminal prosecution, and admitted that it set up illegal tax shelters which allowed wealthy investors avoid $11.2 billion in taxes.

Seventeen KPMG executives and two other people are under indictment, and are expected to go to trial in September.

Last month, it emerged that President Bush’s former Irish ambassador, Richard Egan, invested $62 million in a KPMG shelter that the IRS described as an “economic sham”.

Mr Egan, who strongly denies any wrongdoing, is suing the IRS to recover the $62 million that was taken from him, and has argued in court documents that he was working on the advice of an unnamed “international accounting firm”.

Mr Egan had hoped to avoid having his name linked to the KPMG lawsuit but a New Jersey judge last month ruled that the media could name 61 investors, including Mr Egan, who are taking a lawsuit against KPMG.

Mr Egan, the billionaire owner of the EMC computer company, invested the $62 million with KPMG as soon as he became Irish ambassador, according to the IRS.

Mr Egan, one of President Bush’s most successful fundraisers, was Irish ambassador for just 15 months before he resigned.

Ireland remains the ‘Wild West’ of corporate regulation. Oh and as far as I know KPMG are still the independent adjudicators of the National Lottery. Would you trust them?

Still waiting for law enforcement

‘Former AIB chief is fined $15,000‘

For a millisecond after reading this headline I thought;

‘Could it be that IFSRA, the so-called Irish Financial Regulator, had finally decided to actually regulate?’

Then I realised, the article was reporting on the work of a real regulator, the American Securities and Exchange Commission (SEC).

Since its establishment in May 2003, IFSRA has failed to bring a single person or organisation to account for fraudulent activity. And as many thousands of Irish citizens know to their cost; there’s no shortage of rip-offs out there.

Indeed, as far as I can ascertain, no financial regulator in the history of the State has ever taken effective action in response to the regular occurrences of criminal activity in the Irish financial sector.

Lori Addison, the AIB person fined by SEC, must be rueing the fact that she committed her fraud in a jurisdiction that actually enforces the law.