Category: Corporate

The god of ruthless greed

Prof Ray Kinsella is on the faculty of the Smurfit Graduate School of Business and is author of the forthcoming study “Regulation, Corporate Governance and Ethics” – He is also a man who has no idea what he’s talking about.

Writing in the Irish Times on 1st March last in response to the controversy concerning staff numbers at the Office of the Director of Corporate Enforcement (ODCE), Prof. Kinsella made the following assertions.

“The ODCE was established in 2001 against the backdrop of a perceived culture of “non-compliance” within parts of Ireland Inc.”

What the Prof calls a ‘perceived culture of non compliance” was and is a culture of widespread fraud and criminality that Irish authorities have steadfastly refused to challenge. The New York Times was not exaggerating when it recently described Dublin as the ‘Wild West’ of European finance.

“The ODCE is a crucial component in an entirely transformed regulatory landscape in Ireland.”

Clearly, the Prof. operates in a mental twilight zone. The regulatory landscape has indeed been transformed but to the advantage of white collar criminals. We learned recently, for example, that the Competition Authority (3rd item) consumed all its resources over a three year period investigating just one case in one industry. Not much to fear from this toothless tiger.

Recently, the ODCE itself, which operates on a laughable budget of €5 million, very politely asked 900 (yes, 900) company directors if they wouldn’t mind paying pack loans that they had illegally obtained from their firms. In a real democracy these law breakers would be taking instructions from a prison guard.

“The Financial Regulator, whose principles-based model is in sharp contrast to the over-prescriptive and fragmented US system.”

Fintan O’Toole, writing in 2004, analyses this principles based model in which Roger Acton, national director of the Association of Chartered Certified Accountants claimed that a system based on “broad principles backed up by strong codes of ethics” is superior to the American system that puts white collar criminals behind bars. As O’Toole puts it

“The Irish system works, apparently, because, since there are no rules, breaches of the rules are extremely rare.”

A clue to the professor’s somewhat bizarre and naïve understanding of the Irish business sector can, perhaps, be more sympathically understood by his closing remarks where he invokes the ethical business values of Islam and the Jews as a basis for corporate compliance.

These cultures/religions may indeed live by such standards but there is no doubt that, for the most part, the Irish business sector worships and obeys only one deity – The god of ruthless greed.

Killing the Golden Goose

There was a glowing account of California tech firm SanDisk in last Friday’s Irish Times. The firm set up in Ireland in April 2005 and within eight months had taken in revenues approaching €762 million and, according to the article, had “helped boost employment in Ireland.

But the firm had no direct employees whatsoever in 2005 and yet its newly established Irish base accounted for nearly half of SanDisk’s revenue of $.2.3 billion for that year. Since last April the firm has increased its staff from 12 to 35, hardly a massive boost to national employment.

All very odd and mysterious until TCD Prof. Anton Murphy enlightened everybody on RTEs This Week programme last Sunday. (First item) In effect, SanDisk, along with numerous other multi-nationals, is using Ireland as a profit/tax laundering base to avoid paying billions in tax obligations.

It should be emphasized that there is nothing illegal about these activities but as Prof. Murhpy says they are giving Ireland a Cayman Islands type financial reputation and could eventually “kill the golden goose that’s laying plenty of golden eggs here.”

Personally, if I was a Cayman Islands citizen I would consider it an insult to be associated with the ‘Wild West’ financial culture of Ireland.

In an echo back to the DIRT and Ansbacher scandals, Prof. Murphy says that the Government, political parties, the IDA and other State agencies are effectively colluding in this profit laundering but because of various short term interests nobody is saying anything – Why am I not surprised?

Powerless warning

Hilarious to witness the Competition Authority flexing its scrawny muscle in a warning to Food Drinks Industry Ireland (FDII) and the Irish Auctioneers’ and Valuers’ Institute. The authority has warned the two groups about recent indications of price rises.

The warning is hilarious because we know from the most recent investigation into the cartel at Irish Ford Dealers Association that the authority can only afford to carry out one investigation at a time. That particular investigation consumed all the authority’s resources over a three year period.

Despite the best efforts of staff at the Competition Authority they have no hope of dealing with the greed and skullduggery that is virtually endemic throughout Ireland unless they are properly funded

Phone rip off

The following is an account of the latest scam to steal from Irish citizens as reported on Today with Pat Kenny (Tue,6th Feb).

The Scam

Eircom’s International Directory Inquiries Service at 11818 claimed that they could connect to any country outside Ireland. What they didn’t reveal was the long list of countries to which they are completely unable to make any connections whatsoever.

Despite this, they instructed their operators to go through the motions of attempting to make contact and charge the customer a hefty fee for the ‘service’. In plain English, this policy was designed to rob the customer.

The Confrontation

Philip Boucher-Hayes (Excellent reporter) challenges Paul Bradley, Director of Communications at Eircom, in his office.

Hayes – If you believe this isn’t happening, if you believe that your operators aren’t actually instructed to refuse to offer a refund, why don’t you call them up yourself now and see if you get a refund.

Bradley – Let me repeat, there is no policy not to offer rebates to customers.

Hayes – Let’s put it to the test, pick up the phone and we’ll ring 11818 and see what happens.

Bradley – Philip, let’s just stop there, that’s just outrageous.

Hayes – Why is it outrageous?

Bradley – This is ridiculous.

Hayes – Sorry, this is Paul Bradley director of communications, why is that outrageous?

Bradley – Philip, if you want to write down 11818, that’s fine, go ahead but I mean if you want to do it, I mean it’s just, you clearly have done it.

Hayes – Yes, 50 times (feck), credit is not being offered and there is a policy of not offering credit

Bradley – Ok, we’re getting into arcane debate now that really don’t (sic) apply to most…

Hayes – No, no, no, it really is quite simple, if a service is not provided, is a customer not entitled to a refund, it’s as simple as that.

Bradley – Well, the service is provided, the service is a directory inquiry.

Hayes – And where you are connecting to a number you know you haven’t a snowballs chance of getting through to, are you not essentially being dishonest?

Bradley – Not at all

End game

So what happened after RTE passed on all their information on the case to COMREG, the so called Communications Regulator? Well, they quietly entered into negotiations with Eircom who promised to change their ways.

We shouldn’t be surprised really, the so called financial regulator follows the same policy of non action when the banks rob their customers.

Notes

The Regulator did not discover this scam, Irish regulators never do.

When the Regulator was informed by RTE, they kept the whole thing quiet and effectively let the thieves off.

Whistleblowers in the International Directory Inquiries sector informed RTE. Media investigation and whistleblowers are the only protection Irish citizens have against rampant corruption.

Irish governments have been promising for years to bring in legislation to protect such courageous and patriotic citizens, we’re still waiting.

It’s likely that the number of operators working in the International Directory Inquiries sector is small. I wonder if the witch hunt has begun.

Maintaining the illusion

In a real democracy the revelations of the mafia type scams engaged in by estate agents and mortgage brokers as exposed on last Monday’s Prime Time would provoke immediate and effective police action.

In this corrupt state no effective action is ever taken. It is however, very important to maintain the illusion that Ireland is an accountable democracy. Here are some examples of great Irish illusionists.

Bertie Ahern, our Prime Minister declared that legislation to deal with such corruption is due to come before the Oireachtas shortly. This is a standard response by politicians, it means nothing. There are dozens of urgent bills ‘due any day now’.

Billy Hawkes, The Data Protection Commissioner has sent in a team of inspectors to investigate the two companies highlighted in the Prime Time programme. He has also said his office will be carrying out random inspections of mortgage brokers over the next couple of weeks.

The suspicion here is that this idea of actually inspecting companies has only just occurred to the commissioner. In any case the commissioner’s office is, like all Irish ‘enforcement’ authorities, a toothless tiger.

Paul Appleby, Office of the Director of Corporate Enforcement has launched a consultation paper to address the very dodgy activities surrounding many estate management companies covered by the Prime Time programme.

Submissions from interested parties should be on Mr. Appleby’s desk by next March. No sense of urgency there. Doesn’t matter really because Mr. Appleby’s office is also a toothless tiger.

The so called Financial Regulator is also going to investigate the mafia type operations of estate agents, developers and estate management companies as a result of the programme.

Don’t expect much here as this organization is the must useless of all Irish ‘enforcement’ authorities.

Despite the millions that have been robbed from consumers by financial institutions over recent years, the FR has never taken action against any of them. In any case, consumers will never know the result of the investigation because the FR treats all such information as a state secret.

Barry Andrews, Fianna Fail backbencher was wheeled out to waffle about how the Government was going to take action. He (rashly) stated that he would see to it that action would be taken before the upcoming general election. His promises mean nothing as he is a powerless non entity.

Irish consumers can be sure of only one thing – the State will take no effective action against these cowboys.

Aquatic centre eviction decision to be appealed

The saga rolls on, after their recent defeat in the High Court…

The operators of the National Aquatic Centre, Dublin Water World Ltd (DWL), plan to appeal a High Court decision to evict them from the troubled swimming arena.

Their removal from the centre is due on Friday April 28 and they will also be seeking a stay on this.

The legal saga over the ill-fated arena has already cost DWL and the landlords of the centre Campus Stadium Ireland Development Ltd (CSID) at least €1.5m in legal costs.

This is fifteen times the €100,000 annual rent the operators failed to pay CSID – one of the main reasons a move was made to evict.

Outlining the grounds for the appeal, a DWL spokesman said: “CSID admitted as late as July 2005 that the building snagging and defects completion process [as required in the contract] remains incomplete.” DWL as a result, he claimed, had lost money and this was compounded by the unexpected five-month closure of the centre from January 2005 after part of its roof blew off.

A key element of DWL’s Supreme Court appeal was a clause in the lease requiring payment of IR£500,000 to CSID over five years. “DWL,” he said refuse to pay this, after “uncovering a multitude of defects”.

Company awarded N6 contract caught in corruption probe

An interesting case from America:

Two employees of Jacobs Engineering, a multinational construction company, were convicted last year in America for their role in obtaining confidential details of competitors’ bids for an $800m (€650m) building project.

During the trial it was alleged that Jacobs’ employees got inside information about rival bids for a convention centre in Chicago from a lobbying company it was paying. It subsequently won the contract, worth $11.5m (€9m), after reducing its estimate by more than one-third.

Last week Jacobs’ Irish arm, which lists American and Canadian-based directors on its accounts, was awarded the tender to provide engineering, procurement and construction services for a 20km stretch of road on the N6 between Ballinasloe and Athlone.

The National Roads Authority (NRA), one of the bodies that awarded the contract, said it was unaware of the corruption investigation, conducted by the US attorney’s office. It said the tendering process it adopts is rigorously checked and all candidates are vetted for their ability to successfully and efficiently carry out a contract. There is no suggestion of any impropriety in relation to the N6 tender.

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?

Appleby's team is too small to catch big fish

In last week’s Irish Times, Colm Keena argued that the Office of the Director of Corporate Enforcement (ODCE) is being starved of resources, and has been effectively reduced to something that is far removed from the strong language of it’s title.

The most striking aspect of all of this is how long it has taken for any cases to come to court in relation to the Ansbacher scandal, and how relatively minor are the (civil) punishments at issue.

The point applies to the NIB and DIRT scandals as much as to the Ansbacher one. No-one ever goes to jail for corporate offences in Ireland.

Perhaps all criminals giving advice to children intent on following in their footsteps should say; first get a degree.

Contrast the situation here with the US, where WorldCom’s Bernard Ebbers is in jail and the Enron trial is currently under way. In the US millionaires sometimes walk out of court in chains.

The point is made in a general way and is not meant to imply anything concerning Mr Collery or Mr McCann.

It may be a cultural thing, but a greater factor is no doubt one of scale. New York State Attorney General Elliot Spritzer probably has 10 times or more lawyers than Paul Appleby has staff. Mr Appleby’s office has some 37 to 40 employees and an annual budget of €4 million. He sought 20 more staff a year ago but has not yet been granted this by the Government.

He concludes:

After he’s paid his staff and dealt with the ordinary cases that flow into his office, how much discretionary spending does he have? Probably very little. Already his office, though getting through increasing amounts of work, is nevertheless seeing an increasing backlog of cases to be dealt with.

In such a scenario there is a danger that the only ones who will be held to account in terms of corporate law, will be smaller and middle-range individuals and businesses. The ODCE may simply not be equipped with the expertise and resources necessary to take on a multimillionaire or billionaire entrepreneur, not to mention an Irish or foreign multinational with Irish registered companies. And then there is the issue of IFSC or financial services companies generally, with billions swishing back and forth between Ireland, the Cayman Islands and God knows where else.

The combination of huge incentives and scant likelihood of being brought to book is a dangerous cocktail.