Policing of bogus accounts adequate - Farrell

Bogus non-resident accounts probably existed to "varying degrees" in most financial institutions but minimally in the Irish Permanent Building Society, according to its former chief executive, Dr Edmund Farrell.

Irish Permanent, now Irish Life and Permanent, had "adequate supervision and policing at all times," he told a public hearing of the DIRT inquiry yesterday. That, he said, was borne out by its own auditing, which identified a problem in Killarney where £5 million was reclassified as belonging to resident accounts.

Subsequently the organisation's internal auditor, Mr David Kelly, carried out a special investigation in six other cases which generated no "material result," he said.

Earlier the chief executive of Irish Life and Permanent, Dr David Went, said, "At no stage over the years was there any culture of non-compliance within Irish Permanent plc or any toleration or encouragement of bogus non-resident accounts." He believed the same could be said for Guinness & Mahon (Ireland) Ltd for the period subsequent to its purchase by Irish Permanent.

Mr Went became chief executive of Irish Life and Permanent in April this year following the merger of Irish Permanent and Irish Life. He acknowledged there were "shortcomings" in relation to documentation on non-resident accounts, and that these were "unacceptable." However, he emphasised the distinction between shortcomings in relation to documentation for non-resident accounts and the existence of bogus accounts.

Dr Farrell, chief executive until 1993, said the system in place, particularly from 1986 to 1992, did not allow a non-resident account to be opened unless the declaration form was sent to head office.

Prior to 1986 Irish Permanent had bought 30 branches in 18 months. The money was pouring in, thanks to the composite rate and the confidentiality, and the fact that the banks had a history of inspectability and strikes. "So, societies were the haven of choice - and I don't mean haven in any sheltering sense - for Irish savers. And I think that's borne out by the figures until DIRT occurred and the so-called level playing field was introduced in 1986."

Mr Sean Doherty, TD for Longford-Roscommon, asked him if the building society ever complained about its competitive edge being eroded by practices considered to be industry-wide.

The building societies' representative organisation made representations in relation to the "level playing-field situation" after 1986, when DIRT was introduced. Dr Farrell, who told the inquiry that Irish Permanent was a "large contributor" to political parties and charities, felt that "in the absence of any other action, societies were finished. The reason for that was that the banks could then do anything that the societies could do but the societies could only accept savings and give out loans.

"So the banks could walk in any time, take our business and they had their other fee-earning and income-generating activities to rely on as well. So we were in severe peril and we had to attempt to convince the legislature in various forms" to introduce legislation to "enable us to get back and compete on a more level playing field with the banking institutions."