Threatening taxpayers but ignoring the big scam

In 1991 the Revenue Commissioners arranged for huge posters to be placed on billboards throughout the State. In large text was the following message: "Dodgers named and fined - £175 million in taxes and penalties. Pay Your Tax or Pay the Penalty."

In the report of the Revenue Commissioners for that year, the commissioners proclaimed: "The concentrated and experienced resources within Revenue will utilise all legislative and administrative means to collect entrenched tax arrears and to tackle tax evasion in a targeted manner wherever it occurs."

At the very time when these posters were being put up, threatening ordinary taxpayers with perdition should they fail to pay their due taxes, and in the same year that the commissioners were boasting that all legislative and administrative means would be utilised to collect arrears and stop evasion, the commissioners were turning a blind eye to the largest tax scam in the history of the State (as far as we know so far, at any rate).

On February 13th, 1991, a meeting took place between Mr D. A. Mac Carthaigh, senior inspector in the commissioners' investigation branch, along with two colleagues, and representatives of AIB. At that meeting, Mr Mac Carthaigh became aware that a significant fraud had been in being for several years concerning the Deposit Interest Retention Tax (DIRT).

Over the following few months he remained in contact with AIB and gave the bank some grounds for claiming later that he, effectively, had agreed on an amnesty on the fraud that had taken place prior to June 1991 (actually, this was not the case).

Although it was perfectly obvious that at the very minimum some £10 million of arrears could be collected from AIB arising from this fraud, no effort was made to collect these or any arrears - remember this was the very time when the large posters were pasted all around the State threatening over tax evasion.

But not only that. Mr Mac Carthaigh got diverted in October 1991 from the AIB inquiry and nobody else in the Revenue Commissioners bothered about the issue for seven years, and the matter was taken up then only because of a leak to a newspaper.

The AIB DIRT file lay on the floor of Mr Mac Carthaigh's office. He never handed the file to anybody else to pursue the outstanding tax - he explained to the Committee of Public Accounts on October 11th last that it was "not really" the custom to pass such files to a colleague with a note bringing them up to date on what was happening.

The AIB file did not get tagged or logged or given any status because the contacts with AIB, apparently, did not constitute even an inquiry. The amount certainly then known to be outstanding (£10 million) was a large multiple of the amounts recovered by any of the inspectors in the investigation branch in any one year. Of course, the actual amount outstanding was a multiple of 10 of the total amount of taxes recovered by the investigation branch in a year.

So what was going on within the Revenue Commissioners to have caused such extraordinary ineffectiveness? The agency was chaotically run at the time - the three Revenue Commissioners held no regular meetings, exchanged information only on an ad hoc basis, there were no minutes of the meetings they held, and nobody had an overview of what was going on. Even accepting such utter inefficiency, what was going on to cause them to overlook such massive tax arrears precisely at the time they were threatening ordinary taxpayers and boasting of how assiduous their investigations were?

It is all the more perplexing when one takes into account that on July 24th, 1986, a directive was issued by the Superintending Inspector's office prohibiting any investigation into DIRT tax forms pending further instructions. No such instructions were forthcoming until 12 years later.

Now, the significance of all this relates not just to the fraud on the DIRT tax, a fraud running into several hundreds of millions of pounds. The bogus non-resident accounts were, in the vast majority of instances, set up to hide undeclared income from the Revenue Commissioners. Thus the scale of the underlying fraud must have run into billions of pounds.

This fraud was taking place - in the mid and late 1980s and early 90s - precisely at a time when the Exchequer was strapped for cash. Hospital wards were being closed, there was no money to pay for minimally adequate social welfare benefits, the State was on the verge of bankruptcy.

In the midst of this dire emergency, while pretending to be engaged vigorously in collecting all outstanding taxes, the Revenue Commissioners were leaving files on massive tax scams lying on the floor of an office for years on end with no attempt being made to examine the scale of the fraud or to collect the taxes due, not even a bit of them.

On April 28th last year the then chairman of the Revenue Commissioners, Cathal Mac Domhnaill, gave evidence before a closed session of the Committee of Public Accounts. Pat Rabbitte TD asked up to 10 times about the evidence that had then emerged about the bogus non-resident accounts in AIB and elsewhere.

On 10 occasions Mr Mac Domhnaill sought to evade the question.

Finally, he resorted to ridiculing the claims being made about these accounts. He said they were held mostly by "grannies" so small were the deposits - at the time the total amount deposited in AIB alone was £600 million.

It is disappointing that the Committee of Public Accounts failed to uncover why this extraordinary negligence took place or why the directive of July 24th, 1986, was issued and kept in force for 12 years. It is also disappointing that the committee, while referring briefly to the scale of the total fraud involved, did not focus on the billions involved in the scam that underlay the DIRT fraud.