Why wasn't AIB required to pay in full?

A meeting took place on February 13th, 1991, between Mr Jimmy O'Mahony, the AIB Group Taxation Manager, Ms Deirdre Fullen, also of AIB, and officials of the Investigations Branch of the Revenue Commissioners, including D.A. MacCarthaigh, Senior Inspector. A summary of what transpired at that meeting was written up by Mr O'Mahony immediately afterwards.

That memorandum stated: "Revenue accepted that a determined effort had been made to ensure that, as at 5th April, 1990, all non-resident accounts exempted from Retention Tax were genuine and now wish to provide AIB Bank, together with all other financial institutions, an opportunity to `put their house in order' with no retrospection, prior to 5th April, 1990."

The memorandum continued: "Revenue advised that: (a) when carrying out (the certification of non-resident accounts) any interest paid on bogus non-resident accounts between the 6th April, 1990, and the date of the exercise will be the subject of a Retention Tax payment to be negotiated with the Revenue, without penalty and without publication. In this regard, the bank will have a problem insofar as interest paid in October 1990 is concerned. Insofar as the 6 month period in the interest payment date in April 1991 is concerned, provided that the relevant accounts are reclassified prior to that date, no liability will arise on the bank.

"Where the Revenue discover any irregularities after the 30th June, 1991, both the bank and the official involved will be subject to prosecution.

"The Revenue made reference to: `The fact that they were aware of the practice of branch managers accepting declarations in relation to non-resident accounts which were not genuine and passing funds to another company within the group (i.e. AIB Finance Limited). They would expect that the requirement (that the official accepting a declaration of non-residency would sign their name to the declaration) would eliminate this practice.

"Their concern that, because AIB have offshore facilities, funds would be transferred there in breach of exchange control provisions."

Following that meeting on February 13th, 1991, Mr MacCarthaigh wrote to Mr O'Mahony of AIB. Mr MacCarthaigh stated: "Any cases discovered prior to the 30th of June, 1991, will be the subject of a DIRT payment to be negotiated at this branch without penalty and without publication. Detection of offences arising after that date will give rise to prosecution of both the bank and the official involved, a point which should be clearly advised to your staff."

The letter concluded: "Finally, I would like to express my appreciation of the positive attitude exhibited at the meeting and trust that the fruits of our efforts will be seen in the immediate future."

AIB was not satisfied with this undertaking regarding a negotiated settlement of the taxes owed and that there would be no penalties, prosecutions or publication. Mr Anthony Spollen, the AIB Group Internal Auditor, wanted a further letter from the Revenue Commissioners confirming that an "amnesty" was being offered to AIB and all the other financial institutions for the period prior to April 6th, 1990.

Mr O'Mahony wrote to Mr Spollen on February 28th, 1991, referring to this request for an amnesty, and said this request could not be met. Mr O'Mahony wrote: "A situation such as this is extremely delicate. To seek what you require would mean legislation and this is not desirable for this type of issue. We are being offered a way out of a very difficult situation which I believe will meet the needs of Revenue and the other financial institutions without it being publicised, this is very much in the interest of the bank".

The following points arise in connection with this: In his letter of February 13th, 1991, Mr MacCarthaigh was clearly offering a settlement with AIB on outstanding DIRT payments owed. His letter said: "Any cases (of bogus non-resident accounts) discovered prior to the 30th of June, 1991, will be the subject of a DIRT payment to be negotiated with this branch without penalty and without publication." How then can the chairman of the Revenue Commissioners, Dermot Quigley, claim, as he did to the Committee of Public accounts yesterday that no settlement was made with AIB?

By what authority did Mr MacCarthaigh offer AIB that taxes owed to the State would be "negotiated"? Why wasn't AIB required to pay the full amount owing, whatever that was? What was there to negotiate about?

The Income Tax Act, 1967, Section 501, provides that the penalty for making any incorrect statement or declaration fraudulently or negligently in connection with any claim for any allowance, deduction or relief of any tax, is £100 plus an amount equal to the tax that was evaded as a result of the incorrect return.

IT IS OBVIOUS that AIB officials fraudulently or negligently made incorrect statements on DIRT taxes owed over the period from 1986 to 1991, to the extent of £100 million, according to the AIB internal auditor.

It is also obvious, from the memorandum on the February 13th, 1991, meeting, that the Revenue Commissioners were fully aware that bank managers were accepting bogus declarations of non-residence.

Given that, the payment that the Revenue Commissioners should have sought should have been: (a) the £100 million owed; (b) a further £100 million in penalties; and (c) a further £100, i.e. a total of £200,000,100.

Why did the Revenue Commissioners not collect this money on behalf of the State?

Why also were the bank officials, known by the Revenue Commissioners to be aiding and abetting the making of false tax declarations, not prosecuted under the Finance Act, 1983, Section 94 (this provides on conviction on indictment a fine up to £10,000 or at the discretion of the court, imprisonment for a term up to five years, or both the fine and the imprisonment).

It is clear from the meeting between AIB and the Revenue officials of February 13th, 1991, that the "problem" with bogus non-resident accounts was a "problem" shared by all or most of the financial institutions. It seems also evident, by implication, that the Revenue Commissioners did a deal or a settlement (or however Mr Quigley would like to characterise it) not just with AIB but also with the other financial institutions.

So the Revenue Commissioners were aware not only that bank managers were accepting bogus declarations of non-residency but were also aware that funds were being passed to AIB Finance Ltd. It is not obvious to me what the significance of this was, but clearly this was something that was of embarrassment to AIB (given the context in which the acknowledgment is made) and, apparently, a blind eye was turned to this as well.

Questions also arise from the above about how AIB "reclassified" accounts in 1991 and what the tax significance of this was; what precisely was the nature of the Revenue Commissioners' concern over the use by AIB of "offshore funds"?