AIB's auditor 'threatened' after raising concerns

THE FORMER chief executive of AIB, Michael Buckley, threatened the bank’s internal auditor he would be held personally liable for any losses arising from concerns raised about trading in AIB shares, an Oireachtas committee was told.

The Joint Committee on Economic Regulatory Affairs was told by Fergus O’Dowd of Fine Gael the comment was made in a letter sent to Eugene McErlean, former group internal auditor, when he complained about a scheme being operated by the AIB subsidiary, Goodbody stockbrokers.

The bank’s current chief executive, Eugene Sheehy, said the bank did not have a copy of the letter and asked Mr O’Dowd for one. Mr O’Dowd said he did not have a copy either.

Mr McErlean, who attended yesterday’s hearing as an observer, did not want to comment on the issue afterwards. Mr Buckley could not be contacted.

The hearing was told that during the 1990s Goodbody ran a scheme that allowed it compensate for the fact that it was precluded by law from buying or holding its parent’s shares. Mr Sheehy said the trading arrangement involved “a third party who happened to be connected to an individual in Goodbodys”.

Mr McErlean raised concerns about this arrangement and it was eventually stopped. It was at this time that the letter was sent by Mr Buckley, according to Mr O’Dowd.

A new scheme devised by Goodbody was approved by the AIB group audit committee in July 2000. The scheme was not to involve any party connected to the bank or any nominee. It was also not to involve credit being advanced to the party.

The scheme involved an Isle of Man fund owned by a man who “had the same surname as a well-known wealthy family” but who transpired not to be a member of that family.

The arrangement with the fund was to provide Goodbody with a way of being able to trade in AIB shares with other clients, by authorising the firm to trade in AIB shares on the fund’s behalf.

Within four months, Mr McErlean began a new audit which in turn led to a special inquiry. It transpired that a second client had become involved, in an effort to help the Isle of Man fund avoid paying stamp duty. This second client was a company based in the island of Nevis in the Caribbean owned by a “Belgian national with residency in Switzerland”.

The scheme operated for eight months and the Isle of Man fund and the Nevis company made profits of €800,000 and €51,000 respectively. Goodbody funds were used by the account.

Mr Sheehy said there was “no evidence that any employee of Goodbody or AIB” benefited. He and group general manager Philip Brennan could not say if the Belgian man was a bona fide shareholder or a front for someone else.

Mr Sheehy apologised for the fact that a 2002 press statement issued by the bank at the time of the Rusnak fraud controversy at AIB’s US subsidiary, Allfirst, mentioned that Mr McErlean was leaving his position. Mr McErlean “was not in any way culpable for the non-detection of that fraud and the AIB announcement did not intend to imply that he was”, he said.

Mr O’Dowd said Mr McErlean had been effectively “blacklisted” since the statement and it had “ruined his career”. Mr Buckley was chief executive of AIB in 2002.