ALH case collapse leaves questions unanswered

The final chapter in the Aer Lingus Holidays (ALH) saga appears to have been written in Dublin Circuit Criminal Court this week, eight years after the financial scandal at the company first came to light.

The collapse of a fraud trial which heard details of the debacle at the tour operator, which folded in 1990 with losses of around £10 million, saw the defendants walking free with their reputations intact.

But for the taxpayer, left to meet the cost of the huge losses at the company and of the subsequent Garda investigation and criminal proceedings, there was little comfort. After starkly conflicting evidence from former senior ALH and Aer Lingus management, more questions remain than answers and there is little expectation that the full ALH story will ever be told.

The State's case was against ALH solicitor Mr Desmond P Flynn and accountant Mr Peter Keely, who had been assistant financial controller at ALH until he retired on health grounds in April, 1990.

Both men denied conspiring together and with ALH's former financial controller Mr Peter Noone, on dates from March 1987 to November 1988, to defraud the company by misappropriating funds to buy the Los Hibiscos apartment complex at Puerto del Carmen in Lanzarote, Spain, for their own use and benefit.

The trial ended suddenly on Monday at the start of the 35th day of hearings when the prosecution indicated it was not offering any further evidence. Both Mr Flynn and Mr Keely, who were first arrested and questioned in 1990, were found not guilty by direction of Judge Kieran O'Connor who said they were entitled to leave the court with their reputations intact.

The evidence produced in court over the 35 days left little doubt that all was not as it should have been at the Aer Lingus subsidiary, which was set up in 1983 to group together five foreign holiday companies.

Judge O'Connor told the jury that the evidence offered in the case showed that ALH was run in "a most appalling manner with false accounting to hide the fact that the company was, in effect, insolvent".

Investigations by accountants Conroy O'Neill and Craig Gardner discovered the company's accounts had been falsified to hide trading losses and property losses running into millions of pounds.

In the accounts for the year ended October 31st, 1988, there had been false accounting to a total of almost £6 million, the court heard.

Mr Tom McCarthy of Craig Gardner told the court he had uncovered an overstatement of £1.4 million in relation to alleged payments due by foreign resorts; incorrect journal entries which had the effect of understating losses by £2.2 million; understating of aircraft costs for flights by £100,000; and the omission of property-related losses of £2.1 million which should have been included in the 1988 accounts.

In addition to the false accounting, Craig Gardner said it had identified £715,000 of £5.3 million raised for a property deal which was unaccounted for. As a result, the Garda Fraud Squad had been called in to further investigate the company.

Central to the case were the six apartments in the Los Hibiscos complex and the complicated financial and legal transactions surrounding their purchase.

But the precise nature of what went on and who knew about it has yet to be disclosed. One key figure who may hold some of the answers is Mr Maurice Harskin, who sold ALH its Lanzarote apartments. But he is unavailable to give evidence in court because of illness.

Alarm bells first started to ring at Aer Lingus when the subsidiary company was unable to settle its account for aircraft chartered from its parent, a position seemingly at odds with its monthly management accounts.

The fact that a unit of the State airline, with a board packed with Aer Lingus executives, was found to be engaged in false accounting practises, embarrassed the airline and damaged its reputation.

The ALH debacle also cost Aer Lingus, and ultimately the taxpayer, financially. It cost around £17 million to close down the tour operator and cover its trading and property losses. But it also led to a significant - if unfortunately belated - strengthening of the financial control procedures, both in the airline and its subsidiaries.

The collapse of the high-profile case is not good news for the State which spent considerable time and resources on its prosecution. Judge O'Connor ruled that purported evidence which the prosecution planned to present in relation to movements of cash in an account in the Midland Bank in London was inadmissible. The 1992 Criminal Evidence Act would allow such evidence to be introduced, subject to examination and cross-examination before a jury.

Judge O'Connor ruled that as the two accused were arrested and questioned in 1990, four years before they were charged, the clock had started on the case and the 1992 Act did not apply. The prosecution could not offer any more evidence so the court directed the jury to find the accused not guilty.

If the ALH story is to have another courtroom airing, the whereabouts of Mr Noone, the company's former financial controller, will undoubtedly be key to it. He was named in the charges against Mr Flynn and Mr Keely and he could yet face criminal proceedings.

Mr Noone left Ireland before Mr Flynn and Mr Keely were charged in 1994 and, according to a Garda spokesman, a warrant still stands for his arrest. He continues to reside outside the jurisdiction.