Bank conspired to break rules with troubling informality

AnalysisNIB failed to meet even the low public expectations of honesty and integrity in financial services, writes Colm Keena

One chapter in the NIB inspectors' 191 page report stands head and shoulders over the others. It is the one concerning Ms Beverley Flynn TD and the sale of offshore investment products.

We already knew there was an enormous bogus non-resident accounts scandal in Irish banking and most people have their own view as to how high up the management chain knowledge of the scandal went within the various banks.

On top of having a slew of such accounts, the good bankers at NIB also charged improper interest and fees on some of their customers' accounts. The refunds arising from this, including interest, are set to total approximately €12.5 million. It is a considerable figure given the size of the bank but it is not the sort of news that would astonish the typical Irish bank customer.

The bank has said the money was taken out of customers' accounts because the accounts required extra management time. There was a troubling informality about the process, but it may not have been straightforward robbery at all times.

The bank also allowed a number of customers to open accounts under fictitious names, thereby encouraging tax evasion. Special savings accounts, which incurred a reduced DIRT rate, were allowed to operate where the rules for those accounts were not applied. Again the Exchequer lost out.

These are the sort of dodgy practices that many people would be forgiven for presuming were standard in most Irish banks, though they have never before been subjected to such a forensic and public analysis.

Where NIB seems to have come into its own was with its Financial Advice and Services Division, a sort of hit squad that toured the State encouraging people who were involved in tax evasion to continue doing so.

In return for this, the members of the elite squad earned sizeable commissions and even occasionally won free trips to places as far away as Australia.

The report published yesterday sheds new light on the depth of the conspiring and wrongdoing with which this small unit was involved. It began to market a new offshore product (CMI personal investment portfolios) that allowed people to keep their money in NIB while removing their names from their accounts. The government was introducing the second, 1993, tax amnesty and people were worried about being caught in a new Revenue clampdown. The branch managers in NIB were under pressure from the head office to grow their business and had concerns about losing "hot money" deposits as a result of the amnesty. There was a confluence of interests that suited the new offshore product and the continued breaking of revenue law.

Nigel D'Arcy was recruited by NIB chief executive Jim Lacey in May 1989 to set up the new financial advice division. The first four financial advice managers appointed by Mr D'Arcy were: Ms Beverley Flynn; Mr Michael Fitzgerald; Mr Charlie McCarthy; and Mr Alistair Stewart. Ms Patricia Roche joined in October 1991. Their remuneration included a performance related bonus.

Branch managers were advised of the benefits of the new CMI product and in time began to refer customers who had "hot money" to the financial advisers.

Customers were told their money would be moved into accounts in the name of CMI, but would still be on deposit with the NIB branch. Money began moving out of bogus non-resident and fictitiously named accounts into CMI accounts.

The fact that many if not most of the customers were more interested in hiding their money than getting a better return is evidenced by the high fees that were charged for setting up and running the CMI accounts. Mr D'Arcy told the inspectors that by 1992 he was fully aware of what was going on. The inspectors found in their report that Mr Lacey knew, or should have known, and was responsible by way of his position.

Ms Flynn was part of a small team that was, in effect, profiting from seeking to undermine the amnesty that her father's government had introduced. (Mr Padraig Flynn was a member of the government up to December 1992, when he was appointed an EU commissioner). A significant part of the income earned by the NIB division in 1992 came from CMI business. The greater part of its income came from CMI business in 1993 and 1994. "The inspectors are satisfied that at least from the second half of 1992 the CMI personal portfolio policy was mainly targeted at persons who had funds undisclosed to the Revenue Commissioners and was promoted in a manner that made it attractive to such persons," the inspectors found.

Ms Flynn, Ms Roche, and Mr Stewart sold a substantial number of the CMI policies. Mr McCarthy sold a lesser amount. Three managers that joined the division in the period from August 1994, joined after CMI sales had peaked.

None of the 19 people who had adverse findings made against them in relation to the range of areas covered in yesterday's report work with the bank any more though some are still in the financial services sector.

The Director of Corporate Enforcement, Mr Paul Appleby, is to look at taking a criminal case against NIB.