Bank 'helped' customers to hide money Report casts new light on how NIB avoided the tax authorities

Tax evasionNIB executives helped their customers to evade tax by promoting offshore products for funds undeclared to the tax authorities, the inspectors' report found. This practice also earned substantial fees for the bank, particularly in the period when money was moving out of bogus non-resident accounts in the early 1990s.

Bank personnel were "engaging in a practice which served to facilitate the evasion of Revenue obligations by third parties," according to the inspectors' unequivocal findings. Prospective investors were given an assurance "that their investment would be confidential from the Revenue Commissioners."

The report casts new light on the lengths to which NIB employees went to assure customers that their money would reamain hidden from the tax authorities. In a key finding it says that if the money invested was made the subject of a trust, then it could be passed on to the beneficiaries without probate having to be obtained, making it possible to keep the money hidden after the investor's death.

The inspectors wrote that this was a very important point and they produce memos from a number of senior NIB figures - including the former head of the bank's financial services division, Mr Nigel D'Arcy and Ms Beverley Flynn, a financial services manager - which highlight this advantage of various CMI investments in this regard.

The main offshore products sold by NIB during the period were the CMI products, marketed by a company based in the Isle of Man. The inspectors found that the link-up was very lucrative for NIB financial services and that " a significant proportion of the income of the company in the year ended 30th September 1992 consisted of commissions earned on business interests introduced to CMI." The "greater part of the income of the company in the years to 30th September 1993 and to 30th September 1994 consisted of such commissions".

The inspectors said that "at least from the second half of 1992", they were satisfied that the CMI products were mainly targeted at persons who had funds undisclosed to the Revenue. The inspectors' interviews with people who held these investments indicated that most were attracted to them by NIB staff as a route to move money from bogus non-resident accounts. The rules surrounding these accounts were being tightened up and the offshore CMI funds were seen as a discreet alternative.

Some interesting exchanges between the inspectors and NIB staff are included in the report. A number of investment analysts - including Mr Patrick Cooney at the financial services division - when questioned what "very hot" meant in a notation put by a bank employee on an investor form, said that it meant a "very hot prospect." Mr Cooney added: "It would mean that this is a client who is ready to go." He gave the same answer in relation to a comment he made in a letter to his staff about "hot money."

However evidence by executive Ms Patricia Roche (see panel opposite) and by branch managers and investors put a completely different concept on what "hot money" was. Under questioning, Mr D'Arcy also accepted that the bank was operating in the "culture of that time" by accepting undeclared funds for investment. And this latter interpretation was the one accepted by the inspectors.

The inspectors also outline how a "typical" investment was made in CMI products. This example shows, they say, that the main concern of investors was confidentiality, not the return on their investment. A typical case involved an investor with £100,000 in a bogus non-resident account who was persuaded it would not be discovered by the Revenue if it was put in CMI. On taking out the policy, the investor paid an immediate charge of 1 per cent of the capital invested and over the first five years a further 8 per cent at a rate of 1.6 per cent annually.

In this case some £97,000 of his investment was returned to the bank on deposit by CMI at the same rate of interest as before, with the balance of £3,000 kept in a second account to meet initial charges. In addition to the 8 per cent charge, the investor was charged £300 per annum, later £480 per annum, for being furnished with a quarterly account and, if he had created a trust, a further annual fee of £125 to £175.