ANALYSIS:AIB's answers to an Oireachtas committee yesterday left much to be desired, writes COLM KEENA

THERE IS a key question about the scheme run by AIB/Goodbody for trades in AIB shares eight years ago that remained unanswered at an Oireachtas committee hearing yesterday.

AIB chief executive Eugene Sheehy and its group general manager, Philip Brennan, attended the hearing to answer questions about the scheme but they couldn’t shed light on the most important aspect of the affair.

A company based in the Isle of Man and another based in the Carribbean island of Nevis profited from the transactions. Over an eight-month period, they made profits of €800,000 and €51,000 respectively.

But who did the money go to? The Isle of Man company had a shareholder with a family name that he shared with a well-known and hugely wealthy European family. But as it turned out, he wasn’t a member of that family.

The Nevis company was owned by “a Belgian man resident in Switzerland”, the Oireachtas Joint Committee on Economic Regulatory Affairs was told by Brennan. Asked by Fergus O’Dowd of Fine Gael, he was unable to say whether he thought the man was a bona fide shareholder or a front. He gave the impression that little or nothing more than his nationality and residency was known.

“There is no evidence that any employee of Goodbody’s or AIB benefited,” the committee was told. This was the most stark statement of the hearing and goes to the core of the matter.

As Sheehy outlined in his 10-page opening statement, the law since 1990 prohibited Goodbody, as a wholly owned subsidiary of AIB, from purchasing or holding the bank’s shares. This interfered with the stockbroking firm’s ability to function and a legal route to allow the firm to effectively facilitate trades in the shares pending a change in the law was sought.

So far so good. The committee heard that a scheme was put in place at a some point during the 1990s. The bank’s head of internal audit, Eugene McErlean, at some stage, most likely in the late 1990s, raised concerns about that scheme and it was shut down.

According to Fine Gael’s Fergus O’Dowd, McErlean’s move prompted former AIB chief executive Michael Buckley to write to his auditor stating that he would be held “personally liable” for any losses suffered by Goodbody.

What occurred then was that a new scheme was drawn up by Goodbody, external legal advice was sought, and the scheme was approved by AIB’s group audit committee in July 2000.

Presumably, given that it was replacing the scheme that had been closed after the bank’s internal auditor raised concerns, this second scheme was reviewed in that context. The idea was to have a client of Goodbody instruct it to trade in AIB shares on its behalf. In this way the firm would be able to facilitate demand for trades in the shares. The special client account would be used to facilitate these trades.

The client had to fund the trades, and the gains or losses were to be the client’s. As it transpired, the scheme involved an Isle of Man fund that belonged to a person not known to the bank or Goodbody. This person had a famous family name and the bank, the committee was told yesterday, somehow assumed that the person was a member of this very wealthy European family. In fact he wasn’t.

When questioned closely about how the introductions to the third parties involved in the scheme, which wasn’t advertised, had come about, neither Sheehy nor Brennan had detailed answers to give, though they came via a London-based fund manager known to Goodbody.

The inquiry that was in time established after McErlean – just four months into the second scheme’s operation – began to poke around discovered some troubling facts, not least that Goodbody money was being used to fund the operation of the client account. On the face of it, this would appear to be a breach of the law, though Sheehy contested that assertion.

Also, as part of the operation of the scheme, a Nevis-registered company became involved, and the identification of counterparties did not satisfy best anti-money laundering practices. Once again McErlean was on the ball.

But here’s the rub. Why didn’t Goodbody/AIB put in place a structure that was entirely transparent in relation to who was trading in the bank’s shares through Goodbody? Maybe there is a legitimate reason, but it wasn’t mentioned at yesterday’s hearing.