Lacey had 'misplaced views' of his duties

THE DIRECTOR of Corporate Enforcement has told the High Court that former National Irish Bank chief executive Jim Lacey appears to have a “misplaced” view of the duties of chief executives of licensed banks.

The director is relying on the findings of the inspectors that Mr Lacey bore ultimate responsibility for six serious practices indicative of a systemic failure throughout the bank and “a widespread culture of non-compliance”, including the existence of bogus non-resident accounts, fictitious accounts and improper charging of fees and interest, the court heard.

Mr Lacey had said control systems in the bank were proper and adequate and he was entitled to rely on them, but the inspectors’ report showed the systems were “wholly inadequate” and failed to prevent the practices at issue, Dick O’Rafferty, an official in the office of the director, said in an affidavit.

It was not without significance that Mr Lacey joined the bank at the start of a drive to take the bank from being a smaller player in the Irish market to a higher level, he said.

The director contended that the seriousness of the matters identified by the inspectors should not be overestimated and were reflected in part by the fact NIB had made a €6.7 million settlement with the Revenue for Dirt liabilities and also refunded customers some €12.5 million arising from overcharging of fees and interest.

This liability was apart from that incurred by customers themselves with the Revenue, Maurice Collins SC, for the director said.

While the inspectors had found Mr Lacey may not have known of some of the abuses identified by them, they also found he was ultimately responsible for the practices, Mr O’Rafferty said.

Mr Lacey’s statement that it appeared the inspectors “wished to hold me personally responsible for everything which happened in the bank” showed “a misplaced understanding” of the duty of skill and care which a director, and particularly a chief executive, owes to a company to acquire and maintain an understanding of that company’s business.

Mr Lacey was in “a unique position” within NIB, was the chief executive and held ultimate executive authority, Mr O’Rafferty said. He was a qualified accountant and an experienced banker and it was highly material that the inspectors found “not one but six serious practices which indicates a systemic failure throughout the bank”.

The director did not accept Mr Lacey was entitled to seek to review the inspectors’ conclusions in their report of July 2004, reached after extensive work, Mr O’Rafferty added. No attempt had been made to set aside the inspectors’ report, he noted. The director had no comment to make on claims by Mr Lacey that the inspectors conclusions were based on inadequate documents made available to them from NIB, Mr O’Rafferty said. The director was relying on the facts and conclusions of the inspectors.

The inspectors had observed the operational environment in NIB at the time of their investigation – 1988 to 1998 – had to be taken into account and the behaviour of individual branch managers and staff had to be viewed in that context.

They had observed the NIB branch network was target driven and that managers felt under pressure to meet those targets.

The hearing, before Mr Justice Roderick Murphy resumes on Tuesday.