Serious concerns raised over corporation's culture

We now know that the Republic's biggest bank covered up the fact that for eight years it had overcharged customers by more than €30 million. This is what the Irish Financial Services Regulatory Authority (IFSRA) has found and, furthermore, it concludes that AIB never had any intention of coming clean to the regulator or its customers.

This long-awaited and carefully worded report pulls few punches. While it doesn't name the individuals who should be held accountable for deliberately hiding the facts, it once again raises serious concerns about AIB's corporate culture and its attitude towards its regulators and customers.

IFSRA is satisfied that AIB had at least seven opportunities to make a clean breast of things but decided against this course of action.

IFSRA's most significant finding was the discovery of a memo, which it states was prepared in 2002.

In this document, someone within the bank had identified that AIB had been wrongly charging a rate of commission on certain foreign exchange transactions that was twice the amount it was authorised to apply.

This individual calculated an estimate of how much money this error would cost the bank and recommended that AIB should notify IFSRA about the problem, but nothing happened. Neither AIB nor IFSRA will make any further details available about the origins of this memo while a disciplinary process is continuing.

AIB's group chief executive, Mr Michael Buckley, says he never saw it and that it wasn't brought to the attention of his senior management committee.

But IFSRA is satisfied that there was an awareness of the problem among certain staff and management for some time. Indeed, in January 2004 it confirmed that some individuals actually went around the bank covertly correcting the problem and had managed to ensure that by April AIB was fully compliant in relation to this charge.

It is probably Dr O'Reilly's conclusion on this series of actions that is the most damning finding in this report. This cautious and careful man made no bones about speculating that AIB's next move would have been to apply to the regulator to increase its commissions back to the higher amount and that it would have made no mention of the previous breach that had persisted for almost eight years.

IFSRA also separately examined the use of a British Virgin Islands investment company, Faldor, by a number of AIB's most senior executives between 1989 and 1996.

While IFSRA or AIB has never named these individuals, the beneficiaries of Faldor included former AIB chief executive Mr Gerry Scanlan; Mr Roy Douglas, a former AIB executive and chairman of Irish Life and Permanent; Mr David Cronin, the former treasurer at its US Bank; former deputy chief executive, Mr Patrick Dowling; and former director of strategy, Mr Diarmuid Moore.

Faldor benefited from what it terms as "inappropriate favourable deal allocations". A small number of AIB Investment Managers clients also enjoyed similar benefits. Another of the bank's former chief executives, Mr Tom Mulcahy, was found to have been one of five other of the bank's executives who had tax issues arising out of the use of separate offshore accounts.

While the bank's own internal auditors identified some inappropriate dealing practices in 1991 and 1993, the bank never initiated disciplinary proceedings against those involved and did not compensate the funds that had been affected by the arrangement. This has happened since IFSRA's investigation.

The participation of some of the bank's most senior executives in these arrangements is surprising. IFSRA diplomatically expresses "deep disappointment" with these events.

The AIB board's immediate task is to now prove that it takes these indiscretions as seriously as IFSRA does, using its disciplinary processes.

It is also up to IFSRA to ensure the bankers shoulder their responsibilities. IFSRA has repeatedly said that it would hold banks and their directors responsible for the actions of their businesses.