Taxpayers pick up bill as banking scandals continue

We were living in a dysfunctional society in the late 1980s and early 1990s, Mary Harney declared during the week when reacting to the Allied Irish Banks revelations. She should know. Her Department on Kildare Street has long, wood-panelled corridors. Behind the doors are civil servants amassing files on secretive grubby practices from the period involving banks, companies and, sometimes, the occasional politician.

It's becoming a sort of play list for the media, with names that create more despair in the hearts of PAYE workers every time they are taken out for an airing: the Ansbacher Deposits; Guinness & Mahon Bank; Garuda Ltd; Des Traynor; Charlie Haughey; Michael Lowry.

Somewhere else in the Department of Enterprise, Trade and Employment officials working to the Minister of State, Noel Treacy, are poring over files from the offices of Irish Life and other life assurance companies. They are looking for evidence of churning, the improper practice whereby sales staff in search of commission convince customers to cash in old policies and take out new ones, even though this is not in their interest.

Meanwhile, in Dublin Castle and in other locations around the city and country, there are the files of the Revenue Commissioners. The late 1990s Inquisition into the dysfunctional Ireland of 10 years ago is about to enter these doors.

Somewhere there is the office of the official or officials who are responsible for the tax returns of Charles J. Haughey. Somewhere else there are the men and women who oversee the affairs of Michael Lowry. Somewhere else again there is the section or division responsible for overseeing DIRT returns from the largest bank in the country, AIB.

This week Magill magazine published a quote from a letter dated February 15th, 1991 and written by Mr D.A. Mac Carthaigh, senior inspector of the Revenue Commissioners, to Mr Jimmy O'Mahony, AIB Group Taxation Manager: "I invited you to have all the non-resident accounts re-examined and suggested that each branch manager certify to you that all the accounts at their branch, at the end June 30, 1991 are, insofar as they are aware, genuine non-resident accounts.

"Any case (of bogus non-resident accounts opened so as to avoid DIRT) discovered prior to 30 June, 1991 will be the subject of a DIRT payment to be negotiated at this branch without penalty and without publication. Detection of offences arising after that date will give rise to prosecution of both the bank and the official involved, a point which would be clearly advised to your staff."

A statement issued this week by AIB described the deal in different terms entirely: "In February 1991, in response to a Revenue Commissioners initiative, AIB undertook a review of all accounts which were not being subjected to Deposit Interest Retention Tax (DIRT) on the grounds that the account holder was non-resident.

"This review was completed in September 1991 and resulted in the subjection to DIRT of a number of accounts which had not previously been classified as subject to DIRT. The amount of DIRT paid by AIB on behalf of its customers increased by £9 million in 1990/ 1991, and by a further £5 million in 1991/ 1992."

AIB then, the statement went on to say, "implemented revised procedures for ensuring tax compliance in this area. For example one of the key areas of AIB's internal audit process is regular reviews to ensure that these procedures are adhered to."

That was the only comment AIB would be making, a spokeswoman said. This is despite the content of another letter also quoted in Magill. This was dated April 1991 and was from Anthony Spollen, the then Head Group Internal Auditor, to another senior figure in the bank: "The Group Taxation Department has informed me that an Amnesty cannot be given without legislation going through the Dail: The Group therefore has a contingent liability of c.£100 million in respect of DIRT."

Apart from the indication that the bank seems to have been seriously hoping that it might be given a private, secret amnesty, this letter also indicates that a senior figure in the bank believed the true DIRT liability was in the region of £100 million. AIB refuses to comment despite the fact that material has been published which, on the face of it, would seem to indicate that it knowingly misled the Revenue in relation to tens of millions of pounds due in taxes.

The Revenue Commissioners, for their part, say they cannot discuss the affairs of an individual taxpayer, even if the taxpayer is a bank which recorded profits of £237 million in 1990 and £178 million in 1991. Nevertheless, in an interview with RTE radio during the week, the chairman, Dermot Quigley, said that when details of the number of bogus non-resident accounts in AIB in the late 1980s and early 1990s were first published in the Sunday Independent in April, it was a revelation to the Revenue. The paper reported that some 53,000 bogus non-resident accounts, containing more than £600 million, were held by the bank at the time.

The Revenue Commissioners began to inquire into the matter. More information came their way and they are now looking into this matter in relation to a number of financial institutions, Mr Quigley said. These inquiries were "fairly well advanced", and it is understood that the figure of about £100 million, published this week, was not a revelation to the Revenue.

Mr Quigley said it was not the case that the Revenue would "settle" for £14 million in a case where an institution owed £100 million. It is understood that at the time the Revenue believed AIB when it said that £14 million was all that was owed. The Revenue will now pursue AIB and other financial institutions, for taxes due, interest, and penalties arising from any settlements from the early 1990s, now discovered to have been inadequate. However, the extent to which any such developments occur and, if they do occur, become public knowledge, remains to be seen.

In April, after the Sunday Independent story was published, the former AIB head of Group Internal Audit, Mr Spollen, who had retired in 1991 and now works as a consultant, issued a short statement in which he said the bank placed a heavy emphasis on controls and internal audits: "In my time as head of Group Internal Audit, my reports and recommendations were always acted on by the group chief executive, Mr Jerry Scanlan, and the chairman of the Revenue Commissioners, Mr Jim Culliton. The chairman, Mr Peter Sutherland, and the board were always informed of problem areas."

None of these figures has so far chosen to comment. Mr Spollen, in an ironic coincidence, has been doing consultancy work for National Irish Bank since June last. The inquiry by two High Court inspectors into allegations of overcharging, fee-loading and the facilitation of tax evasion by that bank, is currently bogged down in the courts. It may be next year before the inspectors' report is concluded.

The same is true for many of the inquiries under way. The Moriarty tribunal, which is inquiring into the finances of Mr Haughey and Mr Lowry, is likely to begin public hearings next year. The performance of the Revenue Commissioners is part of its brief. It will be interesting to see if all this activity will lead to anyone being punished. An Ireland where the men in pin-striped suits are punished when caught involved in wrongdoing might be less dysfunctional that the one in the mid-1990s where, it seemed, whenever the mighty were caught, barristers got rich at the taxpayers' expense.