IN February 1993, some Revenue officials met with senior staff at the Agricultural Credit Corporation. In theory, this meeting in the ACC boardroom was one between two arms of the State, both of them committed to the welfare of the Irish public. The Revenue, of course, exists to raise the money for all the services that make the State function. ACC was owned, on behalf of the people, by the Minister for Finance. To a naive observer, then, the expectation would be that all at this meeting were on the same side. When the discussion turned to the subject of bogus non-resident accounts, it was reasonable to assume here, with fellow public servants, the Revenue could begin to get to grips with what was known to be a major problem.
In fact no one knew better just how major the problem was than the ACC itself. Throughout the period between 1986 and 1998, ACC, a bank for Irish farmers which did not market its services abroad, had between £135 million and £225 million in non-resident accounts. An internal Revenue paper written a year before the meeting had noted that in 1989, 44 per cent of ACC's accounts were non-resident and commented that this was "by any standards extraordinary".
For ACC, moreover, the implications of this situation were potentially catastrophic. Five months before the February 19th meeting with Revenue, the Government had decided to begin the process of privatising ACC. As part of the preparation for this process, the bank had its own external auditors draw up a so-called Long Form Report (LFR). This was intended to provide key information to potential purchasers of the bank. The first draft, completed on December 19th, revealed a problem that threatened the very solvency of ACC.
Banks opening non-resident accounts were required to get from the customers a declaration they were, in fact, not resident in Ireland. The auditors sampled eight ACC branches. What they found was a nightmare: 55 per cent of the money in the non-resident accounts had either no declaration or a "questionable" one. In two of the branches - Westmoreland Street, Dublin, and Tuam - the figures were 77 per cent and 74 per cent respectively. According to the auditors, there was no reason to believe that the situation in other branches was substantially different. On that basis, the ACC could owe the Revenue £17.5 million. At a time when the bank's annual profit was just £8 million, this was a disaster.
And there was no sign that anything was being done about it. Jim Skelly, the bank's general retail manager, had written to all branch managers twice asking them to confirm they were putting their houses in order and accounts were either properly certified or classified as liable for DIRT. But, as he wrote again to the managers on December 19th, only half of them had even bothered to reply to his letters and "judging from the level of response my request was not regarded as a serious one by about 50 per cent of managers," he told the inquiry. He pleaded for urgent action because: "We have been told by the Revenue Commissioners that they intend carrying out an audit/inspection in January, looking specifically at our non-resident book." The game, in other words, was almost up.
This, then, was the context for the meeting between Revenue and the ACC on February 19th: a level of fraud that threatened the very existence of a State bank and the threat of imminent exposure by a Revenue inspection. Except, crucially, for one small but vital piece of intelligence. In the room, on the ACC's side of the table was a man who knew the Revenue was bluffing. One of the bank's tax advisers, Declan O'Neill of Ernst and Young, was well aware the Revenue was not in fact going to inspect the suspect declarations.
How did he know this? Because, as Mr O'Neill acknowledged to the Public Accounts Committee, he was a former tax inspector. He knew the score: that an instruction called SIM 263 issued in 1986 ordered inspectors not to examine the non-resident declarations. Across the table from him, Denis O'Connell of the Revenue knew that because of Declan O'Neill's former status, the ACC "would have been aware of" SIM 263. Not only, in other words, was Mr O'Connell playing poker with a weak hand, but the other side knew he was bluffing.
It was easy, therefore, for the ACC to hide from the Revenue the key fact: that its external auditors had calculated the bank might owe them £17.5 million. The attitude of the ACC management was revealed in a telling exchange between its chief executive in these years, John McCloskey and Pat Rabbitte TD. Reading from a letter about the meeting with Revenue he received from his deputy, Mr McCloskey pointed to the phrase "We must also bring the attention of the Revenue to any malpractices". He stopped there and proceeded as if that was the end of the phrase. "Finish the sentence, Mr McCloskey", insisted Mr Rabbitte. "which we detect on the part of our competitors", continued the banker.
Certainly, in spite of its anxiety to tell the Revenue about the sins of its competitors, ACC did not think fit to tell the Revenue about its own malpractices. At the meeting, the deputy chief executive Billy Moore told the tax officials that "there had been some difficulties in the past", implying that there were no such problems in the present. The results of the Long Form Report were not mentioned.
According to Declan O'Neill's report of the meeting, it seemed to ACC that Denis O'Connell of Revenue was not going to look into the murky past: "We were left with the clear impression that he would not be pursuing the issue of defective declarations in prior years". Denis O'Connell insisted that he "did not state anything which would give that impression". And it is worth pointing out that Declan O'Neill's "impressions" about Revenue attitudes did not depend on anything he was told by Mr O'Connell. Knowing, as he did, the secret of SIM 263, he could be confident in any case that Revenue would not be pursuing the bogus declarations.
Wherever the impression came from, however, it had huge consequences for ACC. Having successfully called the Revenue's bluff, the bank could, in effect, dispose of the potential £17.5 million liability that threatened its solvency. Even though it never sought written confirmation of its alleged "understanding" with Revenue, ACC had its LFR redrafted, dropping the concern about the effect of bogus accounts. And, in effect, the bank was free to continue its large-scale collusion with tax fraud.
ACC was so intimately involved in the evasion, indeed, that two of its own staff members had bogus non-resident accounts - one held by a member of head office staff. In 1995, a sterling deposit account held by a member of staff was coded as non-resident without even a non-resident declaration. In the same year "investigations at the Tullamore branch revealed that a member of staff had been operating non-resident accounts with fictitious names and false addresses", according to the internal auditor, with the knowledge of the branch manager and assistant manager. And even though the Revenue had been assured that breaches of the law by staff members would be treated as disciplinary matters, no action was taken against the Tallaght and Tuam offenders.
Where, in all of this, was the ACC's owner, the Minister for Finance? The Minister, after all, appointed the bank's chairman and had a representative on its board. But from the evidence of Gary Joyce, chairman from 1996 until April this year, this oversight was largely theoretical. When Ms Joyce raised the question of bogus accounts in 1996, she was told by John McCloskey that there was "no major problem with compliance" and that incidents which had occurred were "isolated". She was devastatingly frank about her own position: "I wasn't told anything by management. . . The board of the ACC was not really treated by management as if it had a serious role to play in the running of the business. . . Repeatedly, decisions that the board made were not enacted."
For her, being in charge of ACC was "not a pleasant experience". For the citizens who were supposed to own the company, it was not too pleasant either.