Irish Life & Permanent is currently in negotiations with the Revenue Commissioners over a settlement which includes a back payment of £250,000 in DIRT from bogus accounts discovered at its Killarney branch in 1991.
Mr Roy Douglas, chairman of Irish Life & Permanent and former chief executive of Irish Permanent, told the inquiry that legal advice was taken last June on the issue of retrospective payment of DIRT after accounts in Killarney were reclassified to resident from non-resident eight years ago following an internal audit programme.
At the time, retrospective DIRT was not paid. Mr Douglas said the understanding was that the building society would have "changed the DIRT flag and proceeded to change it to a resident account and deducted DIRT from then on".
However, "since the current discussions on DIRT have started", the legal advice was that the institution was liable for retrospective payments because the branch manager knew the account was bogus when he opened it, "even though the manager was acting in a manner contrary to, obviously, the practices and procedures of the institution".
The liability had been calculated as "some £250,000". At the time, about £5 million was reclassified as resident funds.
Earlier the former chief executive, Dr Edmund Farrell, said he believed no liability existed at the time for arrears of DIRT. It was a "going forward situation".
He said the then deputy managing director, whose responsibility this area was, took the view that no arrears on DIRT were owing. "And I would be highly surprised if he had not consulted at least with the external auditors, if not with the legal people."
Dr Farrell said he never saw anything in writing about this, but it was "totally his [the deputy managing director's] domain".
He acknowledged that the assessment was wrong, and he agreed with the inquiry chairman, Mr Mitchell, that the buck stopped with himself as the chief executive.
Mr Mitchell pointed out that there was a case where a manager colluded in the misclassification of funds in Killarney. "The bank became aware of that. They disciplined him, yet didn't pay any arrears on those reclassified accounts."
Dr Farrell: That's right.
Mr Mitchell: But is that defensible?
Dr Farrell: I'm not sure that it is.
Mr Douglas told the committee that following the introduction of DIRT in 1986, Irish Permanent started "afresh". All accountholders with non-resident addresses were written to, and only those who reapplied were designated as non-resident for DIRT.
Mr Sean Doherty TD described reclassification as "a rose by any other name".
Mr Douglas could not say there were not bogus accounts but he was confident that, with the procedures in place, there was not a problem with bogus accounts. He did not think bogus accounts were an industry-wide problem, believing that building societies constituted a separate sector.
Asked by Mr Pat Rabbitte why Killarney should have been a problem and whether it was "people on the way back from the Rose of Tralee every year putting in a few bob and saying, `I'll be back again next year'," Mr Douglas said the problem had been a manager who was effectively creating bogus accounts.
Asked about AIB's contention that it believed a general approach with the offer of an amnesty was being made to all financial institutions by the Revenue Commissioners in 1991, he said he had no knowledge of that. "I believe there was no approach whatsoever to the Irish Permanent."