David Drumm jailed for six years for conspiracy to defraud

Former chief executive is most senior Anglo official to be convicted

David Drumm arrives at the Criminal Courts of Justice on Parkgate Street in Dublin  for his sentencing hearing. Photograph: Collins Courts

David Drumm arrives at the Criminal Courts of Justice on Parkgate Street in Dublin for his sentencing hearing. Photograph: Collins Courts

 

Former Anglo Irish Bank chief executive David Drumm has been sentenced to six years in jail, getting credit for five-and-a-half months served in Massachusetts in the US, for his role in a €7.2 billion fraud perpetrated at the peak of the banking crisis in 2008.

Drumm showed no emotion as the judge handed down her sentence. Sitting in the dock, wearing a navy blue suit and open-neck light blue shirt, he tilted his head back, listening intently to her ruling.

Under court rules, the Dubliner has 28 days to lodge a notice of intention to appeal his sentence.

Judge Karen O’Connor said Drumm engaged in “grossly reprehensible behaviour” and his motivation to keep Anglo open, as his defence team argued during the 87-day trial, was “irrelevant” and “does not provide any excuse for fraud and dishonesty.”

In an eight-page ruling, the judge said Drumm, as chief executive of the bank, held “a position of trust, when he authorised, directed and was actively involved in this dishonest and fraudulent scheme.”

“This offending was premeditated and planned, and in fact the evidence was that significant planning went into this fraud,” she said in her ruling at the Dublin Circuit Criminal Court.

The judge stressed she was not sentencing Drumm for “causing the financial crisis” or “for the recession that occurred.”

The offending did not cause the bank to collapse, she added.

The court was only sentencing Drumm on two specific offences: conspiracy to defraud and false accounting in relation to the €7.2 billion transactions.

“In this case two ‘blue chip’ publicly quoted companies conspired to manipulate the public accounts of Anglo Irish Bank,” said Judge O’Connor.

“Mr Drumm along with others put together a dishonest scheme and engaged in transactions, designed to inflate deposits from a non-banking entity to Anglo Irish Bank on 30th September 2008, which was the reporting year-end date for that bank.”

The intention was “to create the false and misleading impression that Anglo Irish Bank was stronger or in a healthier position than it actually was as a result of the €7.2 billion in corporate deposits,” she said.

The false accounting charge, she said, stemmed from this conspiracy to defraud when the bank published its financial statements for the year to the end of September 2008 showing the non-bank deposits at Anglo to be greater by €7.2 billion than they actually were.

“This was false and Mr Drumm knew that it was false,” she said.

Judge O’Connor said the fact that the €7.2 billion scheme did not ultimately succeed was “irrelevant.” She said he was part of a conspiracy which potentially could have caused significant loss, though it appeared that no actual money was lost.

“From the evidence it is clear he was the driving force in Anglo Irish Bank and the person behind the funding initiatives being considered by the bank,” she said.

“He authorised the transactions, was at the helm of the bank, and clearly extremely ‘hands-on’ in his position in the bank.”

The judge also addressed Drumm’s contention during his defence in the trial that he planned and authorised the transactions at the request of the Central Bank and Financial Regulator who encouraged the Irish banks to support each other with funding and liquidity as the financial crisis deepened in 2008.

“Similarly, inaction, weakness and ineptitude on the part of the financial regulatory authorities provides no excuse for a scheme of this nature,” she said.

“The jury were told that this was part of a ‘green jersey agenda’ wherein Irish banks would help each other. Mutual assistance is a far cry from unlawful acts.”

She said there was “no evidence in this case that the Central Bank or the Financial Regulator directed criminality.”

“The public has to be able to trust its banks, citizens place their trust in a bank, allow banks to manage their money and need to be able to believe and make decisions on foot of the informaiotn published by their banks,” she said.

In deciding on his sentence, Judge O’Connor referred to those handed down to his former colleagues, Willie McAteer, Anglo’s finance director when Drumm ran the bank, and the bank’s de facto head of treasury John Bowe, as well as Irish Life Irish Life & Permanent’s former chief executive Denis Casey.

In July 2016, McAteer received a sentence of three and a half years after being convicted on the count of conspiracy to defraud following a lengthy trial. Bowe was jailed for two years and Casey two years and nine months.

“Mr McAteer and Mr Bowe were subordinates to Mr Drumm within the company structure in Anglo Irish Bank. Mr Drumm held a more senior position and was a more influential figure. He had a leadership role,” said the judge.

“While he and his colleagues were working in an extremely difficult economic climate, this does not provide an excuse for the offending. Nor does the motivation or desire to keep the bank open.”

Addressing mitigating factors, the judge said Drumm was a person of previous good character, had no previous convictions and had a supportive family.

“He has lost his reputation which will encroach on any future employment opportunity. This is difficult for him on a personal level in circumstances where he was respected within the banking industry,” she said.

“He has been the subject of much opprobrium which no doubt has been difficult for Mr Drumm and his family on a human level.”

The most significant form of mitigation in a case of this nature would be a guilty pleas, she said. Fraud cases by their nature demand considerable State resources, time-consuming investigative work and court resources, she added.

The 51-year-old was found guilty at Dublin Circuit Criminal Court earlier this month of conspiracy to defraud and false accounting over fake deposits that made the bank’s finances appear stronger than they were.

The transactions were designed to mask a massive run on deposits at the lender as Anglo teetered on the brink of collapse almost a decade ago.

He is the most senior Anglo executive to be convicted over his role in managing the finances of what was the country’s third largest bank, which fell into State ownership in 2009 at a cost of €29 billion to the taxpayer.

A jury reached unanimous verdicts on June 7th convicting Drumm, of Skerries, Co Dublin, of two counts of deceiving depositors and investors over deposits circulating between Anglo and Irish Life & Permanent that “dishonestly” created the impression Anglo’s deposits were €7.2 billion larger than they were.

The deposits, moving between the two lenders over several days, were structured as customer rather than inter-bank deposits - perceived to be a healthier form of funding for a bank.

The prosecution told Judge Karen O’Connor the transactions were a “massive con” to deceive investors and depositors and Drumm was “the man who called the shots.”

They disguised a loss of deposits that, had they been disclosed in Anglo’s annual accounts to September 30th, 2008, would have confirmed public suspicions that the bank was close to collapse.

The false accounting offence relates to how the deposits were represented in the bank’s financial statements that Mr Drumm presented to the stock market and the public on December 3rd, 2008.

The jury of nine men and three women found Mr Drumm guilty of the two counts after deliberating for 10 and a half hours on the 87th day of the trial, one of the longest criminal trials in the history of the State.

His co-conspirators in the transactions were convicted for their roles in the fraud two years ago.

The trial of the former Anglo chief was delayed because he had to be extradited back from the United States, to where he emigrated in 2009, as he refused to return to cooperate with the Garda investigation.

He was arrested at his home near Boston in October 2015 and, after initially fighting extradition, agreed to return to Ireland following a five-month detention in a US federal prison.

He arrived back to face the charges in March 2016.

Willie McAteer, Anglo’s former finance director and the second-highest ranking executive behind Drumm, received a sentence of three and a half years in July 2016 over his involvement in the transactions.

Irish Life & Permanent’s former chief executive Denis Casey, Drumm’s counterpart at the other bank, was jailed for two years and nine months.

John Bowe, who ran Anglo’s treasury department, received a sentence of two years for his role.

Drumm’s imprisonment marks a heavy fall from grace for the truck driver’s son who enjoyed a spectacular rise in Irish banking.

He was named as Sean FitzPatrick’s successor as Anglo chief executive in 2004 at the age of 37, driving the bank through a rapid phase of growth during the property boom.

Deepening Anglo’s lending into the property market, Drumm oversaw the trebling of the bank’s loan book to €73 billion during his four years in charge.

Under court rules, Drumm has 28 days to lodge a notice of intention to appeal his sentence.

During the sentencing hearing, Detective Sergeant Michael McKenna of the Garda’s National Economic Crime Bureau told Judge Karen O’Connor that Drumm was “very much the driving force” behind the transactions.

His involvement “continued right the way through” the transactions from March 2008 until they were executed, the garda told the court during Drumm’s sentencing hearing.

Drumm chaired the 3pm meetings on Fridays in his office at Anglo at which the transactions were planned and discussed, and he specifically asked Anglo treasury executive Matt Cullen to ask his counterpart in Irish Life & Permanent to see if it would increase the transactions to the level of €6 billion or €7 billion, he said.

The detective sergeant said that Drumm was also “in direct contact” with Irish Life & Permanent’s then chief executive Denis Casey and “they approved the transactions with each other.”

Det Sgt McKenna told the court that Mr Casey was sentenced to two years and nine months over his role in the transactions in 2016, while Anglo’s former finance director Willie McAteer was jailed for three and a half years and Anglo’s de facto head of treasury John Bowe for two years with no portions suspended.

Prosecuting counsel Paul O’Higgins told the court that the Director of Public Prosecutions believes the court ought to take into account the five months Mr Drumm spent in custody in the US while initially fighting and then awaiting his extradition from the US to Ireland.

“I won’t be arguing with Mr O’Higgins on that point,” said Drumm’s defence counsel Brendan Grehan, before adding: “For the first time in the case.”

Under questioning by the prosecution, Det Sgt McKenna said the investigation into the transactions took nine years and involved 16 detectives working full-time at its peak.

He told the court that investigating gardaí first made contact with Drumm in March 2010 but that contact ceased in July 2013 and did not resume until his extradition case in October 2015 to return him from the US.

Mr O’Higgins went through a brief history of the 2007-08 financial crisis and the background to the transactions that led to the guilty verdicts on conspiracy to defraud and false accounting against Drumm.

The detective told the court that the transactions gave the false appearance of increasing Anglo’s customer accounts by 16 per cent when the bank reported them in financial statements in early December 2008.

He said that Drumm “appeared to be relieved to be coming back home” when he accompanied on the flight back to Ireland during his extradition in March 2016.

Drumm asked that no personal testimonial or character references be made in court because he did not want to expose others, including extended family, to adverse publicity or loss of privacy as collateral damage.

Defence counsel Brendan Grehan told Judge O’Connor that Drumm’s life “has effectively been an open book” since he became Anglo chief executive in 2004 and for the past decade.

He told the judge that Drumm accepted that the transactions took place and that he had admitted that he had authorised them and had taken responsibility for their execution while he ran the bank.

While admitting to authorising the transactions and acknowledging that it was “huge error of judgment on his part,” he simply could not admit to an intention behind them that he never had.

Drumm believed that he was engaged in “legitimate balance sheet management” carried out with the knowledge and tacit if not actual approval of the Financial Regulator, Mr Grehan told the court.

This seemed to be “a matter of laissez faire from that quarter,” counsel said, and that balance sheet management and window dressing was something that took place “across the spectrum.”

Mr Grehan said the transactions grew to €7.2 billion by the end of September 2008 in accordance with the deteriorating financial situation, “which culminated at the worst possible time for Anglo and for Mr Drumm as its chief executive officer as it came towards the end of September 2008, at the end of its financial year.”

Drumm’s motivation was “assuredly” to save the bank during the worst financial crisis in living memory, said Mr Grehan. He quoted former Anglo non-executive director Gary McGann who testified during the trial that September 2008 felt like “the world was never going to be the same again.”

“It is easy to forget 10 years down the line just how chaotic it was for those who were trying to wrestle with the decisions that were trying to made at that time,” Mr Grehan told the court.

Unlike most frauds, these transactions were not conducted secretly, he said, but had lots of people involved and had to be seen in the context of the 2008 when the bank and other institutions were facing “annihilation.”

The publication of the transactions in Anglo’s financial statements in December 2008 - for which Drumm has been convicted of false accounting - was the “consummation” of the September transactions, he said.

Details of the transactions were published after they had “literally passed under the eyes of a lot of very experienced professionals and indeed public servants” who had responsibility for these matters, he said.

“All of these were independent of Mr Drumm and nobody raised a red flag on the publication of these accounts,” said Mr Grehan.

He argued that there was no suggestion that any person involved engaged in the transactions for any kind of personal gain. “They were trying to save their institution, full stop,” he said.

The efforts were, in any event, futile because of the problems on the other side of the bank’s balance sheet, he said, in a reference to the bank’s heavy exposure in its loan book to the property development sector.

On Drumm’s background, Mr Grehan said he rose from humble beginnings - one of eight children to a truck driver father and hairdresser mother - “to the dizzying heights” of becoming chief executive of a bank that was described at one point as one of the best if not the best bank in the world.

Counsel said he had come from that point to facing a sentence that will “reverberate not just in Ireland but much broader afield” where people complain that those in financial institutions are not held to account.

Drumm was 51 years old, had no previous convictions, had complied with his bail and had “very limited future options,” he said. He asked the judge to consider the five months he served in a US prison in 2015-16.

Mr Grehan also asked the judge to consider “the totality of the hardship that will be visited on Mr Drumm” 10 years on and the “notoriety which he is going to carry not just today or tomorrow - or during whatever sentence the court is going to impose on him - but will carry for the rest of his days.”