The report into the AIB trading scandal has pointed the finger at senior management at Allfirst’s treasury operation in Baltimore for failing to monitor Mr John Rusnak who ran up $691 million in currency losses.
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Mr Lochlann Quinn
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It also emerged today that AIB chairman Mr Lochlann Quinn and AIB chief executive Mr Michael Buckley offered their resignations at a board meeting on Tuesday. Both men stated they believed the losses raised questions of accountability and credibility at the highest levels.
Mr Buckley tonight also gave the strongest sign yet that the bank believed there had been outside collusion with Mr Rusnack.
He said: "I still believe what I believed on day one, which was that he could not have made this happen without the collaboration and cooperation of people outside the bank.
"That doesn't in any way diminish the weakness of the controls and appalling negligence that happened within the treasury operation at Allfirst but those trades could not have been constructed in such an abnormal way without the collaboration of people outside the bank."
Earlier the board decided unanimously to endorse the positions of Mr Quinn and Mr Buckley and to reaffirm its full confidence in both men.
The report, prepared by US banking regulator Mr Eugene Ludwig, said Allfirst treasurer Mr David Cronin and his managers failed to put in place proper controls to monitor Mr Rusnak’s activities and to recognise the scale of the losses.
Mr Cronin has been sacked along with Ms Jan Palmer, senior vice-president of treasury operations administration; Mr Robert Ray, senior vice-president of treasury funds management; Mr Lawrence Smith, assistant vice-president of operations and financial analysis at Allfirst Treasury; Mr Michael Husich, head of internal audit at Allfirst; and Mr Lou Slifker, team leader of internal audit at Allfirst.
But there was considerable surprise this morning that Allfirst chief executive Ms Susan Keating survived the cull of senior management in Baltimore.
Mr Ludwig said: "We believe we do understand the fraud and where it led. Our report is critical of certain internal controls at Allfirst and a number of individuals in these structures, particularly at Allfirst Treasury.
"We have made some strong recommendations in that regard. I am cheered that the AIB and Allfirst Boards and managements are adopting those recommendations".
The main findings of the report are:
- The fraud was carefully planned and meticulously implemented by Mr Rusnak, extended over a lengthy period of time, and involved falsification of key bank records and documents.
- Mr Rusnak circumvented the controls that were intended to prevent any such fraud by manipulating the weak control environment in Allfirst's treasury; notably, he found ways of circumventing changes in control procedures throughout the period of his fraud.
- Mr Rusnak's trading activities did not receive the careful scrutiny that they deserved; the Allfirst treasurer and his treasury funds manager - the principal persons responsible for Mr Rusnak's supervision - failed for an extended period to monitor Mr Rusnak's trading.
- At both the AIB Group and Allfirst levels, the Asset and Liability Committees ('ALCOs'), risk managers, senior management and Allfirst internal auditors, all did not appreciate the risks associated with Mr Rusnak's hedge-fund style of foreign exchange trading; even in the absence of any sign of fraudulent conduct, the mere scope of Mr Rusnak's trading activities and the size of the positions he was taking warranted a much closer risk-management review.
- Allfirst and AIB senior management heavily relied upon the Allfirst treasurer, given the treasurer's extensive experience with treasury functions and foreign exchange trading in particular. In hindsight, this heavy reliance proved misplaced.
- Nothing has come to attention during the course of the review that indicates anyone at AIB or Allfirst, outside of the Allfirst treasury group, were involved in, or had any knowledge that, fraudulent or improper trading activity was occurring at Allfirst before the discovery of the fraud.