Need for costly advice reflects lack of expertise in high places

When it became clear that the wheels were coming off the State’s banking system in autumn 2008, the then Fianna Fáil-Green Party government turned to the State’s biggest, and what it surely hoped was the best, legal firm for counsel.

Arthur Cox has gone on to provide advice to the State on major issues such as the bank guarantee scheme, the nationalisation of Anglo Irish Bank and the restructuring and recapitalisation of the banks.

The firm has also advised on the establishment of Nama, the Government’s shareholding in the banks and issues relating to the State’s engagement with the EU-IMF bailout troika.

Arthur Cox, initially appointed on an untendered basis due to the urgency of the situation unfolding in the banking sector, has since received some €28 million for its counsel on the sector from the Department of Finance, the NTMA and the NPRF, figures provided in reply to parliamentary questions show.

An internal Department of Finance memo from 2008 states Arthur Cox was chosen because of “its acknowledged expertise in the field of commercial law and because its size allows it to dedicate sufficient resources to the project to ensure that advice is provided in a timely manner”.

According to its website, Arthur Cox provides “a comprehensive service to an international client base” including multinational companies, financial institutions and government agencies.

Its client relationship with one of those financial institutions – Bank of Ireland – brought focus to a potential conflict of interest. The firm was advising the department on the banks, while at the same time Bank of Ireland was receiving a €4.2 billion capital injection from the Government.

Arthur Cox, which has more than 350 legal staff and some 600 employees, said it had separate teams acting for Bank of Ireland and the State.

The Department of Finance said it was satisfied potential conflicts of interests were avoided by the application of “well-established ‘Chinese Wall’ structures”.

A 2011 report on the running of the Department of Finance over the previous decade by an independent group shed some light on why such an amount of advice may have been required.

The Wright report found an “extraordinarily low” number – some 10 per cent – of the department’s core staff were economists with training to master’s level, whereas the figure was some 60 per cent in Canada.It recommended the number of economists trained to master’s level be doubled in two years.

The department said the advice had been taken on board and the number of economists employed with a master’s level qualification was rising.

Nama, which was designed to purge the banks of the debts that ultimately brought about the problems in the financial sector, has spent some €40 million on legal fees since 2010.

The agency said the due diligence work carried out on the €74 billion of bad loans it acquired helped it to shave some €477 million off the total sum it paid five financial institutions for the loans, which puts the €14.8 million in legal fees shared among 31 firms for this purpose in perspective.

The spread of the locations in which legal services have been engaged by Nama – including firms in jurisdictions as far apart as the British Virgin Islands and the Czech Republic – highlights the scale of the challenges it faces in recovering the debts it has taken on.