The Central Bank took the option of trusting Mr Des Traynor to wind down offshore banking activities instead of the more radical step of revoking Guinness & Mahon's banking licence following strong suspicions about tax evasion, the tribunal was told. Mr Adrian Byrne, head of banking supervision at the Central Bank, said Mr Traynor of Guinness & Mahon had assured Central Bank inspectors there was no tax avoidance and that he would reduce the level of back-to-back offshore loans. Inspections were carried out in 1976, 1978 and 1982.
Asked about Mr Traynor by Mr Jerry Healy SC, for the tribunal, Mr Byrne said the Central Bank expected people who took up directorships to be of the highest integrity.
He added: "The Central Bank believed at the time of the appointment of all the directors of Guinness & Mahon that they were such people. The prudential issues which emerged in the 1976 report, those over and above the tax issue, would have led us to believe that some of those directors and the management were not the most competent of people to run a bank.
"In addition to that, because of what had emerged on the tax position, one could have said that they weren't indeed suitable, fit and proper people to be in charge of a bank."
The bank had to review what its options were. It could have sought to revoke the licence, which would have required the consent of the minister, and they would have had to give good reason. Another option was to seek to have the directors resign. Both options carried serious implications for the bank, because there would be public knowledge, the result would be a run on the deposits in the bank, which would probably lead to its collapse, and depositors would have lost money, Mr Byrne said.
Against that, they had an undertaking from Mr Traynor and they were still prepared to trust him to honour the undertaking that he would see back-to-back Cayman loans wound down.
Mr Byrne said: "We opted to trust Mr Traynor to do that rather than face the much more serious implications for the bank and, remember, our prime responsibility as supervisors was for the safety of depositors' funds. We did not want another collapse of a bank, particularly in 1976, because we had already had one in that year - that was Irish Trust Bank."
Mr Healy suggested it would have been appropriate for the Central Bank to say it was not happy with Mr Traynor's explanation and press him harder about it.
"In hindsight probably, yes, we should have, but again we go back to a man that we trusted. We, while we had very strong suspicions about what he was at, it was another question of proving that this was the case," Mr Byrne said. "This bank had problems in relation to its capital adequacy, very serious prudential issues were involved here, lack of capital, poor asset quality, weak management, poor profits, liquidity that was quite out of line and mismatched . . . This was a bank that could fail and the tax issue was of secondary concern."
Mr Byrne said Mr Traynor was the chief spokesman for the bank, but his fellow directors were party to, and aware of, what he was doing, and clearly some of the staff knew what was going on. "Where you have a conspiracy of that nature, its very difficult to prove anything."
Mr Traynor was very highly regarded in accountancy and banking circles.
Mr Healy referred to accounts that showed that some loans actually went up rather than down. "Yes, Mr Traynor was telling us lies," Mr Byrne said.