Irish banks have been struggling for some time to come to terms with their part in hiding tens of millions of pounds from the Revenue Commissioners on behalf of Irish depositors. All the main banks have settled with the Revenue Commissioners following the Public Accounts Committee hearings on bogus non-resident account. Investigations into the infamous Ansbacher accounts continue. And now National Irish Bank is moving to try to bring to an end the saga of its selling of offshore investment products, many of which were used to hide money from the Revenue Commissioners.
As reported in this newspaper today, NIB has written to the 470 people who invested in offshore bonds, offering to discuss with them the issues involved in their particular case. The bank is already facing litigation from some investors, who are claiming that they should not have been sold the products involved. It remains to be seen what kind of deals NIB is willing to do with its depositors. It appears that the bank should not have been marketing many of these bonds to Irish residents and is thus vulnerable to legal action. The bank is thus likely to be prepared to reach some compensation agreement with many of its depositors. In doing this, NIB appears to be taking a pragmatic course to try to put an end to the issue, which is still being investigated by High Court inspectors.
NIB's parent, National Australia Bank, will realise that a small bank like NIB will struggle to compete on its own in a fast-consolidating market. It is thus likely to want either to sell NIB or agree a merger with another institution to create a larger and more viable entity. However it cannot do that until the mess left by the offshore bonds affair is cleaned up. The whole affair has been a public relations disaster for NIB and has done the bank serious damage. Management energy has been taken up with trying to deal with the issues involved. Now it looks set to face further substantial costs in reaching deals with customers, hoping that it can persuade them to settle rather than pursue legal action against the bank. However negotiations between NIB and its customers will not be the end of the story. The report of the High Court inspectors is awaited and may suggest that further action needs to be taken. Its conclusions on the knowledge and attitude of senior bank management at the time to the sale of the bonds will be particularly interesting. Meanwhile, the Revenue Commissioners will continue to pursue investors for tax due on the money invested. In many cases the tax bill which accrued while the money was invested in the bonds is likely to be only a small part of what is owed. While the bank has taken much of the flak, it must be remembered that many of the investors involved were knowingly hiding large sums of money - on which tax had never been paid - from the Revenue. Many of these investors have already paid large sums in settlements and more will be on the way.
What has been uncovered through the various investigations is an extraordinary culture of tax evasion which spread right through Irish society from the 1970s until recent years. Those who laboured under the PAYE system are rightly incensed. Some of those who evaded tax during the period are now paying up; but many of the outstanding bills remain to be settled.