Softly, softly for AIB but threats for the rest of us

The Revenue Commissioners are running a radio advertisement warning self-employed people to pay their preliminary tax by November 1st next. The advertisement is presented by way of two characters, one of them a fully compliant sanctimonious taxpayer, the other, Jim, of a more wayward disposition.

The advertisement ends with the lines: "Pay the right amount to the Collector General and pay on time. Or pay the interest, Jim."

Whatever contradictions there are in the evidence given so far by AIB and the Revenue Commissioners about what happened in 1991, four things are clear: (i) AIB did not pay the right amount to the Collector General; (ii) AIB did not pay it on time; (iii) AIB didn't pay a jot of interest; and (iv) there is no talk of AIB now paying any interest.

Why should the Revenue Commissioners now threaten Jim and the rest of us with perdition for doing on an infinitesimal scale what AIB did on a massive scale in 1991, when, so far at least, AIB has got off scot-free?

In a response to AIB's evidence to the Public Accounts Committee last week, the Revenue Commissioners issued a statement on Wednesday last. The response denied again that an amnesty was ever agreed in 1991 with AIB on DIRT payments owed from previous years; and it implied that AIB did indeed mislead them in 1991 about the scale of the DIRT arrears.

In the denial that an amnesty was ever agreed, the Revenue Commissioners referred to the letter of February 15th, 1991, from its senior inspector, D.A. Mac Carthaigh, in which it was stated that an arrears payment would have to be made. A number of troubling questions arise for the Revenue Commissioners:

The letter of February 15th, 1991, promised no penalties would be imposed on the late payment of the arrears. Why was that so, when Jim and the rest of us are now and were then threatened with penalties if we were in arrears?

That letter also promised that AIB would be spared the embarrassment of being included in a published list of tax defaulters. Why?

The letter implied that there would be no prosecutions for tax fraud. Why?

The letter spoke of the arrears of DIRT being "negotiated", not "assessed" or "calculated. What was there to negotiate if there was not a deal on offer?

But more fundamentally, if that letter really meant that arrears (negotiated or not) were to be paid, how was it that no arrears were paid, none at all? How conceivably could the bank have escaped payment of at least some arrears if there had not been a deal?

The Revenue Commissioners certainly knew that in 1991 there was some problem in the banks and AIB in particular on DIRT. This is acknowledged in last Wednesday's statement. And yet, at least in the case of AIB, no payment was made on these arrears. But even more surprisingly, no audit was undertaken by the Revenue Commissioners on the amount then owing by AIB or on the amount owing at any time by AIB from then until this year.

In other words, the Revenue Commissioners knew in 1991 that AIB had cheated on DIRT and not alone did they not require AIB then to pay any arrears but they didn't even bother to check at any time between then and April of this year whether AIB was continuing to cheat.

Questions arise for another venerable institution as well, the leading accountancy firm, Coopers and Lybrand. They were AIB's auditors at the time. A contingent liability of about £100 million of DIRT owing to the Revenue Commissioners is something that might well have caught their attention in preparing the audit for 1991.

The first and less important issue that arises is whether they did a calculation of the extent of such liability and, if not, why not? In his evidence to the Committee of Public Accounts two weeks ago Thomas P. Mulcahy, the AIB group chief executive, and his associates, said repeatedly that no calculation was ever done internally by AIB of the amount that might be owing. How could the auditors have been satisfied not to calculate the amount of such contingent liability before any deal or understanding with the Revenue Commissioners?

The second and more important issue is how Coopers and Lybrand could have been assured that the contingent liability had gone away without a firm indication from the Revenue Commissioners that the past was forgiven and that the arrangement entered into in 1991 was indeed just "forward-looking"?

And, of course, there is the question of what the non-executive directors, including non-executive chairman, Peter Sutherland, knew about all this at the time. Among the non-executive directors was Miriam Hederman O'Brien, the former chairperson of the Commission on Taxation.

Beverley Cooper Flynn TD asked Mr Mulcahy whether the board and the chairman knew of what was happening on the issue of the non-resident accounts. Mr Mulcahy replied: "Subject to checking I would be confident that board members would not have had any concerns about this issue in 1990".

Now isn't that an interesting answer to a straight question?

Ms Cooper Flynn persisted: "Did they know about it?"

Mr Mulcahy: "Anecdotally I am sure they know as much as people in this room" - (and more of that kind).

Later he conceded that board members would have been made aware of the problem in early 1991 and that the chairman, Peter Sutherland, "absolutely" would have been aware of it.

The anxiousness to protect board members from embarrassment on this issue is touching, but it is now high time that board members of the time tell us what they knew and when they knew.

It is evident that the audit committee, composed of some non-executive directors (Jim Culliton, Liam St J.Devlin, Sir Peter Foggatt, Sir Douglas Morpeth, Denis Murphy and Seamus Sheehy) were pretty fully briefed on the whole issue in 1991. We are entitled to know from them individually, and from Peter Sutherland, how they believed AIB could escape the consequences of default on DIT payments from 1986 to 1991.

Regarding Miriam Hederman O'Brien, it is far from clear that she was involved in these discussions at any time. It is difficult to believe that she would have countenanced any arrangement whereby AIB was "forgiven" DIRT arrears by the Revenue Commissioners, having chaired a commission that reported on precisely this issue. So was information withheld from her at the time and, if so, by whom and with what authority?

Postscript: In last Wednesday's column, I wrongly attributed the depiction of "grannies" to the former chairman of the Revenue Commissioners, Cathal Mac Domhnaill, in referring to the non-resident deposit account-holders. The reference was made by the chairman of the Public Accounts Committee, Jim Mitchell TD, and was intended ironically. Sorry.