'Catastrophic failures' at NIB, court told

The Director of Corporate Enforcement has told the High Court there was “a catastrophic failure of governance” during Jim Lacey’s tenure as chief executive of National Irish Bank and that Mr Lacey must bear ultimate responsibility for “very serious wrongdoing” by the bank.

The July 2004 report of the court-appointed inspectors into the affairs of NIB and National Irish Bank Financial Services (NIBFS) not only justifies but mandates a court order disqualifying Mr Lacey from involvement in the management of any company on grounds of unfitness, Maurice Collins SC, for the director, argued today.

The inspectors, who investigated the affairs of NIB and NIBFS between 1988 and 1998, concluded the bank was involved in widespread tax evasion and imposed unwarranted fees and interest charges on customers.

They found several members of senior management, including Mr Lacey, bore responsibility for various improper impractices and failed to deal decisively with, among other matters, bogus non-resident accounts, the improper charging of interest and the handling of CMI policies.

The director claims it is clear from the inspectors report Mr Lacey failed to uphold or implement proper standards of corporate and banking behaviour and that the CEO demonstrated unfitness, a lack of commercial probity, negligence and/or incompetence in the discharge of his duties as an officer of the bank.

Mr Collins said the improper practices at NIB were all the more significant because they took place at a licensed bank.

The CEO of a licensed bank had a particular responsibility to ensure compliance with legal and ethical standards of corporate governance.

Mr Lacey, Pine Haven, Grove House Gardens, Blackrock, Co Dublin, was in court today for the opening of the hearing of the director’s application for a disqualification order under Section 160 of the Companies Act.

Two years ago, the High Court ordered Mr Lacey to attend for cross-examination at the hearing and that is expected to take place later this week.

The hearing, before Mr Justice Roderick Muprhy, is expected to last three weeks.

The application is one of nine brought against various NIB executives by the director arising from the inspectors report.

In an affidavit resisting the disqualification order, Mr Lacey, who was CEO of NIB between 1988 and 1994 and a director until 1997, rejects the findings of the inspectors in relation to him as “fundamentally flawed” and argues he disharged his responsibilities as CEO “diligently and competently”.

He had adhered to then “best practice” in terms of follow up by a CEO on internal audit reports and had taken several steps aimed at ensuring the Bank fuilly complied with legal and regulatory requirements, he said.

It was only at branch level within NIB there could have been first-hand knowledge that any particular account was “bogus”, he said, and he rejected the inspectors finding that serior management were aware of the existence of bogus non-resident accounts.

He said the position adopted by the bank concerning DIRT between 1988 and 1994, when he was CEO, was consistent with that taken by other banks. If NIB erred in its approach to DIRT, then the error was replicated throughout the entire financial sector, he said.

While he was CEO, NIB was regulated by the Central Bank and it was significant neither it nor NIB’s external auditors KPMG had never raised any concerns about the issues identified by the inspectors, he said.

This belied the inspectors findings the improprieties identified by them were so widespread throughout the NIB network he should have been aware of them.

Since leaving NIB, Mr Lacey said he has been heavily involved in various management and advisory positions in the State and private secrtor, nationally and internationally, and had discharged his duties in all cases “without even a hint of criticism”.

Among other positions, he was appointed chairman of the Irish Aviation Authority by the government in 1994 and was also appointed to the board of the Dublin Docklands Development Authority. He said he has a reputation as a businessman of integrity and competence and a disqualificaiton order was not only unwarranted but would have “the most serious reputaitonal reperceusasions for me”.

It was clear the Irish Government, other governments and many large companies and international organisations did not subscribe to the director’s “groundless” thesis as to his unfitness, he said.

In earlier proceedings arising from the inspectors’ report, Frank Brennan, of Ardglas, Dundrum, Dublin, was disqualified for six years; Nigel D’Arcy, of Castledillon, Straffan, Co Kildare consented to being disqualified for ten years and Barry Seymour, Mr Lacey’s successor and former executive director of NIB from April 1994 to July 1996, was disqualified for nine years.

Michael Keane, Corr Castle, Howth, Co Dublin was disqualified for three years while Patrick Byrne, St Helen’s Road, Booterstown, Co Dublin, was disqualified for four years. A stay was placed on the order relating to Mr Byrne pending an appeal to the Supreme Court.

The court ruled it would be “inappropriate” to make a disqualification order in the case of Kevin Curran, a retired regional manager with NIB, of Avondale Court, Blackrock, Co Dublin.