High Court proceedings have been initiated by the group internal auditor at Allied Irish Banks to prevent his removal from his position. AIB declined to comment on weekend reports of the legal action but banking sources confirmed a Sunday Business Post report of the proceedings.
The AIB group internal auditor, Mr Eugene McErlean, is claiming that the bank want to "scapegoat him for the debacle at Allfirst". AIB Group lost $691 million through a fraud at its Allfirst subsidiary in the US.
An independent report commissioned by AIB and carried out by US banker Mr Eugene Ludwig found that a combination of bullying, laziness and weak management at Allfirst allowed foreign exchange trader Mr John Rusnak to defraud the bank of $691 million.
AIB shareholders meet in Belfast this week for their annual general meeting which will provide the first opportunity for shareholders to question the board about the Allfirst fraud, the findings of the Ludwig report, group policies and procedures to protect against fraud and the group response to US losses. The meeting will be held on Wednesday at the Culloden Hotel, starting at 11a.m.
Mr McErlean is seeking an injunction preventing AIB from interfering with his role or responsibilities, from appointing anyone else to the position of group internal auditor or from publicising any decision to remove him.
He is seeking a court declaration that he continues to hold his position as head of group internal audit at AIB and is seeking damages for defamation, stigma, conspiracy, intimidation and breach of contract and general damages. He is seeking that AIB be required to fund his pension, life assurance and death-in-service benefit and to preserve his bonus and remuneration.
AIB will vigorously defend itself against the allegations, banking source said. Mr McErlean is claiming AIB's decision to remove him was without basis and should not be allowed to stand because it was a disciplinary sanction taken without any complaint or charge against him or allowing him an opportunity to challenge any evidence or confront any accusers. He claims the move breaches established AIB's internal procedures and the principles of natural justice.
In March AIB chief executive Mr Michael Buckley said: "The position of internal auditor falls due to be filled in the normal way later this year. The position will be filled by external appointment."
The Ludwig report listed several examples of how Allfirst and AIB management missed opportunities for detecting the fraud which began in 1997, including information on unusually heavy trading volumes at Allfirst and the size of the cash flows required to support Mr Rusnak's activities.
