The inspectors' main findings

Evasion of Revenue Obligations: Incorrectly Classified Non-Resident Deposit Accounts

The inspectors find:

1. Bogus non-resident deposit accounts were opened and maintained by the bank and were widespread in the branch network during the period of the subject of the investigation.

2. The opening and maintenance of such accounts by the bank constituted an unlawful and improper practice which served to encourage the evasion of Revenue obligations by third parties, both on the funds deposited and on interest earned.

3. Up until May 1995, senior bank management failed to inform branch staff in clear terms of the relevant provisions of the Finance Act, 1986 - that non-resident deposits had to be treated as deposits in respect of which DIRT had to be deducted from the interest unless the bank was satisfied that the person beneficially entitled to the deposit was non-resident. In addition, senior bank management failed to have a review conducted at that time to ensure that all existing non-resident accounts were genuine.

4. At branch level, the bank failed to deduct DIRT from bogus non-resident accounts and from non-resident accounts where a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners was not held by the branch.

5. Although senior management was aware of the existence of bogus non-resident accounts, the bank failed to account to the Revenue Commissioners for the DIRT properly payable on the interest paid or credited on such accounts.

6. The bank failed to account to the Revenue Commissioners for DIRT payable on the interest paid or credited on non-resident accounts where the bank did not hold a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners.

Evasion of Revenue Obligations: Fictitious and Incorrectly Named Accounts

The inspectors find:

1. Fictitious and incorrectly named accounts were opened and maintained by the bank and existed throughout the branch network during the period of the investigation up until the end of 1996.

2. The opening and maintenance of such accounts by the bank served to encourage the evasion of tax as it concealed the true ownership of the funds in the accounts.

3. Bank personnel were aware or ought to have been aware of the reason for the opening of such accounts.

4. In 1995 and 1996, when branch managers were directed that all fictitious and incorrectly named accounts must be regularised and/or closed, even where there was a possibility that the business might be lost, managers sought to retain for the bank the funds on deposit in such accounts by proposing to the customers that they invest in CMI, or by suggesting that they deposit the funds in another branch of the bank in their correct names.

In the opinion of the inspectors, these "solutions" were improper because they served to encourage customers to continue to evade tax.

Evasion of Revenue Obligations: Special Savings Accounts

The inspectors find:

1. The bank failed to deduct Deposit Interest Retention Tax (DIRT) at the standard rate from interest paid or credited on accounts designated as Special Savings Accounts where the branch did not hold a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners or where there had been a breach of the statutory requirements relating to withdrawals.

2. Although senior management was aware of the breaches of the relevant statutory requirements, the bank took no steps to calculate and remit to the Revenue Commissioners arrears of DIRT due, being the difference between tax at the standard rate, which ought to have been deducted, and tax at the reduced rate actually applied.

Evasion of Revenue Obligations: The Sale of CMI, Scottish Provident International and Old Mutual International Policies

The inspectors find:

1. Monies which were undisclosed to the Revenue Commissioners, including funds held in bogus non-resident accounts and fictitious and incorrectly named accounts, were targeted by bank personnel for investment in CMI policies.

2. Bank personnel promoted CMI policies as a secure investment for funds which had not been declared to the Revenue Commissioners, thereby engaging in a practice which served to facilitate the evasion of Revenue obligations by third parties.

3. Prospective investors were given an assurance by bank personnel that their investment would be confidential from the Revenue Commissioners and, if made the subject of a trust, would pass to their beneficiaries without probate having to be obtained, thus making it possible for the funds invested to be kept hidden from the Revenue Commissioners even after the investor's death.

4. The role of the branch personnel of the bank was to identify likely investors, and the role of the FASD personnel was to introduce customers to CMI and induce them to take out policies with CMI.

5. The purposes for the bank behind the execution of such policies were:

(i) The earning of commission.

(ii) The retention of deposits.

(iii)The gaining of new deposits.

The Improper Charging of Interest

The inspectors find:

1. During the period the subject of the inspectors' investigation, the interest charged by the bank to some customers in their quarterly account included sums which were not in fact interest.

2. The inclusion of such sums in the charge for interest was improper.

3. The sums which were improperly charged as interest should, on discovery by Internal Audit, have been immediately refunded by the bank.

4. While the inspectors note that since the commencement of their investigation, the bank has refunded to customers an inflation-adjusted total of approximately IR£570,000 in respect of charges which could not be justified as interest on 564 accounts in 12 branches, they do not accept that the bank, on the basis of its investigative work done, is entitled to conclude that all incidences of improper interest charges have been identified.

5. Refunds of sums improperly charged as interest made following the bank's investigation should not have excluded sums charged for the suspension of cheques.

The Improper Charging of Fees

The inspectors find:

1. Between 1988 and April 1996 there was no system in operation at the branches for the contemporaneous recording of administration and management time.

2. The manner in which branch managers purported to charge fees for administration and management time during this period was in the opinion of the inspectors improper, resulting in some customers being overcharged across the branch network.

3. While the new system for recording and charging account administration time introduced in March 1996 was to take effect from the May/August charging period of 1996, this system did not become fully operational in the branches on schedule, and extensive manual adjustments were still being effected in a number of branches in November 1997.

4. Customers at branches other than those at Carndonagh, Cork and Waterford were overcharged and have not been refunded.