DETECTION: Both Allfirst and AIB missed some critical opportunities to detect the fraud being carried out by John Rusnak, the Ludwig report has found.

This resulted in part from the failure of the currency trader's superiors to adequately supervise his activity.

The report points to the failure of Mr Rusnak's supervisors - his departed trading manager, the treasury funds manager Robert Ray and Allfirst treasurer David Cronin - to examine his positions and trades in any depth.

"Such a review should have occurred as a matter of course but certainly should have taken place given the overall size of Mr Rusnak's positions, of which Mr Rusnak's superiors in Allfirst treasury were aware," it said.

It noted that no-one in treasury noticed the options that supposedly expired unexercised the day the were purchased, "transactions that were not merely suspicious but nonsensical".

Rudimentary checks, such as taping Mr Rusnak's telephone line, were not in place, it added.

Another crucial lapse was the failure to examine the trader's daily profit-and-loss figures which swung wildly during this period and frequently exceeded his limits.

The report also identifies inadequate responses to issues with Mr Rusnak's trading that were identified.

It outlines six instances when problems came up that could have alerted his Allfirst bosses to what was going on.

One of these occurred in April 1999 when it emerged that the trader had occasionally instructed the back office to perform an irregular practice of withholding payment on trades. Complaints also surfaced about the back office's inability to obtain confirmations for transactions in the various prime brokerage accounts.

A meeting was called and Mr Rusnak was barred from using the prime brokerage accounts for a period of time but, after a brief hiatus, was allowed to resume trading.

The incident - which prompted Mr Rusnak to assert that the problems stemmed from the back and middle office's failure to understand how the prime brokerage accounts worked - also highlighted Mr Rusnak's "temper and bullying behaviour" at the bank, the report said.

"Numerous witnesses have described this period as one of extraordinary contention within Allfirst treasury.

"Mr Rusnak, in particular, was singled out for his berating of the back office and, according to some contemporaneous documents, threatening to have back office employees fired."

Difficulties confirming Mr Rusnak's trades were also a recurring phenomenon for the back office that should have set alarm bells ringing.

But the failure by treasury management to follow through on back office inquiries may have contributed to an attitude among operations staffers that the confirmation process was a pointless formality, the report notes.

"The back office, moreover, perceived a management bias to favour traders when back-office issues arose since the traders were the ones making money for the bank," it said.

Queries from outside, prompted by the sheer size of Mr Rusnak's positions, could also have alerted Mr Rusnak's supervisors that all was not well.

In March 2000, for instance, AIB's group treasurer Pat Ryan received an inquiry from Citibank about a large settlement that was due to occur at the start of April.

He made "discreet" inquiries as a result but was satisfied with the explanations provided and there was no further follow-up.

AIB's chief executive, Mr Michael Buckley, also made inquiries in May 2001 after a market source suggested to the bank that Allfirst was engaging in very heavy foreign exchange trading.

He spoke by phone to Allfirst treasurer David Cronin who looked into the matter and responded in writing that there had been no unusual or extra large transactions in the previous two weeks and that average turnover was $159 million.

"The written response to his inquiry was a forceful and categorical denial of any problem. This response satisfied AIB," the Ludwig report says.

Attention should also have been drawn to Mr Rusnak's activities by an inquiry by the Securities and Exchange Commission (SEC) into the cash flow related to foreign exchange activity.

Information sent by Allfirst to AIB for inclusion in a report to the Central Bank of Ireland also led to questions but again this came to nothing.

Aside from such specific instances that could have prompted inquiries into what was going on, the report refers to the failure of the trader adjacent to Mr Rusnak to notice anything was amiss as another missed opportunity.