The ongoing dealings between the State and brothers Thomas and Michael Bailey, of Bovale Developments, bring into sharp focus the concerns that have long existed about the appetite for punishing Irish white collar crime.

The brothers, aged 52 and 60, have been operating one of Ireland’s largest and most profitable house and commercial building operations for more than half a century.

They are still in business today courtesy of the State-financed National Asset Management Agency.

For most of their career, they were insiders, close to Fianna Fáil. But it was this aspect of their activities that in the end led to their affairs being investigated, and eventual public opprobrium.

The planning tribunal was established in October 1997 to examine allegations of corruption and, as part of its work, looked into the affairs of Bovale – despite legal objections from the brothers and what the tribunal later described as hindrance and obstruction by them.

The two brothers, and Caroline Bailey, Bovale's book-keeper and wife of Thomas, told the tribunal that the company's records, from its inception in 1983 to 1996, had been stored in a container on a building site in Finglas. But, according to Mrs Bailey, the records had been destroyed in a fire in July 1997.

In fact, as the tribunal's subsequent report noted, the fire had occurred in July 1998, at a time when orders by the tribunal for the discovery of the documents were being contested and the Supreme Court was about to give its ruling to an appeal brought by the Baileys.

The tribunal went to Bovale’s then auditor, Joe O’Toole, of McGrath & Co, to get copies of his working papers, only to be told that they had been dumped after a flood in the auditor’s office in 1991.

Nevertheless, the tribunal, working with later documents and the Baileys’ personal bank accounts, established that Michael, Thomas and Caroline Bailey were “systematically engaged in siphoning off substantial company funds for their own purposes”.

Cheques were recorded in a cheques payment journal as being issued to creditors when, in fact, they were being cashed by the Baileys. In the three years to June 1991, the tribunal decided, the amount siphoned off was £578,842.

Using the draft accounts for 1996 to 1998, and the cheque journals, the tribunal established that payments totalling £735,000 were falsely recorded in the cheques journal by Caroline Bailey. The trio conceded this fact in evidence to the tribunal. Payments to politicians recorded in the cheque journals were also disguised as payments to creditors.

Pocket
notebook
A wire-bound pocket notebook that was examined by the tribunal was given the sobriquet, the Kitten Notebook.

Michael Bailey produced it in an effort to support evidence he was giving to the tribunal.

The notebook had records of payments made in 1990 and included relatively minor weekly cash payments, mostly to employees, which were not going through the company books.

The tribunal concluded that other notebooks no doubt recorded the much larger payments that were going to the Baileys. These were never produced.

It also concluded that Mrs Bailey was “adept at falsifying documents and producing falsified documents when required to do so”.

Extracts dealing with these matters from the planning tribunal's Second Interim Report, published in 2002, were subsequently part of the evidence the Office of the Director of Corporate Enforcement (ODCE) sought to introduce to a case it took in 2006 against Michael and Thomas Bailey.

The tribunal found in 2002 that Michael Bailey had made a corrupt payment to former Fianna Fáil minister Ray Burke, and in 2005 that he had made a corrupt payment to Dublin assistant city and county manager George Redmond.

In its accounts for 2003, Bovale recorded a profit after tax of €55.36 million and said the brothers had been paid €8.2 million.

The company subsequently changed its status to unlimited, and no longer publishes accounts.

However, it emerged in court this week that PAYE in respect of the brothers’ income from Bovale over the period 2001 to 2012, had totalled €61,494,559.73.

The evidence produced by the tribunal prompted the Revenue Commissioners to investigate Bovale and the Baileys.

This led to an eventual settlement for €22.17 million – the largest in the history of the State, in 2006, of which €12.5 million was tax and the rest interest and penalties.

Settlements are only published where the taxpayer does not qualify for voluntary disclosure status. No criminal charges were brought and a spokeswoman for the Revenue said this week that it was precluded by law from discussing any taxpayer’s affairs.

McGrath & Co issued a formal notice in 2000 saying Bovale had failed to keep proper books of account for 1997 and 1998. In 2003, Aidan Nolan, a principal officer with the Revenue, sent a letter to the ODCE saying it had formed the view that company law offences had been committed by Bovale.

The ODCE appointed Peter Lacy, managing partner with PricewaterhouseCoopers, to look at the Bovale books for 1997 and 1998.

Two reports he produced mirrored the findings of the tribunal. The reports showed that the accounts recorded directors’ gross remuneration for 1997 of £137,384 when in fact the brothers had received an additional £2,467,408. The analogous figures for 1998 were £200,000 and £3,683,226.

In total, the understated directors’ remuneration for the two years exceeded £6 million.

The Bovale auditor, working with the new cheque journal information disclosed at the tribunal, worked out that for 1997, 141 cheques had been treated incorrectly in the documentation originally given to him, and 129 of these had to be reclassified as payments to directors. The equivalent figures for the following year were 189 and 167.

In his conclusions, Lacy recorded: “During my career in public accounting in Ireland over the last 35 years, I have not encountered a failure to maintain proper books of account that compares with the extent and gravity of the failures in respect of Bovale for the two years.”

The civil law case originally taken in 2006 by the ODCE against the brothers, to have them disqualified from operating as company directors, had sought the courts to consider "wrongdoing covering the entirety of the period from 1998 to 2000", as was noted by Mr Justice Irving in a November 2007 judgment.

Much of the evidence for this extended period was objected to by the Baileys on the grounds that it was hearsay or opinion, in part based on the findings of the tribunal which could not be used against them in court.

This dispute over what could be used in evidence, and whether a warrant used to search the Bovale offices had been properly obtained, went to the Supreme Court on appeals from both sides, which were ruled on in July 2011.

The result was that the case taken against the brothers was restricted to the years 1997 and 1998, and that the findings of the tribunal could not be used to support the case being taken.

It was also found that the warrant had been improperly obtained. However, the ODCE argued that the material it based its case on was not that seized on the basis of the warrant, but rather on copies of returned cheques sourced from the Bank of Ireland, Montrose, Dublin.

Court ruling
When Ms Justice Finlay Geoghegan at last ruled on the ODCE application earlier this week, she found that Thomas and Michael Bailey were "guilty of fraud in relation to Bovale and a creditor, namely, the Revenue Commissioners, by reason of the systematic scheme of false accounting" in relation to pay to the brothers in the years 1997 and 1998.

She found that the misconduct was “particularly serious” and, for this reason, decided that the appropriate period of disqualification – prior to considering mitigating factors – was 14 years, a very lengthy period for such disqualifications.

The brothers did not oppose the orders for disqualification but asked that the court take into account their behaviour since 2000, what they claimed was their “voluntary disclosure” to the Revenue, their working with Nama, their acknowledgment of their wrongful past conduct, and their claim to having learned from their mistakes.

They also asked the court to consider the work done by Bovale and its benefit to the community, as well as the fact that they have kept their business going despite the collapse of the property market, and continue to provide employment.

The judge considered these factors and concluded the appropriate period for disqualification, in all the circumstances, was seven years. Bovale’s loans were transferred to Nama in 2010 and since that date the brothers have been working with the State agency to keep their business afloat. In filings in the UK, British group companies have said they are seeking loans from Nama in an effort to complete projects and maximise the value of work in progress.

Ms Justice Finlay Geoghegan has put a stay on her order so that consideration of altering her order so as to accommodate the brothers’ work with Nama, can be considered. A hearing is to take place on January 20th next.

A request for an interview with the brothers met with no response.