Much attention will be paid to the allegation that National Irish Bank may have invited a number of its customers to evade tax by taking out offshore life assurance products with an Isle of Man registered life company, Clerical Medical International. But was the very selling of the accounts also a breach of Irish insurance law?
Under the 1936 Insurance Act, insurance companies based outside this State must be authorised or licensed by the Government - in this case the Department of Enterprise Trade and Employment - to sell their products here. In the last five years this Act has been partly overridden by the EU`s First, Second and Third Life Directives, which permit life assurance companies registered in other EU member states to sell into the Irish market. They must, however, notify their intentions to do so to the Department as part of the authorisation process. CMI's UK parent, based in London, is believed to have notified the Department in mid1995 and to have received clearance to market a range of products. However, the CMI products were marketed before 1995 in Ireland.
Also, as the Isle of Man is outside the membership of the European Union, life companies registered there would not, under the 1936 Act, be permitted to sell their policies to Irish residents, say Irish life insurance industry sources. Did Clerical Medical International or National Irish Bank receive special dispensation from the Department to sell single premium bonds to Irish residents?
CMI says that, as its UK parent was registered to sell policies in Ireland, it was free to do so from its Isle of Man subsidiary. Investment advisors were suggesting last night that the bonds in question - open-ended single premium policies with a bank deposit fund as its underlying investment - are not an offshore investment which would normally interest investors. The only obvious motivation would be to hide income from the Revenue Commissioners. The set-up charges would be high and ,in this case, "fund" performance abysmal as there would have been no exposure to equities. In effect, the depositor would only be getting a normal deposit interest rate.
Set-up charges on life assurance investment funds are usually in the region of 5 per cent - the standard bid-offer differential. In addition, there is usually an annual management charge, though, given the deposit nature of this bond, it would have been difficult to justify the standard half to three quarter per cent fee most actively managed equity-based funds charge.
It is reported in this case that one of the National Irish Bank investors discovered that a £20,000 commission was paid to National Irish Bank from his £500,000 investment in the CMI bond. This represents a 4 per cent set-up charge. Did CMI receive the balance of 1 per cent, as per usual life assurance arrangements?
