NIB may face prosecution after inquiry

Press conferenceNational Irish Bank (NIB) and its financial services subsidiary may face prosecution as a result of the High Court inspectors' investigation of tax evasion and overcharging at the bank, the Director of Corporate Enforcement, Mr Paul Appleby, said yesterday.

There is a possibility that a number of the 19 individuals named in the report could also face prosecution or civil proceedings as a result of the inquiry.

Publishing the report compiled by High Court-appointed inspectors, accountant Mr Tom Grace and Mr John Blayney SC, yesterday, Mr Appleby said the findings were "deeply disturbing".

The inspectors found that between 1988 and 1998, NIB facilitated tax evasion through the use of bogus non-resident accounts, fictitious accounts and offshore investments, including the Isle of Man-based Clerical Medical International (CMI) bonds and a series of other products. They also established that it had improperly charged customers extra interest and fees.

The scandal has left the bank facing a total bill of €64 million, according to Mr Appleby. NIB will foot the €34 million bill for the investigation and has already been forced to repay €30 million to the State and to customers.

Mr Appleby said that responsibility lay with the bank's senior management. While the inspectors found that individual branch managers played a role facilitating tax evasion and overcharging customers, he made it clear that this was driven by "higher management".

The report names 19 individuals, as well as NIB's former auditors, KPMG, and its own audit committee, who it says either had knowledge of, or some responsibility for, what happened. They include former chief executive, Mr Jim Lacey, former financial services manager, Ms Beverly Cooper-Flynn TD, and former head of financial advice service, Mr Nigel D'Arcy.

Mr Appleby said his office was now focused on establishing what charges could be brought against the bank itself.

"My prime objective is to examine to what extent the bank as an institution can be prosecuted," he said. The maximum fine the bank would face if it was convicted would be €127,000 for every individual offence.

Mr Appleby made it clear yesterday that there was a strong likelihood that some of the individuals involved would face disqualification proceedings. This will prevent them from acting as directors, promoters or managers of a company in the future.

Mr Appleby also stated that he intended consulting with the Director of Public Prosecutions (DPP) to establish if any individuals could be prosecuted for criminal breaches of the Companies Acts and other offences.

"I think there are matters that go beyond the company law area," he told a press conference. "Clearly there are indicated breaches of tax legislation, of insurance legislation and the general criminal law. There is a possibility that it might include conspiracy to defraud."

He acknowledged that prosecuting individuals would be difficult. Five years ago, the High Court ruled that if a bank official made a confession to the inspectors, that confession would not be admissible in a subsequent criminal trial, unless the judge was satisfied that it was voluntary.

However, Mr Appleby said the report pointed to other evidence, such as internal bank documents, that could be used in a prosecution. He also argued that there was nothing to stop the State carrying out a criminal investigation into areas of the bank's activities.

Mr Appleby said the inspectors found that much of what happened was a result of the bank's culture, but they noted that this should be viewed in the context of the Public Accounts Committee (PAC) investigation of the DIRT scandal. This found that use of bogus non-resident accounts, and other systems, to facilitate tax-dodging were widespread in Irish banking.

He pointed out that Mr Blayney and Mr Grace found the bank facilitated its customers in evading tax to attract and maintain deposits. Products like the CMI bonds were used in this way, and as a substitute for bogus non-resident accounts after 1995.

The bank has since refunded £570,000 (€724,000) on 564 accounts where interest was overcharged. However, Mr Appleby said the inspectors do not accept that it is entitled to conclude that all incidences of improper charges have been identified.