Former taoiseach's intervention with the Revenue led to an offer to cut Dunnes Stores tax bill by £22.8m, the tribunal found, writes Colm Keena, Public Affairs Correspondent.

The direct linking by the Moriarty tribunal of the actions of the late Charles Haughey to the reduction by Revenue Commissioners of a massive tax bill being faced by the Dunnes Stores group, makes it arguably the most serious commercial scandal in the history of the State.

The then head of the largest privately owned business in the State made payments of more than £2 million to the then Taoiseach, precisely because of the office he held.

In return, Haughey asked the then head of the Revenue Commissioners, Seamus Paircéir, to meet Ben Dunne and the two men entered into negotiations during which the chairman offered to settle a £38.8 million tax bill for £16 million.

This "real and tangible benefit for Mr Dunne" was "directly consequent on Mr Haughey's actions", the tribunal found.

The £16 million figure, a reduction of £22.8 million in the overall bill, was the amount that the Dunne family trust had offered years earlier when the tax bill was first raised by the Revenue and that had not been accepted.

Despite the fact that the £16 million settlement offer was not actually taken up by Dunne, the chairman of the Moriarty tribunal, Mr Justice Moriarty, found that the offer was a real and tangible benefit for him, in that it provided Dunne with an option that had not previously been available to him.

The type of scenario that the experienced High Court judge has now said he is satisfied existed, after many months of evidence and years of private inquiries, is the stuff of Hollywood thrillers.

The players involved and the persons who were close to it, came from institutions and firms operating key organisations in the public and private sectors.

Paircéir was given a draft copy of the findings to be made against him some months ago. The Irish Timeswas told at the time that he was very angry with the findings and that he might speak with this newspaper after the final report was published. However, he has not been contactable over recent days.

Haughey died in June. For health reasons he had ended his dealings with the tribunal when the fact of the involvement of Paircéir first became known to the tribunal. However, he had earlier said on a number of occasions that Dunne had not requested any favours in return for the money he gave him.

When called to give evidence, Paircéir said he had not felt he was obliged to inform the 1997 McCracken tribunal about the request from Haughey that he deal with Dunne, or the subsequent negotiations he had with Dunne.

Dunne, for his part, said he had forgotten about the meetings with Paircéir until they were discovered by the Moriarty tribunal.

Dunne has reacted angrily to the tribunal report, apparently particularly annoyed with the judge's decision not to accept his sworn evidence that he had forgotten about particular payments to Haughey until they were discovered by the tribunal. Dunne has gone on national radio to emphasis how upset he is with a report that he says labels him as a liar, and to insist that he does not lie.

Mr Justice Moriarty does not use the word liar in his report, but the contents make it clear that he considers Dunne to have been less than truthful about some very significant matters, over a period of more than 12 years.

A game of two halves . . .

According to Dunne, he was taking a lot of drugs in the late 1980s and early 1990s. This habit may have been in part due to the torture and trauma he'd suffered when kidnapped by the Provisional IRA in the early 1990s. Dunne has made it clear he still suffers the effects of this period and that the symptoms include memory loss.

Dunne was also in this period in charge of what was a rapidly growing family retail empire. The Dunnes Stores group was owned by an unlimited holding company which was, in turn, owned by a trust. The Dunnes Settlement Trust was established in 1964 by the founders of the group, Ben Dunne snr and his wife Nora. The trust was to have a life of 21 years, and the beneficiaries were to be the couple's six children. The children were not trustees.

The trust was due to expire in March 1985, at which time the shares in the holding company would be divided among the beneficiaries. Due to changes to the tax laws over the years, the trust would become liable for capital gains tax at the end of its lifetime, and the beneficiaries would become liable for capital acquisitions tax when the shares were transferred to them.

Advisers to the trust and the family feared the total tax bill could be equal to 50 per cent of the value of the group. There was a concern that the group would have to raise funds publicly, or that part of the group would have to be sold.

When negotiations with the Revenue aimed at getting a way around this problem led to the view that an alternative option was not a runner, the trust decided in 1985 that it would seek to avoid the huge tax bill by transferring the hugely valuable shares in the Dunne holding company into a new trust.

This is what happened on the day before the old trust was due to expire. However, the Revenue decided this was a "deemed disposal" of the shares and that it gave rise to capital gains tax, if not a capital acquisitions tax bill.

The bill, when issued in November 1986, was for £38.8 million, and was computed on the basis that the shares held by the trust were worth £120 million (still a large amount of money, but in mid-1980s Ireland a huge amount of money). The trustees appealed and the issue was set for hearing by the Appeal Commissioners in September 1988. The potential tax haul was so big at the time that the Department of Finance was aware of it and considered it a significant possible benefit to the public finances.

A key issue in the whole matter was the computation of the value of the shares in the holding company at the begining and the end of the 21-year life of the trust. These figures would define the size of the capital gain that was to be taxed.

Negotiations on the issue took place between the Revenue and the trustees in 1985 and 1986 but appeared to go nowhere. A senior official involved in the case, Don Thornhill, discussed matters with Paircéir on September 3rd, 1986, and the men agreed that little progress was being made.

Mr Justice Moriarty, in his report, said there was "a game of two halves" element to the discussions between the Revenue and the trust. The first half occurred when Dr Garret FitzGerald was taoiseach, and Alan Dukes was minister for finance; and the second when Haughey came to power on March 10th, 1987, after the February 17th general election.

An early contact in the matter was between trustee Frank Bowen and Dukes. The meeting was organised by the late Hugh Coveney TD and Mr Dunne attended. Dukes expressed the view that the group could fund the tax bill. After the meeting he told Bowen that Paircéir would be in contact, and that how the matter was handled was a matter for the Revenue and not for him, the minister.

A meeting subsequently occurred involving a number of Revenue figures and a number of trustees. The issue was a valuation of the group that would let the trustees distribute the shares without triggering too high a tax bill. Paircéir and the other officials refused to come down to a valuation that would satisfy the trustees, and the trustees decided the only option was to go ahead with the creation of a new trust. The trustees said they could pay a bill of £16 million but the Revenue wanted far more.

Some subsequent contacts occurred between Paircéir and Bowen. The idea that the trustees might appeal to the minister against the strong line being taken by the Revenue was considered but not proceeded with. Bowen became less involved in the matter.

The "second half" of the State's dealings with the Dunne trust began after Haughey's return to the office of Taoiseach in March 1987. A successful policy implemented by that government was the setting up of the IFSC. Paircéir was on the committee that was overseeing the policy and it seems that in the second week of April, 1987, Haughey drew Paircéir aside following a meeting of the IFSC committee. Paircéir told the tribunal that all he could recall was that the Taoiseach asked him to meet with Dunne. He said he would have met Dunne anyway if he'd been asked by Dunnes' adviser Noel Fox or Bowen.

A series of meetings did take place. Revenue notes indicate Dunne (who wasn't a trustee) said he wanted to settle as he couldn't be sure of winning the case at the Appeal Commissioners. Paircéir, who seems to have attended some of these meetings on his own, and Dunne discussed the issue while in the background officials, at Paircéir's request, looked at different approaches to calculating the value of the Dunnes group. These calculations all involved arriving at significantly lower tax bills. Paircéir was also conscious that any settlement would have to be justified to the Comptroller and Auditor General.

At the initial meeting, Mr Justice Moriarty said, Paircéir may have suggested a reduction in the bill from £38.8 million to £23.6 million, and Dunne may have responded that this was still too much for him to pay. At a second meeting Paircéir suggested a £16 million settlement.

At a third meeting, according to a Revenue note dated June 4th 1987, Paircéir and Dunne agreed on a £16 million settlement, with three years to pay. It was not a final agreement as Dunne wanted to think further about it.

Dunne had not suggested any settlement figures and they had instead come from Paircéir, according to the report. Paircéir said he was not expecting to lose the appeal case, but that all such cases involved risk and for that reason a settlement was attractive. In the end the settlement never went ahead, seemingly because Dunne failed to bring it to conclusion. Paircéir retired in September 1987 and his successor, Philip Curran, did not get so closely involved.

The hearing before the Appeal Commissioners duly went ahead, Dunnes won and the bill was dropped.

Meanwhile, a series of payments from Dunnes Stores and Ben Dunne to Haughey had begun and continued until after he left office in 1992.

Commercial terrorism:

When Dunne was removed from his position within the Dunne group in 1993, he went to war against his siblings. He sought to force them to pay him for his part of the group by threatening the existence of the trust. He listed a number of threats in a phone call to trustee Bernard Uniacke. The threats involved disclosing that money had been taken out of the group when that money by rights belonged to the trust. He said he would refer to "£1 million paid to a member of the previous government to influence legislation affecting the trust."

He also told Uniacke, who took a note: "If they are taking me out, I will take them out." It was, Dunne said, a case of "commercial terrorism".

These threats were issued in the course of a row that could have destroyed the Dunnes group and that on the face of it was heading towards the High Court. When asked about his linking the payments to Haughey to matters to do with the trust, Dunne told the Moriarty tribunal that most of what he told Uniacke was true, but not the bit about the payments to Haughey being linked to the trust. No evidence has ever been heard of any effort to influence trust law.

Tripleplan:

The Moriarty tribunal discovered payments from Dunnes to Haughey over and above those disclosed during the fight within the Dunne family and during the work of the 1997 McCracken tribunal. These new payments included a substantial one that came to be called the tripleplan payment.

The new payments had the effect of pushing backwards the date at which the money started to flow to Haughey, so that the flow seemed to have begun in and around the time he was elected Taoiseach, and not in November 1987 as the McCracken tribunal had been led to believe and which was a month after the Appeal Commissioners hearing. This new picture meant the money flow had begun when the Dunnes tax bill was very much a live issue and more closely matched Haughey's being elected Taoiseach.

Dunne, and Fox, agreed they must have known about the Tripleplan payment at the time of the payment, but said they had forgotten it subsequently. This was despite the fact it caused a headache for the Dunnes auditors (Oliver Freaney & Co among them) for years after it had occurred.

In Dunne's defence, it was argued that the tripleplan payment was not mentioned at the time Dunne listed payments made to Haughey as part of his "commercial terrorism" campaign against his siblings. If he had remembered it, it was argued, he would have added it to the list, as it would have been in his interest to do so. But Mr Justice Moriarty, in his report, turned this argument on its head and used the facts to support his conclusion that the payments to Haughey were linked to the trust's tax bill.

"It seems to the tribunal that the potential risks attendant on disclosure of these payments (in view of their proximity, and in particular the immediate proximity of the tripleplan payment to dealings between Mr Dunne and the Revenue Commissioners at the behest of Mr Haughey) may have been considered by Mr Dunne to outweigh the benefits of disclosure in terms of litigation, bearing in mind that Mr Dunne's claim was sufficiently particularised by the four payments made subsequent to May 1987."

In other words, Dunne had enough ammunition against his siblings with the payments he chose to disclose, without dragging in the contacts he'd had with Paircéir that led to the offered settlement, because of the trouble such a revelation might cause.