Improper practicesStaff who carried out 'improper practices' were put in an invidious position, writes John McManus
The NIB inspectors draw a clear distinction in their report between the those who actually carried out "improper practices" and others who were aware of them, or should have been aware of them, and failed to stop them.
The latter group come off far worse in the report and encompass a great swath of the senior management of the bank between the late 1980s and the mid 1990s.
The others, who are in essence the front line staff up to the level of individual bank managers, get off relatively lightly. As the inspectors point, out the branch network was target-driven with goals for fee income and deposits, but only "limited support by way of systems or training to enable the achievement of these targets". Managers were under pressure to meet targets they did not set themselves and "feared criticism and possible humiliation before their fellow managers". As a result none are found responsible for what went on at the bank.
The exception to this is the Financial Advice and Services Division (FASD) which sold the now notorious Clerical Medical International investment bonds. The inspectors go through the nine financial services managers who sold the products individually, concluding that six of them, including the Mayo TD Ms Beverly Cooper-Flynn, as well as Mr Charlie McCarthy, Ms Patricia Roche, Mr Alistair Stewart, Mr Frank Lynch and Mr Bob Wynne, knew the money being invested was undeclared to the Revenue and that the bonds were being marketed as a safe home for such funds. The head of the FASD, Mr Nigel D'Arcy, comes in for particular criticism on the basis that not only did he know what was going on but "he failed to stop it". They go on to say he was "primarily responsible for the continuation of the practice" and the "responsibility of the financial services managers has to be judged against this background".
This sets the tone for the inspectors' apportioning of responsibility to Mr D'Arcy's superiors. If there is a common thread to what they find in respect of middle to senior management it is that the further they are from the bank counter the less they knew, but the more they should have known about what was going on and the more they should have done to stamp it out. However, this pattern ends abruptly at the chief executive level, with the board more or less exonerated.
At the level above branch managers, three regional managers - Mr Dermott Boner, Mr Kevin Curran and Mr Tom McMenamin - knew that there were problems both with the authenticity of non-resident accounts and the source of money for CMI bonds, but failed to act, according to the inspectors.
"Each was made aware, through internal audit reports circulated to him...of the deficiencies or 'irregularities' which existed in the operation of DIRT-exempt non resident accounts at branches," according to the report. The three had a responsibility to ensure that accounts were properly classified and DIRT deducted when the conditions attached to DIRT-exempt accounts were not met. "Mr Boner, Mr Curran and Mr McMenamin, each failed to discharge these responsibilities," they conclude.
As regards the CMI bonds the inspectors held that Mr Boner was aware that "FASD were promoting CMI policies as secure investment for funds which had not been declared to the revenue commissioners".
Mr Curran, according to the investors, "was aware that 'sensitive' funds and funds in bogus non-resident accounts and fictitious and incorrectly named accounts were being invested in CMI through FASD".
Both men "share responsibility for this practice and for the bank's failure to take steps to ensure that the promotion of CMI policies in this manner was stopped".
Two general managers, Mr Frank Brennan and Mr Michael Keane, are found culpable in a similar fashion, and also share additional blame for the bank's failure to refund overcharged customers.
"The inspectors believe...that Mr Brennan and Mr Keane were not only aware of the failure of branches to hold properly completed non-resident account declarations but ought also to have been aware that bogus non-resident accounts existed throughout the branch network," according to the report.
It was also the two men's responsibility "to see that regional managers secured full compliance with the statutory provisions relating to DIRT. They failed to discharge this responsibility".
The inspectors found that both men were aware of what was going on at FASD having received a memorandum from Mr Geoff Bell, the head of management services, which said that CMI policies were being promoted to "persons with 'sensitive funds' with 'confidentialty a prerequisite in investment'".
Both men shared "responsibility for the bank's failure to take steps to ensure that promotion of CMI policies in manner stated above was stopped".
Several other senior managers come in for criticism, they include the head of finance in 1994, Mr Patrick Byrne, who had a responsibility to raise "the issue of potential retrospective DIRT due on accounts wrongly classified...and failed to do so".
The head of the internal audit operation, Mr Paul Harte, was involved in having fictitious and incorrectly named accounts sorted out. He was aware, according to the inspectors, that some managers intended transferring the funds into CMI bonds and he "ought to have known that these 'solutions' were improper, as they served to encourage the continued evasion of tax by the bank's customers, and he should have refused to allow them to be adopted".
At the top management level, the chief executive until 1994, Mr Jim Lacey, and his successor, Mr Barry Seymour (who was called executive director), were also aware of the DIRT problem and found to bear "ultimate responsibility" for the bank's failure to pay.
Mr Lacey "was copied with internal audit reports and accordingly had notice of the deficiencies or irregularities which existed in the operation of DIRT-exempt non-resident accounts at branches".
The inspectors make the "inevitable inference" from what was in these reports that Mr Lacey should have been aware of the nature and scale of the problem.
Mr Seymour received similar reports and took corrective action following a special audit of the problem in 1994, but nonetheless still failed to discharge his responsibility to ensure DIRT was deducted.
Mr Philip Halpin, who was chief operating officer following Mr Seymour's departure in 1996, "had sufficient information to be aware there were continuing problems" and failed to ensure DIRT was correctly collected.
The inspectors were not able to establish if Mr Lacey or Mr Seymour knew what was going on at CMI, but argue that if they didn't they should have and thus bear responsibility. A similar conclusion was reached with regard to Mr Halpin.
Responsibility for CMI or DIRT however does not travel to the next level in the bank hierarchy. The board of NIB is found to be not responsible for "the improper practices which pertained". There is a mild reproof for the audit committee of the board which was "remiss" for not requesting that management quantify the potential liability that arose from the non-collection of DIRT. Mr Alex Spain, the former KPMG managing partner who was chairman of both the board and the audit committee for most of the period in question, in effect gets off with a slap on the wrist, while the other directors - including former Independent News & Media chief executive Mr Liam Healy and Waterford Foods chief executive Mr Stephen O'Connor - are exonerated.
The inspectors conclude that the board discharged its obligations by appointing an audit committee with "suitable terms of reference to deal with audit matters," which met regularly with the head of internal audit.
