Analysis: The bank has paid €800,000 but will not expand on the reasons why, writes Colm Keena.
Tax evasion is the common thread in the unacceptable practices uncovered at AIB in the wake of the investigation of Faldor, the offshore investment vehicle owned by a group of AIB's five most senior executives. The bank has admitted to making an €800,000 settlement but the how and why of the payment has not been disclosed.
The Revenue Commissioners refused yesterday to discuss the nature of any settlement it had arrived at with AIB.
In its statement, the bank was careful to use the word "underwrite" in connection with the payment. The inference here is that, although the bank may be settling the debt, it is not necessarily its own liability.
The Revenue became aware of the problem at AIB after the bank had disclosed the existence of a difficulty to the Irish Financial Services Regulatory Authority (IFSRA), in September 2003. IFSRA availed of its power to convey information to other relevant authorities that might have an interest in issues arising from its investigation. This had uncovered an offshore investment company, Faldor Ltd, that was being managed by AIB Investment Managers (AIBIM) on behalf of five senior executives.
Critically, from the Revenue's point of view, the investigation had concluded that Faldor had been involved in a breach of tax law. Of equal interest to the Revenue was the uncovering of another five executives with tax issues relating to offshore funds.
In its statement issued on Thursday, AIB said the two former and three current senior executives of the bank, who were unconnected with Faldor, had "tax issues" and the issues involved "periods ending in 1998".
"In respect of the three current executives, the average amount of untaxed monies was less than €16,000 each."
No detail was given regarding the two former executives.
Further tax issues were uncovered by a second inquiry supervised by former Central Bank governor Mr Maurice O'Connell.
He focused on "deal allocation" practices in AIBIM. Deal allocation is a phrase that seems to broadly mean the fairness with which different accounts were treated in the allocation of market opportunities and the profits which arose from them.
"There are taxation consequences arising from some of the practices identified in the investigation. These amount to approximately €800,000, including tax, interest and penalties, which AIB will underwrite."
What exactly led to this tax debt is not clear and AIB has declined to expand on the matter and, in particular, on what it meant by the word underwrite.
A possible explanation is that the bank has agreed with the Revenue that the taxes owed on the issue uncovered will be paid, one way or the other. However, it has yet to be established who the money should come from - the persons who benefited from the transactions or the bank.
The AIB statement said that Faldor appeared to have been favoured to the extent of €48,000 at the expense of AIBIM in-house accounts, and inappropriate deal-allocation practices. In such an instance, it may be argued that some liability for the benefits that accrued to the owners of Faldor belongs with AIB. The bank will not expand on the matter.
The amount of funds in Faldor was approximately €750,000, according to the bank. If each of the five executives had an equal stake, that would make for €150,000 each. It is not a huge amount of money for people who were presumably very well off.
The bank said no case has been discovered where clients of AIBIM benefited at the expense of other clients of the same company. However, it also said that unacceptable deal allocation practices were identified in the case of two specialist trusts. The amount involved was €174,000 and total compensation of €330,000 is to be made.
The disclosure by AIB on Tuesday, at the prompting of IFSRA, comes in the midst of a series of scandals involving AIB. Whether the public would have ever been informed of these matters had AIB not already been a hot issue was raised by a number of interested sources yesterday.
