History: It started when someone contacted Eileen Fitzpatrick, the head of AIB Investment Managers last August and ended with three senior executives facing disciplinary charges, and further damage to AIB's already tarnished reputation and a €800,000 tax bill.

An investigation into a British Virgin Island company linked to former AIB executives snowballed into a scandal that implicates past and present members of the top management of the State's largest financial institution in tax evasion and possibly short-changing investment clients.

The initial investigation centred on a company called Faldor Ltd which had a "client relationship" with AIB Investment Managers between 1989 and 1996.

The "funders and beneficiaries" of Faldor were five "former senior executives" of the bank according to AIB's statement last night. The bank will not disclose the executives' names - citing legal reasons - and will not state if they worked at the bank during the critical period between 1989 and 1996. The bank refused to expand on the legal issues last night.

AIB has offered no description of what type of activities Faldor was engaged in other than describing it as an investment company. It claims that "there is no evidence that AIBIM clients were disadvantaged to the advantage of Faldor". But Faldor "appears to have been favoured to the extent of €48,000 at the expense of AIBIM in-house accounts and inappropriate deal-allocation practices."

Fund managers such as AIBIM manage money on behalf of numerous clients. It pools their assets in order to trade in the market with sufficient scale. Deal allocation is the process by which the profits of this trading is allocated back to the various funds. Best practice involves rules that ensure all funds are treated equally. But it would appear that Faldor received preferential treatment at the expense of one of the bank's own investment funds.

An investigation into the activities of Faldor carried out by the bank in consultation with the Irish Financial Services Regulatory Authority established that the "funds in Faldor" was approximately €750,000. It also disclosed that there was a "breach of tax law".

The Faldor investigation also set out to establish if any current or former bank executives had offshore accounts and whether any taxation issues arose. This part of the investigation unearthed another five executives - two former and three current - who had "tax issues". These five executives are in addition to the five involved in Faldor and their identities have not been disclosed.

A further investigation was ordered after the Faldor investigation. It was led by Mr Maurice O'Connell, the former governor of the Central Bank of Ireland.

Its brief centred on the bank's deal-allocation practices to see if there was any repetition of the favouritism shown to Faldor. It also examined how shares in companies that were coming to the stock market were allocated to senior bank executives. This was on foot of the revelation that Faldor had received shares in an unnamed company.

Mr O'Connell's investigation found that two "specialist trusts" were victims of "unacceptable deal-allocation practices" to the tune of €174,000. As a result the bank is repay these trusts €330,000.

However, the bank claims in its statement that "there was no case where it was established that clients of AIBIM were advantaged to the disadvantage of other clients". Arising from the findings of the O'Connell enquiry, the bank has been left with a tax bill of €800,000, which includes tax, interest and penalties.