Five former senior executives of AIB put money into an offshore company run by the bank's investment arm, in a scheme which the bank says involved a breach of tax law.
The bank made the admission yesterday in a statement, which added that the resulting investigation discovered that five further executives - three of whom are still working in AIB - had hidden funds from the tax authorities in other unrelated schemes.
Yesterday's revelations come as the bank is being investigated for overcharging certain foreign exchange customers and for assigning payment protection policies to some mortgage holders without their knowledge.
The bank faces another inquiry concerning overcharging for the management of some trusts.
The latest inquiry also discovered "unacceptable" practices at the bank's investment arm in the early 1990s which resulted in the repayment of €330,000 to two clients. AIB has also made an €800,000 tax settlement in relation to the affair, though the precise reasons for this remain unclear.
Faldor Limited, which was based in the British Virgin Islands and managed by AIB's investment management division between 1989 and 1996, had funds of approximately €750,000. It benefited from what AIB has described as "inappropriate deal allocation practices" to the tune of €48,000 at the expense of the bank's own in-house funds.
AIB said its internal inquiry concluded that the operation of Faldor involved a breach of tax law. The bank said that when the existence of Faldor was brought to the attention of the board in August 2003, it instigated an investigation - in consultation with the Irish Financial Services Regulatory Authority (IFSRA). This investigation discovered that in addition to the existence of Faldor, five other executives, three who still retain senior positions at AIB, held unrelated accounts which contained untaxed monies. The amounts involved were less than €16,000 each in relation to each of the executives still working at the bank.
A second investigation, chaired by Mr Maurice O'Connell, former Central Bank governor, discovered what the bank said was "unacceptable deal allocation practices" in nine transactions between 1991 and 1993 involving other clients of AIB Investment Managers.
AIB has said it will pay €330,000 to two clients - both specialist investment trusts - whom it estimates should have been allocated profits worth €174,000 from deals done by AIBIM. The bank has agreed to pay them a further €156,000 in interest to compensate for the loss of that investment.
The chairman of AIB, Mr Dermot Gleeson, said the practices disclosed were "completely unacceptable. High standards are what the 25,000 people who work in AIB most earnestly desire. It is no more than our customers, shareholders, employees and regulators are entitled to expect," he said.
The bank's chief executive, Mr Michael Buckley, said the practices uncovered had "no place in AIB". The bank refused to name the individuals involved, citing legal reasons. It said the investigations had been concluded and their findings considered by the AIB board when it met on May 18th. A copy of the report was also sent to IFSRA, which considered it at a board meeting on Wednesday and requested AIB to put the information in the public domain.
AIB said it had also informed the Revenue Commissioners as well as other appropriate regulatory authorities and statutory bodies.
Yesterday IFSRA said AIB had informed it of the issues surrounding the 10 executives nine months ago. The regulator noted that AIB had already taken action on some of these issues, including disciplinary measures. "We also note that AIB has committed to pay restitution plus interest to affected clients," it said.
Fine Gael finance spokesman Mr Richard Bruton said IFSRA must make a full and clear statement on the state of AIB's operations.
"What we need now is for IFSRA to discharge its duties and publish a full regulatory health-check on the company. Public confidence in the financial sector and in AIB in particular will continue to suffer until such a report is made public."