Evidence of widespread tax evasion through bogus accounts in the banking system has been uncovered by the Comptroller & Auditor General. The Revenue Commissioners are now beginning to pursue the millions of pounds owed in DIRT payments by the financial institutions.
In a report published yesterday, the Comptroller & Auditor General (C&AG), Mr John Purcell, details extensive evidence of bogus accounts being operated by most of the major financial institutions, mainly during the late 1980s and the early 1990s.
The report also indicates that bogus non-resident accounts may still be prevalent among the total non-resident deposit base of £15.9 billion. In many cases the correct declarations for these accounts are not in place and almost one in five had factors indicating that they might be held by residents.
An examination of a sample of 214 non-resident accounts with UK addresses found that in 27 per cent of accounts examined, a "strong possibility" existed that addresses being used were bogus.
The report shows that the widespread abuse of non-resident accounts was known to successive governments, the Department of Finance, the Revenue Commissioners and the Central Bank.
It indicates that policy-makers were reluctant to address the issue, fearing effective measures would lead to a flight of capital from the State, undermining the pound and pushing up interest rates.
Before introducing the 1993 tax amnesty, the Reynolds government was warned by Department of Finance officials that there could possibly be as much as £2 billion - in such deposits. However, finance officials still cautioned that any crackdown could drive funds from the State.
Despite uncovering bogus accounts in a number of bank branches in the late 1980s and early 1990s, the Revenue never systematically attacked the problem, the report shows. Only last year, after the issue became public, did the Revenue move into all the financial institutions to examine their controls. They are now in negotiation with a number of banks and DIRT worth millions of pounds is likely to be collected. State-owned ACC Bank has recently paid the Revenue £1.349 million in a voluntary interim payment pending a full Revenue audit going back to the introduction of DIRT in 1986. An external audit of the State-owned ACC Bank in 1992 concluded it had a potential Revenue liability of £17 million in relation to unpaid DIRT on bogus accounts.
National Irish Bank has set aside £1 million to cover any settlement it may have to make, according to the report. The report also reveals that funds totalling £13.8 million have been reported to the Money Laundering Officer as a result of the inquiry into the sale of unauthorised offshore bonds by National Irish Bank Financial Services Ltd.
AIB could owe the Revenue between £25 million and £35 million in DIRT tax arising from bogus non-resident accounts held between 1986 and 1991, the report says. However, the bank will contest such a liability strongly.
The clash between the Revenue and AIB is one of the issues which will now be pursued by a sub-committee of the Public Accounts Committee in pubic hearings starting at the end of this month. It is to use new powers to compel witnesses to attend and AIB will be among the first to be examined.
The Committee will also investigate the "diligence and performance" of the Revenue Commissioners in the collection of Deposit Interest Retention Tax (DIRT) during the 1986-98 period, and the extent to which they met their statutory obligations.
The sub-committee, comprising of six TDs, is to meet tomorrow to consider its next step. At the end of August it will then begin month-long hearings in what will be an unprecedented investigation into the workings of the financial system.