The Lowry trial: From tax return to criminal conviction

In August 2002, Michael Lowry took extended leave following a gruelling but successful general election three months earlier.

At the same time, Lowry’s refrigeration company Garuda Ltd, trading as Streamline Enterprise, was heading towards a year end loss and the jobs of 30 staff members were in jeopardy.

While holidaying in Spain, his political secretary Aileen Dempsey, took a call from Kevin Phelan, a regular visitor to Lowry’s constituency office, which ran out of the same building as Garuda.

She testified that Mr Phelan said he was owed money on a property deal and he was calling in the debt.

It took Ms Dempsey a few days to contact her boss. When she did he instructed her to raise an invoice to Norpe OY, a Finish refrigeration company, for commission due to Garuda and get the funds transferred to Mr Phelan. He said he had got the go ahead from Fred Ramsberg, Norpe’s CEO.

The payment was ultimately made to Mr Phelan through the Glebe Trust based in the Isle of Man.

It is this commission £248,624 (€372,000), which became the focus of a two week trial against both the politician and his company at Dublin Circuit Criminal Court.

Lowry (64) of Glenreigh, Holycross, Co Tipperary, had pleaded not guilty to four charges of filing incorrect tax returns on dates between August 2002 and August 2007 in relation to a sum of Stg £248,624 received by his company, Garuda Ltd and one charge in relation to failing to keep a proper set of accounts on dates between 28th August, 2002 and August 3rd, 2007.

He further pleaded not guilty on behalf of Garuda Ltd to three similar charges in relation to the company’s tax affairs and one charge of failing to keep a proper set of accounts on the same dates.

On Tuesday, both Lowry and Garuda were convicted of delivering an incorrect corporation tax return and failing to keep a proper set of accounts for the years between 2002 and 2007.

The jury were not able to reach a decision on the four remaining charges and a charge of failing to deliver an income tax return was acquitted by direction of the trial judge.

The prosecution was instigated by the civil investigation unit in Revenue after tax inspector Henry Oliver assessed that Lowry’s tax affairs could potentially be an attempt to evade tax and warranted criminal investigation.

The State claimed that the €372,000 was properly owed to Garuda Ltd. and therefore should have been accounted for in its 2002 accounts.

It was never accounted for in the company’s books that year but instead appeared in the 2006 accounts, increasing Garuda’s year end profits. The issue the jury had to decide, as Judge Martin Nolan stated in his closing remarks, was if Mr Lowry was aware of this and many other bookkeeping errors within Garuda.

In 1997 Mr Lowry got wind of a potential tax bill but it was not clear whether it would land on his desk or Garuda’s.

In anticipation of this he said leant about €450,000 to the company, re-mortgaging his home to allow him to do so. This figure was not recorded in the director’s loans as it should have been.

It was this behaviour which led Judge Nolan to refer to Lowry as “a conscientious tax payer” during the sentencing hearing.

He commented: “He seems to have rescued his company. If he had not put in a substantial cash infusion into the company it would not be operating at present.”

Lowry would later claim that it was on the back of this money owed that he allowed the €372,000 to be transferred to Mr Phelan. He said he took back the money owed to him at a time when his company was struggling having lost its major client, Dunnes Stores.

It was a hugely significant sum. The €372,000 would have amounted to 88 per cent of the certified gross profits for the relevant year, Remy Farrell SC told the jury.

Contracts

Norpe’s Fred Ramberg accepted during the trial that he had changed the contracts which underpinned the commission agreement between Norpe and Garuda. He accepted that he had crossed out Michael Lowry’s name and written “Glebe Trust” in its place and initialled the change.

He wasn’t exactly sure when he made this change but accepted that it could have been in 2008, six years after the cash was transferred to Mr Phelan.

Garuda never raised an invoice for the €372,000 it received as commission from Norpe.

Ms Dempsey said this was because Norpe requested an invoice from Kevin Phelan rather than Garuda. She never told Lowry that no invoice was raised.

Mr Farrell reminded Judge Nolan at the sentence hearing that there was evidence that an invoice was created for the €372,000 commission in 2008, which stated that the transaction took place in 2006.

When the company submitted corporation tax for the year ending 2002, the corporation tax form (CT1 form) that went in with the return was not signed.

It transpired that the company’s appointed accountants, BBT, had faxed through the form for Lowry to sign, and he signed it and faxed it back but the signed form was not submitted.

Lowry said he didn’t discover the fact the commission was not accounted for until 2006. He said “alarm bells went off” and he immediately contacted his accountant, Neale O’Hanlon, to fix it.

Mr O’Hanlon, or someone within his office, drafted a letter, got Ms Dempsey to type it and Lowry to sign it.

The letter read: “I issued an invoice to Norpe for money outstanding for commission due to Garuda Ltd up to the end of 2006 for €372,000. I obtained payment directly to myself for this amount. Please ensure that the money is properly reflected in the accounts with tax paid offset against the Director’s loan.”

Mr Farrell pointed out the issues with this letter; there was never an invoice. The money was not received in 2006.

Lowry said he didn’t know there wasn’t an invoice to back up the payment and Mr O’Hanlon said he didn’t know the payment was actually received in 2002 until a meeting with the politician in May 2013.

Eleven years after Lowry settled his debt with Kevin Phelan, Mr Oliver looked at the books and decided that the €372,000 constituted a wage earned by the politician. He decided that both Mr Lowry and Garuda owed income tax, PAYE and PRSI.

Lowry and his company were now facing a tax bill of €1.1 million, including imposed penalties and fines. The politician refused to accept the bill and challenged it successfully before the appeals commission in April 2015. The tax liability was set to nil.

Mr Oliver also said the commission was incorrectly accounted for in the company’s 2006 corporation tax return.

He determined that, even though Garuda had actually overpaid corporation tax in 2006, the company ultimately owed corporation tax of €5,415. Mr Oliver felt Lowry’s tax affairs were suspect and moved the file up to the criminal investigation unit on the fourth floor of Revenue’s building.

Patrick Treacy SC, defending Garuda, focused significantly on the staircase between the third and fourth floor in Revenue.

He asked each Revenue official during their testimony what floor of the office building their desk was on. He wanted to know if they met regularly, maybe for lunch or in this stairwell between the two floors. He wanted to know if they discussed his client’s case.

At one point, when Revenue officer, Sheila Hanley took the stand, Mr Farrell quipped “Let’s get this over with first. What floor were you on?” Ms Hanley looked decidedly confused when the courtroom erupted into laughter.

Mr Treacy continued to push on why the criminal investigation of Lowry’s failure to pay income tax continued when the appeals commission had ruled that he had no tax liability.

He endeavoured to specifically ask Mr Oliver the question; if his client and Mr Lowry had settled that €1.1 million tax bill without question, “would we be here today?”

No relevance

The question was immediately objected to by Mr Farrell and the jury temporarily dismissed. Judge Nolan was quick to rule in the State’s favour. The question was of no relevance to the jury, he said.

The issue it had to decide was whether the accused were guilty of the offences before the court, not whether they should have been prosecuted in the first instance. Mr Treacy was not allowed to continue with that line of questioning.

During his sentence hearing Judge Nolan remarked that he felt the case had been brought properly before the court.

At the end of the State case there was legal argument with both defence teams seeking an acquittal by direction of the trial judge.

The morning after Mr Treacy’s argument and before his own submissions began, Mr O’Higgins told the court that there had been discussions overnight.

He said he was looking for an acquittal on count one, the charge alleging that Mr Lowry had not declared the €372,000 as an emolument and had failed to pay income tax on it. The charge that related to the now void €1.1 million tax bill.

Mr O’Higgins said the State didn’t oppose his application, on the grounds that there was “no case to answer” and Judge Nolan agreed to drop the charge.

Mr Treacy later highlighted this event to the jury as “a key point in the trial”. He described this charge as the “engine” driving the case into the Dublin Circuit Criminal Court.

He said the “engine had now been decoupled from its carriages” and those eight carriages trundled on without direction.

Now in the closing minutes of the prosecution the State were left with eight charges relating to the failure of Garuda to include the €372,000 in the 2002 accounts and then the inclusion of it in the 2006.

This meant the case was hinged on an underpayment of €5,415 in corporation tax. A bill, of €29,000 including penalties, which was ultimately settled by Gaurda in 2015.

In the middle of Mr Treacy’s argument to withdraw the charges from the jury Judge Nolan asked the three legal teams to consider the case before it went any further. He said the “concession by the State”, not to oppose Mr O’Higgins’ application was “very significant”.

He said there had been a considerable lessening of the case against Lowry. “We are left with corporate tax,” he said before he rose to allow the teams to consider their position.

A few minutes later, the legal teams filed back into court and Mr Farrell informed Judge Nolan that the case was to continue.

In his closing speech, Mr Treacy now focused on the fact that it was “ludicrous” and “madness” for his client to before the courts on a charge that actually led to an overpayment of tax in 2006. He claimed that was the “fundamental question” for the jury to decide.

However, the legislation surrounding the charges, The Tax Consolidation Act, is silent on that point. It is not dependent on there being a deprivation or indeed a gain to the State for a prosecution to ensure.

In his closing address Mr O’Higgins asked the jury to ask themselves if they had ever made a mistake.

He said his client was a man who got first preference votes for decades in his constituency; a man who has retained his seat election after election since 1987 despite all the controversy that followed him.

He spoke of how there was “no aura or mystery” about Lowry, he was “just a grafter”. Mr O’Higgins suggested to the jury that the investigation against his client was “jaundiced from the outset”.

He highlighted the fact that his client was never questioned by Revenue, to give his side of the story, despite nominating a number of appropriate dates for a meeting.

During the entire two week trial Lowry didn’t appear too worried about proceedings.

He didn’t sit in the traditional dock but rather sat on a bench just behind it, sometimes crouched over taking notes and mostly with his back to the jury.

It wasn’t until his barrister’s closing speech, during which Mr O’Higgins claimed that the prosecution against his client was “jaundiced from the outset”, did Lowry turn his attention to the nine men and three women who were to decide his fate. He had his back to the jury again when they came into court 9, following eight and half hours and three days deliberation, to pronounce him guilty.

Lowry left the Criminal Courts of Justice a free man but a man who now has to pay out €25,000 in fines. He also has been disqualified for serving as a director of Garuda or any limited company for three years.