The sub-committee finds:
1. There was no coherent or planned approach to the DIRT issue.
2. There was an incoherent, spasmodic and ad-hoc engagement on the part of the deposit-takers and the State and its agencies with the issue of bogus non-resident accounts.
3. Implausible the supposed pragmatic resolution of this problem using the capital flight argument to support the cautious phased implementation of the law.
Ministers for Finance
4. No official proposals for strengthening the law in relation to DIRT were made to any minister for finance in the period from 1986 to 1998.
5. There was no instance where a minister for finance improperly intervened with the Revenue Commissioners during the period in question.
6. It (is) remarkable that successive ministers had so little awareness of the Revenue operating procedures.
7. It is incomprehensible that ministers as the sole shareholder should not have been informed of the situation at ACCBank.
8. Resulting from the inadequacy of reporting procedures concerning ACCBank, ministers were unable to discharge their responsibilities for the bank in an appropriate manner.
9. Claims of failure of political will are groundless as no official proposal ever reached the minister and the proposals by one minister to provide for full disclosure based on computerised returns of all bank accounts were not proceeded with because of official advice.
The State and its agencies
1O. There is no evidence that there was a coherent, systematic approach or commitment, formal or otherwise, to a working out over a period of the endemic problem of tax evasion through the use of bogus non-resident declarations.
11. The relationship between the Department of Finance, the Revenue Commissioners and the Central Bank in the relevant period is defined by a certain informality while at the same time characterised by certain features of territoriality.
12. The grip of the theory of capital flight and its intertwining with the problem of bogus non-resident accounts is indicative of an absence of rigorous analysis. The story of the affidavit of 1983 - how it emanated, was introduced and withdrawn - again is illustrative of a certain ad hoc approach, informality and lack of rigour. This applies not simply to the department but also to the two related agencies, Revenue and the Central Bank, during the relevant period and in respect of the issue of bogus non-resident accounts.
13. There was a particularly close and inappropriate relationship between banking and the State and its agencies. The evidence suggests that the State and its agencies were perhaps too mindful of the concerns of the banks, and too attentive to their pleas and lobbying.
Department of Finance
14. There was a certain informality within the Department of Finance, for example, meetings of the Management Committee (MAC) did not have agendas and minutes were not kept for most of the period under review. The department today is an elaborate organisation of divisions and assignments of duties and responsibilities. Yet on the evidence given to the sub-committee by officials past and present, there was in the relevant period, and there may be today, insufficiently clear management information systems.
15. The Department did not fully inform ministers during the relevant period (1986 to 1998) in relation to the problem of bogus non-resident accounts.
16. Reliance by senior Finance officials on the fear of capital flight as reason for not tightening up on the operation of DIRT cannot be reconciled with their advocacy of mandatory affidavits in 1983.
17. There was no proper analysis of the capital flight theory - along the lines, for example, of confronting the proposition expressed by Dr Somers with the more conventional view. This was despite the fact that the evidence was, even at the time, that non-resident accounts stayed put in the midst of currency upheavals, and that bank deposits resident and non-resident grew progressively throughout the period.
Revenue Commissioners
18. During the relevant period Revenue's freedom of action in relation to deposit takers as taxpayers was restricted by law as compared to its powers vis-a-vis taxpayers generally.
19. During the relevant period, given the scale of DIRT evasion, it is clear that the law was not applied equally as between categories of taxpayer.
20. There was no structured, formalised policy evaluation process in Revenue Commissioners. There was no organised research programme. The one piece of original policy and research work undertaken was that of Mr Moriarty in his paper. This was a personal initiative, albeit by a very senior official, and the Commissioners did not act on it. This was a failure in strategic and policy management.
21. Given the conviction in Revenue about bogus non-resident accounts, it was a serious lapse on the part of the board of the Revenue Commissioners not to have taken an industry-wide initiative with a view to getting the financial institutions to apply the law.
22. The absence of a countermand to the prohibition in SIM 263 is a major failure on the part of the Revenue Commissioners. The prohibition in SIM 263 was temporary yet it was not rescinded during the relevant period - 12 years.
23. SIM 263 immensely compounded the problem of bogus non-resident accounts. The problem was further compounded by the fact that the banks knew of the reality of non-inspectability even if they did not all know of the existence of SIM 263.
24. The limited powers of inspection that were put in abeyance by SIM 263 would have had a deterrent effect. The sub-committee heard evidence from tax inspectors that this restriction hampered their work and led to unfairness in the tax system, in that it enabled large-scale tax evasion to be organised through the deposit taking system.
25. There were well motivated officials in Revenue doing their best in an environment lacking overall professional management and strategic direction and consequently there were some quite inexcusable lapses.
26. The failure to tackle the DIRT problem was a contributing factor to the fiscal crisis of the time and delayed the process of restoring order to the public finances.
27. While some improvements are being implemented in the overall management, co-ordination and direction of the Revenue Commissioners, these will need to be evaluated against performance.
The Central Bank
28. Bogus non-resident accounts were breaches of exchange control and the Central Bank took no action.
29. Exchange control could have had a role to play in tackling the problem of bogus accounts during those years of the relevant period during which the control was in place (1986 to 1992).
30. The Central Bank had responsibility for defending the exchange rate in its protection of the integrity of the currency. No evidence was provided to the sub-committee that the Central Bank ever built economic models of capital movement, currency speculation or currency crises that incorporated the demonstrated immobility of bogus non-resident accounts for exchange rate policy purposes or for regulatory purposes.
31. The flight from disclosure hypothesis was recognised within the administrative system and that there was also empirical evidence to support the hypothesis. The possibility of using exchange control in an attack on the problem was examined and was rejected.
32. The constant intrusion of the capital flight theory into discussion of the problem of bogus non-resident accounts was inappropriate. The more relevant hypothesis was not capital flight but flight from disclosure and flight from taxation - tax evasion.
33. There is nowhere in the evidence given at the hearings or in the documents discovered to the sub-committee evidence supportive of the view that the Central Bank was engaged with deposit takers in working out the problem of bogus non-resident accounts. The evidence suggests that the Bank saw itself as having no role in tackling the problem.
34. The Central Bank had an inappropriate and outmoded approach to supervision given the growing sophistication of banking and the changing role of banks in society.
35. There was an insufficient concern with ethics and supervision other than from the standpoint of a traditional and narrow concern with prudential supervision in the Central Bank.
36. The Bank knew of the problem. It was, with the other two agencies, Revenue and the Department of Finance, conscious for an extended period before and after the introduction of DIRT of the existence of evasion.
General Findings
37. That the problem of DIRT evasion was an industry-wide phenomenon.
38. Boards of directors of financial institutions generally betrayed an overly relaxed attitude towards discharging their statutory and fiduciary duties in respect of the operation of DIRT.
39. No evidence emerged in an examination of the behaviour of the boards of financial institutions generally to suggest the operation of a planned and pragmatic work out of the problem of bogus non-resident accounts.
40. Given the eminence of many of the members of the boards of directors of financial institutions, it is surprising that they did not bring a greater weight to bear on the enforcing of ethical standards either within their organisations or the banking sector generally.
41. The industry representative bodies exercised no role in developing a code of practice that would have addressed ethics in banking.
42. Individual financial institutions generally regarded corporate governance and banking ethics as being outside the remit of industry- representative organisations.
43. It is surprising that board members of different financial institutions have not recognised the need for an effective industry-wide forum to set and enforce standards.
44. The deliberate exclusion of industry representative bodies from any role in regulation of banking has negative repercussions for industry standards.
45. That the boards of directors must accept full responsibility for the companies over which they presided and clearly the role of the board and individual directors in financial institutions requires new guidance, vetting and checking by the Central Bank.
External Auditors
46. There were a number of serious defects and weaknesses in relation to the statutory external audit function, which contributed to the continuance of the bogus non-resident problem, and these require to be addressed urgently.
Allied Irish Bank
47. There was no deal, agreement or amnesty involving the write-off of tax. The fact that AIB was allowed to persuade themselves that they may have an understanding to this effect is due in part to the negligence of the Revenue Commissioners.
48. The Revenue Commissioners have offered no justification for their failure to follow up on the actions of 1991.
49. Nothing that transpired at the meeting of February 13th 1991 between AIB and the Revenue can be construed as a deal to write off arrears of DIRT.
50. AIB did not make full disclosure to the Revenue either at this meeting or subsequently.
51. There is nothing in the Revenue letter to AIB of February 15th 1991 signed by Mr D.A. MacCarthaigh, that can be construed as a deal to write off arrears of DIRT. In fact it makes clear that any cases discovered prior to June 30th 1991 would be the subject of a DIRT payment.
52. That no reliance whatsoever can be placed on AIB's note of their alleged telephone call to Mr D.A. MacCarthaigh of February 26th 1991.
53. The assurance given in the memorandum of Dr D. de Buitleir, AIB head of group taxation, of March 12th 1991, on which others so heavily relied, is not sustained by the evidence.
54. PricewaterhouseCoopers, AIB's external auditors, were in error in relying on the findings of the audit committee of the AIB board of directors and the memorandum of Dr de Buitleir of March 12th 1991 in relation to these matters. The sub-committee further finds that the external auditors should have sought independent written confirmation to support the assertion of a deal, especially since Dr de Buitleir's own conclusion was dependent on "understandings with the Revenue Commissioners and their good faith".
55. Mr J. Culliton and the AIB audit committee of which he was chairman were entitled to attach some significance to the independent opinion of the external auditors that no liability for arrears of DIRT arose.
56. It extraordinary that there appears to have been no significant involvement by the AIB's then chief executive, Mr Scanlan, in relation to the DIRT issue.
Bank of Ireland
57. The sub-committee finds that the most senior executives in the Bank of Ireland did seek to set an ethical tone for the Bank and unsuccessfully sought Revenue assistance in promoting an industry-wide code of practice.
58. Notwithstanding the Bank of Ireland's formal commitment to compliance, there were serious breaches throughout the branch network over a number of years.
59. Despite undertaking to conduct an extensive audit of Area South (i.e. Munster) - following the discovery by Revenue of breaches of DIRT at their Roscrea branch - the bank never disclosed the outcome of the audit to Revenue.
60. There is no evidence that the exercise undertaken in Area South was a reliable audit, and it was never written up or documented. Nor did it discover very serious breaches at the Bank of Ireland's branch at Miltown Malbay which were uncovered by Revenue a few months after the audit of Area South.
61. The discovery at the Miltown Malbay Bank of Ireland branch of serious breaches of DIRT would not have been overlooked if the extensive audit of Area South, promised by the bank, had been properly carried out as indicated.
62. The Revenue failed to follow-up on the commitment by Bank of Ireland to conduct an audit into Area South and Revenue again failed to secure disclosure of the "audit" after discovery of Miltown Malbay. The sub-committee finds these failures inexcusable.
63. The Bank of Ireland was in error in not calculating a liability in respect of the bogus non-resident accounts brought to its attention by internal audit and for not making full disclosure and payment to the Revenue.
64. The issue disclosed in relation to the Investment Bank of Ireland (IBI) highlights how the competitive imperative gained supremacy over the compliance ethos and that the bank ought to have sought guidance from the Revenue in this case and failed to do so.
65. Given the quality of the internal audit reports and material, the Bank of Ireland audit committee could reasonably have been expected to assimilate that information and bring its implications to the attention of the board and failed to do so.
Ulster Bank
66. Whereas a scrupulous adherence to formal compliance seems to have been dictated from the top at Ulster Bank, this was at variance with the practice discovered by internal audit in parts of the branch network.
67. Although the Ulster Bank internal audit regime on the surface seems impressive, it did not in fact check for authenticity thus diminishing the value of the internal audit process.
68. Where breaches were discovered in Ulster Bank, there is no evidence that disclosure was made to the Revenue or that arrears of DIRT were paid.
69. It is difficult to understand why the results of Ulster Bank's 1993 review are available for the city branches but not available for branches outside of the city area and, therefore, the sub-committee finds that the figures for the city area alone cannot be relied on by Revenue in computing any liability.
National Irish Bank
70. Letters urging compliance from top executives in NIB mattered for very little throughout the branch network where deficiencies were widespread and uncorrected.
71. The introduction of the theme audit by National Australia Bank was a valuable innovation the findings of which were largely ignored by senior management of NIB.
72. In respect of the widespread breaches discovered by the 1994 theme audit NIB failed to take effective action.
73. Notwithstanding the grave warnings accompanying the 1994 theme audit, the results of the 1998 theme audit were not markedly different.
74. NIB failed to disclose the contents of the 1994 theme audit to Revenue although they were in correspondence with Revenue on the matters encompassed by the audit.
75. NIB relied on a formula worked out with their tax advisers KPMG for their negotiations with Revenue which ignored any risk factor other than absence of documentation and which disregarded the findings of the 1994 theme audit.
76. The audit committee of the NIB board of directors lacked effectiveness, influence and direction.
Irish Life and Permanent
77. Whereas the response of Irish Permanent's internal auditor to the serious breaches at Killarney is commendable, the sub-committee finds it unacceptable that no arrears of DIRT were paid to Revenue.
78. Given the breaches discovered, including Killarney, the decision of Irish Permanent's internal auditor to abandon DIRT audits between 1992 and 1998 to be ill-judged.
79. The decision to abandon DIRT audits between 1992-1998 to be a significant contributory factor leading to the necessity to reclassify 2,380 accounts in June 1999.
80. Where breaches of DIRT legislation were found in Irish Permanent and led to reclassifications, payment of arrears of DIRT were generally not made nor was there disclosure to Revenue.
81. The contention by Mr Roy Douglas of Irish Life and Permanent (now owners of Guinness & Mahon) that the Ansbacher device "is the simple straightforward set of relationships that exist between a depositor and a bank" is astonishing and lacking in any credibility. The sub-committee makes no other finding, since these issues are being inquired into elsewhere.
ACCBank
82. The contention by ACCBank, that what transpired at the meeting of February 18th 1993 with the Revenue Commissioners was tantamount to a deal to write off arrears of DIRT, to be without foundation.
83. The decision by Ernst & Young, external auditors and tax advisers to ACCBank, to drop their own calculation of DIRT arrears - without due regard for the legal obligations of the Bank in relation to DIRT - to be without justification.
84. It impossible to reconcile the knowledge in the possession of Ernst & Young with the unqualified opinion given on the 1992 financial statements of ACCBank.
85. Arising from the calculation done for the long form report, the senior management of ACCBank knew by February 18th 1993 that there was an enormous problem with arrears of DIRT. No disclosure of the scale of the problem was made to the Revenue. The sub-committee finds that this was especially unacceptable behaviour by a State bank.
86. Ernst & Young acted improperly in not challenging the nondisclosure by ACCBank at the meeting with Revenue of February 18th 1993 at which they were present, even though they were in possession of the information.
87. Notwithstanding the issuance of formal letters on compliance, that there was in ACCBank a general disregard for compliance insofar as DIRT was concerned throughout the period.
88. Remarkable the absence of any evidence to suggest that the DIRT issue ever exercised the chief executive of ACCBank. The sub-committee finds it incomprehensible that this state of affairs continued even after the chief executive received the first draft of the long form report.
89. It was improper for ACCBank not to inform the shareholder, the Minister for Finance, of the implications of the first long form report.
90. It was unacceptable that senior management withheld information from the board and latterly from the chairperson, Ms Gary Joyce.
91. It is incredible that the Department of Finance can claim to have been unaware of a serious compliance problem in ACCBank.
92. The extent to which the Ministers for Finance were never fully informed of the deficiencies within ACCBank illustrates the failure of reporting structures between the bank and its shareholder. Successive ministers for finance must accept responsibility for this failure, especially in view of the rescue of the bank by the Government in 1988.
Oireachtas Reform
93. Oireachtas procedures and practices have not kept pace with the needs of modern society and additional staffing and resources are necessary.