Most of us will be watching this week's Budget closely, but Kevin Kelly will surely watch it closer still. As the chairman and acting chief executive of the new Health Services Authority, he will be hoping, no doubt, for an infusion of public money into the system for which he will shortly become responsible, writes Fintan O'Toole
Most citizens will presumably hope he gets it and that our hospitals start to become civilised. Few, perhaps, will be aware that the man hoping so fervently to tap into the State's coffers once had a key role in an institution that did its best to keep them empty. And that lack of awareness says a great deal about the often bizarre disconnection between what the State takes in and what it spends.
Kevin Kelly is, by all accounts, a decent, highly capable, and well-motivated man. As a private individual he has, no doubt, the highest standards of probity. It is, nevertheless, worth dwelling on an irony that symbolises the strangeness of public values in contemporary Ireland. In his current job, Kevin Kelly has to be all in favour of State spending that must, of course, come from taxes. In his previous job, as group financial director of Allied Irish Banks, he had an insider's view of one of the largest schemes to evade the tax laws ever uncovered in the history of the State, the massive system of bogus non-resident accounts operated, among other financial institutions, by AIB. While Kevin Kelly had no personal responsibility for this scam, he did share corporate responsibility for the way the bank handled it.
Most of the damage to the health service that Kevin Kelly must now try to repair was inflicted in the 1980s and early 1990s, when Government cutbacks led to the closure of 3,000 hospital beds. Those cutbacks were prompted by the dire state of the Exchequer. We now know that part of the reason for that fiscal crisis was massive tax evasion by the wealthier parts of Irish society at a time when ordinary PAYE workers were paying penal rates of tax. AIB was part of that culture of tax evasion. In September 2000, the bank made a settlement with the Revenue of £90 million for its part in the evasion of DIRT by customers who, with the connivance of the bank, opened bogus non-resident accounts.
From the late 1970s to 1988, Kevin Kelly was involved with AIB as a senior partner with their auditors, Coopers and Lybrand. He joined AIB in January 1991 as group financial director designate, and took over the role fully that July. He thus came into the bank at precisely the time when the bank was coming under pressure from the Revenue in relation to the evasion of DIRT. By March 1991, the bank's internal auditor, Tony Spollen, was estimating that 60 per cent of its non-resident accounts were bogus and that "there is a contingent liability [ probably close to £100 million] for DIRT arrears back to 1986." In the first six months of Kevin Kelly's time at AIB, the bank internally reclassified £151 million from supposed non-resident accounts to DIRT-liable accounts. Its internal inquiries established that it had about 4,000 bogus non-resident accounts.
Throughout 1991, Kevin Kelly was involved in discussions at the bank about how it should deal with the evidence that it might owe tens of millions to the Revenue. In November 1991, according to his evidence to the Public Accounts Committee inquiry into the DIRT scandal, he had discussions with the new group internal auditor, Ian Howley, and gave him a copy of Spollen's report.
Kevin Kelly expressed the view in those discussions that there was no liability to Revenue, but told the auditor to discuss the issue with another official. At that subsequent discussion, it was agreed "that there is a contingent liability there but it would be impossible to quantify same without bringing the matter to the attention of the Revenue Commissioners and, obviously, we do not wish to go this route " When, at the PAC hearings, this last sentence was put to AIB's group general manager of the time, Brian Wilson, he replied, "I really don't know what to say. Obviously, Ian had a concern which he brought up with Kevin Kelly, but I really don't know what to say about it."
In a phrase Kevin Kelly used twice in his evidence, the issue of paying DIRT liabilities then "fell off the table". He explained this by his belief, and that of his colleagues, that they had an amnesty from the Revenue for their liabilities prior to 1990. In fact, as the PAC found, "there was no deal, agreement or amnesty involving the write-off of tax." Kevin Kelly's misapprehension, however, had the unfortunate effect of depriving the Exchequer of tens of millions of pounds at a time when the health service was in dire need.
Kevin Kelly also appeared before the PAC inquiry in his then role as chairman of the Irish Banking Federation. The late Jim Mitchell asked him whether the IBF had any code of ethics equivalent to those of the Medical Council or the Incorporated Law Society.
The reply was "No, Chairman, there isn't, certainly in the federation, no." If there had been a code, perhaps Kevin Kelly wouldn't be praying so hard right now for generosity from compliant taxpayers.