From Haughey to Rusnak - a history of AIB scandals
IT WAS the length of time involved that was the most staggering aspect of it all. AIB had overcharged on certain foreign-exchange transactions not for a few weeks, or a few months, but almost 10 years. Today, with the publication of the independent investigators' report, the bank is expected to pay for that indiscretion.
But will it? Or is it merely the case that a handful of senior executives will pay by departing - ignominiously or otherwise - from the bank, thereby giving the appearance of a clean sweep being made while in reality nothing changes?
AIB has been down this road before. Of all the financial institutions, none can beat its record for enmeshing itself in controversy. Easing Charlie Haughey's loan woes. The ICI debacle. The Dana scandal. The bogus non-resident accounts. The Rusnak affair.
What has been most notable about all these controversies, though, is that the bank has, for the most part, sailed through them. They tarnished AIB's reputation a little. But the bottom line, to this point in time at least, has always been profit. And profits at the bank have been consistently impressive. It was instructive, for instance, to read AIB's press releases during the early part of this summer.
On May 11, the bank confirmed that an independent investigation had been launched into the foreign-exchange overcharging.
On May 27, it announced that a separate investigation had needed to be carried out into a different set of irregularities: the use by former senior executives of an offshore investment vehicle, called Faldor, which breached tax law.
On June 10, AIB said that the investigation into the foreign-exchange scandal would take longer than previously expected, because the probe had been widened to cover all charges since 1996 that were notifiable to the financial regulator.
On June 21, AIB issued another statement. It said the bank expected profits to grow by at least 10% this year.
What was most notable about the last statement was the overview it contained of AIB's Irish division.
"Customer demand for our products and services is strong. The loan book is on target to increase by around 20% this year, reflecting further market share gains across both the business and personal market sectors. Sales performance at Ark Life (an arm of AIB) is good."
In other words, the litany of controversies - including this year's batch - had not impacted severely on the bank's business. But then, this was a long established pattern. The bank has managed to find a way out of trouble time and time again, escaping to focus once more on what it does best: make profit. Often, it is the taxpayer who has taken the real hit.
One of the bank's most impressive manoeuvres came in 1985, when it deftly handed over the stricken Insurance Corporation of Ireland (ICI), which it owned, to the State. ICI was in debt to the tune of £120 million, and AIB asked the government of the day to bail it out by taking on ICI and those debts.
The State obliged.
The bank repaid the favour by becoming the biggest facilitator of bogus non-resident accounts - designed so that account-holders could avoid paying Deposit Income Retention Tax (DIRT) - in the country. Eventually, in 2000, the bank would hand over €114.3 million to settle its liabilities in relation to unpaid DIRT.
Many of the account-holders involved had the bulk of their assets wiped out as they struggled to settle their individual liabilities. As a result, a number are now suing the bank.
It was shareholders who suffered in the wake of the John Rusnak affair, which came to light in 2001. The rogue trader had lost $691 million at AIB's American subsidiary, Allfirst.
That year, the bank's profits took a rare stumble, but still amounted to a healthy e484 million. The share price, meanwhile, fell 20%, meaning shareholders had to endure a rough ride for a time.
However, AIB has generally managed to keep shareholders sweet courtesy of a simple practice: never missing a dividend payment, regardless of whatever problem is besetting the bank at the time.
But preventing such problems arising in the first place has, to date, been beyond the bank. The institution, and its profits, always seemed to come before best practice - even when the bank's own suffered.
This was perhaps best illustrated by the Dana scandal. In 1988, AIB put funds from the staff widows' and orphans' pension fund in jeopardy when using them to prop up share issue in the oil company Dana.
Allied Irish Stockbrokers was acting for Dana at the time in a placing of some 2.2 million shares in order to raise about £1 million as the company was floated on the stock market. It seems the placing may have failed, however, but for the intervention of the bank's investment arm, AIB Investment Managers (AIBIM). AIBIM subscribed for 25% of the issue, paying some £250,000 for shares. These shares were then placed in the various AIB pension funds, including £74,000 in the widows' and orphans' fund. The value of the shares would later drop significantly.
It was clearly questionable whether the bank had acted in the best interests of its deceased employees' families, or indeed of its employees and clients in general.
But there was no legislation in effect in Ireland at the time preventing such manoeuvres. Technically speaking, therefore, it was not a notifiable offence.
There was a clear offence involved, however, in this year's Faldor controversy. Faldor was an offshore investment vehicle managed by AIBIM on behalf of five former senior executives of the bank. The scheme, which had operated between 1989 and 1996, breached tax law, effectively working as a form of tax evasion. Some of the executives involved said they had already settled their liabilities in respect of the scheme with the Revenue Commissioners; others said they had been unwitting beneficiaries of it.
Whatever the case, it was another dent in AIB's image, which has been badly blemished by decades of scandal. The question is whether today's report will prove a turning point for the bank.
Up to now, the pattern has seemed to be that, publicly, AIB would admit the latest controversy had caused the bank's reputation immense damage, and that further episodes of such magnitude could not be tolerated. Privately, however, little would change, apart from profits increasing. A fresh scandal would then hit AIB, and the bank would go through the same charade again.
There is now a feeling in the banking sector, however, that AIB has finally recognised it is time to get its house fully in order. That task falls largely to AIB chairman Dermot Gleeson, who must ensure that the internal structures of the bank are righted.
Today should form the first step in that process, albeit a tough one, for it involves reacting positively to a report which is likely to be very negative about practices at the bank.
As a former attorney general, Gleeson has dealt with his share of difficult cases. He may find that, in AIB, he has one on his hands to compare with any of them.
AIB will today reveal the findings of its own investigation which was headed by Lauri McDonnell.
A former Comptroller and Auditor General, his appointment as the independent assurer of the investigation was approved by the Irish Financial Services Regulatory Authority.
AIB promised he would have access to external independent audit expertise in carrying out the investigation.
The Office of the Director of Corporate Enforcement (ODCE) is also investigating AIB Investment Managers (AIBIM).
The director, Paul Appleby, said there were a number of issues about AIBIM which concerned him, but he would not go into the specifics.
When it was put to him that an issue might be the possible facilitation by AIBIM of tax evasion by its clients, Mr Appleby said that was "a reasonable conclusion to be drawn" from what is known but would not comment further.
He said AIB had indicated that it was going to co-operate fully with all regulatory authorities and "we are expecting that we will receive full co-operation from AIB in these inquiries".
The Irish Financial Services Regulatory Authority (IFSRA) will today reveal the findings of its investigation into revelations that AIB was overcharging foreign exchange customers by an estimated €20m. It is also looking at the possibility that AIB branches not meeting their targets altered exchange rate to increase profits.
IFSRA also investigated how AIB charged customers for a mortgage protection scheme they never agreed to. AIB said it will refund in excess of 500 customers affected. A spokesman for the bank said it is offering refunds to customers who had payment-protection plans automatically provided when they obtained a top-up on their mortgage.
The Dáil Finance Committee is seeking to compel AIB officials to appear before it. However, AIB chief executive Michael Buckley has written to committee chairman Seán Fleming TD to reiterate the bank will only attend after completing its own investigation.
The Revenue Commissioners, under Chairman Frank Daly, launched a major investigation into tax matters at the Allied Irish Bank group. Officers from the investigations and prosecutions division are leading it assisted by officers from the large cases division.
"The rot set in in the late 1980s and early 90s. That was the turning point that has brought us to the current banking crisis."
"There's no point in having a watchdog like IFSRA and then barking yourself."
"Lapses of control and improper practices of this kind are clearly unacceptable."
"How so many things were happening is just hard to believe quite frankly."
"You never see one of those guys in Armani suits being asked to hang them on a peg on the back of the door in the Mountjoy."
"I receive this news, as I received the news of the foreign exchange charges, with dismay."
"I am fully tax-compliant."
"I was invited to join an investment fund that was professionally managed by AIBIM on behalf of senior executives of AIB Group. I regarded this opportunity as a benefit attaching to my position as group general manager and it was my understanding that it had been in existence for some time."
"Serious and deeply disappointing."
"As far as we were concerned our funds were placed with AIBIM in good faith to be managed in a proper and lawful manner in a taxed fund."
"This issue goes to the very top levels at AIB."
"AIB are the biggest tax dodgers in the history of the State."
"This must be the banking sector's very own phenomenon of immaculate conception - amazing things happen but nobody knows quite how."
"Some of the reporting of what has happened has suggested that responsibility might be assigned to junior staff. Let me make it clear that responsibility will be fully and independently determined by the investigation and that issue will be addressed by the AIB Board. Nothing in the information available to date suggests that responsibility for what happened rests with junior staff."
"I do not understand how people at the very top of these institutions could be involved without knowing anything about it."
"A chief executive, who had 40,000 invested for him with magnificently generous returns, is giving the impression that the closest he ever came to hearing a word like 'Faldor', might be a Dubliners' song containing the words 'with me right fal-de-o'."
"I am happy that the historic, unacceptable deal allocation practices in AIBIM identified in the investigations are a thing of the past and had, by 1997, been replaced by the good practices and standards that remain in place."
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