Ex-NIB chief’s claim on bank wrongdoing ‘extraordinary’

IT IS “quite extraordinary” the chief executive of a licensed bank operating in the state should say he was unaware “very serious wrongdoing” was happening within the bank, it was argued before the High Court yesterday.

There was ample evidence for the court to find there was a “very, very serious breach of duty amounting to gross negligence” by Jim Lacey when he was chief executive of National Irish Bank (NIB) between 1988 and 1994, Maurice Collins, counsel for the Director of Corporate Enforcement, said.

Mr Justice Roderick Murphy is hearing closing legal submissions in the application by the director for a court order disqualifying Mr Lacey from involvement in the management of any company on grounds of unfitness.

Mr Collins said there was adequate material in the report of the inspectors who investigated the affairs of NIB over 1988 to 1998 and from evidence to the court to support making that order. While the director was not alleging dishonesty by Mr Lacey, he was contending Mr Lacey was responsible for “a fundamental failure of governance”.

Mr Lacey had presided over the bank at time of very serious wrongdoing, including the corralling of customers with hot money in the CMI (Clerical Medical Insurance) scheme so they could evade tax obligations, counsel said. For Mr Lacey to say he was unaware of this was “an admission of failure” on his part.

Counsel said Mr Lacey was involved in the selection of Nigel Darcy as head of NIB’s Financial Advisory Services Division (which was involved in setting up the CMI scheme).

The division was not “a cloak and dagger operation” or “a secret society” within the bank whose activities would have remained hidden, he said. It had communicated openly within the bank and it was the director’s case, had Mr Lacey taken the trouble to ask and inquire, he would have known the activities of the division “in their full colour and obnoxiousness”. Mr Lacey’s stated ignorance of the CMI issue was “extraordinary”.

While Mr Lacey also argued he had not read internal audit reports disclosing a widespread problem across the bank of accounts incorrectly classified as non-resident, it was the director’s case any responsible chief executive could and should have read those reports, counsel said. It would have taken 20 to 30 minutes to read them.

A chief executive who took seriously the issue of the bank’s compliance with the Finance Act could have been left in no doubt from those audit reports there was significant non-compliance across the branch network, he argued.

The reports showed widespread recurring deficiencies in relation to all aspects of DIRT (Deposit Interest Retention Tax) with multiple instances of branches adopting “care of branch” addresses for supposedly non-resident accounts and accounts whose “non-resident” status conflicted with the bank’s own records.

The reports also revealed a consistent pattern of the same branch managers who had allowed irregularities occur previously being permitted afterwards to just say, yes, a review is in place and everything was fine, counsel said.

Counsel for Mr Lacey, John Gordon, said it was refreshing the director had stated the inspectors had made no finding of dishonesty by Mr Lacey and nor was the director alleging dishonesty.

The director’s case rested essentially on an allegation of incompetence by Mr Lacey “rather floridly portrayed from time to time”. The distinction between dishonesty and incompetence was of enormous importance to Mr Lacey who had been 20 years in banking before he became chief executive of NIB.

The fact the NIB inspectors had found no fault, apart from a limited exception, with either the internal or external auditors of NIB, put into context the unreality of the criticism being made of Mr Lacey of failing to pick up matters in the audit reports. Issues raised by those reports had been addressed by the bank, he said.

Closing submissions are expected to conclude today. The judge is expected to reserve his decision.