Former NIB chief to be disqualified as conduct deemed ‘grossly negligent’

THE High Court has ruled that the conduct by former National Irish Bank chief executive Jim Lacey of various aspects of the bank’s affairs was “grossly negligent” and he should be disqualified from involvement in the management of any company on grounds of unfitness. The period of disqualification will be decided later.

Mr Justice Roderick Murphy found various breaches of duties by Mr Lacey as chief executive and director of NIB between 1988 and 1994 were “grossly negligent” and ruled his conduct fell below the required standard and “constituted a fundamental failure of governance”.

He was delivering his lengthy reserved judgment granting an application by the Director of Corporate Enforcement for a disqualification order against Mr Lacey under Section 160 of the Companies Act.

The director had argued the order was justified on foot of the report of the inspectors who investigated the affairs of NIB and NIB Financial Services between 1988 and 1998. The inspectors concluded the bank was involved in widespread tax evasion and imposed unwarranted fees and interest charges on customers.

The director claimed there was “a catastrophic failure of governance” during Mr Lacey’s tenure as chief executive and Mr Lacey must bear ultimate responsibility for “very serious wrongdoing” by the bank.

Mr Lacey, Pine Haven, Grove House Gardens, Blackrock, Co Dublin, had strongly opposed any disqualification order, arguing it was unwarranted and would have major reputational consequences.

Since leaving NIB, he was appointed to various state boards, including the Dublin Docklands Development Authority, worked with the World Bank and was a director of two International Financial Service Centre companies.

Based on the findings of the inspectors’ report and the court’s own findings on evidence in the disqualification hearing, Mr Justice Murphy ruled Mr Lacey was guilty of various breaches of duty and his conduct made him unfit to be concerned in the management of a company.

The judge agreed with the inspectors, Mr Lacey had penultimate responsibility to ensure Deposit Interest Retention Tax (DIRT) was deducted and paid from all accounts subject to DIRT and had failed to discharge that responsibility.

Mr Lacey was guilty of “a serious failure” to perform his duties as chief executive and director of NIB relating to his continual failure to ensure compliance with statutory requirements regarding non-resident deposit accounts and Clerical Medical Insurance policies, he found. Mr Lacey’s breach of duty in that regard meant he engaged in conduct making him unfit to be concerned in the management of a company.

While the inspectors had not found Mr Lacey knew of deficiencies in the operation of special savings accounts in NIB, Mr Lacey must bear ultimate responsibility for the shortcomings in that area. He also failed to manage the charging of interest or to supervise the refunding of interest improperly charged on accounts.

There was no evidence of breach of duty by Mr Lacey concerning fictitious or incorrectly named accounts during this period, the judge said.

While noting Mr Lacey had said he was unaware of various improper practices within the bank, the judge described as “bordering on incredulity” Mr Lacey’s insistence he did not know what a senior NIB official meant in 1989 when describing non-resident accounts as “a sensitive issue” and referring to “this thorny subject” of Revenue concerns.

Mr Lacey should have been aware, and in some cases was aware, of a practice of treating certain accounts as non-resident accounts when they were not, the judge said. Mr Lacey ought to have known that practice facilitated the evasion of DIRT.

It seemed “to strain understanding” Mr Lacey sought to deny his knowledge of non-compliance concerning payment of DIRT because the word “bogus” was not actually used by internal auditors.