Ernst & Young loses bid to halt Anglo probe

ACCOUNTANCY firm Ernst & Young has lost its High Court bid to halt the investigation into its conduct as auditors to Anglo Irish Bank when dealing with alleged inappropriate loans to directors of the bank.

Ms Justice Mary Irvine ruled yesterday the firm was out of time and had shown no arguable grounds entitling it to bring proceedings to “effectively torpedo and thus fatally terminate” the two-year investigation by special investigator John Purcell, appointed by the Institute of Chartered Accountants (ICAI) regulatory body (CARB) in early 2009.

She also ruled the firm had advanced no arguable case for proceedings to prevent a report by forensic accountants FTI into the conduct of Ernst & Young as auditors to Anglo being forwarded to CARB in the event of a finding by Mr Purcell of a prima facie case that Ernst & Young is liable to disciplinary action.

Among various claims in its application for leave for judicial review, the firm alleged the investigation to date is unfair because reports leading to Mr Purcell’s appointment did not contain valid “complaints” as they failed to set out specific allegations, including of misconduct, or to refer to codes of conduct, rules, regulations and professional standards.

If a “complaint” had to be set out as required by Ernst & Young, the vast majority of complaints made by people, even if wholly meritorious on their facts, could never be investigated, the judge said.

Mr Purcell, she noted, was appointed by the Complaints Committee of CARB on foot of various matters in media reports, including a claim by an accountancy expert that Ernst & Young should have spotted that former Anglo chairman Sean FitzPatrick had engaged in a process of temporarily concealing directors loans by transferring them to another bank prior to Anglo’s year end.

The by-laws under which Mr Purcell was appointed render members of the ICAI liable to disciplinary action in a wide range of circumstances and the definition of “complaint” was drafted in wide and clear terms to include any behaviour which may be suspect, the judge said.

Any act or default likely to discredit a member of the institute, the institute itself or the accountancy profession, or the inefficient or incompetent performance of accountancy duties, left that member open to disciplinary action.

The firm had also made out no arguable case of breach of natural justice or fair procedures in the investigation to date, she ruled.

The investigation was at “a preliminary phase” and the firm’s rights at this stage were limited, she said. It was entitled only to be notified of the complaint and given an opportunity to respond to it. It was not entitled under the by-laws to an advance copy of Mr Purcell’s proposed findings so it could make submissions on those.

The firm has had details of the issues under investigation for two years and the procedures adopted by Mr Purcell had afforded the firm rights significantly beyond those to which it was entitled under the relevant by-laws, she noted.

If, after receipt of Mr Purcell’s report, the matter proceeds via formal complaint to a disciplinary tribunal, the by-laws provide “very significant” rights to enable Ernst & Young safeguard its interests, she added. In those circumstances, the firm would get Mr Purcell’s full report and all documents being relied upon and would be entitled to call and cross-examine witnesses and make submissions.

At all stages, Ernst & Young was advised by Mr Purcell it would get a synopsis or summary of his investigation plus relevant material so it could make, within 28 days, written submissions to him, she said.

After considering those submissions, Mr Purcell will present his report to the Complaints Committee of CARB, including his opinion whether there is a prima facie case that Ernst & Young is liable to disciplinary action.