Former banker David Drumm faces a penniless future

Former Anglo chief left behind a bank that would eventually cost the Irish taxpayer €30bn annually — and our economic sovereignity, writes Business Editor John Walsh

DAVID Drumm’s decision to start a new life with his family in the US in June 2009 was freighted with huge risks.

He was leaving behind a bank that would eventually cost the taxpayer roughly €30bn.

Moreover, the rotting corpse of Anglo Irish Bank played more than a cameo role in this country losing its economic sovereignty in November 2010.

Mr Drumm’s intentions were obvious when he decamped for Cape Cod. He wanted to start a new life in a country famed for giving second chances.

The fact that the former chief executive owed €9m to the now State-owned bank meant he would have to go through a bankruptcy first.

Even before Ireland reformed its draconian bankruptcy laws, the US was a much more appealing location for business people looking to discharge their responsibilities from unmanageable debts.

The US bankruptcy process is much shorter —usually six months to one year. Moreover, it is much easier to start again once the court appointed term has been completed. However, the US has rigorous standards in terms of transparency and disclosure.

From the moment the financial sector edifice started to crumble, Anglo Irish Bank was living on borrowed time. Correctly reading the runes, Mr Drumm immediately began transferring money and assets to his wife Lorraine.

The fact that he tried to conceal these transactions in his bankruptcy hearings sealed his fate.

The Government has now moved to extradite David Drumm. The chances of him remaining in the US following the bankruptcy ruling are quite slim anyway. He was there courtesy of a €2m investment visa granted in 2009, which means he needs considerable financial resources at his disposal.

With his creditors now free to pursue him for outstanding debts, Mr Drumm faces the prospect of financial annihilation.

If his creditors pursue him through the Irish courts, then one of the most legally complex issues that has to be resolved is what happens to the agreement between Lorraine Drumm and the US bankruptcy trustee.

In 2012, Ms Drumm paid roughly $1m to the US trustee in return for ringfencing the cash and assets that had been transferred to her by her husband.

Mr Drumm’s creditors will most likely challenge this agreement.

However, apart from the problems with his creditors, the former Anglo Irish Bank chief executive is facing a number of charges in relation to his period in charge of the now defunct institution.

He certainly has a case to answer. The subprime credit crisis erupted in July 2007. Its impact was immediate in the financial markets. Most bankers took notice and scaled back on their lending activities. Not so Anglo Irish Bank.

Over the course of 2007 it ramped up lending by €18bn — a 37% increase on the previous year. Over the course of 2008, when the full effects of the credit crisis were becoming evident, the bank increased lending by €9.3bn, 15% higher than the previous year.

At the end of 2008 total lending was €73.2bn. When Seán FitzPatrick stood down as CEO in January 2005, the lending book was a much more modest €24bn.

Pre-tax profit for 2004, Mr Fitzpatrick’s last full year in charge, was €504m. In 2007 pre-tax profit had reached €1.24bn.

The figures were staggering and totally out of place in banking, which is supposed to be characterised by a prudent and conservative approach to business. These profits were redolent of the heady days of the dotcom bubble just before it burst.

All along Mr Drumm has tried to depict himself as the working-class boy — son of a lorry driver — from Skerries in North Dublin whose period as CEO was hijacked by the all-powerful establishment insider Seán FitzPatrick.

In interviews given since the collapse of Anglo, it also forms a major plank of Drumm’s defence.

He claims he was a hapless protagonist for most of his period as CEO with Seánie taking de facto control of the day-to-day running of the bank from the remove of the chairman’s seat.

However, Mr FitzPatrick has been cleared in one set of legal proceedings, although he faces two more cases.

Potential charges against Mr Drumm are likely to focus on what role he played in the ‘Maple ten’ €451m purchase of Anglo shares by ten Anglo customers over the summer of 2008.

There is also the role he played in the €7.2bn temporary ‘deposit’ from Irish Life & Permanent in 2008. Other charges are likely.

Mr Drumm featured prominently in the ‘Anglo tapes’ released by Independent Newspapers in June 2013.

If he is extradited, then his lawyers will argue that it will be impossible to get a fair hearing in this country because of those tapes.

The only thing that is certain, is that Mr Drumm is going to spend the foreseeable future fighting legal challenges that could leave him penniless and criminally liable for the biggest financial failure in the history of the State.

**Perjury charges possible

There are two major repercussions for David Drumm following the ruling by the Boston court.

In the first instance, he faces the possibility of investigation for perjury. The judge’s ruling is replete with instances in which he found Drumm had not fulfilled his obligations in sworn statements.

Perjury in the US is treated much more seriously than in this jurisdiction. Prosecutions are not infrequent, but the bar for prosecution is still high. Any investigative body would have to, in the first instance, weigh up the chances of a successful prosecution. To do so, it would have to be proved beyond a reasonable doubt that Drumm had deliberately lied under oath. The bankruptcy court is governed by a principal of “balance of probabilities” in finding fact, which is a lower standard of proof than “beyond a reasonable doubt”.

The second implication is that the ruling leaves it open to IBRC to pursue Drumm for debt running to €10m. This would involved seeking judgment against him and proceedings to seize assets which he still owns.

He also faces the possibility of extradition to this country to answer criminal charges in relation to the Maple Ten deal, in which the bank effectively operated an illegal share support scheme in 2008. It emerged yesterday an extradition file has been sent to the US authorities outlining the charges to be preferred against Drumm.