C&AG report: £15m fees structure for adviser and law firms ‘should have raised concerns’

Frank Cushnahan: Businessman was a member of Nama's Northern Ireland advisory committee.

The existence of a shared £15 million fees structure for Nama’s North adviser Frank Cushnahan and two law firms should have raised “concerns” for the agency about its Project Eagle sale.

These findings are outlined by the Comptroller and Auditor General (C&AG), where the State financial watchdog looked at potential conflicts of interest regarding the northern loan book sale.

It finds that Mr Cushnahan, a businessman who was a member of Nama’s Northern Ireland advisory committee, had declared involvement with debtors with the agency. He at one stage declared involvement with up to seven debtors on the loan book, whose combined debt amounted to half of the Project Eagle loans, the report says.

“The [C&AG) examination found that six of the seven debtor connections in respect of whom Mr Cushnahan disclosed an interest had a combined Nama debt at 31 December 2013 of £997 million. This accounted for 50% of the total Nama debt of the Project Eagle debtors.”

At one stage, the underbidder in the loan book sale, US firm Pimco, contacted Nama in March 2014 to inform them there was a success fees structure in place regarding its bid.

This involved payment of £15m to £16m between law firm Brown Rudnick, Belfast-based Tughans solicitors and Frank Cushnahan.

The report concludes: “Given the joint agreement between the parties to the success fee arrangement with Pimco, all of the payment — not just the payment to Mr Cushnahan — should have raised concerns for Nama,”

The treasury building on Grand Canal St, Dublin, which houses Nama
The treasury building on Grand Canal St, Dublin, which houses Nama

The winning bidder, another US firm called Cerberus, later paid Brown Rudnick and Tughans success fees. This should have raised alarm bells for Nama, the report notes.

“The understanding that Brown Rudnick and Tughans had allegedly been in an arrangement with a member of the NIAC [Mr Cushnahan] at any stage of the process should have raised concerns for Nama about potential impacts of such arrangements on the sale process, unless convincing explanations could be produced. “

The C&AG questions why Nama did not seek advice from its compliance unit about the issue. It also raises questions about why Lazards, a London agency advising it on the sale, was not informed of the fee structures alerted to the agency.

There are also questions about why Nama, despite Mr Cushnahan quitting the North advisory committee, was not asked by Nama for further clarity around his role with debtors.

The allegation of fees being shared with the two law firms and Mr Cushnahan at one stage “warranted more action” by Nama, notes the report.

It concludes: “Nama appears to have taken a narrow approach, focusing on what were its legal obligations, rather than on what were the options for action that should be considered.”

In a statement, Nama said the C&AG report establishes “no link between the actions of Frank Cushnahan and the outcome of the sale process or the sale price ultimately achieved”.

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