Banks face legal action over bogus accounts

IRISH bank customers who claim they were advised to set up bogus non-resident accounts have begun legal proceedings against a number of financial institutions.

It is the first time a legal case has been mounted to hold banks partly responsible for defrauding the State of an estimated €1 billion in lost tax income.

While the Revenue Commissioners have clamped down on individuals naming and shaming them, in addition to imposing substantial fines no bank official has ever faced action.

The Response Group, a support group for Irish holders of both bogus and legitimate overseas accounts, has engaged a team of legal experts to fight a selected number of cases against financial institutions.

The lawyers have already sought documents from banks, as a first step towards a High Court action, and are prepared to seek orders of discovery if necessary, to pursue the claims.

"We have filed notices of motion and while we have received some documents, they are not the documents we require," Conor O'Mahony, head of the Response Group, said last night.

"We believe some banks actively encouraged people to operate overseas accounts, and many did open accounts overseas in all innocence.

"Many of these people now find themselves in the position of being tax defaulters, as a result of the advice they got from the banks. I know of one case where an elderly lady was advised to open an account in the Isle of Man."

According to one of Ireland's leading legal experts, bank customers could well have grounds to sustain their case.

"We do not have a formal mechanism for a class action in Ireland, but a representative case could be taken on behalf of a number of bank customers. If it could be proven that the advice given was negligent, then the case could succeed," said Tom O'Malley, a lecturer in criminal justice at University College Galway.

"It could be argued that customers have a right to expect that the advice they get from a bank or building society complies with Irish law.

"Although everyone is expected to know the law, the bank would certainly be expected to have more expertise than the customer in these matters, particularly if the customer had not received independent advice from an accountant."

The Response Group has hundreds of members around the country, and sufficient funds to sustain a sizeable legal action.

Labour Party spokesperson on finance, Joan Burton said it was time for the Revenue Commissioners to take on the banks. Only criminal prosecutions would restore public confidence in the tax system, she said. "It is not good enough for banks to sit on their hands, and say it is nothing to do with them."

Meanwhile, about 3,000 customers of Irish Permanent's bank in the Isle of Man, have received letters from the Revenue Commissioners, informing them an investigation into customers' accounts will begin on November 17.

In the letter, the bank's chief executive, Philip Murray, informed customers about the imminent investigation, and advised them of the substantial benefits available if they voluntarily disclosed their tax liability ahead of the investigation.