You think high-rollers who broke us will pay the price? Cop yourself on

By Ivan Yates

Thursday, March 25, 2010

WHAT was happening last week in Bray garda station? Is it possible that a process has started whereby former senior bankers, who have brought our economy to the precipice of insolvency, will face the four-letter ‘g’ word? Get a grip. Cop yourself on. Ireland doesn’t do gaol, it does golf. There is little imminent prospect of justice. We should not be surprised.

In the 1980s, following an investigative TV programme, various inquiries and a tribunal found that operators within the Irish meat processing industry had systematically falsified commercial information. Criminal malpractice within beef intervention and other subsidy schemes defrauded the EU common agricultural policy.

A former Taoiseach, Charles Haughey, was found to have received multiples of his annual salary as gifts from influential business people in order to pay off his personal debts. A tribunal found he had misappropriated public funds which were approved for the purpose of administration and research for his party, while in opposition. He routinely used these monies for his own benefit.

Despite denials, non-co-operation with the authorities and umpteen breaches of tax law he was never arrested or convicted of criminal offences. Currently, he is a candidate on an RTÉ poll to be considered as one of the greatest Irish persons ever.

The largest case of corporate litigation in the history of the state related to a prolonged legal battle between Fyffes (the biggest banana importer) and DCC (publicly quoted equity investment company) and its executive chairman, Jim Flavin.

Further to a High Court verdict and Supreme Court appeal, Fyffes were awarded significant compensatory damages and full legal costs.

All Supreme Court judges unanimously found that Flavin had used inside information as a director of the company to sell Fyffe shares at an optimum price and time. Mr Flavin had to resign as executive chairman. The authorities carried out a prolonged investigation into Mr Flavin. What happened? Nothing. In the end, it ran into the sand.

The American Securities and Exchange Commission and the Financial Services Authority in Britain mean business. Cases of private companies manipulating share support schemes and abusing the market, like Enron and Guinness, result in court convictions and gaol terms for senior executives. We establish separate parallel inquiries. The Office of the Financial Regulator, Office of Director of Corporate Enforcement (ODCE) and Garda Bureau of Fraud all have been busily investigating the affairs of Anglo Irish Bank since early last year. No one seems to have asked why Matthew Elderfield (regulator), Paul Appleby (ODCE boss) and Garda Commissioner Fachtna Murphy haven’t integrated all their resources into one focused singular investigation combining corporate and criminal irregularities. We are told that their inquiries are “in parallel”, yet no justification has been given for this.

There was never an expectation that other probes by the Irish Stock Exchange and Chartered Accountants Regulatory Body would yield sanctions.

Last week’s highly visible drama creates a public relations context for the events of this month. Anglo will publish its 2009 annual accounts which will cover a 15-month period. A loss of €12.4bn will be the worst in Irish corporate history. Instead of the original €28bn of loans transferring to NAMA, it is now envisaged a whopping €36bn of toxicity will move with a 40% impairment loss adjustment.

This will result in the taxpayer having to stump up between €6bn and €8bn in fresh capital to stave off liquidation – on top of €3.8bn already paid. It’s more than helpful for the Government to be able to say official inquiries in relation to wrongdoing are proceeding well and cannot be prejudiced by any comment.

At all stages Anglo has duped the Government and taxpayer with misinformation. At the end of September 2008 we were bounced into a blanket state guarantee of Irish financial institutions, including Anglo. Anglo was explaining there was no fundamental problem with their loan book, but rather short-term liquidity. They blamed the markets for aggressive and unfair attacks.

Government protection of deposits would stabilise the situation. At that very moment, in Anglo’s year-end accounts, they misrepresented €7.46bn of temporary cash transfers from Irish Life and Permanent (IL&P) as customer deposits. In reality there had been a flight of €10bn of customer deposits thereby creating a huge hole in the bank’s finances.

Having pulled off this con-trick, worse was to follow. Seán FitzPatrick, David Drumm and William McAteer were telling the authorities the maximum losses over three years would be €2.76bn. The Government appointed consultants PwC to ascertain future Anglo losses. On the basis of information provided by Anglo, they predicted the total loss would be up to €6bn over two years. The Government proceeded to nationalise Anglo in January 2009. We now know that out of their total loan book of €72bn, the likely losses will exceed €20bn. Any prospect that the state could wriggle off the hook by terminating the two-year guarantee on Anglo deposits after September 2011was then torpedoed. We own the bank.

The three well documented areas of investigation relate to concealment of FitzPatrick’s personal loans through Nationwide at each year end, IL&P cash transfers and the ‘Maple 10’ share transfer arrangement for 10% of Anglo stock. At no stage has there been analysis about the relationship between the Quinn group and Anglo.

IT APPEARS that in 2008 the Quinn group owed €2.7bn and had simultaneously built up a stake of 28% (through contracts for difference). This risk concentration raises grave questions about the way the bank was run. The necessary independence of the board and credit committees in approving loans to directors, management and staff has never been debated. The chairmen, Donal O’Connor and Alan Dukes, have never attempted to provide answers to these key questions. The public interest is irrelevant.

Alas, news now emerges that a lot of these crazy and frenzied practices in 2008 to shore up false credibility in the bank may not have been the fault of Anglo management.

Informed leaks advise us that emails, minutes of meetings and other communications can confirm that the Financial Regulator was not only aware of, but actively supported the ‘Maple 10’ share arrangement and the spin on the IL&P cash.

Maybe Patrick Neary wasn’t asleep at the wheel. It’s alleged he was wearing the “green jersey” to ensure Anglo and the Irish banks wouldn’t go bust.

Perhaps not only the regulator, but the Central Bank, the Department of Finance and the Government were all aware of the perilous situation. This should square the circle nicely. We end up back where we started. Fast forward a few years – just like the tribunals, we’ll be a lot wiser, sadder and poorer. Let there be no expectation that anyone will be nailed “guilty as charged”.

This story appeared in the printed version of the Irish Examiner Thursday, March 25, 2010