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AIB is subject oftax-evasion probe

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — A full investigation of claims that Allied Irish Bank was involved in huge tax evasion, and paid only £14 million of a £100 million liability on thousands of bogus non-resident accounts, is being investigated by the Revenue Commissioners.

After revelations about the massive fraud, Taoiseach Bertie Ahern said there could be no closed deals between financial institutions and the Revenue Commissioners over outstanding taxes.

The taoiseach’s assurances follows claims that only a fraction of deposit interest retention tax (DIRT) was collected on non-resident accounts in the bank in the early 1990s.

AIB’s failure to pay £86 million of the DIRT liability was revealed by the magazine Magill, which says the bank made a secret deal with the Revenue Commissioners on the bogus accounts.

It quotes internal AIB audit documents to show that of 87,660 offshore accounts in AIB in 1991, at least 60 percent — 53,000 accounts containing £600 million — were bogus.

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Latest scandal

The AIB disclosure is the latest scandal to rock the banking sector and plans for a new watchdog authority to regulate and supervise the banks and building societies was promised by Tanaiste Mary Harney.

The Cabinet will consider a new body that would take over powers from the Central Bank and give greater authority to the Revenue Commissioners to examine suspicious bank accounts. At the moment, it must have evidence of wrongdoing or tax evasion.

Investigations are currently ongoing into several banking scandals involving allegations about offshore accounts and non-resident accounts and customer rip-offs involving rate loading and account skimming by applying bogus charges.

The head of the gárda fraud squad has also rapped the banks for failing to cooperate in investigations into money laundering.

DIRT was introduced in the 1986 budget as a means of getting tax revenue from billions of pounds in deposit accounts, most of which were not declared to the revenue.

Genuine non-resident accounts were exempt from DIRT, but otherwise banks and building societies were required to deduct the tax before passing on interest earned to customers — in effect to become tax collectors.

The size of the problem in AIB had been disclosed in the Sunday Independent newspaper earlier this year and sources in the revenue commissioners are now indicating they were unaware of the extent of the scam until then.

But this does not explain the apparent sweetheart deal they negotiated with the bank as revealed by the AIB audit memos.

In a secret arrangement, the Revenue Commissioners gave an undertaking that there would be no prosecutions, no penalties would be imposed and the bank’s default would not be made public.

One internal memo involves an AIB boss asking his colleague, "Are you saying the Central Bank is turning a blind eye to a matter which is costing the Government a fortune in lost revenue?"

Another memo states: "We [AIB] are being offered a way out of a very difficult situation which I believe will meet the needs of the revenue and the other financial institutions without it being publicized — this being very much in the interest of the bank."

Focus on Kerry

A still unexplained disclosure is how the Kerry region appears to be the center of the non-resident accounts in the country. Listed for Tralee are 16 percent of the accounts, with 14,251 of them holding £188 million.

The revelations have caused a major political row and led to a special Dail debate where there was criticism of the rich not paying their share of tax. In fact, the huge numbers involved in the scam indicate that a lot of small depositors must have been taking advantage of it.

The head of the biggest union, SIPTU, called for high-level tax cheats to be jailed where evasion is proved.

SIPTU’s president, Jimmy Somers, also called on the government to give no further tax concessions to the banks until the tax affairs of all banks were clearly and transparently in order.

The tanaiste described the Magill report as very disturbing and said it represented a "kick in the teeth" for ordinary compliant taxpayers and small business people.

Harney said it appeared to have been an industry-wide problem.

"The financial institutions generally were operating a system where people could walk in off the street and open bogus accounts for the purpose of facilitating tax evasion," she said. "It’s not good enough that we have one law for one group in society and apparently a different law for another. All the things that have emerged in recent months indicate to me that as a society we were dysfunctional. Corporate Ireland was not living up to the expectations that we would have of it. Clearly, we need a new independent regulatory regime."

Revenue Commissioners chairman Dermot Quigley said it was investigating new information that had become available.

Central Bank and revenue bosses will likely face angry TDs seeking an explanation at this week’s meetings of the Oireachtas Pubic Accounts Committee.

The IMPACT trade union has called for more staff to be assigned to investigations. It says there are only seven inspectors that are specifically assigned to oversee the entire financial sector.

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