Category: Archive

Breaking the bank: the AIB scandal

February 16, 2011

By Staff Reporter

By Andrew Bushe and Stephen McKinley

DUBLIN — An American financial expert, Eugene A. Ludwig, has begun an investigation this week into the Allied Irish Bank scandal, as the bank admitted that it had noted a year ago that its financial controls needed tightening.

Ireland’s largest financial institution suffered an estimated $750 million loss in a suspected fraud by a trader, John Rusnak, at its Baltimore subsidiary, Allfirst.

Ludwig, former vice chairman of the Bankers Trust Company and currently managing partner of the Washington-based Promontory Financial Group, will probe all aspects of the huge foreign exchange losses that have rocked Irish banking and sent ripples throughout the financial markets worldwide.

Analysts and expert are divided only in estimating the scale of the damage to corporate Ireland, which, combined with the continuing Elan fallout, has shaken business confidence and credibility.

AIB’s share price tumbled in the wake of the announcement, triggering memories of the 1995 collapse of the British Barings Bank, when a lone rogue trader, Nick Leeson, ran up staggering losses in a desperate gamble to recoup small currency-dealing deficits.

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Rusnak remains in the Baltimore area, under investigation by the FBI, but is still a free man.

Michael Buckley, AIB’s chief executive, said that Ludwig’s experience made him “peerless in terms of his qualifications to provide an independent report, a complete report that our board can act upon with full confidence.”

Buckley said AIB staff still have not had an opportunity to interview Rusnak, who he again emphasized had defrauded the bank.

“While his lawyer has tried to give the impression that he was some sort of learner driver whose car got out of control, this was a fraud. There is no question about that,” Buckley told RTE.

“He set out diligently, deliberately and deviously to get around the controls that existed and to construct bogus contracts.

“We know that this was a fraud and that Mr. Rusnak was at the center of it.”

He said there was some “prime facie” evidence of collusion, but that it is up to the investigation to probe that in the next 30 days.

Earlier, AIB’s chairman, Lochlann Quinn, who described himself as “incredulous” when first told about the losses, said it “does look as if there is evidence of internal collusion, evidence of external collusion.”

Asked if the losses could be higher, Quinn said that from everything they knew the $750 million appears to be the size of the loss.

“We have been a bit careful in pushing out that particular figure and I believe, based on the reassurances I’ve got, that that is it. Nothing is 100 percent certain, but I don’t believe there is anything more to come.”

Buckley said it had not been a “victimless crime.”

“Our investors have suffered, our customers have been disquieted and our staff really have been very upset about this,” he said.

Buckley said that as he understood it, Allfirst’s treasury management began to become concerned about the amount of cash that Rusnak was using in his trading at the end of December and early January.

“Over the few weeks from then on that became a concern that he was engaged in fraudulent activity when certain contracts were found toward the end of last week that did not appear to be genuine.

“Obviously, I would have been much happier if we had found out earlier on,” Buckley said. “But this was a concern that grew over a period of weeks rather than an investigation that was going on for a few weeks.”

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