Dail to probe claims of widespread tax evasion

By Andrew Bushe

DUBLIN — The Dail’s most powerful watchdog committee will begin marathon series of hearings next week to probe a decades long multi-million-pound tax evasion scam involving tens of thousands of people who opened bogus accounts in banks and other financial institutions.

The Committee of Public Accounts begins the 23 days of televised hearings on Aug. 30. It is expected to turn the spotlight on a widespread culture of tax dodging that may involve over a billion pounds in deposit accounts where the depositors lied and said they lived outside the country.

The banks have been found to have colluded in this huge fraud and a multi-million-pound Deposit Interest Retention Tax bill is outstanding. The exact amount is a matter of heated dispute between the banks and the Revenue Commissioners.

It has emerged hat a large number of bank officials rubber-stamped accounts with bogus addresses ranging from Kilburn to Manhattan to Bondi Beach to facilitate the cheating. It mattered little that they knew the customer was a regular in the bank, had a job locally or owned a business like a farm, shop or pub.

Despite controversial tax amnesties in 1988 and 1993 — that gave the tax dodgers an opportunity to get off the hook and regularize their "hot" money — it appears that the fraud is continuing.

If the Committee’s probe is seen to be successful it may change the whole way scandals are investigated. The traditional method of using judicial tribunals of inquiry has proved hugely expensive.

A six strong sub-committee of the CPA, chaired by Fine Gael’s Jim Mitchell, is for the first time using powers to serve subpoenas directing top bankers and civil servants to appear as witnesses to give evidence under oath.

The state knew about the fiddling but did little or nothing about it as politicians and civil servants feared a flight of cash from the country and damage to the exchange rate of the currency.

As well as past and present chief executives of the State’s largest financial institutions, the bosses of the Revenue Commissioners, the Central Bank and senior mandarins from the Department of Finance, the Committee are also expected to grill former taoisigh and ministers for finance.

The Committee has completed stage one of its investigation. The Comptroller and Auditor General John Purcell has delivered a devastating 361-page report after special legislation was passed to allow him to carry out an initial examination.

This report — a damning indictment of tax-collection failures, the rogue banks and the State’s blind-eye approach to the rampant abuse — will, in effect, be the book of evidence for the hearings.

Purcell’s report lifts the lid on a dual system of tax justice condoned by successive governments.

The "little" people — those with no savings or spare cash — were taxed to the hilt under the Pay As You Earn system. The middle income earners and the rich with spare cash salted it away in bogus accounts and had an effective carte blanche to cheat.

Purcell’s report reveals the enormous scale of the tax dodging. As of last November, £15.6 billion in 29 percent of the accounts in banks, building societies and other financial institutions was classified non-resident.

As part of Purcell’s inquiry, an examination of 214 accounts with British addresses was carried out. It was concluded there was a "strong possibility" that 58, or 27 percent of the addresses, were bogus. If the results from that small sample held good for the total it would mean that more than £4 billion was held in bogus accounts.

Purcell’s trawl through official documents and memos reveals the cheating has been an open secret in the corridors of power but no one was willing to grasp the nettle.

Even the State’s own banks were involved. A 1992, an external audit of the ACC Bank concluded it had a potential DIRT liability of £17 million in relation to bogus accounts. In 1993, a non-resident account in the ACC Tallaght branch was found to belong to a member of the bank’s head office staff.

In November 1988, the Revenue’s Special Enquiry Branch advised it had information that suggested that the ACC Bank "as a matter of policy were facilitating the evasion of DIRT for their clients by setting up

fictitious UK accounts." There was no follow-up on this report.

"The non-resident proportion of ACC accounts was by any standards extraordinary," the report said. "This was a state bank set up to finance the development of agriculture with a customer and management base drawn from the Irish farming community. The bank was understood to have drawn a large part of its deposit base from farmers who had strong savings from the 1960s onward.

"It had no international link-up and was not known to have marketed abroad. For some years it has been the subject of sustained complaints by the Associated banks regarding unfair competition."

The governor of the Central Bank, Maurice O’Connell, who was formerly a senior official in the tax and foreign exchange sections of the Department of Finance, told Purcell the preoccupation in the 1980s had been "rightly and totally preoccupied with the exchange rate."

"The exchange rate was under constant threat and the exchange rate meant the movement of funds out of the country," O’Connell said. "While all this was going on, we were holding up the exchange rate through foreign borrowing. This had to be the great preoccupation of any minister for finance or any Central Bank at the time.

"This was the central issue. This was the plank which kept us floating. Whatever happened, this had to take precedence over everything else . . . we did our best. We were not as efficient as we might be in terms of collecting tax. We were broadly aware of the fact that people were avoiding tax. And all this had to be corrected, this was wrong. Everybody agreed it was wrong.

"For God’s sake, whatever you do, don’t rock the boat. The boat being the exchange rate. That was the culture."

In dealing with Department of Finance and Central Bank, Purcell found the official files liberally sprinkled with references like "half the non-resident accounts are thought to be bogus" and "at least £1 billion of non-resident deposits are thought to be held by Irish residents".

Purcell concluded that both organizations were convinced that any moves to tackle the problem would have led to a flight of capital from the country with all the attendant consequences for the economy particularly when it was vulnerable in the 1980s and in the first half of the 1990s.

"In that context, bogus non-resident accounts were seen as the lesser of two evils," he said.

In 1984, a Revenue Commissioner memo to the Department of Finance said they were satisfied that the improper use of non-resident accounts had "long since reached epidemic proportions."

The department’s files on the 1993 Amnesty contain a number of memoranda referring to the scale of bogus non-resident accounts.

The first memorandum stated: "There is currently approx. £4 billion on deposit in accounts designated ‘non-resident.’ It is likely that a very high proportion of these accounts have been fraudulently designated and that the depositors are resident. They may account for 50 percent or more of the total amount on deposit."