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Elite institutions are also top tax cheaters — probe

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — Top bankers, accountants, civil servants, the central Bank and the Revenue Commissioners have all come in for scathing criticism from the Oireachtas all-party watchdog, which has recommended a 13-year retrospective audit of all the state’s financial institutions to assess their liability for unpaid DIRT tax.

If the hard-hitting recommendations from Committee of Public Accounts are implemented, it will cost the financial institutions hundreds of millions of pounds.

The report concludes that banks and building societies colluded in the evasion of DIRT (deposit interest retention tax) — the 35 percent tax, which was supposed to have been deducted at source by the financial institutions for the state.

The devastating report says that not only should the institutions pay the cost of the "look-back" audit to 1986, but that full fines, interest and penalties should be paid on tax owed "irrespective of any currently existing statutory limits."

Committee chairman Jim Mitchell said it was also proposing a once off "act of reparation and restitution by the financial institutions to the community at large" as a result of their "grave and widespread breach of trust."

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"In a nutshell," he said, "departments [of state], state agencies, banks and buildings societies and accountancy firms failed to fully discharge their statutory and fiduciary duties.

"And they did so under the noses of ministers and of the Oireachtas, which failed to call them to account."

The committee did not put a figure on the levy, but says the government should put it toward the proposed Social Welfare Investment Fund for the purposes of assisting communities in need.

The shocked financial institutions were also hit with a recommendation that dormant accounts be seized.

The committee said that in the light of the behavior of the financial institutions, the time is now right for dormant accounts — up to now of free and exclusive use of banks and building societies — should be "applied for the benefit of the community as a whole."

They would be used for the "relief of poverty and other disadvantaged people."

The committee said it recognizes that this raises important property-rights and liquidity issues and it gave no estimate of what funds might be in the dormant accounts.

A number of the recommendations are expected to be challenged in the courts, but Mitchell refused to speculate about such a reaction at the report’s launch.

Ethical standards ignored

The tough findings refer to the committee’s "surprise" that given the eminence of the members of the boards of the institutions, they did not enforce ethical standards.

During the 14-month inquiry — which cost £1.8 million — a steady stream of the country’s elite trooped before the TV cameras to be grilled about the stewardship by the committee.

Those subpeon’d to give evidence on oath included the taoiseach, former taoisigh and two former EU commissioners.

The inquiry found there was an "incoherent, spasmodic and ad hoc" engagement with the issue of bogus non-resident accounts.

The use of tens of thousands of such bogus accounts — where people deposited cash and claimed they lived abroad to avoid the tax — was widespread across the banking industry, according to the report.

Mitchell said the Department of Finance, the Revenue Commissioners and the Central Bank were all found to have "serious shortcomings."

"There was a complete lack of rigorous analysis," Mitchell said.

It concluded there was no tax amnesty or deal as the country’s largest bank, Allied Irish Bank, and the state-owned bank, ACC, had claimed. In AIB alone the tax liability could exceed £100 million.

While the committee hammers the private sector banks, it also severely criticize the state institutions. Among its findings:

€ The Department of Finance failed to bring proposals to strengthen DIRT collection and failed to deal with tax fiddling in the state-owned ACC bank.

€ The Revenue Commissioners, while restricted by the law, failed to act with the powers they had and there were serious and inexcusable lapses in their approach. This contributed to the fiscal crisis of the time and the process of restoring order to the public finances.

€ The Central Bank took no action on breaches of exchange controls on bogus non-resident accounts and the constant intrusion of the flight of capital from the country theory in discussion of crackdowns on the problem was "inappropriate."

€ The Central Bank had an "inappropriate and outmoded approach to supervision" and was insufficiently concerned with ethics and bank directors required new guidance, vetting and checking.

€ The Committee said its inquiry raises very serious issues in relation to ethics and standards in banking, the responsibilities of directors and the independence and standards of external auditors.

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