A FORMER group internal auditor of Allied Irish Banks (AIB) has said the bank’s stockbroking division, Goodbody Stockbrokers,traded in the bank’s own shares in 2000 and 2001 using companies in “blacklisted” island tax havens in the Pacific and Caribbean.
Speaking before the Oireachtas Joint Committee on Economic Regulatory Affairs, Eugene McErlean, AIB’s group internal auditor from 1997 to 2002, said his audit team had discovered that Goodbody had traded in AIB shares using companies based in the islands of Nevis in the Caribbean and Vanuatu in the Pacific.
Goodbody was at the time only allowed to act as a broker for trading in AIB shares but could not trade in the bank’s stock.
Mr McErlean said Goodbody had an opinion that it was legal.
“In my view, it was completely not legal,” he told the committee.
He said that Pat Neary, then second in command at the Financial Regulator, was shocked when he told him, but that he thought he had done “nothing”on the issue.
Mr McErlean said he received a letter from the regulator in 2004, saying the issues he had raised with the regulator at meetings in 2002 had been fully investigated.
He said the scheme used a firm called Charter House and a man named Mr Furstenburg in London, who purportedly ran the investment arm of the Furstenburg brewing family in Germany.
He said his audit team had found that Mr Furstenburg had no connection to the family or the scheme, and that he was “a man of straw with no worth whatsoever”.
He said the sums involved were “massive amounts – it was certainly multimillions”, but the beneficiaries of the scheme could not be identified because firms in Nevis were “shrouded in secrecy”.
He said that when he raised the matter with the head of the bank’s capital markets division (Colm Doherty), it “stopped right away”.
Mr McErlean claimed the regulator knew about overcharging at AIB in 2001, conducted its own inquiry in 2002 but had “failed to act to protect consumers”.
He said the regulator had given the false impression that it only became aware of the overcharging when it became public in 2004.
Four months after he raised the overcharging with the regulator’s chief executive, Dr Liam O’Reilly, in May 2002, he was asked if he would withdraw his allegations.
He estimated that customers could have been overcharged €50–€75 million, including overcharging on management time charges. He said one manager charged a customer an hourly rate for a round of golf. There was “a mismatch” between this and the €65 million AIB agreed to repay due to overcharging on foreign exchange transactions and payment protection insurance.
He said some managers overcharged customers to meet targets set by the bank for their branches.
He said the customers usually owed money and “would not have been able to complain”. He said the amounts involved were small because the bank could charge a large number of customers. He said that it was “quite insidious”.
Independent Senator Shane Ross, a member of the committee, said Mr McErlean’s testimony showed that the regulator and the banks were “covering up the true state of affairs” and that the regulator was “too close to the banks”.
Mr McErlean lost his job at AIB in 2002 following the John Rusnak rogue trading scandal in the US.
He said he had signed a confidentiality clause when he left the bank but had permission from AIB to give evidence to the committee.
Asked by Fianna Fáil TD Sean Ardagh if he was “a disaffected employee” who was bringing up issues that had already been investigated, Mr McErlean said his disaffection arose before his removal from his job and that he had queried the demotion of the audit department in a restructuring at the bank in December 2001.
