If keeping the boat steady meant winking at widespread and flagrantly criminal tax evasion, then the winkers were serving ‘the national interest’. Here, for example, is the general secretary of the Department of Finance from 1987 to 1994, Seán Cromien, explaining to the PAC why, in spite of knowing about the large-scale evasion of DIRT, he never recommended that the tax authorities be given more powers to deal with the problem:CHAIRMAN: The question which you didn’t answer, Mr Cromien, was - did you do anything, did you make any recommendations? If so, will you tell us briefly what they were?
MR CROMIEN: I realised that there was no point in recommending to Ministers that Revenue should be given these powers and if I were to do it, I think I would be worried myself that they would cause the outflows [of capital].
CHAIRMAN: So you made no proposal?
MR CROMIEN: I found it wasn’t in the national interest to make proposals.
In this bizarre logic, the ‘national interest’ came to be identified with the interests of those who were fleecing the nation. The way to get the rich to pay their taxes was to make it easy for them to evade their taxes.
Given the close relationship between the Department of Finance and the Central Bank, it is unsurprising that these assumptions should have been held in common. Maurice O’Connell, who had discussed the banks’ concerns about DIRT and disclosure in his role as a senior Department of Finance official, became the governor of the Central Bank. In that role, he oversaw a virtually complete failure to pursue the widespread criminality that was evident in the evasion of DIRT. This is how he justified that failure to the PAC:The Central Bank participated at various times in discussions about the taxation of interest on deposits and non-resident accounts. The Bank believed there was a problem regarding false statements on non-residents’ status but it had no direct knowledge of the amounts that might have been involved, however, because the focus of its inspection is prudential and it does not embrace taxation . . . We had no way of quantifying it. We had no legislative authority to go in and quantify it. We were unhappy about it. We shared with the Department of Finance our views on this. We discussed ways and means . . . as to how we might find a solution.
Here is what the PAC concluded in this regard:There is nowhere in the evidence given at the hearings, or in the documents discovered to the [PAC], evidence supportive of the view that the Central Bank was engaged with deposit takers in working out the problem of bogus non-resident accounts. The evidence suggests that the Bank saw itself as having no role in tackling the problem . . . There was an insufficient concern with ethics and supervision other than from the standpoint of a traditional and narrow concern with prudential supervision in the Central Bank.
Throughout all of this, the banks themselves never got around to discussing the ethics of what they were doing. The boards of the banks, often made up of leading members of the business community and of the legal and accountancy professions, made almost no effort to stop the institutions which they ran from colluding with criminality. As the PAC report put it, ‘Boards of directors of financial institutions generally betrayed an overly relaxed attitude towards discharging their statutory and fiduciary duties in respect of the operation of DIRT . . . Given the eminence of many of the members of the boards . . . it is surprising that they did not bring a greater weight to bear on the enforcing of ethical standards either within their organisations or the banking sector generally.’
2 Cayman Ireland
The Ansbacher scam was a high-level, elite version of the bogus non-resident accounts. It was established in 1971 by the small Dublin merchant bank Guinness and Mahon (G&M) and initially run as Guinness Mahon Cayman Trust. After 1988, it became the responsibility of the Irish branch of the Ansbacher group, and was known as Ansbacher (Cayman) Limited.
These changes in ownership had little impact - at all times the operation was under the control of Des Traynor, even after he ceased to run the bank itself in 1984. Traynor was not just a highly regarded financier and businessman (from 1987 until his death in 1994 he was chairman of one of Ireland’s most successful companies, Cement Roadstone), he was also widely known as a close friend of Charles Haughey. (Traynor and Haughey had met in the early 1950s at the accountancy firm Haughey Boland.) He was also, in reality, the bagman for the voraciously corrupt Haughey, raising funds and managing them to support the Fianna Fáil rajah in the grand manner to which he believed his status as national hero entitled him.
Traynor’s Ansbacher Cayman scam was simple in principle, if rather less so in practice. Essentially, members of Traynor’s circle - the eventual Revenue haul would take €105 million from 137 people - would give him money, which he would deposit, through front companies, in the bank’s Cayman Island accounts (and to a lesser extent in similar accounts in the Channel Islands). These deposits would be unrecorded in Ireland except on secret coded files held by Traynor (Haughey himself, for example, was S8 and S9). The same clients would then ‘borrow’ money from G&M in Dublin. The security for these ‘borrowings’ (the offshore funds) was not listed on G&M’s accounts. The ‘loans’ were merely described as ‘suitably secured’ or ‘adequately secured’.
The advantages of this arrangement were considerable. The clients had access in Dublin to money that was supposedly offshore. They could make lodgements and withdrawals through Traynor even though the money was stowed in a tax haven. And because of the system of so-called ‘back-to-back loans’ (essentially clients borrowing their own money), an asset was recorded for tax purposes as a debt. Instead of having large chunks of cash, the clients could pretend that they had in fact borrowed it. Herein lay the combined brazenness and ingenuity of the scheme. Instead of merely hiding the money from the tax authorities, Traynor’s clients could actually claim tax relief on their ‘borrowings’. There was a certain magnificence to the effrontery. It evokes the same admiration as a gangster who robs a bank and then claims compensation because his own account has been emptied.
As a licensed bank, G&M was subject to regular inspections by the Central Bank. The 1976 inspection was carried out by three inspectors, one of whom, Adrian Byrne, subsequently became the Central Bank’s head of banking supervision, a position he still held in 2002. It seemed to these inspectors highly probable that G&M’s offshore subsidiary in the Caymans was involved in tax fraud. The deposits it held, noted Byrne, were ‘part of a scheme which was surrounded by a unique level of secrecy and which appeared to involve tax evasion’.
Yet, in reporting on this apparent fraud, the inspectors adopted the tone of a maiden aunt who has peered through a neighbour’s window and inadvertently seen him indulging in a private and intimate pleasure. Metaphorically, they made their excuses and left. ‘The bank’, they noted, ‘is in effect offering a special service which assists persons to transfer funds, on which tax has been avoided, to offshore tax havens. The possibility of the bank abusing its position as an authorised dealer in providing this service cannot be ignored. In view of the delicate nature of these matters we did not pursue the matter further . . .’
With an admirable fastidiousness, the inspectors broached the subject with the directors of Guinness and Mahon. The directors ‘were initially reluctant to give information about the activities of these companies to the Central Bank because it [sic] feared that the information might be conveyed to the Revenue authorities’ - a concern that the inspectors clearly both understood and assuaged. They agreed that they would be shown documents relating to the deposits on condition that they would not note the names of the owners. Its inspectors having written that the bank’s abuse of its licence ‘cannot be ignored’, the Central Bank proceeded effectively to do precisely that. Beyond a desultory communication to the effect that the Central Bank was ‘somewhat concerned’ and some inconclusive meetings with Des Traynor, nothing was done to stop what the inspectors strongly suspected to be a large-scale tax scam.
Even more helpfully, the Central Bank doctored its own internal files to minimise the nature of the Ansbacher
fraud. In the report of the 1976 inspection, the phrase ‘tax evasion’ was later altered, by Byrne’s superiors, to ‘tax avoidance’. This was done again in relation to a document drawn up by Adrian Byrne two years later. A statement that ‘the fact that the bank takes such extreme precautions to keep the existence of the deposits secret from the Revenue Commissioners indicates that the bank might well be a party to a tax evasion scheme’ was altered to again replace ‘evasion’ with ‘avoidance’. In evidence to the High Court inquiry into Ansbacher, Byrne referred to this complete change of meaning, in which unlawful evasion is redefined as lawful avoidance, as ‘coding’. It might more accurately be called a deliberate act of unknowing by Byrne’s superiors. If the Central Bank knew that Des Traynor was operating a sophisticated tax fraud, there would have to be consequences. The Central Bank ‘knew’ instead that Traynor was just a clever banker, lawfully working the system to suit his clients.
One reason for this tendency to call a crook a sheep-herding implement may have been the realisation that one of the Central Bank’s own directors was implicated in the Ansbacher fraud. At least by 1978, the Central Bank knew that one of those directors, Ken O’Reilly-Hyland, was one of Traynor’s chosen few. At that stage, O’Reilly-Hyland, a Central Bank director from 1973 to 1983, had a ‘loan’ of IR£426,000 from Ansbacher Cayman. This knowledge, confirmed in the Central Bank’s 1978 inspection, remained entirely inert and unofficial: ‘There appears’, noted the High Court inspectors, ‘to be no documentary record within the Bank recording receipt or consideration of this information.’ By 1988, O’Reilly-Hyland’s Ansbacher ‘loan’ exceeded IR£1 million.
Since the early 1960s, Ken O’Reilly-Hyland had been a pivotal figure in the nexus of connections between business and politics in Ireland. He was one of the directors of Taca, the controversial Fianna Fáil fundraising organisation associated with the young and ambitious new generation of politicians whose most prominent figure was Charles Haughey. At the time that the Central Bank discovered his involvement in the Ansbacher Cayman scam, O’Reilly-Hyland was chairman of Taca’s successor organisation, the so-called ‘general election fundraising committee’. This was a secret body, not under the control of the party leader and not given to publishing accounts. It operated, not from party headquarters, but from the discreet privacy of Room 547 in the Burlington Hotel in Dublin. As chairman of this committee, O’Reilly-Hyland was involved not merely in obtaining large donations from wealthy business people, but in securing loans from some of the very banks the Central Bank was meant to supervise.
As well as being deeply embedded in Fianna Fáil’s financial dealings, however, O’Reilly-Hyland was also part of a network of business connections among fellow holders of Ansbacher Cayman accounts, including the architect Sam Stephenson, the solicitor who had acted for G&M in establishing its Cayman operations, Liam McGonigal (both fellow members of the Taca committee), and the auctioneer John Finnegan. Finnegan in turn was connected through the builders Brennan and McGowan to another powerful Fianna Fáil politician, Ray Burke. In 1984, Finnegan, jointly with Brennan and McGowan, made what a tribunal of inquiry subsequently found to be a ‘corrupt payment’ to Burke.
At the end of the 1970s and in the early 1980s, O’Reilly-Hyland was caught up in tensions between the secretary of his Fianna Fáil fundraising committee, Des Hanafin, and the new party leader, Charles Haughey. Haughey wanted direct control over the committee, and Hanafin, suspecting his motives, resisted. Haughey was particularly anxious to get hold of the committee’s so-called Black Book, a top-secret list of donors. Infuriated by Hanafin’s resistance, Haughey decided to disband the committee. A stand-off ensued until, shortly after Haughey was re-elected as Taoiseach in 1982, he summoned the committee members to his Georgian mansion at Kinsealy and got them to sign a document ordering Hanafin to hand over the secret fund-raising accounts into his own control.
O’Reilly-Hyland told the Moriarty tribunal that at the time of his appointment to the board of the Central Bank in 1973, he informed the then minister for finance, George Colley, that he had an offshore trust in the Cayman Islands. That this was no barrier to a role as guarantor of the integrity of the country’s banking system was itself eloquent testimony to the prevailing standards in public life. O’Reilly-Hyland cannot but have placed those in the bank who were trying to uphold higher standards in an excruciatingly difficult position. In evidence to the Moriarty tribunal, O’Reilly-Hyland stated that it had not at any stage been brought to his attention by the governor or by any other official within the Central Bank that his dealings with Traynor’s scheme had been discovered by its inspectors. This reluctance to raise the issue suggests that it was regarded as a painful embarrassment.
The then deputy general manager of the Central Bank, Timothy O’Grady-Walshe, told the Moriarty tribunal that he could not remember seeing documentation referring to O’Reilly-Hyland’s dealings with Traynor, but he ‘thought it probable’ that he had done so. He ‘imagined that it should have raised questions within the Central Bank. As to whether it was taken further than himself, he stated that he did not know, but was confident that it was highly probable that he had spoken to the Governor and the General Manager about the matter.’ However, the Central Bank governor of the time, Charles Murray, told the tribunal that it was possible that he had been told about O’Reilly-Hyland but had then forgotten the information. If he were informed, he said, it would have been up to him to decide whether or not to inform the other members of the Board, but he doubted very much whether he would have informed them.
There is no evidence that knowledge of O’Reilly-Hyland’s involvement in the Ansbacher tax evasion scam had a direct bearing on the Central Bank’s supine approach to this web of financial crime. Some of those at high levels in the bank, however, knew two things. One was that one of their own directors was deeply involved in both the scam itself and in Fianna Fáil. The other was that Des Traynor, who was running the Ansbacher fraud, was close to the new party leader, Charles Haughey. In a supervisory culture that was already remarkably deferential, such knowledge was hardly likely to encourage bold scrutiny.
The then governor Charles Murray suggested at the Moriarty tribunal that if Adrian Byrne’s view was that tax evasion had been involved, or if the record in that regard had been changed, he should have pressed the matter by bringing it to a more senior member of staff. Adrian Byrne himself explained to the Moriarty tribunal that the Central Bank’s approach to G&M was shaped by two factors. One was a narrow concern with keeping G&M in business. The Central Bank, he said, had two options: it could have revoked the bank’s licence, or it could have demanded the resignation of certain directors. He said that either course of action would most likely have led to the bank’s collapse and depositors would have lost money. The Central Bank’s priority was to stop this happening. At the same, time, the regulators held Traynor in high esteem. When Traynor promised them after a second inspection in 1978 that he would begin to wind down the Cayman scheme, they believed him. ‘We thought’, said Byrne, ‘that he would work his way out of this.’
During 1979, before Haughey took over as party leader and Taoiseach in December, the Central Bank began to express more forceful concerns to Des Traynor, pointing out rather plaintively that the Ansbacher scheme was ‘not in the national interest’. In theory, these apparent warning shots should have become louder after Haughey’s election. The arrival of the Boss into power was the signal for a massive growth in the scale of the Ansbacher scam. In April 1979, the deposits stood at just under IR£5 million. Three years later, they had reached almost IR£27 million. By then, the Cayman operation, initially a sideshow, had become larger than its parent company.
This happened in spite of the Central Bank’s own weakkneed compromise with Traynor. Instead of closing down his operation and calling in the police, it merely extracted from him an informal agreement that the Ansbacher racket would be kept at its current levels. Even when it discovered in 1982 that the Ansbacher depos
its were in fact increasing significantly, the Bank did nothing.
As the Moriarty tribunal concluded, ‘despite increases in the level of lending, references to substantial new loans being backed by deposits, and other matters which might reasonably have induced the Central Bank to wonder as to . . . the value of Mr Traynor’s assurances, few if any further inquiries were made. Indeed it seems that the interest on the part of the Central Bank in the off-shore activities that had been foremost in its concerns when reporting in 1978 thereafter dwindled and largely ground to a halt.’
This may or may not have been connected to something else the Central Bank discovered in 1982. In December of that year its exchange controls division received a formal request from a man who wanted to take out a foreign currency loan to the tune of UK£350,000. The request, on behalf of Abbeyville Stud, clearly stated that the lending bank would be ‘Guinness Mahon Cayman Trust Ltd, PO box 887, Grand Cayman, British West Indies’ and that, as security, the title deeds to the stud farm would be lodged with Guinness Mahon Cayman Trust Limited. The signature on the letter was that of Charles J. Haughey. It was delivered personally by Des Traynor to the general manager of the Central Bank. Approval was issued the following day, a response time that may say more about the source of the request than about the bank’s efficiency.
It is striking that the Central Bank’s scrutiny of G&M, never very acute, became far less inquisitive after Haughey - who was using the bank to hide much of his wealth - came to power. At a review meeting in April 1981, there was, as the High Court inspectors’ report puts it, ‘some passing reference to particular loans with a Cayman connection’ but ‘no further discussion of the overall nature of this banking activity or of its taxation implications’. The Central Bank conducted further examinations of G&M in 1986, 1988 and 1992 and failed every time to blow the whistle on what was now a large-scale criminal conspiracy involving the country’s most senior politician.
Ship of Fools Page 6
