Role Of Ireland’s Central Bank In €7Billion Banking Fraud Revealed

It seems that the Central Bank were aware of fraudulent transactions at Irish Life and Permanent and Anglo Irish Bank.

Newly uncovered files have revealed that the €7 billion fraud that led to three bankers being criminally convicted earlier this month was “potentially based on encouragement” from Ireland’s Central Bank.

The state knew that the two banks were helping each other out

Tom Lyons reports via The Sunday Business Post :

The secret documents reveal how the state had intimate knowledge that the two banks were helping each other out during the financial crisis in order to make their balance sheets appear stronger to investors and the stock market.

The day before Anglo Irish Bank was nationalised in January 2009, Con Horan, the regulator’s then prudential director, told a high-powered meeting that his banking watchdog had an “awareness” that the bank was “working together” with Irish Life & Permanent, using what was called “back-to-back loans”.’

He then told senior Department of Finance, NTMA and Central Bank officials that this working relationship was “potentially based on encouragement from Dame Street”.

Horan said he was meeting the bank’s auditors to discuss the arrangement. He also explained how the circular transaction worked in January 2009 in order to use money from IL&P to boost Anglo’s customer deposits.

Horan was asked by Mary O’Dea, another senior official in the Central Bank, whether or not the €7 billion deal would have to be disclosed in Anglo’s accounts.

Horan said: “Auditors are comfortable… Current accounts will have lot more disclosures.”

On February 25, 2009 documents marked “secret” by the Financial Regulator also saw the state’s banking watchdog admit internally that Anglo and IL&P bankers might be able to argue that the €7 billion fraud was only carried out because of “encouragement”.

In a document prepared for its board, the regulator admitted: “There is also information available that might be argued to support a defence against accusations of market abuse, specifically in relation to knowledge within the Financial Regulator/Central Bank, but also more generally in relation to the role of the Department of Finance, Central Bank and Financial Regulator encouraging institutions to co-operate with each other in extremely difficult circumstances where the very existence of the Irish financial system was in some doubt.”

There is also evidence in notes kept of meetings of the Domestic Standing Group – made up of the Department of Finance, the Central Bank and the Financial Regulator – that the state was monitoring how Anglo and IL&P were working together in the months before the €7 billion fraud.

On June 10, 2008 a note of a DSG meeting involving Patrick Neary, the financial regulator, Horan, Kevin Cardiff, then assistant secretary of the Department of Finance, and Brian Halpin of the Central Bank shows that the state discussed Irish Life & Permanent’s balance sheet in detail just prior to its half-year results to the stock market.

The DSG notes say that the state knew that Anglo was putting several billion onto IL&P’s balance sheet just prior to its year-end in order to make IL&P’s financial position look stronger.

The notes say that in relation to IL&P it expected just before its reporting date in June 2008 to receive “2 billion from Anglo (maybe 3) – short-term”.

Neary states that any support “has to be commercial”.

Horan is also described as saying a senior IL&P executive had already been told to be “careful in use of language”.

The DSG then discusses replacing Gillian Bowler, a former travel agent, as chairperson of the stockmarket-listed IL&P.

“Changing chair is high risk,” the DSG noted before discussing the possibility of requesting David Went, the former chief executive of IL&P, to take on her job.

However, Paul O’Higgins (for the DPP) brought an application at an early stage in the trial to prevent any evidence about the Financial Regulator’s knowledge or otherwise of the fraud being put to the jury.

“Now, there’s no doubt about it, the regulator had a fair degree of knowledge what was going on here,” Judge Nolan concluded.

“He certainly had a fair degree of knowledge of the June transaction and I think from the conversations involving some of the employees of the regulator, they certainly had a knowledge of what had occurred in March . . . So, the regulator did know to a degree what was going on, but the regulator cannot condone criminal behaviour. It doesn’t give a defence to any party that they knew about it . . . ”

In comments to the jury, Judge Martin Nolan said that the origins of Irish Life & Permanent working with Anglo Irish Bank could be traced back to the Central Bank’s concern that IL&P was too reliant on funding from the European Central Bank and what would happen if this was disclosed to the stock market.

“Now, the ironic thing, if you want to call it that, it seems from the interview, from what everybody said, that Mr Casey was happy enough with his image before he met Mr (John) Hurley (the governor of the Central Bank) and Mr Hurley changed all of that. Mr Hurley wasn’t happy with his image.”