A DAMNING report into Irish Nationwide Building Society (INBS) prepared by a distinguished British banking expert concludes that there is a "strong indication" that its officers were allowed "participate personally in commercial transactions to a degree which was at best commercially improper, and at worst illegal."
Scott J Dobbie CBE, a former director of the UK Securities and Futures Authority and a Commissioner of the Jersey Financial Authority, also accuses the former board of the society of "dereliction of duty".
Prepared in August 2012 the report states the corporate structure of Irish Nationwide was "hideously flawed" and "concentrates too much power in one individual [chief executive Michael Fingleton], and makes nonsense of any thought of separation of duties."
"The extraordinary delegated authority [to Fingleton] provides the breeding ground for the abuse of power which has occurred," he adds.
"The concentration and abuse of power must have been obvious to the board — or if not it is a sign of greater incompetence — and one is frankly surprised that anyone mindful of personal reputation did not seek either profound change or resignation," he says.
The report also concludes that the manner in which the society made loans to politicians was "seriously" flawed.
Irish Nationwide, he concludes, lent to politically exposed persons (politicians and their relatives) without applying "rules or good practice in handling personal and business conflicts".
This is the first time publicly that loans to politicians by Mr Fingleton have been explicitly mentioned in a report into what went wrong in Ireland's pound-for-pound worst financial institution. Ireland's politicians are currently discussing how best to set up an inquiry into the events inside Irish Nationwide and other banks.
The Dobbie report also turns the spotlight on the State, which for unclear reasons allowed Mr Fingleton career recklessly along for decades.
"The Financial Regulator, from the documentation I have seen, appears to have understood and delineated the critical INBS issues well before they caused trouble, but equally failed fully to use its powers under the [Building Societies] Act by pursuing these issues, being apparently mollified by bland assurances from the INBS Chairman [Michael Walsh] and CEO." Mr Dobbie states he believes that the Financial Regulator, even by the |standards of the early 2000s "did not meet standards which might be reasonably expected".
The compliance function, which was supposed to halt rash lending, Mr Dobbie concludes was "reactive, not proactive, in approach, had no access to the Board except through the Chief Financial Officer [Stan Purcell]." Mr Dobbie also states that he believes a key officer in the society was "compromised" by having a large loan for an investment in property other than their home.
"The activities of the CEO and some of his close colleagues exhibit to my mind malfeasance and a general abuse of trust," Mr Dobbie claims.
The behaviour of Mr Fingleton, he said, was "much worse" than anything he had witnessed in 10 years as a member of the Enforcement Committee of the Securities and Futures Authority, of the Regulatory Decisions Committee of the FSA [Financial Services Authority] and of the Jersey FSC.
"It is also evident to me that the CEO would need the active support of colleagues to carry out most if not all of the transactions of concern, and that many more must have turned a blind eye to what they knew was wrong," Mr Dobbie writes.
"As regards board members, I fail to understand how apparently sophisticated business people did not ask some very obvious questions," he concludes.
Mr Dobbie states that the society's board did oversee some loans but others were "in practice "nodded through retrospectively".
"I cannot understand," Mr Dobbie states, "why the board granted such wide powers to the CEO and then compounded [that] by failing to monitor and control the CEO's activities, indeed ignoring warning signals from regulators and others." Mr Dobbie speculates that mentally Mr Fingleton had a "lack of confidence" that was required to run the society properly, perhaps because he did not have the "abilities" to do so or perhaps because he was unable to work with others "consensually".
He states this "lack of confidence" might have also extended to his "ability to justify what would emerge from the resulting transparency" of allowing Irish Nationwide function correctly.
Mr Fingleton, he concludes, seemed unable to distinguish "appropriately between the interests of himself, his family, colleagues, friends and the society." Mr Fingleton was "incompetent" Mr Dobbie states, but also demonstrated a "lack of integrity".
"The failure to observe general business standards of probity demonstrated behaviour which was unacceptable to a most serious degree," he said.
Mr Dobbie concludes that the board of Irish Nationwide should have blocked many loans because of the lack of documentation and processes
to monitor them. Instead, he says, a "broader malaise" was allowed continue at the building society.
"Too many transactions exposed conflicts of interest between individual staff members and directors and professional advisers, and thus exposed the organisation to substantial reputational risk," he said.
The board, executive and staff of Irish Nationwide have all denied all wrongdoing to investigators both from the Central Bank and from IBRC, which took over the society before going into liquidation.
Michael Fingleton continues to keep his final €1m bonus, his multimillion pension pot and various properties at home and overseas. Five years after it collapsed, nobody involved in Irish Nationwide has been the subject of any sanction.