Wednesday 20 September 2017

Botched investigation into €87m loans brought case to shuddering halt

Kieran Kelly, an audit partner with EY, pictured leaving Dublin Circuit Criminal Court. Photo: Collins Courts
Kieran Kelly, an audit partner with EY, pictured leaving Dublin Circuit Criminal Court. Photo: Collins Courts
Shane Phelan

Shane Phelan

Anglo Irish Bank was already on the brink of collapse when Sean FitzPatrick tendered his resignation as chairman on December 18, 2008.

The decision had nothing to do with the general running of Anglo, but followed the admission by Mr FitzPatrick that he had been temporarily moving directors' loans of up to €87m out of the bank at the end of the financial year.

Some of the money was borrowed by Mr FitzPatrick personally, while other sums related to property investment partnerships.

This "bed and breakfast" arrangement with Irish Nationwide Building Society meant the loans did not show up in Anglo's audited accounts over a period of eight years. While accepting his actions were inappropriate, Mr FitzPatrick insisted he had not broken any laws. Paul Appleby, the then head of the State's corporate watchdog, the Office of the Director of Corporate Enforcement (ODCE), wasn't so sure.

The very next day he launched an investigation.

Within days, the ODCE found Anglo had not been keeping a register of loans to directors, as required by law.

Mr Appleby and ODCE officials Sean Ward and Kevin O'Connell set about obtaining orders for the disclosure of documentation from Anglo. Records from Irish Nationwide were also sourced through the Central Bank.

Read more: Watchdog accepts criticism after ex-Anglo Irish Bank chief Fitzpatrick acquitted

ODCE officials believed Mr FitzPatrick had committed offences under Section 197 of the Companies Act and he may have deliberately misled Anglo's auditors about the size of his directors' loans. By the following February, the ODCE had begun seeking records from Ernst & Young, the financial services firm that had audited Anglo.

Statements taken from two of its auditors, Vincent Bergin and Kieran Kelly, would form the basis for 21 of the 27 charges Mr FitzPatrick would ultimately face during two trials at Dublin Circuit Criminal Court.

Using these statements, the State argued that, between 2002 and 2008, Mr FitzPatrick used refinancing arrangements to give the false appearance his borrowings from Anglo were unexceptional.

Each year the bank had to furnish "letters of representation" to board members for them to sign, providing details of their loans from Anglo.

These in turn were relied on by the auditors.

Prosecutors claimed Mr FitzPatrick misrepresented the size of his loans in these letters, and failed to correct the record after the balance sheets were signed off.

No reference was made to the refinancing arrangement with Irish Nationwide.

But the court would hear the ODCE conclusions were reached following a deeply flawed investigation involving the coaching of the two key witnesses.

Read more: ODCE accepts judge's criticism of investigation into former Anglo chairman Sean Fitzpatrick

At the centre of the malaise was Mr O'Connell, an ODCE legal adviser who became the chief investigator. By his own admission he had no prior experience of dealing with a case of this magnitude.

Mr O'Connell's investigation was very much the poor relation of all the Anglo probes being conducted by Garda fraud officers and the ODCE.

Unlike other major Anglo probes, the FitzPatrick loans investigation was not led by gardaí.

Instead it was to be led by the ODCE with Garda assistance.

How this came about is unclear. Mr O'Connell said the division of labour occurred "organically" and denied he had put himself front and centre.

While he was supposed to have substantial Garda support, in reality he and his colleagues were largely left to their own devices.

In an email to Mr Appleby in 2011, Mr O'Connell said he believed gardaí had failed to "buy in" to his investigation to the extent they had with other Anglo probes.

Mr O'Connell said a detective sergeant advised him there were two methods of taking statements - asking questions and writing down answers in the presence of the witnesses, or requesting a draft statement.

The second option was chosen, but crucial mistakes were made in its execution - so much so that the ODCE has since changed its procedures and now only gardaí are allowed take statements.

A "tripartite" procedure was agreed whereby the ODCE was to be given draft statements by the EY auditors, compiled in consultation with the firm's solicitors A&L Goodbody.

An ODCE legal adviser, Adrian Brennan, raised concerns about the process, saying he was concerned witnesses might "shoehorn the facts" into the ODCE's interpretation of the legislation.

However, his concerns went unheeded, something Mr O'Connell said he regretted.

In the case of Mr Bergin, his initial statement was drawn up by EY's lawyers and he was invited to expand on it. Over the course of several months various drafts were circulated between legal staff in EY, its external legal advisors A&L Goodbody, and the ODCE.

Changes were made to the statements at the suggestion of Mr O'Connell and then ODCE director Mr Appleby.

A barrister hired by Ernst & Young, Neasa Cahill, also had an input. There was evidence changes to the statement were discussed at meetings involving the ODCE, and lawyers from EY and A&L Goodbody when Mr Bergin was not present.

It wouldn't be until December 2010 that Mr Bergin's final statement was completed after going through at least 53 different drafts. Work on the statement by Mr Kelly did not start until the following year, and it would undergo at least 39 drafts before it was submitted.

More than 20 different people had some involvement or other in the statements.

Mr Kelly was shown his colleague's statement before completing his own and large passages appeared word for word in both statements.

Mr FitzPatrick's barrister, Bernard Condon SC, said that not only had the statements been "written by committee", it was clear there had been substantial "coaching" of the witnesses and "cross-contamination" of their statements.

Judge John Aylmer, in an early application to stop the trial, decided the approach used in taking the statements was unlawful.

But following much legal argument he allowed the case to proceed at that time.

However, the case drew to a shuddering halt yesterday.

Judge Aylmer said that after considering the arguments from both sides he had decided that in the interests of the accused's constitutional right to a fair trial he would direct the jury to find the former banking executive not guilty.

He said the most fundamental error was the manner in which the ODCE set about taking statements from witnesses.

Today he intends to direct the jury to acquit Mr FitzPatrick of all counts.

Irish Independent

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