Wednesday 15 August 2018

David Drumm was the 'captain of a ship' who 'did what he had to do' to get it through the 'storm'

David Drumm denies taking part in a plot to defraud. Picture: Collins
David Drumm denies taking part in a plot to defraud. Picture: Collins

Andrew Phelan

ANGLO Irish Bank’s former CEO David Drumm was the “captain of a ship” who “did what he had to do” to get it through the “storm” of the 2008 financial crisis, his defence has said.

Mr Drumm “did his best in good faith” when he authorised a €7.2bn interbank deal and it was not the case that he “morphed into some criminal mastermind and set about this huge, elaborate fraud, the biggest in Irish history.”

Defence barrister Brendan Grehan SC was delivering his closing speech to the jury in the fraud conspiracy trial of Mr Drumm.

Earlier, Mary Rose Gearty SC concluded her closing statement for the prosecution, saying the transaction at the centre of the case was “very devious” and “monumentally fraudulent.”

Mr Drumm (51) is pleading not guilty to conspiring to defraud by dishonestly creating the impression that Anglo's customer deposits were €7.2bn larger than they really were in September 2008.

He is alleged to have conspired with Anglo’s former Finance Director Willie McAteer and head of Capital Markets John Bowe, as well as Irish Life and Permanent’s then-CEO, Denis Casey, and others.

The case centres on a series of interbank deposits which circulated between Anglo and ILP.

The transfers were routed through Irish Life Assurance (ILA), returning to Anglo where they were then treated as customer deposits, which are a better indicator of a bank’s health.

Mr Drumm also denies false accounting, by providing misleading information to the market.

Mr Grehan began his closing speech this afternoon. The defence had not called any witnesses to give evidence in the four-month trial.

Mr Greah said Ms Gearty had delivered a “bombastic, rousing call” from the prosecution saying this was a “fundamentally, monumentally” a fraud and nobody in Anglo had called it out.

He said around 100 people were involved on either side and not one of them spoke about it in those terms. It had been described as “abnormal” in size, and ILP's David Gantly had said he was “uncomfortable at one stage” but “that was the height of it,” Mr Grehan said.

He asked how none of these “intelligent people” called it out in any shape, manner or form.

The jury was being told by the prosecution that this was a “massive fraud - perhaps the biggest ever in Ireland” and the prosecution was going to repeat this until it was blue in the face.

He said Ms Gearty’s example of giving a euro and getting one back was “somewhat simplistic” and the law was “very complicated.”

Mr Drumm was the former CEO of Anglo Irish Bank which was “one of the most reviled institutions in recent living memory in this country,” he said.

“Any of you would be less than human if you didn’t have views and strong feelings about Anglo,” he told the jury.

The case was “not about all the ills that had been attributed to or were perceived to have been caused by Anglo, real or otherwise to this country,” he said. It was about specific transactions and Mr Drumm had never denied anything that he did in 2008 in relation to them.

To suggest his admissions were self-serving was to do a very great disservice to them, he said. They were made on the first day of the trial so the issues in the case would be crystal clear, Mr Grehan continued.

He then read out the admissions, which stated that Mr Drumm admitted authorising the transactions and assumed responsibility for their execution by Anglo.

He accepted all the factual matters of how the September transactions happened and the only issue he disputed was whether they were fraudulent or dishonest or that there was any dishonesty in their reporting.

There was “no ambiguity in Mr Drumm’s stance, it’s straight up, he accepts responsibility for his actions,” Mr Grehan said.

“The one thing he can’t do is stand up and say ‘I set out to commit a fraud’ because he didn’t.”

The transactions did not start out as a planned €7.2bn transaction, but “grew incrementally and organically because to the circumstances that prevailed in 2008.”

He said “we have been told to ignore” the context, which was the worst financial crisis in living memory.

“You are instead to assess this from the comfort of an armchair looking back in hindsight to 10 years ago when we are in far calmer waters,” he said.

It was a “hallmark of conspiracy” that people will do it furtively but the defence said this transaction was conducted openly.

Banking is a “tightly regulated industry,” he said. If “those in regulator land” were told openly about precisely what happened as early as October 1, prior to publication of the financial statement in December, Mr Grehan asked the jury, was that something they could consider “irrelevant”?

“We ask that you judge Mr Drumm having regard to those circumstances and not to some hindsight view when you have all the luxury of being able to ponder matters in the calm waters that are prevailing,” he said.

He asked the jury to judge Mr Drumm by his own actions and what they heard and seen within the four walls of the courtroom.

“You cannot be susceptible to idle chit chat,” he said.

He asked them to judge Mr Drumm on his own actions and those of the people for whom he was responsible, and not people for whom he was not responsible.

He admitted “everything except dishonesty.”

The prosecution would say the September transactions compared to others were “like apples and oranges” but Mr Grehan compared them to “sweet apples and sour apples.”

Accountants get to decide what is and what is not acceptable balance sheet management, he said. If the jury looked at what the intent was, it was “the same thing.”

ILP had been “hiding the fact that they were heavily reliant on European Central Bank Funding.” When they disclosed their reliance in 2007, the Irish Central Bank “hauled them down to Dame Street”  and told them to “find another way to do it,” Mr Grehan said.

“What is that other than misleading the market?” he said.

“Dishonesty” was the single issue in the trial, but the prosecution had called “witness after witness” to try to prove the same things over and over again.

The jury was being asked to find that Mr Drumm “is guilty of committing the biggest fraud in history” and when the allegations did not fit with the evidence, the evidence was either “ignored or misconstrued.”

He asked the jury if they had forgotten about the audit committee, who were there to “correct the homework of Mr Drumm.”

They were the ones who said “this goes in and this goes out,” without any intervention from Mr Drumm who was not even allowed into the committee.

It was being suggested he kept information from then- non executive directors Donal O’Connor, Gary McGann and Michael Jacob - “three of the brightest, most intelligent people you could have on a committee.”

At the November 18, 2008 audit committee meeting, Mr O’Connor had been able to say on a call all the way from Australia “without having a scrap of paper in front of him”, “is this not window dressing?”

He read out the description of the transactions given to that meeting.

The jury was being told that it was Mr Drumm’s fault that the accounts were being put the way they were because he had signed them.

The signing of the accounts was a “total red herring” put there to deflect from the fact that responsibility for what went into the accounts and accompanying disclosure notes  lay “squarely with the audit committee, over which Mr Drumm had no control.”

The prosecution had not produced a single witness to say they had been influenced by the customer deposit number in the financial statement, or lost shares, or did not get deposits back. It had “neatly sidestepped” the fact that if all this was correct, there would have been a spike in Anglo’s share price after the results were published, but instead it went “off the edge of a cliff”, halving in two days.

“Why? Because nobody cared about customer deposits after September 30 because at that stage everything was guaranteed, the Government had stepped in,” Mr Grehan said.

The issue the market had been asking about was whether Anglo would get its loans back in the recession and one stockbroker did not even mention customer deposits in his analysis.

The case had been billed “as something greater than it is,” Mr Grehan told the jury, referring to what was set out for them at the start.

“You must have been salivating at the mouth, saying ‘we are going to stuck into some real badness here,” he said. “I am suggesting that sadly you were disappointed, it didn’t live up to the billing.”

“There is no evidence that anybody stole a cent here, or lost anything because of this transaction. There’s no evidence that anybody gained anything, there’s no evidence that someone has €7.2bn stashed away in some Cayman Island account.”

There was no evidence Mr Drumm gained anything from this, he added.

“The charges are something of a fraud attempted to be perpetrated on you.”

“We admit all this happened, we make no bones about it whatsoever,” he said, adding that it happened in a particular context “unrivalled in living memory.”

But Mr Drumm had “never shirked” from the facts.

“He was captain of that particular ship heading into a storm and he did what he had to do to get that ship through the storm,” Mr Grehan said. “He doesn’t seek to blame anyone in the engine room for bringing the ship onto the rocks.”

He said it had been suggested there was “no money” but on September 30, €4bn had flowed into Anglo’s coffers as a result of the Government guarantee.

“There is not the slightest bit of evidence of anyone having misled or misinformed the auditor, never mind having lied to him,” Mr Grehan said.

“The Central Bank came to him and asked him to tog out for Ireland along with other people at the time, that is the evidence, that is what happened. Hindsight of course tells us all now that Anglo had problems, perhaps even insurmountable ones but the reality is if you are in the middle of a crisis, hope springs eternal.”

He said in these circumstances, you continue to “man the pumps” and nobody would get up in the morning if you “didn’t believe tomorrow is going to be a better day.”

“At the time all you can do is do your best and out contention is that Mr Drumm did his best in good faith in the circumstances… not that he morphed into some criminal mastermind and set about this huge, elaborate fraud, the biggest in Irish history.”

Mr Grehan is due to continue his closing speech to the jury tomorrow.

Earlier, Ms Gearty concluded her opening statement.

On deception, Ms Gearty said a person could deceive by creating or reinforcing a false impression as to value, or failing to correct a wrong impression. It could involve preventing another person from acquiring information that could affect that person’s judgment of a transaction.

There were very senior people in Anglo, Non Executive Directors, who had told the jury they did not have sufficient information to know what the figure comprised.

The prosecution’s case was the deception could cause people to make decisions based on wrong information.

“Effectively that people would leave their money in Anglo at a time when Mr Drumm and his colleagues knew that the bank was going down the tubes,” she said.

The Chief Executive’s review in Anglo's preliminary statement of December 2008 included a paragraph on the strength of the customer deposits figure “as a sign of the strength of the bank,” Ms Gearty said.

Mr Drumm had signed off on this “when he knew they weren’t customer deposits at all,” Ms Gearty said.

“That is in effect the essence of this case.”

The €7.2bn was “many multiples” of the bank’s profit, which was €670m that year.

In a January 2009 mail, Mr Drumm had claimed that up to 20pc of a balance sheet was comprised of “window dressing” but that was “not what we are looking at here.”

“Window dressing” could include any number of “quite legitimate transactions” that cost a bank money, even if it is overnight.

“Really we say there is no customer here, let alone €7.2bn,” Ms Gearty said.

Anglo had agreed to lend €10bn in 2008 and the bank had a customer deposit target number that summer. It had to keep its loans to deposits ration at a certain level and when the other funding initiatives fell away, they had to reach that target “by hook or by crook, and the prosecution says it was by crook.”

They found “a willing co-conspirator” in ILP to go along with their accounting solution.

The transactions were organised to use a particular accounting standard that said “we have to present these transactions gross.”

If they were netted they were cancelled out, but “if you gross them up it looks as if you have seven,” Ms Gearty said.

This was “neatly explained” in an email from Anglo's Ciaran Cunningham to Colin Golden in Anglo in July 2008. In this, it was stated that if the maturity dates, when the money was paid back, were different, “you can show them gross in the accounts.”

In the end the transactions were netted but “the whole point was to show them gross.”

Ms Gearty said it might be suggested by the defence that what happened could not be criminal because a large number of people knew about it.

This was not so, she said, as it was not relevant if other people knew. It was irrelevant what the Central Bank or Financial Regulator knew, and there was no evidence they knew anything about the transactions before they occurred.

Mr Drumm had made admissions at the start of the trial which the prosecution “fundamentally disagrees with,” Ms Gearty said.

They were to some extent “self serving” and referred to increasing customer deposits, when the prosecution said there was only the appearance of an increase.

It was Anglo’s own money throughout and she referred to a phone call between Anglo’s then Chief Financial Officer Matt Moran and Mr Bowe in which Mr Bowe said “it’s the same money, you don’t need the cash.”

“This is the same sum of money circulating and that is clear from the phone conversations between the actors,” she said.

ILP’s David Gantly had said in evidence “they were looking to re-categorise these funds.”

It was a confidence trick because it was based on unreal deposits, Ms Gearty said.

She said the September transaction was unlike a “repo”, which was an agreement to sell and repurchase securities such as bonds. There was a value, cost and limit to that kind of transaction.

The March transaction was a “prototype” for what was done in September.

The September transaction could have gone up to €70bn or continued ad infinitum and Ms Gearty asked how that could be if it was “legitimate and honest.”

The jury had been show “acres of minutes” from meetings, but the prosecution’s view was that the really significant information was kept out of the minutes.

She said in one November 28, 2008 audit committee meeting, then Non Executive Director Donal O’Connor asked “is that window dressing” and was “shot down” by Willie McAteer, who said “it’s balance sheet management.”

It seemed to the prosecution that in terms of what was minuted there was “very limited information, very late in the day.”

“Those who were creating and managing the transactions knew they couldn’t put the details into the minutes because it would have been obvious to anybody reading them that this was dishonest,” she said.

Ms Gearty referred to a mail Mr Drumm sent in January 2009 in which he said the banking authorities were fully aware of what Anglo was doing “to protect ourselves.”

Ms Gearty said it may be suggested that there was no reason to condemn the transactions because “there was a greater ulterior motive of keeping the show on the road.”

She again said the Bank of England had “secretly” put money into banks there.

“How does that make these transactions anything other than dishonest or fraudulent?” she said.

She said the jury should find that it was “fundamentally dishonest.”

“If any of you can make a single coin into seven I would be very happy to invest with you,” she said. “Everything about this was so monumentally fraudulent it may be hard to understand why it wasn’t called out in the bank.”

It may well have been that there were people in Anglo who recognised this for what it was an did not speak out, she said.

Of course the transaction was misleading - “why would you do it otherwise?” she asked.

It was a “very devious transaction” and it was dishonest, she concluded.

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