Saturday 22 September 2018

Former Anglo CEO David Drumm sentenced to six years in prison

  • Found guilty of conspiracy to defraud and false accounting earlier this month
  • Part of a €7.2bn 'confidence trick' on the markets during the 2008 financial crisis
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers

Andrew Phelan

ANGLO Irish Bank’s disgraced former CEO, David Drumm, has been jailed for six years for his part in a €7.2bn plot to defraud the markets during the 2008 financial crisis.

Drumm (51) sat in the dock and showed no emotion as the sentence was handed down by Judge Karen O’Connor at Dublin Circuit Criminal Court this afternoon.

He was jailed for six years for both charges of conspiracy to defraud and false accounting, with credit for five months spent in custody in the US prior to his extradition here.

Judge O'Connor said Drumm’s behaviour had been “grossly reprehensible”  and a motivation to keep Anglo open during the crisis “does not provide any excuse for fraud and dishonesty.”

David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers

A jury found Drumm guilty of both charges by unanimous verdict two weeks, ago after a trial that lasted nearly five months, one of the longest in the history of the State.

He had pleaded 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 plotted 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 centred on a series of interbank deposits which circulated between Anglo and ILP.

David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers
David Drumm, former Anglo Irish Bank Chief Executive arrives at the Dublin Circuit Criminal Court for his sentencing hearing. Picture: Damien Eagers

Drumm had also denied false accounting, by providing misleading information to the market in December 2008.

Judge O’Connor said today  there could be no dispute these had been “challenging times” and there was dysfunction in the markets.

“This court is not sentencing Mr Drumm for causing the financial crisis. Nor is this court sentencing Mr Drumm for the recession which occurred,” she said.

The offending “did not cause Anglo Irish Bank to collapse” and the court was sentencing Drumm only for the two specific offences.

During the course of the trial, the jury was told Drumm that he accepted the factual matters regarding the mechanics of the September transactions, Judge O’Connor said.

“However, he did not accept they were fraudulent or dishonest or that there was any dishonesty in their reporting,” the judge said.

“The jury rejected these submissions and convicted Mr Drumm unanimously.”

A Chief Executive Officer and a member of the board, Drumm was in a position of trust in relation to the bank, its depositors, investors and lenders, she said. The public were entitled to trust the information published by a public limited company and to make decisions based on that information.

“In this case two ‘blue chip’ publicly quoted companies conspired to manipulate the public accounts of Anglo Irish Bank. Mr Drumm along with others put together a dishonest scheme and engaged in transactions, designed to inflate deposits from a non-banking entity to Anglo Irish

Bank.

“The transactions were without substance and provided no ‘rea’ financial

liquidity or funding,” Judge O’Connor continued.

“The fact that the scheme ultimately did not succeed is irrelevant. Mr Drumm was part of a conspiracy which potentially could have caused significant loss.”

“From the evidence it is clear he was the driving force in Anglo Irish Bank and the person behind the funding initiatives being considered by the bank. He authorised the transactions, was at the helm of the bank, and clearly extremely ‘hands-on’ in his position in the bank.”

The aggravating factors, she said, included the nature of the offences, being a dishonest and fraudulent scheme involving a conspiracy to the tune of €7.2 billion euro.

Drumm “held a position of trust, when he authorised, directed and was actively involved in this dishonest and fraudulent scheme.” He was also actively involved in the furnishing of the information into the market. This offending was premeditated and planned, and in fact the evidence was that significant planning went into this fraud.”

Mitigating factors, she said, were that “Mr Drumm is a person of previous good character, he has no previous convictions. He has a supportive family.”

“He has lost his reputation which will encroach on any future employment opportunity. This is difficult for him on a personal level in circumstances where he was respected within the banking industry. He has been the subject of much opprobrium which no doubt has been difficult for Mr Drumm and his family on a human level.”

The most significant form of mitigation would be as a result of a guilty plea, which was now not available to him.

“While certain matters were admitted to by Mr Drumm, he did not accept that the transactions were fraudulent or dishonest or that there was any dishonesty in their reporting,” she said.

“The motivation to keep the bank open is irrelevant. This was grossly reprehensible behaviour and it does not provide any excuse for fraud and dishonesty,” Judge O’Connor said.

“Similarly inaction, weakness and ineptitude on the part of the Financial regulatory authorities provides no excuse for a scheme of this nature. The jury were told that this was part of a ‘green jersey agenda’ wherein

Irish banks would help each other. Mutual assistance is a far cry from unlawful acts.

“There was no evidence in this case that the Central Bank or the Financial Regulator directed criminality. The public has to be able to trust its banks, citizens place their trust in a bank, allow banks to manage their money and need to be able to believe and make decisions on foot of the information published by their banks.”

Referring to the lower sentences imposed on his co-conspirators Willie McAteer and John Bowe, who were jailed for three and a half years and two years respectively,  the judge said they were subordinates to Drumm, who held a more senior position and was a more influential figure. “He had a leadership role,” she said.

Judge O’Connor added that there had been no suggestion that Mr Drumm or the other conspirators made any personal financial gain as a result of tis offending.

The appropriate "headline figure" for sentencing was eight years, she said, and this was reduced to six with mitigation.

Drumm leaned back slightly in his seat in the dock, but did not react otherwise.

Wearing a dark suit and open-necked blue shirt, he was seen arriving alone at the Criminal Courts of Justice at around 8.20am this morning, more than two hours early for the sentencing hearing.

After submissions from the prosecution and defence earlier, Mr Drumm sat in the afternoon reading a book, "We chose to speak of War and Strife" by John Simpson, while waiting for the judge to consider the sentence

Several jurors were present in the public gallery during the sentencing.

Earlier at the hearing, Detective Sergeant Michael McKenna of the Garda National Economic Crime Bureau said the nine-year investigation began in March 2009. Prosecutor Paul O’Higgins led Det Sgt McKenna through the background to the offences in 2008.

That year, Anglo entered into a series of circular transactions with ILP, aimed at bolstering Anglo’s customer deposits figure on its year-end balance sheet, making Anglo look stronger than it really was.

The deal involved Anglo placing cash with ILP, which then passed the money through its non-banking subsidiary Irish Life Assurance, back to Anglo.

Because ILA was not a bank, Anglo was able to re-categorise the cash as having come from a corporate customer. This would be seen by the markets as a better source of funding than interbank lending.

Drumm, the prosecution said, was the man who “called the shots” in Anglo at the time and authorised the deals. When the year end results had to be reported to the markets on December 3, Anglo included the €7.2bn in its total €51.5bn customer deposits figure, but did not link the two figures. Drumm was among the signatories.

“Mr Drumm was the driving force behind the initiative,” Det Sgt McKenna said.

His involvement had continued “right the way” from March 2008 until September in that he chaired weekly meetings in his office and individually asked people to pursue transactions, particularly with ILP.

There was evidence that he specifically asked Head of Treasury Matt Cullen to ask his counterpart in ILP, David Gantly, to increase the September transaction from €6bn to €7bn.

There was evidence he was in contact directly with ILP's Denis Casey and they discussed the transactions with each other.

Det Sgt McKenna said of the three co-conspirators sentenced in 2016, that McAteer was jailed for three and a half years, Bowe was sentenced to two years in prison and Casey was jailed for two years and nine months, with another portion suspended.

Mr Grehan said the transactions happened at the height of the financial crisis after the Central Bank had asked Irish banks to help each other in what became known as the “green jersey agenda.”

Although Drumm admitted authorising the transactions, the origin of the idea was “shrouded in mystery,” Mr Grehan said.

"The idea of this being a legitimate form of balance sheet management, that has never been got to the bottom of,” Mr Grehan said.

“Well we have got to the bottom of it now,” Det Sgt McKenna said, to laughter in the court.

Mr Grehan said there seemed to have been some awareness in the Financial Regulator’s office of the transaction in advance of September 2008.

“Not in terms of the specifics,” Det Sgt McKenna said.

The transactions were certified as “true and fair” by the external auditor, Ernst and Young, Mr Grehan said.

Mr Grehan said Mr Drumm was the fourth of eight children. His father had been a truck driver who died at the age of 64. His mother only recently retired as a hairdresser.

Drumm had worked with a number of different accounting bodies after completing his Leaving Certificate and joined Anglo in 1993 at the age of 26.

He was sent to the USA in 1998, moved with his family to Boston and they put down roots, living there for seven years. He returned to “somewhat unexpectedly” become CEO in 2005.

Drumm resigned on December 19, 2008 following revelations about chairman’s loans at the bank.

The family returned to Boston in June 2009, where they still had a home. He worked and lived there until he returned in 2016, when he was extradited. He initially fought that and spend five months in a US federal penitentiary. Ultimately, he consented to returning to Ireland to face trial.

Drumm had always complied with bail conditions.

Det Sgt McKenna agreed when Mr Grehan said “this matter has been marked, not surprisingly, by a large amount of media coverage and interest.”

Drumm was “ready for” sentencing today and accepted that “it must be custodial,” Mr Grehan said.

He had not put forward any testimonials or character references on his behalf.

“His life has effectively been an open book since he became Chief Executive,” Mr Grehan said.

He did not want to have his extended family, who had supported him throughout, exposed to any further loss of privacy and “collateral damage.”

Drumm had accepted that as CEO he authorised the transactions and took responsibility for their execution in Anglo. “With the benefit of hindsight” he recognised it was a “huge error of judgement” on his part, he could not admit to having a subjective intention that he never had.

He believed he was involved in balance sheet management with the “tacit if not actual” approval of the regulatory authorities.

He accepted that it was not discussed in detail with the regulatory authorities but there seemed to have been an approach of “laissez faire from that quarter.”

In terms of his motivation, “it was assuredly to save the bank during the worst financial crisis in living memory.”

Sometimes it was easy to forget 10 years down the line just how chaotic it was for those who were trying to wrestle with decisions that had to be made, he said.

Unlike most frauds, the transactions were not conducted in secret, there were lots of people involved in the funding initiatives and there was a huge spread of different transactions throughout the year.

It had to be seen in the context that Anglo was “facing annihilation”. The transactions passed under the eyes of a lot of experienced professionals independent of Drumm and nobody raised a red flag.

There was no evidence that anyone actually suffered any loss or made any gain.

There was no evidence anyone was involved for personal gain, rather they were trying to save their institutions “full stop.”

“From humble beginnings he rose to the dizzying heights of Chief Executive of what was at one stage described as one of the best if not the best bank in the world” to where he is today, facing sentence,” Mr Grehan said.

The sentence would “reverberate” not just in Ireland but further afield.

Drumm now had “very limited future options” and accepted the court was restricted in its sentencing options.

Mr Grehan said that as CEO, the case might be made that Drumm bore greater responsibility than others who had been sentenced.

He should receive credit for time spent in custody in the US, Mr Grehan said.

He asked the court to consider the “totality of the hardship” that had been visited on Drumm, and the “notoriety” that he was going to carry “not just today and tomorrow… but for the rest of his days.”

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