Allied Irish tax evasion sparks uproar

IRISH politicians are set to haul bosses at Allied Irish Bank before a formal enquiry following the third disclosure in less than a month of admissions of inappropriate dealing transactions, tax evasion and dodgy practices.

Sean Fleming, chairman of the Dail's joint committee on finance, says that AIB chairman Dermot Gleeson will appear before members.

He said that Parliament had further options available, if the financial committee was not satisfied with the action the bank was taking to address financial scandals uncovered by investigators.

The latest revelations concern tax evasion by senior bank officials over several years at an investment subsidiary.

Gleeson is expected to have to explain the background to the latest discoveries.

They follow a series of investigations into AIB in the wake of a $750m (£480m) fraud at a major US subsidiary two years ago which was caused by its chief foreign currency dealer, John Rusnak, racking up and concealing huge, multi-million trading losses from supervisors.

Rusnak was jailed in late 2002 for seven and a half years.

The bank admitted that several of the latest practices uncovered were 'completely unacceptable', but insisted that they took place over several years until 1996 and that since then good practices and standards had been put in place that remain in effect today.

Ray Kinsella, a professor at the Smurfit School of Business at University College Dublin, said the latest statement would cause AIB a much more serious image problem than its two previous admissions this month.

Earlier this month the bank admitted it had overcharged many of its foreign-exchange customers since the mid-1990s and set aside some £22m for potential compensation.

And on Monday it disclosed that it had overcharged customers who had invested in trust funds established before 1971.

The bank has already paid out £2.6m in refunds and compensation to those clients.

Kinsella said the overcharging admissions reflected 'screw-ups that can be expected in any system. It was regrettable that they were not detected earlier but not deliberate'.

The latest admissions are more serious, however, since they suggest that senior bank officials were involved in establishing an offshore account to manage their funds in such a way that AIB customers were disadvantaged.

Tax evasion was rife in Ireland throughout the 1970s to 1990s, when AIB and other banks encouraged thousands of ordinary citizens to evade high income taxes with bogus offshore accounts.

The initial probe centred on a British Virgin Island investment company called Faldor, the bank said, adding that it had told Ireland's revenue authorities about the scale of evasion involved in the offshore trusts operated until 1996 and would pay some £550,000 in overdue tax, interest and penalties.