How did one trader get away with it for so long?

SLEEPY, blue-collar Baltimore is today crawling with US government investigators and international bank officials in a massive hunt for Allfirst bank employees or outside collaborators who may have been involved in a staggering £500m fraud at the US unit of Allied Irish Banks.

Inside the imposing white-marble Allfirst building in the heart of Baltimore's downtown, employees and bank officials reacted with shock that a single foreign exchange dealer, John Rusnak, could hide mounting trading shortfalls equal to 4% of the unit's $18bn in assets for a full year before getting caught.

According to bank officials, Rusnak worked in a tiny, two-person $10m foreign exchange operation, avoiding detection by placing multiple forward or 'spot' trades in the yen-dollar market under the bank's set limits. He then fabricated data to show non-existent options had been purchased to cover losses.

'It is inconceivable, a hit that big,' said a stunned internal auditor for the bank. 'No one can believe it didn't get picked up.' Frank Bramble, chairman of Allfirst's board of directors, said the fictitious options trades should have been independently confirmed by other divisions, but were not. He said he believed others 'either wittingly or unwittingly' aided Rusnak's alleged deception.

'He would not have been able to perpetrate a fraud of this magnitude without breaching internal control systems and to me that means there needed to be some form of collusion,' said Bramble, who oversees AIB's US operations, accounting for 25% to 30% of the banking group. AIB dispatched Pat Ryan, group treasurer, and several other investigators to manage the probe in Baltimore.

Bank president Susan Keating said it is not clear whether Rusnak personally profited from the trades. Rusnak's lawyer said his client did not steal money from Allfirst. Rusnak did not show up for work on Monday after being questioned by a suspicious supervisor over the weekend. The FBI was called on Tuesday afternoon.

A church going community leader, Rusnak does not appear on the surface to share much in common with the brash, 'hot-shot' rogue dealers at the centre of past trading scandals, such as those at Barings Bank, Kidder Peabody and Daiwa Bank. Rusnak, a father of two, was well liked by colleagues who said he was a stable and dedicated employee during his eight years at the bank.

However, an assistant district attorney who has worked on many Wall Street financial crimes, said the motivation is usually the same. 'A mixture of money, hope and glory,' is what typically drives traders to take huge risks, he said. He was surprised Allfirst's internal controls did not pick up the unauthorised activity sooner. 'You can imagine such sums going unnoticed for a couple of weeks or even a month, but a year?'

Bramble pinned the blame squarely on Rusnak, saying it is difficult to safeguard against 'an individual who is intent on defrauding an organisation'.