Banks and bogus accounts

Having paid out hundreds of millions of euro in back taxes, interest and penalties, bank customers who claim they were advised to set up bogus non-resident accounts now plan to begin legal proceedings against financial institutions.

Mairead Lavery reports

To date, a staggering €892million has been collected by the Revenue Commissioners following investigations into off-shore bank accounts. The biggest single amount - €684million - has come from investigations into bogus non-resident accounts. In all, 140,000 account holders have received letters from the Revenue Commissioners asking them to explain themselves. Yet, so far there hasn't been a single prosecution of an official from a bank or building society who may have facilitated the operation of these accounts.

Now a support group for these account holders has engaged a team of legal experts to fight a selected number of cases against financial institutions in the courts. According to the Cork-based Reaction Group, there is "a deep feeling among clients that the banks cleared themselves of responsibility without letting their clients know the consequences''.

"We have details of a significant number of cases where banks, as the customer's only financial advisor, gave advice which has left those customers in serious trouble. The banks used bogus non-resident accounts to compete with other institutions that had DIRT (deposit interest retention tax) free investment products. While they have paid a financial penalty, they have not been called to account in the courts of the land. We must remember that banks operate under licence and this licence was abused. We intend to substantiate what we are saying through the legal route. However, in tandem with this, it is incumbent on politicians to bring these errand financial institutions to account,'' said Conor O'Mahony of the Response Group.

John Perry TD, Chairman of the Dail Public Accounts Committee (PAC), agrees that banks should face prosecution for their actions. "What has come to light clearly shows that banks aided and abetted tax evasion. You only need to look at the amount of money that was shifted to the Isle of Man in 1998/99 to see this. They facilitated the opening of accounts and transferred the money. They should bear a big part of the responsibility. The banks knew exactly what they were doing and they got off extraordinarily lightly. The buck stopped with the account holder.

"Personally, I think that the banks and their staff should face prosecution for their actions. There's a real stigma attached to the individuals who have been caught and they are taking a bigger portion of the hit from the Revenue. The banks knew what they were doing but really didn't care about their customers. I believe that their customers have a story to tell and that there is culpability on all sides,'' he told Journal 2.

He plans, with the agreement of the PAC, to recall all financial institutions and get them on the record about their banking arrangements and to verify that all their accounts are in order. "They need to be asked if they can stand over how so many thousands of people were facilitated to open bogus non-resident accounts,'' he added.

The Revenue Commissioners have warned that bank managers and other financial advisors who help clients evade taxes in the future will be prosecuted. However, their chairman, Frank Daly, told the PAC that it would be very difficult to successfully prosecute cases going back to the 1980s. "It is better for us to go after more current evasion, rather than trying to look back at some of those cases from the 1980s and 1990s. Quite frankly, it would be extraordinarily to prove in a court of law,'' he said.

He added that the Revenue had repeatedly encouraged bogus non-resident account holders to give evidence of how they were facilitated by their financial institution to evade tax. But so far no one has been prepared to do so.

Paying the penalty

A Cork couple, who worked in America for many years, returned to Ireland in 1986 with their savings. When borrowing for a house, their new bank manager suggested that their savings should be put into a non-resident account. As they had been non-resident for many years, they took this advice. In 1996 the manager included the account for DIRT. In 1999, the account was given the proper address.

The couple say they were never told they could get in trouble. They had no accountant or other financial advisor. Last month, they settled their affairs with the Revenue Commissioners.

The payment cleaned them out and they now face retirement with nothing but their old age pension. "I've been dealing with the same bank for 17 years, they all know me there and they know what has happened. I've dealt with a few different managers, and all the present guy does is shake his shoulders when he sees me.''

A Wexford couple invested an inheritance in their building society in 1988 and all taxes were paid. Some time afterwards, they went to borrow money from a local bank and when the manager was told about the building society account, he advised them to transfer it to the bank to help their case. They say he told them the interest would be tax-free. Their building society responded by offering the same deal.

"We gave them an address and that was it. Both the bank and building society knew me well and knew I had never been a non-resident."

Two years after opening the bogus non-resident account, the family decided to regularise it. They did this without any advice from their financial institutions. Last year, they got the dreaded enquiry letter from the Revenue. "We will carry the can, but luckily we closed the account quickly. No one in my bank or building society will share that blame, even though they gave me the forms and even filled them in. I'd like to know if the Commissioners for Oaths who vouched that people were non-resident in sworn affidavits have any case to answer.''

Bank official explains how the scheme operated

At the time, life assurance companies were offering savings policies with tax-free benefits. Deposit account money started to move from the banks to these life policies.

Many customers had children who had emigrated or who had spent time working abroad themselves and the bank I worked with encouraged them to open accounts using these addresses. The customers were told they would be as safe as houses and the business would be between themselves and the branch. Every day, we examined any cheque over £100 firstly for errors and then to check if it was made out to a life assurance company. If it was, it became everyone's responsibility to discover why the money was leaving the bank and how we could hold on to it. The pressure was on everyone to keep that money in the branch, whatever it took.

Setting up bogus non-resident accounts was easy. Each one had a history card, on the front of which was the name and foreign address and that was the only information put into the computer. The back of the card had the real details.

The customer had to sign a declaration that he/she was non-resident, but hardly any of them asked what exactly they were signing or if it had any implications for them.

Most accounts were for small money and the holders were the type of people who worked all the hours God sent and, for the most part, paid tax on what they earned. It really grieved them to have to pay tax again on the amount they saved.

The scheme started to come unstuck in 1992/93 when all the branch managers in our area attended a regional meeting. After that meeting, we were told that no bank official's handwriting was to appear on the forms. The managers were told to regularise accounts and if they opened any more they were on their own.

Because some financial institutions, such as the post office, didn't have to pay DIRT, many of those who opened the accounts thought it was just a loophole. They took the advice of people they trusted and whom they thought knew the score.