Former Anglo-Irish Bank chief executive David Drumm, in challenging the bank’s lawsuit against him in his US bankruptcy case, said the transferring of Chairman Seán FitzPatrick’s loans of up to €120 million off Anglo’s books was “fully and properly signed off by the bank’s credit committee as well as several non-executive directors” (see for instance this report in the Irish Times).

I have written about this previously, but I continue to be mystified as to how the bank reported its “loans to key management personnel” in its annual reports to  shareholders.  Take, for instance, the 2007 report, which includes the extraordinarily incorrect statement that “Loans to key management personnel are made in the ordinary course of business on normal commercial terms”.

Here we have a bank which gave its former chief executive (a) tens of millions of euros in loans (b) on an interest-only basis, (c) without adequate security, and (d) allowed him the facility to re-draw the loans after temporarily repaying them for concealment purposes at year-end.  And the board were satisfied that this was “in the ordinary course of business on normal commercial terms”?

It seems to me that either the board (including Fitzpatrick) were guilty of a default in their duty to shareholders, and perhaps of a statutory offence, in allowing this to be published, or the management were guilty of concealing from non-executive directors what they knew about Fitzpatrick’s loans.  David Drumm now appears to be saying that the former is the case.  He could, of course, be “mistaken”.

By the way, false accounting is a criminal offence under the Criminal Justice (Theft and Fraud Offences) Act, 2001.   It arises inter alia where somebody, intending to make a gain, or to cause loss to another, “falsifies any account or any document made or required for any accounting purpose” or “in furnishing information for any purpose produces or makes use of any account, or any such document, which to his or her knowledge is or may be misleading, false or deceptive in a material particular.”

The Director of Corporate Enforcement said last week that his office is preparing a fourth file to be sent to the Director of Public Prosecutions in relation to Anglo-Irish Bank.  I would like to think that midnight oil is being burnt in the DPP’s office on this case, but I have a horrible feeling that it just ain’t so.  The DPP tried to defend his lack of speed earlier this year, but the points he made seemed to me to be less than convincing.

Incidentally, the current DPP, James Hamilton, takes early retirement this month, and the Government have appointed Claire Loftus as his successor.  She has been promoted from her role as the Head of the Directing Division in the DPP’s office, and before that she was the DPP’s chief prosecution solicitor from 2001 to 2009.  I hope she can move things forward at a faster rate than her predecessor, but unfortunately I can find no reason to believe that a long and successful career in our DPP’s office is an indicator of a dynamic and energetic character.  Maybe I will be proved wrong.  For the sake of the morale of the general populace, I hope so.

I read in the newspaper that the “Nyberg” report  has found that while Anglo-Irish Bank had strong internal risk controls, these controls were ignored as the bank increased its loan book.  I also read that the bank’s non-executive directors (NEDs) have been criticised for relying too heavily on the views of management and for not having sufficient banking experience to question the policies at the bank.

One is entitled to ask why the non-executive directors, who were exceedingly well paid, did not do their job properly and act to protect the interests of shareholders.  Instead they seem to have acquiesced in the most disastrous failure of any management team in the history of Irish business, a failure that has impoverished the whole country.

Perhaps this is the wrong question.  Maybe the question should be: at what point does the level of fees paid to a NED become excessive, to the extent that his/her independence and judgement are compromised by an unwillingness to resign or “rock the boat” and thus lose out on the easy money? 

As far back as 1992, the seminal Cadbury Report on Financial Aspects of Corporate Governance advised that NED fees should “recognise their contribution without undermining their independence”. 

I don’t for a moment question the need for directors’ fees to be sufficient to compensate them for the time and commitment involved (not to mention the potential liabilities).  I subscribe to the view that a NED cannot in good faith be involved on the board of more than a handful of significant companies if he/she is to discharge his/her duties properly. So the fees involved need to be significant.

However, I believe that non-executive directors’ fees in many public companies rose to excessive levels in recent years, and Anglo was a particularly egregious example. Turn, for instance, to page 128 of the 2007 Anglo Annual Report.  You will see that total remuneration for the 7 NEDs who served for the full year was €962,000 – made up of €431,000 for the Chairman (a crazy figure in itself) and an average of €88,500 for 6 others.

Can somebody who is getting such fees be considered independent at all?  To quote Fortune magazine from last year: “High pay for outside directors of corporations guts the whole idea of these representatives of the shareholders making independent judgments. How does a board member challenge a CEO when the director is being paid oversize amounts likely to be important to his or her lifestyle?”

I saw this headline a few days ago. Finally, I thought, some sign of life from the various criminal inquiries related to Irish banking scandals.   At last, we would see a degree of accountability and justice!

Alas, ’twas not to be.  Disappointingly, it was about two UK property tycoons being arrested in London as part of a fraud investigation into a failed Icelandic bank.

Here in Ireland, we struggle to achieve a level of accountability which is taken for granted even in Nigeria.  I don’t care how many enquiries we have under way, or how thorough they are, if they cannot move forward at a reasonable pace then they are simply a waste of time and money, while generating justifiable cynicism.

Anglo-Irish Bank’s 2009 annual report  tells us that the average number of persons employed during the period was 1,681 and that the related employment costs were no less than €186,000,000 (an average of €111,000 per person). 

It also advises that “as part of the Group’s restructuring process a voluntary redundancy programme commenced in November 2009, the effect of which is not reflected in the above headcount numbers. Once the redundancy programme is complete, it is expected that the Group headcount will be below 1,300.”

What are all these people doing, now that it is no longer extending any new loans, most of the old loans have been shipped across to NAMA, and depositors are unlikely to be knocking down its doors to offer them money?

For that matter, why have there been no dramatic redundancies at the other banks owned wholly or partly by the State?  Surely employees are not being kept on just to help the overall national unemployment figures?

 The Irish Independent today reported that “Many of the loans that will today bring about the bankruptcy of former Anglo Irish chief executive Sean FitzPatrick were given by the bank on an interest-only or interest-roll-up basis”

This adds to the mystery of how the bank reported its “loans to key management personnel” in its annual reports to shareholders.  Take, for instance, the 2007 report, which includes the extraordinarily incorrect statement that “Loans to key management personnel are made in the ordinary course of business on normal commercial terms”.

Here we have a bank which gave its former chief executive (a) tens of millions of euros in loans (b) on an interest-only basis, (c) without adequate security, and (d) allowed him the facility to re-draw the loans after temporarily repaying them for concealment purposes at year-end.  And the board and the auditors were satisfied that this was “in the ordinary course of business on normal commercial terms”?

Either the board (including Fitzpatrick) and the auditors were guilty of gross default of their duty to shareholders, and perhaps of a statutory offence, in allowing this to be published, or the management  were guilty of concealing from non-executive directors what they knew about Fitzpatrick’s loans.

False accounting is a criminal offence under the Criminal Justice (Theft and Fraud Offences) Act, 2001.   It arises inter alia where somebody, intending to make a gain, or to cause loss to another, “falsifies any account or any document made or required for any accounting purpose” or “in furnishing information for any purpose produces or makes use of any account, or any such document, which to his or her knowledge is or may be misleading, false or deceptive in a material particular.”

And still we wait for the wheels of justice to turn.

It’s well known that the presence on the board of the Dublin Docklands Development Authority (DDDA) of Anglo Irish Bank chairman Sean FitzPatrick, together with Anglo director Lar Bradshaw, was influential in the DDDA’s disastrous course of action in becoming a property speculator.

As long ago as 2004, independent TD Tony Gregory raised concerns about a conflict of interest between members of the DDDA and Anglo Irish Bank.  The then environment minister Dick Roche gave assurances that no conflict of interest could arise (!)  Subsequently, Fine Gael environment spokesman Phil Hogan claimed in the Dáil that the DDDA was “run like a downtown branch office of Anglo Irish Bank”.

A key factor in the story of the DDDA and Anglo is the ability of the former to grant planning permission to proposed developments in its area of influence, without the normal checks and balances of the mainstream planning system. And guess what?  If you were a developer with a project which needed planning approval from the DDDA, and you had carelessly obtained finance from a bank or banks other than Anglo-Irish,  you might find yourself confronting various delays and obstacles in obtaining said permission.  Or you might find that inspections of your development for compliance with the planning permission were surprisingly scrupulous.

Yes, truly the poisonous tentacles (or testicles, per Bertie Ahern) of Anglo-Irish Bank extended almost everywhere in Irish corporate life.  We can look forward to years of additional revelations as the scandalous goings-on are gradually revealed.  The inevitable collapse of the current government will lead to an even greater flow of such revelations, as key files are opened to scrutiny by Fine Gael and Labour, and those with stories to tell lose their fear of retribution for breaking omertà.