Until I read the article below in today’s Irish Times I had never heard of conduit funds. As always, however, when I hear the Central Bank/Financial Regulator refusing to make comment I begin to take notice.
A quick Google search provided a useful definition; essentially, conduit activity is simply a tax avoidance mechanism.
Further research led me to this report in BusinessWeek and finally to an RTE report which tells us that Ormond Quay, the Dublin based investment vehicle whose difficulties caused the near collapse of the state bank of Saxony, made a gross profit of €7.99 million last year but paid only €250 in tax.
Ah yes, Dublin, IFSC, tax avoidance/evasion, financial black holes, invisible/ineffective financial regulator – The New York Times got it right when it described Dublin as the Wild West of European finance.
As my emphasis in the article points out the Central Bank/Financial Regulator are still maintaining their tradition of buck passing, denial of responsibility and secrecy.
Regulator has no role on ‘conduit’ activity
The Central Bank has said it has no role in the regulation or authorisation of highly leveraged “conduit funds”.
It a statement yesterday it said that its regulatory arm, the Irish Financial Services Regulatory Authority, was not responsible for regulating Ormond Quay or the two other conduit funds managed in Dublin by Sachsen LB Europe.
“In relation to Ormond Quay, this so-called ‘conduit’ activity is not regulated by the regulator,” it said. It added that the regulator’s involvement had been limited to ensuring that the prospectus for one of the funds indicated that it was not regulated by the authority.
The bank refused to comment on how and when it became aware of the problems at Ormond which surfaced over the weekend.
It also refused to say whether it was aware of the extent of this type of unregulated activity taking place out of Dublin or if it was concerned about the health of similar Dublin-based funds.
It would not comment on whether it had contacted any of these funds to establish their potential liabilities.
“As part of our regulatory role, the financial regulator is closely monitoring developments in the market at present. We are maintaining ongoing dialogue with regulated firms, and with other regulators,” it said.
The bank also refused to comment on whether it had become aware of the problems through its role as the regulator of Sachsen LB Europe, which is based in the International Financial Services Centre in Dublin.
The Department of Finance referred questions to the Central Bank.
© 2007 The Irish Times