Category: Banks & Finance

Protecting the vultures

On July 13th last I wrote about the many excuses given by the Financial Services Ombudsman, Joe Meade, to avoid identifying the greedy vultures that infest the Irish financial sector. Joe added one more excuse today on RTEs News at One (5th item).

The latest case involved an 86 year old farmer. The man had just sold his farm for €1.4 million and was advised by his bank to invest in two long term insurance bonds. The capital was guaranteed provided they were kept in for four and six years.

The man died seven months later by which time the bonds had dropped by €50,000. Joe told the bank that it was inappropriate to sell these bonds and directed that the €50,000 be refunded.

Hilariously, Joe appealed to the banks to look into their hearts and review all accounts to see if they are appropriate.

When asked why he won’t name the low life bank, Joe said he didn’t have legal coverage.

Let’s remind ourselves of the extensive legal powers that Joe does have. He has the power of entry and seizure, he can require employees to provide information under oath, he can enter premises and demand documents and the High Court is the only external party that can overturn his decisions – but yet, according to Joe, he doesn’t have the simple legal power to name the vultures. The obvious question is – Was this a deliberate omission when the legislation was being drawn up?

Bizarrely, Joe justified his stance by reference to a recent High Court decision that went against him on a matter completely unrelated to the ripping off of the elderly.

So what hope does Joe offer the many vulnerable customers out there that his office is allegedly protecting?

Well, he wants to start a public debate on the matter. Just think about that suggestion, a public debate on whether the financial vultures that prey on the elderly should be named and shamed.

Joe then suggests that perhaps the Minister for Finance and the Dail could pass legislation on the matter. Let’s see; public debate and then action by a Government minister and the Dail, give it about ten maybe fifteen years. Meanwhile, the greedy vultures continue to enjoy the great benefits of state protection.

The reality is that, from a consumer point of view, the Financial Services Ombudsman is a useless organisation. It operates on the same basis as the equally useless Financial Regulator.

When the financial vultures are caught picking over the bones of a customer’s account they are merely required to pay back their ill gotten gains. No police, no fines, no names.

Insider trading? No problem

On 15th August last I spoke to Paul Appleby, director of ODCE about the DCC/Fyffes case. He informed me that they were examining the Supreme Court decision before deciding what action to take.

The case involves Jim Flavin, executive chairman of DCC who was found by the Supreme Court to have broken the law on insider trading (Analysis here).

One of the judges, Mr. Justice Fennelly, was clear.

“To trade on the use of inside information is recognised for what it is. It is a fraud on the market.”

(Full Supreme Court decision here).

Towards the end of September and beginning of October I made further enquiries to ODCE and eventually got through to Mr. Appleby’s legal advisor.

I expressed the view that the case seemed like an open and shut case and wondered why it was taking so long to come to a decision. He informed me that not every case is as easy as it seems to the general public.

Coincidently, on the same day that the Irish Supreme Court made its findings another case of insider dealing was reaching a conclusion in the United States, a jurisdiction where law enforcement is taken seriously.

Joseph P. Nacchio, former chief executive of Qwest, was sentenced to six years in prison, fined $19 million and ordered to forfeit $52 million he earned from illegal stock shares in 2001.

There is, of course, not the remotest possibility that Mr. Flavin will ever have to face such traumatic law enforcement in Ireland.

If the ODCE decide to act against him and by some miracle, actually win the case, Mr. Flavin, if he’s not retired by that time, will probably receive a small fine and be restricted from acting as a director for a short period.

To be fair to the ODCE, it is the only state agency showing even the slightest interest in the case. The Director for Public Prosecutions, Financial Regulator, Stock Exchange , Revenue Commissioners, An Gardai and body politic have all, apparently, decided that insider trading is not really a serious issue.

Financial Regulator – Two views

Below is an editorial published in the Irish Independent in response to the ‘overcharging’ of customers at Ulster Bank.

Thursday August 23 2007

There is something Pythonesque about the vision of Ulster Bank chiefs sitting in emergency session to discuss their over-charging of customers. Do they — and the other 34 banks and finance firms who have been forced to pay back money that they have “borrowed” from their customers — wonder aloud how this terrible thing could have happened?

Do they express amazement that the checks and balances, so efficient when tracking down customers who do not pay on time, or who exceed their overdraft agreements, somehow failed to function properly when required to work the other way around? To a senior bank official, it must feel as though his Porsche or Merc has inexplicably re-fused to reverse into the executive parking space.

The bank has admitted that it wrongly billed customers for insurance policies on loans that were paid back early and has been suitably excoriated by the Consumers’ Association for allowing the overcharging to happen and failing to immediately disclose its magnitude.

One curious aspect is the fact that some 25,000 people apparently failed to notice that they were continuing to pay what was essentially protection money on a loan they had already paid off in full.

Widespread overcharging, estimated at about €167m has been exposed by internal examinations by the offending institutions, who have been ordered to do so by the Financial Regulator.

Where would we be without him?

The following was my reply to the editor. (Not published)

Sir,

On the assumption that you were not being facetious when you praised the work of the Financial Regulator in last Thursday’s editorial (23rd Aug.), you should be aware of the following.

The Financial Regulator was established in May 2003 after a series of very serious scandals within the financial sector, many of which involved direct theft from customer’s accounts. Consumers were assured that a new era of accountability, transparency and enforcement was at hand. This has not happened.

The regulator was given the power to impose a fine of up five million euros on errant institutions. But even this pathetic fine, which represents about two days profit for some banks, has never been imposed. Indeed, Ireland is unique in the world in that not a single financial institution has ever been fined or charged for wrongdoing since the establishment of the State in 1922. This fact alone should give pause for serious reflection, but there is worse.

One of the stated principles of the Financial Regulator is to

“Help consumers to make informed decisions on their financial affairs in a safe and fair market.”

This does not happen.

By law, the Financial Regulator is forbidden from disclosing any information whatsoever on the nefarious activities of financial institutions. (S.33AK of the Central Bank Act, 1942 as amended by the Central Bank and Financial Services Authority of Ireland Act, 2003).

This law is strictly enforced by the regulator even to the point of refusing to discuss scandals that are already in the public domain. Obviously, this blanket secrecy puts consumers at a serious disadvantage while providing dodgy financial institutions with watertight protection.

You ask the question; “Where would we be without him? (Financial Regulator)” A great deal better off is my answer.
Yours etc.

Anthony Sheridan

Dublin operation – A sloppily-run pig sty

John McManus, writing in today’s Irish Times, (Sub. required) warns that Dublin’s IFSC is in danger of becoming a financial El Paso. Too late, John, the centre is already well known as the ‘Wild West’ of European finance.

With major understatement, he describes the €17.3 billion hit on a German bank that originated from Ireland’s Wild West as

“A little embarrassing.”

Another report by Derek Scally in the same paper is more hard hitting.

It seems that Germany’s financial regulator, BaFin, is under fire for ignoring warnings in a 2005 report by KPMG that SachsenLB’s Dublin subsidiary was involved in some very dodgy ‘financial juggling’.

One financial expert described the Dublin operation as

“A sloppily-run pig sty”.

Mr. Jochen Sanio, head of Germany’s financial regulator is also under pressure to explain his role in the affair. Bet he wishes he was the Irish regulator, who never explains anything.

Germany’s taxpayers will be none too pleased either on hearing that they will be picking up the €17.3 million tab, essentially, as a result of the ‘anything goes’ attitude of the Irish Financial Regulator.

A corrupt and secretive financial market

According to the Irish Financial Regulator one of its main tasks is to –

Help consumers to make informed decisions on their financial affairs in a safe and fair market.

This promise has a hollow ring to it in light of the latest rip off by an Irish bank.

Rip offs by Irish financial institutions have become so common now that when news of the latest ‘overcharging’ by Ulster Bank (2nd item) was reported yesterday, the regulator didn’t even bother to make comment.

Over the last 15/20 years Irish banks have ‘overcharged’ their customers (victims) by a massive €167 million. Only a fool would believe that these activities are all down to ‘error’ rather than deliberate and well organised scams.

Despite this, not a single bank has ever been punished by the Financial Regulator. Not a single bank official has ever been questioned by the police never mind actually charged with criminal behaviour.

Michael Kilcoyne of the Consumers Association of Ireland suggested that there should be a fine of several million Euro imposed on these organisations. (RTE News, 3rd item) He is obviously unaware that the regulator already has the power to impose a fine of up to €5 million on errant financial institutions. But even this pathetic fine, which equates to about two days profits for the larger banks, has never been imposed by the regulator.

Not only does the regulator refuse to punish banks, it also affords them valuable protection through a policy of total secrecy regarding their many dodgy activities.

Consumers rely solely on the media or whistleblowers for information to help them make informed decisions on their financial affairs in a corrupt and secretive financial market.

Dublin – A conduit for dodgy deals?

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.

Interesting to note the Central Bank referring to the Financial Regulator as its ‘regulatory arm’.

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

AIB: Still ripping off customers with impunity

Once again AIB has been ripping off its customers, (sub required) this time the victims are elderly and disabled customers.

In July 2000 AIB ‘overcharged’ 43,000 elderly and disabled customers by about €93 each. The total amounted to €4 million.

Age Action Ireland said it was concerned that pensioners were the latest group to have suffered as a result of the bank’s overcharging mistakes.

A spokeswoman for the Financial Regulator said it was deeply disappointed at the news but could do nothing as the ‘overcharging’ predates the legislation giving it power to fine for ‘overcharging’.

A spokeswoman for AIB said the bank had put procedures in place to prevent such ‘mistakes’ in the future.

Comment:

AIB ripped off its customers again and was found out, repaid the money and said it had put procedures in place to make sure it never happened again. This is what AIB does every time it rips off its customers.

The latest victims expressed concern that so many people are ripped off by this particular bank. Customer concern is always ignored by the offending financial institution, the Financial Regulator and the State.

The Financial Regulator said it was deeply disappointed but there was nothing it could do. The Financial Regulator has never taken any effective action against any rogue financial institution since it was established in 2003. None of its predecessors, going back to the establishment of the state in 1922, has ever taken any effective action against rogue financial institutions.

Financial institutions operate in the Republic of Ireland in supreme (and justified) confidence that they have nothing to fear from an ineffective and weak financial regulator.

Man of steel turns to straw

When Joe Meade was the Data Protection Commissioner he repeatedly threatened the Government with High Court action for using an ‘invalid’ ministerial direction to unconstitutionally store citizens’ phone, fax and mobile call data for three years.

Somehow, Joe never got around to actually taking the State to court. Eventually the Government gave him the job of Financial Services Ombudsman.

In his new job, Joe retained his macho image. He was described as a man of steel, a man to be feared, a man who wouldn’t allow anybody tell him how to run his show (Irish Times, 8th April 2005).

In one report he’s quoted as saying,

“I intend to name and shame institutions which don’t co-operate with my office on serious issues, particularly where they relate to customer complaints which should have been rectified by the institution before coming to my attention.”

Unfortunately, Joe talks the talk but doesn’t walk the walk when it comes to protecting the interests of consumers. He steadfastly refuses to name the rogues, chancers and fraudsters who operate with virtual impunity in the Irish financial sector and so exposes consumers to potentially serious financial loss.

Here are some of the excuses and contradictions that Joe has made in recent years regarding the naming and shaming of these ruthless chancers.

Irish Times, 8th April 2005.

It’s not my intention to shame anybody.

Irish Times, 17th May 2005.

Considers naming organisations in his annual report as an important part of his function.

RTE 16TH January 2007 (2nd item). Asked to name a particular institution that had taken advantage of an old lady

In due course I may name that institution…the main thing is that compensation has been awarded…I work at the moment on a very non legal basis…If I name every complainant or every institution I may not get the same cooperation…I’ve referred the matter to the Financial Regulator.

Irish Times, 9th February 2006. Joe was planning to name a building society for over charging a customer but decided against it when the society said it was prepared to legally challenge the matter. He referred the matter to the Financial Regulator.

Irish Independent, 30th January 2007.

A spokesperson defended Joe’s secrecy policy.

“He has concerns about naming institutions alone as complainants may also have to be named in line with natural justice. This could deter complainants from coming forward with legitimate complaints”

Probably realising that this statement was a gross insult to the intelligence of consumers the spokesperson descended into (more comfortable) bureaucratic speak.

“His over-riding concern as ombudsman is to ensure that the integrity of the Financial Services Ombudsman scheme is manifest to everyone, be it a complainant, a financial service provider, the Financial Regulator, the international financial community, the media, the general public or our legislators.”

RTE News at One, 3rd July 2007 (2nd item).

On being asked why he doesn’t name names.

I’m constantly reviewing this area…I want to have legal protection where I name…complainants might be put off…I refer cases to the Financial Regulator.

There are two principal themes running through Joe’s excuses. Firstly, he keeps suggesting that if he only had the legal power he would protect the consumer but the facts completely contradict his pleas of powerlessness.

On the 8th April 2005 we are told that he has power of entry and seizure, that the High Court is the only external party that can overturn his decisions.

On 17th May 2005 we are told that he has extensive legal powers.

On the 4th August 2006 we learn that he can require employees to provide information under oath, enter premises and demand the production of documents.

Secondly, he keeps telling us that he refers cases to the Financial Regulator, passing the buck as it were. This is a clever strategy because the Financial Regulator is even more secretive than Joe’s outfit.

Under legislation (S.33AK of the Central Bank Act, 1942, as amended by the Central Bank and Financial Services Authority of Ireland Act, 2003) the greedy vultures that infest the Irish financial sector enjoy almost total protection.

Neither is the regulator shy about using this handy piece of legislation to send consumers packing when they have the cheek to ask for the names of dodgy financial operators. Joe, of course, must be well aware of this brick wall for consumers.

No matter what excuses Joe comes up with, no matter what law the Financial Regulator hides behind, the stark reality remains that consumers are put at serious risk of being ripped off for so long as these two organisations refuse to name names.

The Financial Services Ombudsman became operational in 2005, on April 1st – An entirely appropriate date.

Policeman? Where?

The Office of the Director of Corporate Enforcement published its annual report yesterday. Here’s a little gem hidden away under the heading ‘Investigations Completed in 2006’

Previous ODCE Annual Reports dealt with certain historic problems with respect to AIB Investment Managers Ltd. which caused the Director to examine certain books and documents of the company.

Following consideration of the results of a detailed investigation of the same events by the Financial Regulator and the reported tax settlements in 2006 by a number of the beneficiaries involved, the Director determined that no further action was warranted by him under the Companies Acts.

Because of the secretive language used it’s difficult to be sure but I think this relates to the Allied Irish Banks foreign exchange overcharging and the infamous Faldor scam that benefited a number of AIB executives.

The so called Irish Financial Regulator concluded that the executives didn’t actually know they were part of the scam and therefore had no case to answer. Revenue did a confidential deal on taxes owed and left it at that and now the ODCE has ‘determined’ that no further action is necessary under the Companies Acts.

Ah yes, all nicely wrapped up and not a policeman in sight. Next please…

An innocent among the sharks

There was a great moment on last Friday’s Today with Pat Kenny.

A panel was discussing the latest shenanigans at the Mahon Tribunal and in particular the unreliability of Tom Gilmartin as a witness.

Caroline Kennedy of Kennedy PR thought Tom was a bit paranoid in claiming that somebody in AIB had tipped off Liam Lawlor about a meeting.

“It’s highly unlikely a bank official would do that I would have thought.”

Pat, astonished at her naivety, quickly informed her that banks will always do what’s best for business (Something every ripped off customer knows only too well)

Caroline should have changed the subject at that point but she continued to dig.

“Surely a bank would be bound by a confidentiality arrangement with its client, why would it tip one client off against another.”

Fionnan Sheahan, political correspondent for the Irish Independent came to her rescue this time, telling her that banks are mainly bound by profit maximization only.

What astonishes me is how Ms. Kennedy managed to build a top class PR company without apparently being aware of the widespread criminality within Irish banking.