Category: Corporate

Consumers put in danger yet again

Yet another so called authority charged with protecting the interests of consumers has been found out.

The Food Safety Authority of Ireland (FSAI) discovered high levels of contamination in bottled water nearly a year ago but decided not to tell the public. Whatever the motives of the FSAI, the actual effect was to put consumers in danger while protecting the manufacturer.

This is a similar strategy to that employed by the so called Financial Regulator. Through a combination of stonewalling and secrecy laws, financial institutions are protected at the expense of the consumer.

It should also be noted that, once again, consumers only found out about this scandal through the media which, effectively, provides the only means of information and protection to Irish citizens.

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FSAI

We'll be home before Christmas…

“We’ll be home before Christmas” was the optimistic prediction made by soldiers as they headed off to war in August 1914.

The term has become a popular catch phrase for describing those making overly optimistic predictions on any given situation.

The ongoing global financial meltdown, I believe, is one such case. Experts seem to believe that within one or two years things will begin to improve, I disagree.

This is the worst financial crisis in history further complicated by the fact that it comes at a time when natural resources are rapidly dwindling and the global environment is showing clear signs of irreversible damage.

It could be seen as a perfect storm that may result in a long term global depression. The Great Depression that started in 1929 lasted until the early 1940s when, grotesquely, it took mass destruction and the killing of over 50 million people to kick start the world economy.

At best, I would say we are looking at a five year global depression that could even stretch to ten years. It’s more difficult to predict whether we’ll see soldiers heading off to yet another world war promising to be home before Christmas but given the vagaries of human nature it’s not beyond possibility.

Home Choice Loan scheme – It's all clear now

I wasn’t completely clear on the motives for the Government’s new Home Choice Loan scheme for first time buyers until I watched Prime Time last night.

There are at least 50,000 newly built houses lying empty in ghost estates across the country. Most of these houses will have been built by ‘Fianna Fail friendly’ developers who now find themselves unable to repay big bank loans – Time to call in some favours.

The new scheme will, in effect, transfer responsibility for repaying these loans from rich developers to poor taxpayers. This is obvious from the conditions laid down for applicants. Only new houses are included in the scheme. Applicants must be first time buyers who have been twice refused a mortgage from a bank or building society.

Effectively, the Government is creating its very own sub prime market by giving first time buyers, whose credit rating is so risky that regular lending agencies won’t touch them with a barge pole, up to 92% mortgages in a rapidly falling market. Inevitably, many will be unable to keep up payments and taxpayers will be forced to make good the losses.

Developers’ interests looked after, bankers’ interests looked after, taxpayer’s screwed.

It’s all clear now.

Quinn Insurance fines – Suspicious

My first reaction to the news that Sean Quinn is standing down as director and chairman of Quinn Insurance following breaches of regulatory requirements is – Suspicion.

The punishment meted out to Quinn Insurance is what we would expect to see imposed by a real regulator in a functional democracy. And this is what bothers me – The Irish Financial Regulator doesn’t really regulate but rather acts as facilitator to help financial institutions get out of trouble.

We know, for instance, that for years the Financial Regulator stood idly by as various financial institutions robbed millions from consumers. We also know that the regulator strictly enforces draconian secrecy laws that are designed to protect the financial institutions to the detriment of consumers.

Last week, for example, I rang the regulator to confirm reports that the chairman of Anglo Irish Bank, Sean Fitzpatrick, was under investigation over allegations of insider trading.

I was firmly told that section 33AK of the Central Bank Act 1942 that was inserted by section 26 of the Central Bank and Financial Services Authority of Ireland Act 2003 prevented the regulator from answering my question.

This law and its strict enforcement protects Sean Fitzpatrick and Anglo Irish Bank but puts consumers and especially shareholders in Anglo Irish Bank at a very serious disadvantage.

Keeping all this in mind let’s look at some of the details of the Quinn case and how it was handled.

The Financial Regulator imposed a fine of €3,250,000 on Quinn Insurance and fined Sean Quinn €200,000 because it had

“reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL.”

What? The largest fines ever imposed in the history of the State on the basis of a ‘reasonable cause to suspect’. Over the years the Regulator has had incontrovertible evidence of widespread fraud in the financial sector and failed to take any action whatsoever.

So what, according to the Regulator, was the great crime committed by QIL?

“These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.”

This seems pretty tame stuff in comparison to other breaches of the law throughout the Irish business world. For example, in 2004 the Director of Corporate Enforcement (ODCE) reported that directors and connected persons returned approximately €100 million in loans from their companies.

The law prohibits directors from taking loans from their companies in excess of 10 per cent of relevant assets yet some of these directors had potentially illegal loans in excess of €1million from their companies.

According to the ODCE:

“In a number of individual cases these loans were for substantial sums or represented a large part of the value of the company and were very substantially in excess of the permitted limits.”

To my knowledge no action was taken against any of these directors, they just paid back the money and all was forgiven.

I suspect that there’s more to all this than meets the eye, it’s all too pat. Substantial details are thin on the ground and the manner in which the whole matter has been dealt is very suspicious.

Quinn himself is far too relaxed in the face of such a massive fine, even if he’s a billionaire. The ODCE is also very coy about the whole matter, simply stating that he was informed of the regulator’s sanction.

Can we take a clue from Quinn’s auditors and lawyers when they say that there are no corporate governance issues? Could the imposition of these extraordinary sanctions be a cover for something even more serious? Time may tell.

Copy to:
ODCE
Financial Regulator

Politicians: Nothing more than messenger boys

It is widely assumed that the banks were pleading for help when they rang the Minister for Finance, Brian Lenihan last Sunday night.

Wrong – The banks were summoning the Minister to instruct him on what action they required of him.

And it’s not just the Minister who jumps when the banks come calling; the so called Financial Regulator and Central Bank also dance to whatever tune the banks are playing.

Up until last weekend the tune was simple – No matter what the evidence is, no matter how stupid you look, you are to maintain the charade that Irish banks, unique in the world, are not in any kind of trouble, you are to deny all suggestions that we have recklessly loaned out billions to property speculators and developers.

As recently as 6th Sep last Lenihan was doing what he was told.

“I can assure your listeners that the Regulator has maintained a very detailed supervision of Irish banks and that the Irish banks are not in anything like the difficulties that their counterparts in the US are.”

Here’s what I had to say about the Minister’s comments (Link as above).

“This Minister knows nothing about the real situation because his information comes from the Central Bank and the so called Financial Regulator who take their orders from the banks. Taxpayers should hold on tightly to their wallets, the banks will soon be looking to do some more pick pocketing.”

Now, €400 billion later the Minister, regulatory authorities and the taxpayer are dancing to the banker’s new tune.

Even the experts don’t seem to know what’s really happening. Economist David McWilliams, who was first to openly state that Irish banks were in trouble, is naïve in the extreme when it comes to his views on how the banks should pay for their sins. He’s worth quoting at length (RTE, 1st report, 2nd item).

“I would hope that the Government moves very quickly to replace the senior management of many of the banks that have behaved extremely recklessly. And that means by making board appointments of outside people, not civil servants, but people who have the national interest at heart. The Government guarantee cannot come for free, it can’t be a blank cheque, it has to come with strings attached…Brian Lenihan and his advisors are in the driving seat and if they think about their position they can change the way Irish banking works.”

“We’ve got to get rid of Gombeenism; we’ve got to get rid of the proximity between developers, banks and the Government. We’ve got to get rid of these idiosyncratic ways in which our society was run for the last four or five years.”

Like most Irish citizens, McWilliams seems to be completely and innocently unaware of the kind of country he lives in; he genuinely seems to believe that Ireland is a normal democratic country.

His reference to Gombeenism and our idiosyncratic ways might just be the beginning of a realisation that Ireland is unlike any other Western state, that there is something seriously dysfunctional about the way our country is governed.

We at Public Inquiry have been shouting the message for years – Ireland is a corrupt state, the politicians do not work in the interests of the people, the civil servants for the most part serve the politicians and the Government, not the people. Banks and other big business do as they please with impunity; they are never, ever brought to account. How long will it take before the message gets through?

Next week, when the bankers finally reveal the details of their plan, when they tell us what decisions they have made regarding the future of our country, we will hear a lot waffle, a lot of weasel words and a lot of breast beating from our politicians but believe me there will be no challenge to the status quo.

There will be no sacking of senior bank management, there will be no appointment of outsiders to bank boards or if there is they will be given the job of making the coffee. There will be no financial cost to the banks; there will be no strings attached to the deal because it is the banks that are calling the shots.

Our politicians are nothing more than messenger boys for the real power in this country.

Banking sector looks for help

It was only a matter of time before the Irish banking sector was forced to make a move on the growing sub prime crisis.

The headline in this morning’s Irish Independent “Banking chiefs seek ‘dig-out’ from taxpayers” leaves us in no doubt as to who they think should pay to get them out of the mess.

Richie Boucher, the chief executive of Research Financial Services Ireland wants long term funding to the banks to be “provided domestically” by taxpayer’s.

Why domestically? Well, Boucher explains that it wouldn’t be prudent to be ‘overly reliant’ on the European Central Bank for borrowings.

What he really means, I suspect, is that the ECB would impose strict conditions and demand accountability for any rescue package whereas Irish politicians can be pressurised into handing over taxpayer’s money without the need for all that awkward repayment and accountability stuff.

Greencore sacks PwC

Greencore has sacked its external auditors PricewaterhouseCoopers (PwC) following a €21 million fraud at its Campsie Mineral Water business in Scotland.

A review of the group’s financial controls by KPMG, who have taken over from PwC, has not identified any other problems. Greencore said the fraud was an isolated incident.

A few senior managers were sacked but of course there was no police investigation.

Those fecking efficient Germans

What a novel experience it must have been for Irish police to find themselves raiding a bank as part of an investigation into suspected criminal behaviour by its board members.

No, silly, not an Irish bank. Irish banks are never, ever raided. No, it was a German bank and it was the German authorities who asked the Irish police to raid. Oh those fecking efficient Germans, why can’t they be like the Irish and just ignore suspicions of major white collar crime.

The German investigation is centred around a €17.3 billion hit on a German bank that originated in Dublin’s IFSC financial centre, an entity that the New York Times recently described as the ‘Wild West’ of European finance. Another financial expert referred to the Dublin operation as “A sloppily-run pig sty”.

Meanwhile, in a rare show of activity the so called Irish Financial Regulator issued a statement saying it was ‘aware’ of the raids – Dimly aware, I suspect.

Copy to:
Financial Regulator

Mulcahy's silly nuclear button

I know only two things about Nick Mulcahy. He is the editor of the Irish business magazine Business Plus and he knows very little about corporate fraud.

I gleaned these facts after reading an article in the Irish Independent by Mulcahy in which he analyses the latest developments in the DCC/Fyffes case.

According to Mulcahy, ODCE ‘pressed the nuclear button’ when they asked the High Court to appoint an inspector to investigate DCC/Fyffes over allegations of insider trading.

Pressing the nuclear button or taking the nuclear option means taking an action of last resort. In other words, only taking the most serious action after all other avenues have been exhausted.

So what action did so called Irish regulatory/enforcement authorities take in relation to the €83 million fraud perpetuated by Jim Flavin of DCC before being forced to press the nuclear button?

Initially, not a damn thing. When it became obvious that something very strange had occurred on the Irish Stock Exchange (ISE) regarding DCC/Fyffes shares not a single Irish authority acted.

It was only when the London Stock Exchange, a regulatory agency operating from a functional jurisdiction, insisted that an investigation be carried out that the ISE finally took action.

The manner in which the ISE investigation was conducted has itself raised very serious questions regarding ethical and possibly illegal interactions between the ISE, DCC and the DPP. In the best traditions of ignoring suspected wrongdoing in Ireland, this aspect of the scandal has been practically ignored to date.

After the (suspect) ISE investigation was completed, again, nothing happened. The ISE, Irish police, Financial Regulator and the Government simply buried their collective heads in the sand.

It was only when Fyffes, fearing possible financial consequences if it failed to protect the interests of its shareholders, was forced to take a civil action against DCC that the case became active again.

It is entirely from this civil case and the publicity that it generated that the ODCE, possibly the weakest financial regulatory agency in the State, was embarrassed into taking action.

If the ODCE action is successful, and that is highly unlikely, and if it decides to punish DCC/Jim Flavin for any wrongdoing then that punishment will represent the absolute minimum action that the State can take in the case.

ODCE boss, Paul Appleby, knew that he hadn’t a hope in hell of a successful action if he was depending on his miniscule legislative power and resources. That’s why he scuttled over to the High Court and the Supreme Court when they were adjudicating on DCC/Fyffes, to make a pathetic plea to these courts to use their considerable powers to act against DCC/Flavin. His pleas were rejected out of hand.

As a last resort (and there’s certainly nothing nuclear about the effort) Appleby made a formal application to the High Court for the appointment of an inspector. The only advantage Appleby and ODCE will enjoy from this appointment is that their meagre resources will not be totally obliterated as they would have been if they were forced to take the action themselves.

So, what happens now? Well, the farce continues. The High Court inspector will take years to complete his investigation (The NIB investigation took six years).

ODCE then have the option of seeking to have those involved in the scandal disqualified from involvement in the management of a company (This is the absolute minimum punishment available to the State). This action will also take years (ODCE has only just completed action against those in the NIB scandal after years of legal wrangling).

By that time Jim Flavin and many others involved will have retired (and may even have died) and the whole matter will be seen as historical. It is an absolute certainty that those involved in the scandal will never be subject to a police investigation, will never be brought before a court to give an account of their actions, will never see the inside of a prison.

The Supreme Court found that Jim Flavin of DCC had engaged in insider trading involving sums of over €83 million. If the same finding was made in a functional democracy strong, immediate and effective action would have been taken by the police and all associated state enforcement/regulatory agencies.

If we are to judge by a recent and very similar insider trading case in the US, Flavin would now be serving a lengthy jail sentence, he would have been forced to repay his ill gotten gains; he would have had his substantial wealth seriously reduced by the imposition of hefty fines and forfeits.

Nick Mulcahy’s amateurish and naïve analysis of this case is an important factor in how white collar crime is dealt with in this country. Government and so called regulatory agencies will continue to ignore allegations of serious fraud until they are brought under strong pressure by well informed and persistent journalists.

Mulcahy’s silly ‘nuclear button’ conclusion is an indication of just how far away we are from that ideal situation.

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Business Plus
ODCE
Financial Regulator
DCC