Category: IFSRA

Irish Financial Regulator – Betraying the consumer

The core claim at the heart of this blog is the assertion that Ireland is a corrupt state. Every country in the world suffers to one degree or another from the disease of corruption but some countries are in themselves corrupt entities.

The failure of a state to take proper and effective action when corruption is uncovered is one of the clearest indicators that it is a corrupt entity. Last Friday, RTEs Investigative Unit, headed by journalist Philip Boucher-Hayes provided us with a perfect example of how the Irish State fails in this regard and as a consequence, protects the corrupt.

THE FRAUD: In the early 1990s retired business man, John O’Mahony contacted a Mr. Stephen Donnelly of Friends First about investing £750,000. Mr. Donnelly was only cleared to guarantee a rate of 28% over five years but in order to get the business he forged a policy document guaranteeing Mr. O’Mahony 40% with a bonus on termination depending on how the policy performed.

When the policy matured in 2002, Mr. Donnelly convinced Mr. O’Mahony to roll over his investment into a new policy so it wasn’t until 2005 that Mr. O’Mahony found out that he had been defrauded. When O’Mahony confronted Donnelly he made a written confession of guilt and when all the information was given to Friends First Mr. O’Mahony was told that if everything he said was true their next phone call would be to the fraud squad.

At this point, in a law enforcing jurisdiction, the police would be called, there would be an investigation and if sufficient evidence was produced the case would be processed through the courts. In a law enforcing jurisdiction Mr. Donnelly would almost certainly have gone to jail and, at the very least, Friends First would have suffered severe sanctions.

THE REACTION: Here’s what happened in corrupt Ireland. Friends First knew of the fraud in February 2005. Two months later they informed the Financial Regulator. Nearly two years later, (Yes, two years) just coming up to Christmas 2006 (20th December) the regulator quietly announced on its website that Mr. Donnelly had been disqualified from acting as a director of a financial services provider for five years. There was no mention of fraud, no mention of forged letters, no mention of the sums of money involved and most notably there was no mention of police involvement.

AFTERMATH AND CONSEQUENCES: Mr. O’Mahony is a victim of fraud by Friends First. According to his figures he is still owed about €250,000 but he is in poor health and Friends First, who are aware of his health problems, have indicated that they will strongly contest any legal action. He has indicated that he is unlikely to put himself through the trauma of lengthy legal proceedings.

Friends First acknowledge that the fraud took place but incredibly they claim that Mr. O’Mahony suffered no loss and penalised him (legally) €25,000 for early withdrawal of his investment. (Necks don’t come much harder than that)

The fraudster, Stephen Donnelly has not suffered any punishment, although to his credit, he has attempted to make good the loss and to date has repaid €170,000. He currently sits on the board of Arley Ltd., a Friends First property company. He sits in company with two Friends First directors who are apparently happy to be associated with a self-confessed fraudster.

The most serious aspect of this case is the failure of the so called Financial Regulator to protect and inform consumers. This government organisation

• failed in its duty to protect the interests of a consumer who was defrauded of his hard earned money.
• It apparently failed in its duty to report an alleged criminal offence to the police.
• It failed in its duty to inform and warn consumers that a major financial services group was happy to tolerate a self confessed fraudster on its staff
• It failed in its duty to inform current customers and potential investors of the low standards of honesty at Friends First.

State contempt for consumers

“Utter contempt for consumers”

was how the Irish Independent reacted to the decision of the Department of Finance to appoint barristers, bankers and civil servants to a committee set up as part of the financial regulation machinery. The article also gets it right on the future effectiveness of this committee –

“…we will probably hear little of its activities, such is the culture of secrecy in this country.”

As I have said in the past, secrecy is one of the most powerful weapons in the running of a corrupt state. The following example will make the point.

Last September, I requested from the Financial Regulator a list of all the financial institutions that overcharged or otherwise abused their customers in the previous two years. This kind of abuse/theft is common in Ireland and therefore it is vital for consumers to know which financial institutions can be trusted and which ones to avoid. The very fact that such simple information needs a request is a disgrace; it should be readily available and indeed advertised by the regulator.

My request was ignored (Ignoring consumers is not unusual in a corrupt state).

When I persisted my query was forwarded to the regulator’s press office (Lack of courage in answering questions and buck passing is not unusual in a corrupt state).

The press office replied to my query with insulting waffle (Treating consumers with contempt is not unusual in a corrupt state).

When I continued to persist I finally got an answer of sorts:

“In answer to your query, The Financial Regulator is restricted, under S.33AK of the Central Bank Act, 1942 (as amended by the Central Bank and Financial Services Authority of Ireland Act, 2003)from disclosing confidential information.”

(Using the law as a means of avoiding awkward questions is not unusual in a corrupt state).

No doubt, many Irish citizens are still labouring under the illusion that the so called Financial Regulator is mainly concerned with their financial welfare – wrong. The regulator is actively and strongly concerned with protecting the interests of financial institutions over and above the interests of consumers, including those institutions who have robbed millions from consumers.

The only information/advice a consumer is likely to get from this sham organization is a paternal – ‘shop around’. As the Irish Independent says; utter contempt for the consumer.

Maintaining the illusion

In a real democracy the revelations of the mafia type scams engaged in by estate agents and mortgage brokers as exposed on last Monday’s Prime Time would provoke immediate and effective police action.

In this corrupt state no effective action is ever taken. It is however, very important to maintain the illusion that Ireland is an accountable democracy. Here are some examples of great Irish illusionists.

Bertie Ahern, our Prime Minister declared that legislation to deal with such corruption is due to come before the Oireachtas shortly. This is a standard response by politicians, it means nothing. There are dozens of urgent bills ‘due any day now’.

Billy Hawkes, The Data Protection Commissioner has sent in a team of inspectors to investigate the two companies highlighted in the Prime Time programme. He has also said his office will be carrying out random inspections of mortgage brokers over the next couple of weeks.

The suspicion here is that this idea of actually inspecting companies has only just occurred to the commissioner. In any case the commissioner’s office is, like all Irish ‘enforcement’ authorities, a toothless tiger.

Paul Appleby, Office of the Director of Corporate Enforcement has launched a consultation paper to address the very dodgy activities surrounding many estate management companies covered by the Prime Time programme.

Submissions from interested parties should be on Mr. Appleby’s desk by next March. No sense of urgency there. Doesn’t matter really because Mr. Appleby’s office is also a toothless tiger.

The so called Financial Regulator is also going to investigate the mafia type operations of estate agents, developers and estate management companies as a result of the programme.

Don’t expect much here as this organization is the must useless of all Irish ‘enforcement’ authorities.

Despite the millions that have been robbed from consumers by financial institutions over recent years, the FR has never taken action against any of them. In any case, consumers will never know the result of the investigation because the FR treats all such information as a state secret.

Barry Andrews, Fianna Fail backbencher was wheeled out to waffle about how the Government was going to take action. He (rashly) stated that he would see to it that action would be taken before the upcoming general election. His promises mean nothing as he is a powerless non entity.

Irish consumers can be sure of only one thing – the State will take no effective action against these cowboys.

Bank robbers and bank robbers

Three Romanians were recently jailed for four years for what a Garda called “a sophisticated and nasty fraud”. The gang had conspired to rob bank customers by skimming ATM cards and stealing the customer’s money.

The Garda Bureau of Fraud Investigation became involved in the case after several banks complained. Eventually, the thieves were arrested and brought to court where they were found guilty and appropriate justice was dispensed.

There is nothing unusual about this case. A group of people got together and devised a system that enabled them to rob bank customers of their hard earned money. When they were caught, the State took strong and immediate action. Any self respecting country would be seen as deficient if it failed to take such action against bank robbers.

Yet, Ireland is such a country. Groups of people in Allied Irish Banks and National Irish Bank got together and devised a system that enabled them to rob, not just their own customers, but the State as well.

These fraudsters robbed millions over many years and when they were caught, the State took no action against them. They were merely asked to pay back the money robbed. The Financial Regulator refers to this well planned fraud, operated over many years as “improper charging of interest and fees” (Annual Report, page 36).

Many Irish citizens are under the impression that such crimes could not happen today because the Financial Regulator is there to protect the interests of consumers.

Wrong, the Financial Regulator has one overriding mission – to protect the financial institutions, usually at the expense of ordinary consumers.

Let me give you an example. Recently, I asked the Regulator for a list of all financial institutions that were guilty of robbing or ‘overcharging’ consumers in the last two years. This is a perfectly reasonable request and critical for those assessing the credentials of a financial institution before deciding to open an account.

They ignored my email. When I insisted, they referred my query to their Press Office who referred me to page 35/36 of their Annual Report where I found brief mention of fraudulent cases already in the public realm.

In other words, the information I requested is treated as a State secret. This policy of secrecy coupled with the absolute refusal of the so called regulator to punish wrong doing in the financial sector creates an environment of great benefit for the financial institutions and puts consumers at a serious disadvantage.

Rampant corruption – rampant profits

The latest profit figures announced by Allied Irish Banks put into perspective the pathetic powers of Ifrsa, the so called Irish Financial Regulator. Allied Irish Banks, Ireland’s biggest bank, saw its profits before tax reach an average of €9.5m per day as overall pre-tax profit levels reached €1.2 billion.

A maximum fine of €5 million can be imposed on an errant financial institution. This represents about 4 hours profit at AIB. Up to €500,000 can be imposed on an individual which represents about 15 minutes profit at perhaps one of the most corrupt banks in Ireland.

Of course, fines have never been imposed on any Irish financial institution despite revelations of massive theft, tax evasion and other illegal activities in recent years. The only requirement imposed by the toothless Irish regulator is that monies stolen or ‘overcharged’ must be paid back.

Irish Financial Regulator – Bizarre and toothless

Utterly bizarre is the only appropriate description for the title of the Irish Financial Regulator’s 2006 annual report. The report, published last week, is entitled

‘Protecting Consumers Through Effective Regulation’.

Clearly, someone within this secretive organisation has an ironic sense of humour because protecting consumers is not, and never has been a priority for this so called regulator. Indeed, it seems to have only one policy and that is to protect at all costs the interests of the rampantly corrupt Irish financial sector. As most Irish consumers know to their great cost there is any number of financial institutions out there who would put the mafia to shame in their ability to rob customers.

Yet, since its establishment in May 2003, this toothless tiger has failed to take action against even one of these dodgy organizations. According to the regulator’s consumer director, Mary O’Dea ‘Ifsra wants to work with the industry to prevent further errors’. In fact, it is reasonable to assert that the so called financial regulator actually protects and encourages ‘wrongdoing’ within the financial sector. It does this in three principal ways.

1. Language: The regulator never uses words like ‘theft’ ‘crime’ or ‘corruption’. It only uses words/phrases like -‘Procedural errors’, ‘acted wrongly’, ‘improper charging’, ‘overcharged’, ‘breakdown in procedures’, ‘billing mistakes’.

Words and how they are delivered are important in understanding what a person/organisation means and can send a powerful message to the listener/reader. The message from the Irish financial regulator is –

These are not really crimes so we don’t need to take any real action.

The message the corrupt institutions take from this is –

No crime, no punishment – great, let’s get working on the next scam.

The message for the consumer is –

No regulation, no justice, no hope.

2. Refusal to use its powers of sanction: The regulator can impose fines of up to €5million on a company and €500,000 on an individual for ‘improper behaviour’. It has never done so; neither have any of its predecessors. In fact, no punishment has ever been meted out to errant institutions by any so called Irish financial regulator since the foundation of the state in 1922. The message here needs no further analysis.

3. Secrecy: This is the most powerful weapon the Irish regulator posses for its defence of corruption in the financial sector. It is the official policy of the Irish regulator to keep secret the names of all firms found guilty of ‘overcharging’ their customers. This policy protects the guilty and obviously puts consumers at a serious disadvantage.

Let’s just examine this year’s corrupt activities. According to the regulators annual report 36 different institutions ‘overcharged’ customers by over €50 million between May 2005 and May 2006 – Yes, that’s right, €50 million and this is referred to as ‘Procedural errors’.

From past experience it is reasonable to assume that much of this €50 million was stolen rather than accidentally ‘overcharged’. Irish citizens, however, will never know what companies are plundering their accounts because the regulator has decided that their identities will remain a State secret.

Neither will any of these institutions face the inconvenience of a police investigation as they effectively operate outside the law of the land. The regulator is the only ‘authority’ that can impose any restraint on their corrupt activities and to date he has refused to do so.

Ireland – The Wild West of European finance

The on-going criminal action in the US against those involved in the General Re Reinsurance fraud case continues to throw some light on the ‘Wild West’ activities of the Irish financial sector.

In Monday’s Irish Times, it was reported that General Re’s Irish subsidiary Cologne Re, was seen as an ideal location for the fraud because

Dublin “did not report to anyone” and so avoided the “North American problem” of financial regulation.”

That Ireland does not ‘suffer from the problem’ of financial regulation is becoming more obvious every day.

The reason for this is simple – The so called Irish Financial Regulator is more of a facilitator than a regulator.

For example in 2004, over two hundred cases of overcharging (theft) by financial institutions were identified. Not one of these institutions was punished in any way; they were simply asked to hand back the €60.9 million ‘overcharged’.

Incredibly, the regulator insists that it is in the public interest that the identities of these institutions remain a State secret.

In recent times, the New York Times reported that Dublin was fast becoming the “Wild West of European finance”. It’s a well deserved tag.

Still waiting for law enforcement

‘Former AIB chief is fined $15,000‘

For a millisecond after reading this headline I thought;

‘Could it be that IFSRA, the so-called Irish Financial Regulator, had finally decided to actually regulate?’

Then I realised, the article was reporting on the work of a real regulator, the American Securities and Exchange Commission (SEC).

Since its establishment in May 2003, IFSRA has failed to bring a single person or organisation to account for fraudulent activity. And as many thousands of Irish citizens know to their cost; there’s no shortage of rip-offs out there.

Indeed, as far as I can ascertain, no financial regulator in the history of the State has ever taken effective action in response to the regular occurrences of criminal activity in the Irish financial sector.

Lori Addison, the AIB person fined by SEC, must be rueing the fact that she committed her fraud in a jurisdiction that actually enforces the law.

Prosecutors – real and imagined

I see the Japanese Stock Exchange went into crisis after prosecutors raided a company suspected of providing misleading information about an acquisition.

The Cologne Re fraud, hatched in Dublin’s IFSC, resulted in prosecutors in Australia and America raiding offices and bringing charges against the fraudsters.

It is quite common to read of prosecutors in any number of countries raiding, charging, jailing those who decide to take a gamble on making a quick buck through fraud.

Ansbacher, Dirt, Faldor, Tax evasion, Over charging, Direct and organised theft from accounts, Perjury – just some of the gambles taken by fraudsters in the Irish jurisdiction that have paid off handsomely in recent times.

A prize for anyone who can identify a real prosecutor in the Banana Republic.

The (Irish financial) Wild West Show

The cracks are getting wider. Slowly but surely the international community is beginning to realise that Ireland is a corrupt state.

In today’s Irish Times, in an excellent analysis of the Cologne Re fraud, Justin O’Brien reveals how Ireland, through the office of its so-called Financial Regulator is increasingly seen as a rogue (financial) state.

The details and background of the case in question can be ignored when reading the article. What is important to keep in mind is that the fraud was organised from Dublin’s International Financial Services Centre (IFSC), recently referred to by the New York Times as the “Wild West’.

In Australia, both executives involved in organising the fraud have been barred from the Australian insurance industry. In the US, one of them is facing a jail sentence. The so-called Irish Financial Regulator has done nothing. It will not even say if it is investigating the matter. (Which means, of course, that it is not)

‘Ifsra would not say whether it was also investigating this transaction, but said it was monitoring Cologne Re from a “fitness and probity perspective.”

Here are just some selected comments/phrases from the article that will give an indication of how the international financial community views a major financial conspiracy hatched in Dublin’s financial “wild west’ – that Ifrsa is apparently just happy to “monitor’.

Dublin…weakest link in the enforcement firmament.

..perceived enforcement weakness (in Ireland) represents a major problem.

…disturbing picture of regulatory incapacity in Ireland

…the response of the regulator in Dublin has been unconvincing – to say the least – in the face of emerging evidence.

“wild west of European finance”

“shock and dismay that Ireland had abdicated its responsibilities for short-term advantage”.

“good luck to Ireland if it thinks it is going to get away with it, but it won’t”.

…wider regulatory community, which now perceives Dublin as a rogue market

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