Regulatory Agencies – Page 12

Dail question on CHC scandal

My local representative, Fine Gael TD David Stanton, has replied to my request for a Dail question on the CHC scandal.

Dear Anthony,

Thank you for your email below. Just to let you know I tabled the below Dail question to the Minister for Finance today, so should have a response next Wednesday evening. I will pass it on to you as soon as I receive it.

Best regards

David Stanton TD

Written Question from David Stanton TD

To ask the Minister for Finance if he has received a report from the Financial Regulator in 2009 regarding an investigation into a company (details supplied); if it is intended to publish same and will he make a statement on the matter.

(Details: Customs House Capital)

(See below for my letter to deputy Stanton).

6th December 2011

Dear Mr. Stanton,

In early 2009, after receiving information from an unknown source, the Financial Regulator carried out an investigation into a wealth management company called Customs House Capital (CHC).

Apart from some supervisory and organisational issues the Financial Regulator found no significant problems with the company. The Financial Regulator adopted the following strategy – I quote.

Following the identification of these supervisory concerns, related to compliance and organisational issues, the strategy was to encourage CHC to identify and engage with potential buyers for the firm, which would be the best outcome to protect client investments and funds.

CHC took up this advice and sold its non-property assets to a company called Appian Asset Management.

Within a very short time Appian Asset Management discovered that CHC had been engaged in major fraud and immediately informed the Financial Regulator.

In 2010 the Financial Regulator carried out yet another investigation into CHC and found that major fraud had indeed been going on within the company.

Full details of the 2010 investigation are available to the public on the Financial Regulator’s website.

I requested details of the (alleged) 2009 investigation and was informed that this report was not available to the general public under secrecy laws. (Section 33AK of the Central Bank Act, 1942 (as amended).

The conduct and conclusions of the 2009 report are absolutely crucial in determining whether the Financial Regulator is, as claimed by this government and its predecessor, truly reformed and fit for purpose.

I request that you ask the following questions in Dail Eireann.

Why is the 2010 report legally available while the 2009 report on the same company, on the same matter, is deemed to be a state secret?

Why did the (alleged) 2009 investigation by the Financial Regulator fail to detect the major fraud that was going on right under the investigator’s noses?

Has the Financial Regulator taken any action to determine why its staff failed to detect what a company (which was not conducting an investigation) detected almost immediately on examining the books of CHC?

Why has there been no arrests arising from this matter? It is a verifiable fact that similar cases, in functional jurisdictions, quickly resulted in arrests, charges and prosecutions.

The following is a quote on the matter from High Court Judge Mr. Justice Hogan delivered on 28th October 2011.

In fact, the report describes a long litany of general misfeasance and wrong-doing, ranging from the systematic deliberate misuse of funds, gross impropriety, corporate misfeasance and false accounting to trading in a fraudulent manner.

Yours etc.

Anthony Sheridan

This request has also been forwarded to a representative of every political party.

Copy to:
Financial Regulator

Financial Regulation: Secrecy and obfuscation still the weapons of choice

The Custom House Capital (CHC) false accounting and fraudulent trading scandal is a very serious matter but, unfortunately, not a rare event in Ireland.

What should be of much greater concern to the people of Ireland is how this scandal has exposed the lie that financial regulation has been reformed and is now fit for purpose.

Soviet style secrecy and obfuscation are still the principal weapons employed by the Financial Regulator to prevent even the most basic information concerning its activities being made public.

The Financial Regulator claims it carried out an investigation into CHC in 2009 and found nothing more than some supervisory, compliance and organisational issues.

It was only when an outside agent became involved, in this case a company that had bought a section of CHCs business, that the fraud was uncovered.

The failure of the Financial Regulator to detect major fraud within a company that it was, allegedly, investigating raises some very serious questions.

In my opinion there are four possible reasons for this failure in regulation.

1. There was no investigation in the first place and the Regulator is now lying to cover up its failure.

2. There was an old style, pre financial catastrophe investigation. This would involve much drinking of coffee, hours of friendly chat with an occasional glance at some minor aspect of the business under investigation and the compilation of a report that found everything was just hunky dory.

3. Financial Regulator staff are so incompetent that they failed to uncover what Appian Asset Management immediately uncovered on taking over CHCs books.

4. There was a serious investigation and serious fraud was discovered but a cover-up strategy was adopted by the Financial Regulator.

This last possibility is most likely to be the truth.

Irish citizens know, to their great cost, that it is quite common for so called regulators to cover up fraud and criminality within the financial sector.

The DIRT and Ansbacher frauds are just two of the more serious examples of this strategy.

The crucial point arising from this particular scandal is not just that white collar crime is still tolerated by state authorities but that the same old strategies of secrecy and obfuscation are being employed to, effectively, protect the guilty.

Copy to:
Financial Regulator

CHC fraud: Liam O'Reilly's evidence

Liam O’Reilly was the Property Fund Administrator with Custom House Capital when the company was engaged in false accounting and fraudulent trading.

I have been assured by the Financial Regulator that this is not the same Liam O’Reilly who once held the position of Financial Regulator.

Here’s some of Mr. O’Reilly’s evidence.

Liam O’Reilly – Property Fund Administration – 3pm on Monday 18 July.

4.2 Sworn testimony to Inspectors.

The witnesses called by the Inspectors were asked to describe the Destiny structure, comment on whether they were aware of a process whereby funds from one sub-trust may have been used to fund the expenses of another or others and asked who authorised such payments..

Further on in the evidence of Mr. Liam O’Reilly

Q. Right. Okay. The problem being some are under water.

A. Exactly. And the money isn’t there. It has been very, very difficult the last few months

Q. All right. Okay. So in the context of I suppose the clients statements in relation to — well, the areas that you’re familiar with, Liam, are — would it be true to say that some of those clients, their unit position there is not really reflecting the true position if — if the pooled accounts were pulled apart?

A. I sign off on them and I stand over it, you know. They’re 100 percent accurate. The issue is, if that client, you know, wanted to sell his property in the morning, and maybe there was a cash balance of 100,000 in one of these accounts, it may be difficult in getting that out.

4.4 Conclusions

The Inspectors are of the view that the practice of using available cash balances on the pooled cash accounts to pay invoices and other expenses of individual sub-trusts, particularly those of the larger commercial/syndicated trusts, was pervasive within CHC for a considerable time.

Unit holders in the affected sub-trusts would not be aware that this was taking place having regard to the pooled nature of the cash accounts and the fact that in any statement issued to them by CHC their holdings in the trusts would be reflected as units held.

As each trust would appear to be a separate legal entity, the problems in resolving this issue will be most acute in relation to those trusts which a) in aggregate owe money to the pooled accounts and other trusts, b) have little cash holdings in their own right and c) have poor or negative cash flows.

A thorough analysis of each trust’s transactions will be required.

Based on the testimony received and the forensic examination the practice would appear to have existed for some time within CHC.

The scale of the problem appears to have increased to some extent in 2011.

The CHC fraud proves that there is no effective financial regulation in Ireland

Prior to the collapse of Ireland’s economy in 2008 there was a universal belief that Ireland possessed a functional financial regulatory system.

Subsequent to Ireland’s economic collapse there was a universal belief that light touch regulation was the core factor in bringing about the catastrophe.

Presently there is a universal belief that financial regulation has been radically reformed and is now fit for purpose.

All of the above beliefs are false.

Ireland has never enjoyed the benefits of real financial regulation. This is not an opinion, it’s a fact.

No financial institution or official has ever been charged with a crime despite the theft of countless millions over the decades.

Ireland did not suffer from light touch regulation; it was destroyed because there was no effective financial regulation whatsoever.

So called regulators knew about most of the major crimes committed over the years, like DIRT and Ansbacher, but did nothing.

When the media and whistleblowers (the real regulators) uncovered crimes that the Financial Regulator was not aware of no significant action was ever taken against the criminals.

As I write Irish citizens are continuing to suffer great losses because there is still no effective financial regulation in Ireland.

If what we are told by politicians, government officials and so called regulators is true, then the people involved in the Custom House Capital fraud would, at the very least, be under arrest.

That the people involved in this fraud are still walking around, enjoying the same rights and freedoms that law abiding citizens are entitled to, proves that there is still no effective financial regulation in Ireland.

Custom House Capital specialised in pensions for wealthy customers and managed investments of about €1.5 billion for about 1,400 clients.

The firm also invested in property in France and Germany on behalf of clients.

The company misused €56 million in clients’ money to cover up troubled property deals.

A report on the matter submitted to the High Court states:

There was a systematic and deliberate misuse of assets and cash belonging directly or indirectly to clients of CHC.

This misuse was deliberately disguised by CHC through the use of false accounting entries and the issue of false and misleading statements to clients.

The High Court ordered all reports on the matter to be sent to the Director of Corporate enforcement, the DPP, the Garda Commissioner and Revenue.

The so called Financial Regulator investigated CHC in 2009 after somebody noticed a strong odour coming from the company but, predictably, found nothing of great import.

Some managerial changes were recommended and the matter was dropped.

It was only when another company, Appian Asset Management, had taken over the non-property investment assets of CHC that serious concerns were raised.

It was only after this company acted that the so called Financial Regulator took any significant action.

Let’s repeat these facts as starkly as possible.

In 2009 the so called Financial Regulator carried out an in-depth investigation into CHC and found that, apart from some supervisory and organisational issues there was no significant problems with the company.

Here’s what the Regulator decided to do.

Following the identification of these supervisory concerns, related to compliance and organisational issues, the strategy was to encourage CHC to identify and engage with potential buyers for the firm, which would be the best outcome to protect client investments and funds.

CHC took that advice and shortly thereafter sold part of its business to another company, Appian Asset Management.

It seems that this was an attempt by CHC to off load that section of its business where the fraud occurred while holding onto its property assets.

Remember, this is, effectively, what the Financial Regulator advised.

The crucial point in all this is that a company that wasn’t engaged in any investigation easily discovered major fraud in a company that had just been investigated by our so called reformed and fit for purpose Financial Regulator.

It should also be noted that CHC was heavily engaged in fraudulent activity in 2009 when the Financial Regulator was, allegedly, investigating the company.

One of the victims of this CHC/Financial Regulator scandal precisely summed up my views on this matter (My emphasis).

I would like to see some criminal charges against those involved.

I would like to see an action taken against the Central Bank (Financial Regulator) because they were protecting the firm when they should have been protecting the consumers.

As I say; there is no effective financial regulation in Ireland.

Copy to:

Financial Regulator
Dept. of Finance
Director of Corporate Enforcement
DPP
Revenue
All political parties

Nothing will change until the corrupt political system is destroyed

A caller to today’s Liveline provides us with a good example of the ruthlessness and greed of the banking sector.

The caller, an elderly lady, used her entire life savings to pay €100,000 off her son’s mortgage when he found himself in deep trouble.

The bank, the EBS, must have been rubbing its hands in glee as this part of the mortgage was on a tracker contract and so its payment would save the bank a substantial amount of money.

The woman then asked the EBS to come to an agreement for the rest of the mortgage (€50,000) which was on a fixed contract.

Not a chance lady, if you want to pay this part of the mortgage off we will impose a substantial penalty.

It’s the law she was told, it’s policy she was told.

You do us a favour, we screw you.

The Minister for Social Protection, Joan Burton, took time our from her busy schedule organising a no holds barred crackdown on alleged social welfare fraudsters to gently ask the banks to go a bit easy on the increasingly desperate peasants.

I actually would like to see the banks becoming active in reaching out to the citizens who have become embroiled in debt because of the recession, losing their job, losing their business.

The critical thing, said the Minister, is that people should engage with their lender.

We can see from the above example what happens to people when they ‘engage’ with their ruthless lenders.

Fergus Finlay has a good article in today’s Irish Examiner on the mortgage crisis in which he brings up the subject of revolution.

In my opinion the big picture is very simple.

The corrupt political system allowed the banks and others destroy our country.

The corrupt political system continues to protect the banks and others who destroyed our country.

Nothing will change until the people destroy the corrupt political system.

Dr Ed Walsh: An intellectual idiot who should be confined to a nunnery

I have always had my hair cut short and last week I took the ultimate step of getting a complete head shave.

But having a billiard ball hairstyle didn’t stop me from going through the motions of pulling my hair out as I listened to the founding president of the University of Limerick, Dr. Ed Walsh, spouting pure bullshit at Beal na mBlath last Sunday.

According to this fool Ireland should never have joined the eurozone because:

Had Ireland remained outside the euro, its bankers would not have gained access to the euro zone’s vast and low-interest borrowing opportunities.

Without the outlandish credit available within the euro zone, the building bubble, the resultant government tax windfalls and Ahern’s, McCreevy’s and Cowen’s spending splurge would have been impossible. The country would not now be in receivership.

Irish banks, he said, were guilty of nothing more than some foolish borrowing. German and French banks, on the other hand, were reckless to lend to Irish banks. The European Central Bank failed in its duty to properly regulate all this activity.

Let’s just paraphrase this idiot’s opinion.

If Ireland had not joined the Eurozone the greedy vermin who inhabit the financial sector would have had no opportunity to carry out their crimes.

If Ireland had not joined the eurozone the political scumbags who made it possible for the bankers and developers to gamble away the wealth of the country would have found themselves with no other choice but to govern in a responsible, accountable and transparent manner.

If Ireland had not joined the eurozone Irish regulators would have been capable of dealing with the minor and very rare instances of financial crime and not overwhelmed by the massive wave of fraud brought on by those nasty loans from Europe.

In a sentence – If Ireland had not joined the eurozone our country would still be a nirvana of political, financial and regulatory stability and happiness.

The man is a complete idiot. His views confirm the old adage that education is no guarantor of intelligence.

By now, even the most ignorant dunderhead must be aware of the following facts:

The Irish political system is corrupt to its very core. If our political system was isolated on a planet billions of miles from the nearest German bank Ireland would still be a political/financial basket case. The political system would still operate with just one aim – to enrich the few at the expense of the many.

The Irish financial sector is infested with ruthless vermin who are free to rob and plunder as they wish with no fear whatsoever of being brought to justice.

The Irish regulatory system does not, in fact, regulate. It is not a case of light regulation, there is no regulation whatsoever. In many cases the so called regulators assist, defend and protect the vermin in their crimes.

This fool then goes on to compare Michael Collins, a true patriot, with the lying traitor Brian Lenihan. Collins, we are told, would have recognised Lenihan’s unrelenting commitments to Ireland.

Bullshit.

Collins would have recognised Lenihan for what he was; a gombeen lying traitor who worked tirelessly to protect the interests of a powerful and ruthless ruling elite.

Collins would have thrown Lenihan and his fellow scumbag traitors in jail for destroying the hopes of the Irish people, for destroying the independence that he, Collins and his fellow patriots, had fought and died for.

As for idiot intellectuals, I think Collins would have been charitable and confined them to a nunnery where they could do little harm.

New TDs expenses system does not prevent fraud

A recent report in the Irish Independent highlighted the low vote participation by TDs when compared to high claims for expenses.

TDs are required to electronically ‘fob in’ at a terminal, or else sign in at an attendance book, to claim travel and overnight costs.

These annual benefits range from €12,000 to €37,850, depending on where the politician calls home.

It comes on top of expenses of up to €25,700 for running a constituency office and a basic salary of around €92,000.

For the running of their constituency office TDs can choose a vouched or unvouched system.

With the unvouched system they receive €15, 00; no questions asked. With the vouched system they receive €25,700 but may be asked to produce receipts.

This ‘new’ system was introduced in March 2010 and is hailed by all those who benefit as a great step forward in transparency and accountability.

The ‘new’ system is, of course, neither transparent nor accountable as I found out when I spoke to a civil servant in the Houses of the Oireachtas.

On the fob in system.

Me: Who is responsible for monitoring the fob system?

Civil Servant: The Houses of the Oireachtas.

Me: What particular individual is responsible?

Civil Servant: I don’t know if it’s a specific individual, I mean, the records are checked, monitored and marked.

Me: Is it that TDs scan their fobs and are electronically recorded?

Civil Servant: Yes.

Me: Is it a civil servant who checks that record?

Civil Servant: I don’t know, the records are published on a monthly basis on our website.

Me: The reason I’m asking this question is because there’s obviously huge scope for fraud within the system.

Civil Servant: How do you work that out?

Me: If I was a TD in Kerry, for example, I could give my fob to a colleague TD and ask him to fob in for me.

Civil Servant: You could do that I suppose.

Me: So is there somebody there to make sure this is not happening?

Civil Servant: No.

Me: So there is scope for fraud in the system?

Civil Servant: Well, on that rationale there’s a possibility for fraud on everything, in every walk of life.

Me: Of course, but what I mean is there’s a possibility of easy fraud in this system.

Civil Servant: Well if you want to suggest that Oireachtas members are engaged in that, that’s up to you. We have no evidence of that at all.

Me: Well, you couldn’t have evidence because you don’t actually monitor the system which leaves lots of scope for fraud.

Civil Servant: That’s what you’re saying, I don’t agree with that.

Me: Could you confirm that there is actually no way to prevent fraud, somebody could, if they wished, fob in somebody else.

Civil Servant: There’s no evidence of that happening; never saw anybody do it.

Me: Is the system monitored, is there any way of preventing a TD from fobbing in for another TD?

Civil Servant: Other than they’re no allowed to do it and they’re told they’re no allowed to do it, that’s what we say to them.

On the signing in system.

Me: Is the signing in monitored?

Civil Servant; Most of them don’t sign in; I don’t know how many exactly sign in.

Me: The TDs that do sign in, are they monitored?

Civil Servant: I don’t know if any of them do, it’s an option.

Me: You don’t know?

Civil Servant: Not off hand, no.

Me: Even if one TD signs in, there’s a record. If no TD signs in, there’s still a record. Is that record checked?

Civil Servant: What do you mean checked?

Me: To make sure TDs are genuinely signing in and not signing in for each other.

Civil Servant: Yes, I suppose they could if they wanted to be very dishonest.

Me: Perish the thought that a TD would be dishonest.

Civil Servant: That’s what you’re saying. In life, if somebody wants to do something dishonest, they could, it’s quite hard to stop people. We have no evidence of that happening.

On the Voucher system.

Me: I understand there’s a percentage of unvouched vouchers checked annually.

Civil Servant: Yes, there’s an audit on 10% of unvouched vouchers.

Me: Is that audit available to the public?

Civil Servant: It’s still being carried out at present, I understand so it’s not available yet.

Me: I rang about this audit last year and was told the same thing.

Civil Servant: Ok, well, the audit is being carried out at present.

Me: When will it be available?

Civil Servant: I don’t know, when it’s finished, we’re very transparent here in the Oireachtas

Me: Yes, of course, you’re very transparent. What period does the audit cover?

Civil Servant: I don’t know. I think it covers the period since the new scheme came in March 2010.

Me: Is there a requirement that the audit be published within a particular time period?

Civil Servant: I imagine when it is concluded we’ll be publishing it. I don’t know if we will be publishing it, I can’t give you a definitive answer on that. We’ve had several requests for it, so I imagine it will be.

Me: So if I come back next year there’s a good chance it will be available.

Civil Servant: I don’t know, I don’t know precisely what date it’s going to be finished.

I first enquired about the so called voucher audit four years ago and was told there was no such audit.

I enquired again in 2008 and was told it wasn’t available because they were working on the new ‘transparent and accountable’ system of expenses.

Last year I was told it wasn’t available because the ‘new’ system wasn’t in long enough.

This year I’m told I may, but then again, I may not be granted access to the audit.

The bottom line is obvious. The so called new system of transparency and accountability does nothing to prevent fraud. Politicians can, if they wish, rob public monies with complete impunity.

If we are to judge from past events that is exactly what’s going to happen.

Judge Kelly caves in to state pressure

On 19th July last I asked the question – Will Judge Kelly fold under state pressure?

Sadly, and all too predictably, the judge folded.

Judge Kelly had strongly challenged the state regarding the never ending investigation into Anglo Irish Bank.

Throwing down the gauntlet he said the requested six months extension to the investigation would not be granted unless the following demands were met.

Much more progress achieved.

Much more detailed information provided.

Progress in respect of the material sent to the DPP in December 2010.

More accurate estimates of time as to the completion of the various investigations than have been furnished to date.

This is what he got:

There are five parts to the investigation with one part substantially complete.

A formal decision on charges will not be made until all aspects of the investigation are complete because many issues in the five parts overlap.

Some aspects of the investigation will not be complete until end of this year.

Some transactions are more extensive and more complex than originally thought.

Judge Kelly responded:

Due to the additional information he had received and the fleshing out of the picture in relation to the DPP, he would grant a further extension of six months to the Director of Corporate Enforcement to continue his investigation.

Additional information, fleshing out of the picture? – rubbish.

All the judge got was a load of meaningless waffle accompanied by a very clear message.

Get back in your box and keep your mouth shut. We’ll call you when we next need your rubber stamp.

It is reasonable to conclude that the public dressing down of Judge Kelly by the DPP has had the desired effect.

Will judge Kelly fold under state pressure?

Last May a very disturbing event occurred in this country which went almost completely unnoticed by the media.

The Director of Public Prosecutions, James Hamilton, publicly rebuked a High Court judge.

Some weeks earlier the judge in question, Mr. Justice Peter Kelly, had strongly criticised the long delay in the Anglo Irish Bank investigation.

The judge was angrily responding to an application from the ODCE for yet another extension of the investigation, this time for six months.

In his judgement, judge Kelly did not mince his words: (This short judgement is worth reading in full).

I am not, however, prepared to grant an extension of six further months as sought. I will grant an extension until Thursday, 28th July, 2011.

On that occasion, I expect much progress to have been achieved.

If a further extension is to be sought, I expect to be furnished with much more detailed information as to the progress of the investigation of these various issues.

In particular, I will require to know what progress has been made in respect of the material sent to the D.P.P. in December 2010.

I will also expect more accurate estimates of time as to the completion of these investigations than have been furnished to date.

Two years investigation without any appreciable result was not at all satisfactory, I am not a rubber stamp, said the judge.

The Director of Public Prosecutions (DPP), Mr. James Hamilton, and by extension, the State, was not at all happy with this upbraiding by an upstart judge.

In a clear reference to Judge Kelly’s remarks the DPP said that there were some ‘current misunderstandings’ regarding how the Anglo case was being handled.

In our system, investigators investigate and prosecutors decide whether to prosecute.

The prosecutor does not direct the investigation and, except in minor cases delegated to them, the investigators do not decide whether to prosecute. Only the prosecutor has this function.

Following the completion of an investigation, the prosecutor prosecuted, the defence defended and the judge adjudicated between the parties.

The message to Judge Kelly is crystal clear: Get back in your box and keep your mouth shut. We’ll call you when we next need your rubber stamp.

Mr. Appleby (ODCE) must have been greatly relieved by this ‘timely’ intervention by such a powerful officer of the state.

While agreeing with Judge Kelly’s demand for a report by the end of July Mr. Appleby said that he would be looking for yet another extension of time.

Clearly, Mr. Appleby is confident, after the DPPs intervention, of getting his extension.

If granted, it will be the 8th extension to the Anglo Irish Bank investigation.

So, let’s be clear about what’s going on here.

The state is, apparently, employing one of its most effective strategies in response to allegations of white collar crime – delay, delay, delay until the entire matter becomes historical and irrelevant.

The intervention by judge Kelly cannot be tolerated as it could force the state to actually take effective action, for the first time, against suspected white collar criminals.

The big question is – will judge Kelly fold under state pressure?

We’ll know next week.

Copy to:
DPP
ODCE