AIB faked deals to swell accounts

AIB Investment Managers Ltd (AIBIM) allocated money from its own funds to a number of clients and dressed the transactions up as artificial deals, it was confirmed yesterday.

The allocations were carried out to improve the appearance of the accounts of clients whom the company wanted to impress, according to the Irish Financial Services Regulatory Authority (IFSRA).

Faldor Ltd, a British Virgin Islands investment company that held funds belonging to a number of then-senior AIB executives, was one of the beneficiaries of the transactions. The funds came from AIBIM's own accounts and were made to look like they were profits from investments. These allocations occurred between 1989 and 1991.

As well as Faldor, certain other AIBIM clients benefited from being given AIBIM funds in this way and having the transfers dressed up as deal allocations, IFSRA said yesterday. IFSRA described the practice as "unacceptable".

The Faldor account was managed by AIBIM between 1989 and 1996. IFSRA found no evidence that the executives behind Faldor knew about these allocations of AIBIM funds. Faldor benefited by €48,000 from these practices during the period.

The executives linked to Faldor were: former AIB chief executive Mr Gerry Scanlan; Mr Roy Douglas; Mr Patrick Dowling; Mr Diarmuid Moore; and Mr David Cronin.

Inappropriate deal allocation practices relating to eight transactions in the period 1991 to 1993 were identified. These involved some clients getting preferential treatment. The deals adversely affected two specialist unit funds.

It is understood the Office of the Director of Corporate Enforcement is investigating the details of these transactions.

Internal audit identified inappropriate deal allocation practices in 1991 and 1993 but no disciplinary action was taken against the individuals responsible nor was there any compensation paid to the clients who had been adversely affected. There is no evidence the Faldor account was identified in these audits.

Disciplinary proceedings have now been initiated by AIB in relation to these matters and compensation has been paid to those who were disadvantaged.

The €470,000 paid out in ex gratia payments by AIB is to account for the lapse of time since the disadvantage occurred. The bank announced in May it was to make a payment of €330,000 to compensate the clients but IFSRA said yesterday the amount had been increased as a higher rate of interest was used for the calculation.

The IFSRA report did not name anyone within AIB or AIBIM whom it believed responsible for any of the failings identified in the report. Disciplinary proceedings are being processed within the bank and the authority is to be informed of the outcome.

AIB group chief executive Mr Michael Buckley said issues had been found at AIBIM in relation to only a small number of clients apart from Faldor. "It was not something that was endemic," he said.

The IFSRA report said that, "in certain parts of AIB, there were ineffective standards of governance and a culture that led to unacceptable behaviour and practices in the late 1980s and 1990s."