Bank accounts raise questions for Revenue

On July 30th, 1974, when he was a mere backbencher, Mr Charles Haughey attended a meeting in AIB's branch on Dame Street, Dublin, to discuss the ongoing problem he had keeping his accounts in order. During the meeting, according to a memo written by the bank officials afterwards, Mr Haughey said: "I have no income."

The memo continued: "This might be taken as support for the view held by the bank that his living expenses are huge and totally unrelated to his Dail salary and to income from farming and bloodstock breeding."

Mr Haughey's salary as a TD at the time was about £7,000 (€8,888). According to other bank documents, his total income, when his farm and stud farm were included, was £20,000. The bank knew that, as well as the Gandon mansion he lived in at Kinsealy, Co Dublin, Mr Haughey was building a holiday house in Co Wexford, and planning to build "an elaborate house" on Inniskvickillane, his island off the coast of Co Kerry. His lifestyle could not be explained by his salary.

The question which now exists is how come AIB in 1974 could make such an accurate assessment of Mr Haughey's finances when the Revenue Commissioners, apparently, did not. The question of the Revenue's performance in raising tax assessments against Mr Haughey and the former Fine Gael minister, Mr Michael Lowry, forms part of the Moriarty tribunal's terms of reference.

Mr James Connolly SC, counsel for the Revenue, put it in the following terms to the chairman of the tribunal, Mr Justice Moriarty, last month: "One of the matters you have to consider is whether the Revenue Commissioners availed fully and properly in a timely manner of powers available to them in collecting tax off Mr Haughey and Mr Lowry." It is known that the Revenue has made a detailed submission to the tribunal, but what its central argument will be has not yet been revealed.

According to other AIB memos from the 1970s, Mr Haughey had at the time a 150-acre stud farm in Rathoath, Co Meath, which he had purchased in the 1960s for about £30,000. In 1968/1969, he purchased Abbeville, Kinsealy, and surrounding lands for £140,000. The money to purchase Abbeville came from the sale of the previous Haughey family home, a Victorian house on 45 acres in Raheny, Co Dublin, to the Gallagher group.

Whatever wealth Mr Haughey accumulated through buying and then selling his family home in Raheny, was not taxable. In December 1973, Mr Haughey sold 17.5 acres at Kinsealy, to Cement Roadstone, for £140,000. In other words, he recouped from the sale the entire amount he had spent on the Gandon mansion and surrounding lands three years earlier. Again it seems this profit from the buying and selling of land, was not taxable. Capital Gains Tax was not introduced until 1975.

At the Moriarty tribunal on February 17th, Mr Peter Quinn, the Revenue's second counsel at the tribunal, made the point that up to 1974 farming activity was exempt from taxation, and that bloodstock has been since the late 1960s and remains, exempt from taxation. In 1976 AIB wanted Mr Haughey to sell his stud farm and get out of the bloodstock business but Mr Haughey said it was his "only taxation outlet", according to an AIB memo.

Mr Quinn suggested that it was on the basis of property acquired in the 1960s, which had since accumulated in value, that AIB had allowed Mr Haughey to run up such enormous overdrafts. It was not because of Mr Haughey's income. He also made the point that the Revenue did not and does not have right of access under any circumstances to the internal bank memos which were read out at the tribunal.

Mr Haughey's former accountancy firm, Haughey Boland, handled his tax affairs. Mr Haughey had quit the company in the 1960s and had no financial interest in it after that. Bills from his stud farm and from Kinsealy were sent to the accountancy firm. The firm kept cheque books for writing out cheques to settle Mr Haughey's bills. During the 1970s a lot of the funds came from debts Mr Haughey was building up with AIB. By the end of the decade the debt was more than £1 million, and it was settled with cheques totalling £750,000 which came from Guinness & Mahon bank.

The Ansbacher deposits were set up in the early or mid-1970s by the late Mr Des Traynor, of Guinness & Mahon bank, and contained funds belonging to wealthy Irish individuals at least some of which were being hidden from the Revenue. It is known that in the mid-1970s Mr Haughey had an account with Guinness & Mahon Zurich. It has not been revealed yet when he first opened his accounts in the Ansbacher deposits. However, by the 1980s funds for the settlement of Mr Haughey's bills were being sent from Guinness & Mahon bank to Haughey Boland.

It seems that until recently the Revenue never sought or got sight of the books kept by Haughey Boland in relation to Mr Haughey's personal expenses. It may not have known of their existence prior to the McCracken tribunal in 1997. If it did it seems it could not have gained access to them without Mr Haughey's permission. The Revenue never learned of the existence of the Ansbacher deposits until their operation was disclosed by the McCracken tribunal. It has not yet been able to gain access to documents relating to the deposits, but may be able to do so under powers contained in the 1999 Finance Bill.

By the late 1980s, according to the Haughey Boland books, Mr Haughey's expenses were averaging £300,000 a year. It seems the money he was earning as Taoiseach was not being placed in the Ansbacher deposits. If it was, it would have been contrary to the exchange control regulations then in existence. The funds he had in the Ansbacher deposits were, at least in part, donations made to him by wealthy Irish business people.

The Revenue will argue that the Dunnes payments to Mr Haughey were so well hidden in the Dunnes Stores books that it had no possibility of discovering the payments. As Mr Connolly put it to Mr Justice Moriarty in early February, when some of the Dunnes payments were being discussed: "Obviously, as I indicated on a previous occasion, the labyrinthine nature of the paper trail speaks for itself as reasons why the Revenue ought not readily be chastised for failure to detect the actual payments which are under scrutiny here."

It is a point Mr Connolly has made on a number of occasions, asking witnesses whether details or payments to which they were referring, would normally or properly be brought to the attention of the Revenue in the course of an audit. Usually he was told no, that the Revenue would have no right to the information at issue. In the case of the Ansbacher deposits he quizzed banker Mr Padraig Collery as to the codes which existed on the computers which contained details of the deposits.

Even if the Revenue had conducted an on-site audit of Guinness & Mahon bank at the time details of the accounts were held in that bank, the Revenue would not have gained access to them, Mr Collery told him.

Mr Haughey, as a politician, paid PAYE on his salary. As he was also a farmer and bloodstock breeder, his taxes would have been dealt with by the Dublin farming unit, rather than the restricted PAYE unit that deals with politicians' salaries.

It is expected that the actual Revenue officers who dealt with Mr Haughey's tax affairs will be called by the Moriarty tribunal and questioned as to their handling of Mr Haughey's affairs.

Revenue and other sources in the taxation sector say that "lifestyle" is never a good criteria for questioning a taxpayer's returns, and this argument may well be put forward at the tribunal. Sources close to the Revenue, however, say it is likely that "fear" may have been a factor.

"In the mid and late 1980s, the country was on its knees. Charles Haughey became Taoiseach. He introduced the Programme for National Recovery, the foundation stone for our current success. The civil service admired him. Is it realistic to think they were going to take him on?" says one source.

"A lot of people were very scared of the man, including members of his own cabinet. It's easy to challenge him now that the beans are spilled all over the place." Tax inspectors pledge to conduct their inquiries without "favour, affection or malice", but is it realistic to expect a civil servant in the Revenue to go to war against his or her prime minister, says another source. "It doesn't happen anywhere in the world."