EY settled case over Anglo Irish Bank audit for more than €10m

Anglo Irish Bank’s former auditor, EY Ireland, agreed earlier this year to pay more than €10 million to settle the long-running case over alleged failings in its work before the financial crisis, The Irish Times has learned.

EY was sued in 2012 by Irish Bank Resolution Corporation (IBRC), as Anglo was renamed the previous year, over its failure to uncover the habit of the lender’s former chief executive and later chairman, Seán FitzPatrick, of moving loans off its balance sheet at the end of accounting periods before the financial crash.

IBRC had claimed more than €50 million of damages over losses it expected to sustain from Mr FitzPatrick’s practice of temporarily refinancing tens of millions of euro of personal loans with Irish Nationwide Building Society (INBS) at the end of Anglo’s financial year allegedly to avoid their disclosure to investors.

Mr FitzPatrick refinanced loan facilities with INBS over a nine-year period. At one stage, in 2007, his loans amounted to more than €122 million. IBRC was put into liquidation in 2013 and Mr FitzPatrick died in November 2021.

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Spokeswomen for EY, the liquidators of IBRC at Interpath Ireland, and the Department of Finance, which is overseeing the wind-up of IBRC, declined to comment on the size of the confidential settlement agreement, which was struck without the firm admitting liability.

“As a consequence of a mediation which took place on January 23rd, 2023, the parties agreed to compromise the proceedings on confidential terms, without admission of liability,” a spokeswoman for EY said.

Mr FitzPatrick’s so-called bed-and-breakfast transactions came to light in 2008 when, due to market turmoil, he could not refinance his loans with INBS “as had become usual”, IBRC claimed at the time of the 2012 lawsuit.

He resigned as Anglo chairman in December 2008 and was declared bankrupt in 2010. IBRC estimated at the time of the original lawsuit that it expected to suffer “well over €50 million” of losses on loans to the former chairman.

A criminal case against Mr FitzPatrick relating to the transactions collapsed in May 2017, with Judge John Aylmer ordering that the former banker be found not guilty of hiding loans from auditors.

In his ruling, the judge strongly criticised the investigation by the Office of the Director of Corporate Enforcement (ODCE) into the matter, including the “extraordinary” shredding of documents by the ODCE investigator, Kevin O’Connell, and the coaching of witnesses, meaning there was a real risk to Mr FitzPatrick of an unfair trial.

Meanwhile, Chartered Accountants Ireland’s professional standards unit, formerly known as Carb, is continuing a long-running inquiry into aspects of EY’s €1 million a year work as Anglo’s auditor before the crash.