NIB talks of `problems' with bond documentation

National Irish Bank's investigation into its sale of CMI investment bonds has found that in a "significant minority" of cases there were problems with the documentation covering the investments. The problems include incomplete documentation and the use of false names and addresses.

The bank's chief executive, Mr Grahame Savage, said he did not wish at this stage to give any greater detail as to what was meant by "significant minority". The total investment in the product by customers was £33 million and there were problems with a "significant minority" of the funds, he said.

One reason why false names and addresses would be used would be because investors wanted to use the accounts to hide money from the Revenue Commissioners. However Mr Savage would not comment on the possibility of the bonds being used for tax evasion or the full extent to the difficulties which the investigation uncovered.

The product was launched in 1991 and sales of the Isle-Of-Man bonds peaked around 1994. "We have progressed since then in common with the rest of the financial services industry, to insure accounts are legitimately and correctly classified for tax purposes". The bank has now stopped selling the bonds.

A 3-month investigation into the sale of the bonds was carried out by auditors from the NIB parent bank, National Australia during which all the bank records, including all transactions linked to the CMI product, were examined. A copy of the bank's report on the matter has been given to the Central Bank, the Revenue Commissioners, the authorised officer, Mr Martin Cosgrove, who is investigating matters concerning insurance law, and the two inspectors appointed by the High Court.

The report "identified a number of weaknesses in the internal controls when the product was launched," Mr Savage said. "Looking at it, it is clear that we failed to achieve the operating standards that we would insist upon today and would have wished for then".

There was no evidence that the product was conceived and launched by NIB for any reason other than the intrinsic merit of the product as an investment product, Mr Savage said. However there were marketing problems. There was no overall marketing plan for the product, no overall strategy for the financial advice and services division, which sold the product.

The bank never produced its own brochure for selling the product and relied on the CMI brochure. "The CMI brochure was fine but normally you would have a bank one". When the product was first being launched, NIB and CMI personnel would make joint presentations to prospective customers.

When a new product was launched by the bank they would expect staff in all the branches to get the "same message" about the product. However with the CMI bonds a consistent message was not received by all staff. "It was more ad hoc." A more tightly co-ordinated and tightly controlled marketing policy was needed.

Mr Savage said there were referrals from the branches to the financial services section. "That is not in itself wrong." He would not comment on whether any problems had been identified in relation to such referrals.

One of the allegations against the bank is that branch staff would inform the financial services section of branch customers who had funds that they might wish to invest in order to hide money from the revenue. Mr Savage said the problems which had been identified with documentation did not tend to come from particular regions.

He did not wish to comment on the issue of the quality of the investment advice given to customers who invested in the CMI product. "That remains part of the investigation and it would be wrong to comment," he said. However a full operational review of the financial advice and services section was launched in February and the process of implementing the recommendations which resulted from that review began last month.

Asked if the report had found that bank staff were conscious at the time that the product was being used by people who wished to evade tax, Mr Savage said the answer to that question would have to await the outcome of all the various investigations.