Loans of more than $3 million were made to a Florida-based drugs smuggler, Fernando Pruna, and his associates by Guinness & Mahon in Dublin with the backing of Cayman Island deposits, the tribunal was told yesterday.
Ms Sandra Kells, financial director of Guinness & Mahon, said Pruna was introduced to the bank by Guinness & Mahon Cayman Trust (GMCT), of which he had been a customer. GMCT was a wholly owned subsidiary of Guinness & Mahon until 1984.
All the facilities provided by Guinness & Mahon to Pruna and his associates were secured by backing deposits placed with the bank by GMCT. Pruna is serving a 12-year prison sentence in Florida after being convicted of drug trafficking in 1993.
A US attorney investigation memo from 1990 said it appeared from evidence that Pruna's gang used several bank accounts at Guinness & Mahon and GMCT to deposit profits from drug smuggling and "to facilitate the movement of profits from drugs smuggling to other bank accounts located in countries throughout the world".
The first two loans advanced by Guinness & Mahon to Pruna and his wife - $395,000 in 1985 - were secured by GMCT backing deposits and a Florida property.
In December 1986, $243,000 of the debt was replaced by a loan in the same amount by Mr Raymond G. Fitzgerald. Both the Pruna and Fitzgerald loans were discharged in 1988.
On February 10th, 1988, GMCT proposed the Fitzgerald loan should be written off against the backing deposit.
Counsel for the tribunal, Mr John Coughlan SC, said "on June 3rd, 1988, the balance of the loan to the Prunas stood at $700,000 and this was discharged by resort to backing deposits".
A loan of $2.1 million was subsequently provided by Guinness & Mahon to Northside Management and Development Company in Atlanta, Georgia. The borrowings were secured by guarantee from Maxima Investment Corporation, a company of which Pruna was president, and a Channel Islands company.
The borrowings were also secured by a GMCT deposit of $2.1 million which it "hypothecated" in favour of Guinness & Mahon.
It appeared Mr John Furze, a director of GMCT, had entered into negotiations with Northside and only after the negotiations informed Guinness & Mahon of this.
It appeared the loan was repaid in September 1988 although there was no evidence of the $2.1 million leaving Dublin.
A further loan of $75,000 was advanced by Guinness & Mahon in 1985 to Mr Jesus and Mrs Maria Barrios, associates of Pruna. Mr Barrios had been charged with offences relating to cocaine and marijuana smuggling between 1981 and 1988.
Mr Barrios's loan was secured by a property in Dade County, Florida, and was also discharged with resort to backing deposits.
Ms Kells said it seemed Mr Furze had, in some instances, used Guinness & Mahon's name and stationery to provide facilities without the bank's knowledge or authorisation.
One transaction cited was a $327,299 lodgement by Maxima Investment with Guinness & Mahon in January 1985, the funds of which were subsequently transferred to GMCT.
Ms Kells said it appeared a loan was provided to the client "without informing Dublin" and "was repaid before he (Mr Furze) had informed Dublin".
She accepted a loan might not have been provided, but rather the money might have been making a circuitous route into Cayman.