A former director of the Central Bank was availing of back-to-back Ansbacher loans, secured by funds deposited with the Guinness Mahon Cayman Trust, while a serving member of the board, the Moriarty tribunal was told, yesterday. Mr John Coughlan SC, counsel for the tribunal, said that investigations of Guinness & Mahon documents in 1982 revealed evidence of loans involving its Cayman Islands subsidiary to Mr K. P. O'Reilly-Hyland, "who was a director of the Central Bank at that time".
The Central Bank had formally examined Guinness & Mahon's activities three times - in 1976, 1978 and 1982. It did not appear that concerns expressed by Central Bank inspectors on this issue had been brought to the attention of the board, despite the fact that the then governor, Mr Charles Murray, must have been aware of the situation. "From the fact that Mr Murray wrote to the Guinness & Mahon chairman, Mr John Guinness, it's clear that these concerns must have been brought to him as governor. But it would appear that they were not part of the Central Bank's board deliberations."
It raised the question, said Mr Coughlan, whether the involvement of a director of the Central Bank in back-to-back loan offshore arrangements should not have been brought to the attention of board. The tribunal had not received a statement as yet from Mr O'Reilly-Hyland on these matters, he added. However, it had heard from his solicitors, who confirmed that he would be giving evidence.
The solicitors said that prior to 1973 Mr O'Reilly-Hyland had informed the then Tanaiste and minister for finance, Mr George Colley, that he had an offshore trust before becoming a director of the Central Bank.
The Central Bank had taken at face value the assurances of the late Mr Des Traynor, the Guinness & Mahon managing director, that steps were being taken to reduce the level of the bank's offshore loan activities, said Mr Coughlan.
"Apart from its reliance on Mr Traynor's assurances," he said, "the Central Bank appeared to take an overall favourable view of the banking operations of Guinness & Mahon, giving it a certificate of good health" notwithstanding the concerns expressed by the inspectors about Guinness & Mahon's role in facilitating tax avoidance - or even tax evasion - by Irish residents.
As the evidence of Mr Denis Foley TD and others had shown, Mr Traynor had continued to make his bank's services available to Irish residents in 1979 "and in the years following".
As the document, which came to be known as "A note to John Furze", had shown these schemes were "directing themselves to tax evasion - and were being treated in Dublin as tax evasion", Mr Coughlan said.
The Central Bank was precluded from disclosing confidential information about Guinness & Mahon to the Revenue authorities under Section 16 of the 1989 Central Bank Act, as amended.
However, it did have powers to act, its head of banking supervision, Mr Adrian Byrne, conceded. It could have, for instance, requested Guinness & Mahon to remove its managing director if need be or introduce other sanctions.
The Central Bank carried out assessments of the banks it licensed along quantitative and qualitative guidelines. The quantitative guidelines related to the bank's financial indicators. The qualitative assessment comprised the inspectors' subjective opinion as to the probity and integrity of the bank's directors and top management, on which its reports were based.