The Central Bank had misgivings about the offshore banking activities of Guinness & Mahon but did not pursue the matter, the tribunal was told yesterday.
The bank carried out three inspections, in 1976, 1978 and 1982, and although it had concerns about the offshore activities it took assurances from Mr Des Traynor of Guinness & Mahon, Mr John Coughlan SC, said yesterday in opening documents from the Central Bank.
"It seems clear that officials of the Central Bank carrying out an inspection in Guinness & Mahon had misgivings concerning the activities being conducted by Guinness & Mahon in connection with back-to-back loans secured by offshore or so-called offshore deposits," said Mr Coughlan.
"The Central Bank officials were armed with information which raises the question as to whether they should have acted more vigorously against the bank and indeed whether in acting they might have been alerted to the true extent of Mr Traynor's activities," he said.
The question which arose was whether the response by Guinness & Mahon to the various queries raised by the Central Bank should have prompted a negative view of Mr Traynor and his continued involvement as a senior executive - and ultimately as chief executive - of Guinness & Mahon.
The Central Bank had also noted that there was an "unhealthy cloak of secrecy" surrounding the offshore accounts.
Mr Traynor asserted that Guinness & Mahon was not involved in tax avoidance or evasion but went to great pains, as the Central Bank detected, to avoid scrutiny by the appropriate agencies, including the Revenue.
The first Central Bank inspection was in 1976, and it noted the reluctance of the directors of Guinness & Mahon to give information on the activities of the offshore subsidiaries because of fears that the information might be conveyed to the Revenue.
In a letter of September 9th, 1976, from the then Central Bank governor, Mr Charles Murray, to the chairman of Guinness & Mahon, Mr John Guinness, the Central Bank voiced its concern at the extent of the bank's involvement in offshore activities.
Following the second inspection in 1978, the Central Bank stated that Guinness & Mahon had advanced loans amounting to £5.5 million to customers which were secured by deposits paid through Guinness & Mahon to Guinness Mahon Cayman Trust or Guinness Mahon Guernsey.
"The inspectors suggested that Guinness & Mahon should cease its participation in these schemes," Mr Coughlan said.
It appeared the Central Bank accepted assurances from Mr Traynor that the level of loans would be reduced.
"The minutes of the bank noted that in these circumstances the Central Bank did not wish to pursue the matter further in the light of Mr Traynor's assurances," Mr Coughlan said.
Mr Coughlan said it should have been apparent to the Central Bank that Guinness & Mahon were not providing complete information regarding the level of loans. "It appears the matter was not pursued." At review meetings in February 1980 and October 1981 the matters of loans secured by offshore deposits was not referred to during the course of the meetings and no query was raised.
Disparities in the level of loans should have been apparent to the Central Bank but no queries were raised with Mr Traynor about his assurance to reduce these loans.
The third on-site inspection took place in 1982, and in the report there was no reference whatsoever to these loans.