An accountancy expert has told an alleged market deception trial that he believes a circular €7.2 billion deal between two banks could have gone on forever.
Four former senior bankers from Anglo Irish Bank and Irish Life & Permanent (ILP) are on trial for allegedly conspiring to mislead investors by setting up a €7.2 billion circular transaction scheme to bolster Anglo's 2008 balance sheet.
Peter Fitzpatrick (63) of Convent Lane, Portmarnock, Dublin, John Bowe (52) from Glasnevin, Dublin, Willie McAteer (65) of Greenrath, Tipperary Town, Co. Tipperary and Denis Casey (56), from Raheny, Dublin have all pleaded not guilty at Dublin Circuit Criminal Court to conspiring together and with others to mislead investors through financial transactions between March 1st and September 30th, 2008.
On day 53 of the trial the State called Mark Hunt, a chartered accountant who has worked for the Bank of England and the UK's Financial Conduct Authority.
Mr Hunt told Paul O’Higgins SC, prosecuting, that he examined all the evidence around the €7.2 billion deal and the accounting treatment of it in Anglo’s balance sheet.
He said he came to the conclusion that the deal had no commercial or economic substance, both of which are technical accounting terms. He said the economic substance of a transaction was germane to how it was subsequently accounted for.
‘Very unusual’
Mr Hunt said: “This is a very very unusual series of transactions. It is not a series of transactions that is routinely entered into as part of [the bank’s] normal routine balance sheet management activity.”
He said that the transactions took the form of a series of paired transactions; a transaction between Anglo and ILP and a corresponding transaction between Anglo and ILP, acting as agent for the non-banking entity Irish Life Assurance (ILA).
“ILP on behalf of ILA paid the money back,” he said. He said the transactions were circular and at no stage did Irish Life Assurance transfer money to Anglo before Anglo had transferred funds to ILP.
“These paired transactions could have gone forever.. This could have gone on to €14 billion or €140 billion. There were no constraints on doing it,” he said.
He told the jury that based on the view that the deal had no commercial substance the transactions should have been netted off in the accounts – meaning they would cancel each other out and not be included in the final figures for the bank’s balance sheet.
“They should not have been there in the balance sheet assets or liabilities. Both would be €7.2 billion smaller,” Mr Hunt said.
The trial continues before Judge Martin Nolan and a jury.
