A London-based bank defrauded the Irish taxpayer of €3.2 million, the Public Accounts Committee (PAC) was told today.

State Street is now being investigated by the UK’s Financial Service Authority (FSA) following the discovery that it took unauthorised payments for disposing of €4.7 billion of Irish assets.

The matter has also been referred to An Garda Síochána by the NTMA.

The National Treasury Management Agency (NTMA) engaged the services of State Street to sell €4.7 billion worth of assets held by the National Pension Reserve Fund (NPRF).

The assets were sold between February and May last year as part of the NTMA’s drive to raise €10 billion to put into the two pillar banks Bank of Ireland and Allied Irish Bank.

According to the Comptroller and Auditor General’s report, the agreed fixed rate for hiring State Street’s services was €698,000.

However, State Street took commission of €2.6 million which was not agreed and a further €600,000 in profits from the disposal of NPRF’s holding in an index firm. The original report by the Comptroller and Auditor General in September said the NTMA had been overcharged.

However, NTMA chief executive John Corrigan told PAC today that as far as his organisation was concerned State Street had engaged in fraudulent activity and other investment funds had suffered a similar fate.

He said there had been collusion within the bank to defraud the Irish taxpayer.

The money has since been paid back and Mr Corrigan said the three individuals involved have left the institution.

He revealed there was no direct personal gain to the people involved in it and the money accrued ultimately to State Street.

However, he said State Street had not yet admitted to fraud and the NTMA was reserving its position in relation to what it was going to do next pending the outcome of the investigation by the FSA.

NPRF chief executive Eugene O’Callaghan said that when the invoices came back from State Street, they showed no commissions or deductions. The money was instead deducted from the sale price of the assets.

The money amounted to 0.07 per cent of the sale price of the assets.

“What we are dealing here with fraud. Fraud for it to be successful as to have internal collusion," Mr Corrigan told the committee.

“The price was clipped within State Street within their omnibus brokerage department”.

Labour TD Derek Nolan said he was alarmed that State Street continued to manage €900 million in Irish assets.

He accused the NTMA of taking a “relaxed approach” to a company which had “ripped off the Irish taxpayer”.

Fine Gael TD Paschal Donoghue asked why it was acceptable to continuing to do business with them when the bank had engaged in collusion in relation to the fraud.

Fine Gael TD Kieran O’Donnell said “surely to God” the fraud should have been picked up by the NTMA before problems with State Street were flagged up in other media.

Mr Corrigan said they had accepted the repayments from State Street “without prejudice” but the NTMA had “indicated forcibly” to the bank that they may take further action in the future.

State Street said it had self-reported to the FSA in September last year once irregularities involving another client had come to light.

It admitted that commissions were charged that "were not consistent with our contractual agreements". It also said that those involved were disciplined and have left the company.

"The actions of these former employees and their interaction with a limited number of clients do not reflect the high standards of conduct, communications and transparency that State Street expects. We took swift and appropriate disciplinary actions in response to this conduct," they concluded.

"As a result of this process we have strengthened our transition management business and enhanced our controls.”