The Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, will apply to the High Court next Monday to appoint inspectors to investigate the affairs of National Irish Bank Financial Services Limited (NIBFSL).
In court yesterday, Mr Justice Peter Kelly granted leave to Ms Fidelma Macken, for the Minister, to make the application.
The Minister will apply to have Mr Tom Grace and Mr John Blayney SC appointed as inspectors to NIBFSL. Last March, both men were appointed inspectors in relation to National Irish Bank.
In an affidavit read to the court yesterday, Mr Paul Appleby, principal of the company law administration section of the Department of Enterprise, Trade and Employment, said the application arose from the Minister's belief there were circumstances suggesting that the affairs of NIBFSL had been conducted with intent to defraud the Revenue Commissioners and/or related companies for an unlawful purpose and/or in an unlawful manner. He said NIBFSL was incorporated in January 1970. Its registered offices were at Wilton Terrace, Dublin.
Since its incorporation, the company had carried out the business of providing financial services in the State. All but one of its 50,000 shares were held by National Irish Bank Ltd. A single share was held by National Irish Bank Nominees Ltd. Both companies were ultimately owned by National Australia Group (UK) Ltd, in turn part of Bank of Australia Group.
Mr Appleby said that in January last it was reported in the media that NIBFSL had been involved in effecting the policies of life assurance on behalf of its customers with Clerical Medical Insurance Ltd, Isle of Man, which was not authorised under EU insurance legislation to carry on the business of life assurance in the State.
On January 17th, the Minister for Science, Technology and Commerce wrote to NIB seeking information regarding these matters. That letter was responded to by letter, dated January 29th. As appeared from that letter, it was accepted in it that "citizens resident in the State have effected insurance policies through National Irish Bank Financial Services Ltd with companies established in the Isle of Man".
This letter disclosed that, in addition to Clerical Medical International Insurance Ltd, policies were effected on behalf of its customers with Scottish Provident International Life Assurance Ltd, Douglas, and Old Mutual International (Guernsey) Ltd, St Peterport, Guernsey.
It was furthermore accepted in that letter, added Mr Appleby, that Clerical Medical International Insurance Ltd did not hold any authorisation to conduct business in this State. He was advised and believed that those other two companies did not enjoy such authorisation under EU insurance legislation.
Enclosed with that letter were copy insurance policies. For the purposes of confidentiality he had obliterated details of a confidential nature contained on them.
Mr Appleby said these allegations and the matters referred to in the letter from the bank of January 29th gave rise to the gravest of concerns. On or about March 23rd last, the Minister appointed Mr Martin Cosgrove as an authorised officer to investigate these matters, pursuant to section 59 of the Insurance Act, 1989.
Currently, Mr Cosgrove's investigations were not completed. However, he was advised by Mr Cosgrove and believed that between 1990 and his appointment, a large number of insurance policies were effected and sold through the company to persons resident in the State with companies which did not enjoy authorisation to conduct such business pursuant to the Insurance Acts.
Mr Appleby said it would appear this was effected through persons within NIBFSL establishing contact with prospective clients. In some instances this was done by referral from employees of the bank. An insurance application form was signed in Ireland by the prospective policy holder. This form, together with a cheque or bank draft, was then forwarded by NIBFSL to the relevant insurance company. In some cases, a cheque was drawn on a client account of NIBFSL and in others payment was made by bank transfer or through the proceeds of existing policies. Following receipt of the application form and premium, the policy documents for the new insurance policy or policies were issued to the client, either directly or through NIBFSL.
Mr Appleby said that in a substantial number of cases, funds placed with the insurance company were then lodged back with the bank or an associated company, namely National Irish Investment Bank Ltd. In many cases, these funds were lodged back, less charges for the taking out of a policy, with the bank branch from which they had originated.
In a substantial number of cases, continued Mr Appleby, the policy, once executed, was assigned to a trust run by an independent trust company. The net effect of this was to change the name in which the monies were held. The trust company was provided with details of who was to benefit from the trust, generally the policy holder and his or her immediate family. These trust documents were processed through NIBFSL.
It would appear that between 1990 and Mr Cosgrove's appointment, some 499 of these policies were sold through NIBFSL. The total value of these policies at point of sale was about £48 million. Mr Appleby said should make it clear, however, that a number of these policies - 43 - were sold to non-Irish residents and 38 were sold as unit trusts (to which insurance regulation was inapplicable).
However, it would appear the bulk of these policies were sold to persons who appeared to be Irish residents. Of these policies, individual values at their inception date ranged from figures above £10,000, but in no case did it exceed £1 million. About 40 per cent of policies exceeded £100,000.
On June 4th, Mr Cosgrove reported to the Minister on an interim basis regarding these matters. The operation of this scheme, as it appeared to Mr Cosgrove and as reported to the Minister, raised, if ultimately substantiated, the gravest of concerns. It would imply that personnel employed by NIBFSL were involved in the effecting of policies of insurance with companies not enjoying due and proper authorisation to that end. This could imply their involvement in breaches of the provisions of section 9 of the Insurance Act, 1936, as amended, together with the provisions of the EC (Life Assurance Regulations), 1984-1994. "These are criminal offences," Mr Appleby said.
"They represent an undermining of the insurance industry generally, consequent upon the fact that the Minister (who is the regulatory authority for the purposes of the Insurance Acts) has no means of monitoring the solvency, probity or activities of the insurer concerned. This exposes members of the public effecting such policies of insurance to potential losses."
Mr Appleby said he was advised there was grave concern that the purposes behind the execution of these policies may have been to assist NIBFSL customers and or related companies in the avoiding of revenue obligations to the State, by effectively allowing persons in the State conceal monies from the Revenue through their being transferred into the names of the foreign insurers.
These Revenue obligations included, in particular, DIRT in all cases and capital acquisitions tax and probate tax in a number of cases. If this was found to be the case, this would represent serious infractions of the Revenue Code.
If those matters were established, Mr Appleby said he was advised they would indicate the affairs of NIBFSL were conducted for an unlawful purpose and/or in an unlawful manner. Furthermore, because of the fact that persons effecting such policies might find themselves without civil remedy were the insurers to default in repayment of these policies, the actions of NIBFSL, its servants or agents and employees in assisting in the execution of such policies could expose it to significant civil liability.
