National Irish Bank hopes its settlement offer to the holders of Clerical Medical International (CMI) bond and similar products will head off years of damaging litigation. A number of customers have already started legal proceedings, claiming that they were incorrectly sold the products and more are expected to follow suit.

By settling now, the bank clearly hopes that it can draw a line under the affair, which has seriously damaged its reputation and stalled plans to expand in Ireland. Legal sources expect the settlement process could take more than a year to conclude. The letters posted out today are only the first step in a long process. Once it has received the replies, the bank will have to assess each case and each customer's claim.

Although it has signalled that it is prepared effectively to meet some of its customers' tax liabilities, it will not pick up the tab for the entire amount. Some customers will undoubtedly seek more and may opt to take their chances in the courts. If the NIB initiative succeeds, the bank will be significantly closer to closure on the litany of related troubles that have plagued it since 1998. Some are already behind it. Last year it paid £5 million (#6.35 million) to settle its liability for failing to collect DIRT from customers and, like the other banks, considers this matter closed. The High Court inspectors appointed to look into the CMI bond and other irregularities are close to completing the investigative part of their task and could produce a report within months. The conclusions are unlikely to be flattering to the bank but it should be in a position to point out that it had taken action to ensure such errors were not made again.

The bank has been reorganised and management practices overhauled. There have also been a number of changes to senior management. The report will almost certainly be sent to the Director of Public Prosecutions, but it may prove hard for him to bring any charges.

One aspect of the CMI affairs has the possibility of continuing to embarrass the bank. Ms Beverly Cooper-Flynn, the TD and former NIB employee, is suing RTE for alleging that she knowingly sold customers the bonds as a way of evading tax. The High Court case was adjourned late last year and is due to recommence next month.

NIB's settlement overtures to holders of the bonds - who by definition include those who bought them from Ms Flynn - is unlikely to affect the case. The bank has not accepted liability and is making the settlement moves without prejudice. The various offshore bond schemes - others involved Scottish Provident and Old Mutual products - were all broadly similar, with £51 million of the £62 million involved put into Clerical Medical International products by around 230 of the 470 participating customers. The clients bought the bonds - which were technically insurance policies - from the Isle of Man based organisation, with NIB acting as agent.

The customers had some discretion as to where the money was invested and a small number opted to have it put on deposit with their NIB branch. Some even managed to have access to the cash which was technically offshore. None of them paid tax as the bonds were sold as tax-free investments. NIB appears to be open to litigation from a number of the participants in the scheme who maintain that they did not realise that they were not entitled to participate. This applies in particular to Irish residents.

All the customers have been audited by the Revenue Commissioners, which has raised capital gains tax assessments in respect of the bonds, and the bank would appear to feel that it has a case to answer in respect of this part of its customer's liabilities.

The bond holders' other tax problems - and they are many - are not the bank's responsibility. How NIB's clients acquired their money and whether they paid tax on it is between them and the Revenue Commissioners. Quantifying just how much NIB may have to pay in compensation is difficult. Although the bonds mostly had a life of five years, they were invested in many different markets - cash, gilts, equities etc - and generated different levels of return. The rate at which capital gains is charged also varies, depending on where the money is invested and when. It will almost certainly run into millions but the bank must take the view that it will be money well spent if it brings closure to the unhappy episode.