Tanaiste Mary Harney said today the practices outlined in the AIB statement about the operation of an offshore investment company, Faldor, by five former senior AIB executives, was very serious and that the public should know who the executives involved were.

She said this issue goes to the very top levels at AIB and is a very serious matter. 

She said it would be very helpful if the senior executives involved came forward themselves rather than wait to be smoked out by the media. Ms Harney also said it would be unacceptable if any of the people involved were currently involved on any State Boards.

She added that if the individuals behind the setting up and operation of Faldor were currently involved in senior commercial activity in Ireland then the public needs to know.

Former Senior AIB Executive Kevin Kelly who is now the Chairman of the new Interim Health Executive told the Minister for Health, Micheal Martin, last night that he had no knowledge or involvement in the investment practices outlined by AIB in its statement yesterday.

Earlier today former AIB Chief Executive, Tom Mulcahy, said he had no prior knowledge of or involvement in the investment practices outlines in the statement.

Speaking in London the Minister for Finance said the practices which have been uncovered at AIBIM have damaged the reputation of the bank.

Charlie McCreevy said it was "very disappointing" that higher executives were involved in "somewhat dubious practices".

McCreevy added that IFSRA was the competent authority and that it had been set up under "robust legislation" and was now carrying out a thorough investigation.

AIB yesterday gave details of an investigation into what it describes as "unacceptable practices" at AIB Investment Managers and details of tax issues relating to current and former senior executives.

BACKGROUND:
There has been one investigation already into the latest "unacceptable practices" and a second one is now in progress. The first investigation was sparked off when the managing director of AIB Investment Managers discovered about the Faldor link in AIB in September 2003.

The bank immediately told IFRSA, the regulatory authority associated with the Central Bank. IFSRA agreed with AIB what needed to be done in terms of the first investigation, so IFSRA decided what terms they wanted. As a result of that investigation IFSRA decided that much more needed to be done.

IFSRA then sent in their biggest gun, Maurice O'Connell, who is a former governor of the Central Bank, indicating that this is a very serious matter and that the people involved are senior staff members.

That investigation was carried out and as a result of that the matters were discussed at board level in IFSRA this week. Also at board level in the bank IFSRA told AIB that they needed to make a public statement, or else they, IFSRA, would make it.

AIB's statement yesterday indicated that the matter was historic, IFSRA's statement said that the investigation is ongoing. It says the issues raised by these investigations will be considered by the authority comprehensively at the end of the investigative process, so it is not over.

It says following the investigative process the authority will consider what actions may be required and will report as necessary.

Faldor was an offshore company set up in the British Virgin Islands with a view to people trading and making money in international markets. The money was made and allocated in the islands for tax purposes. AIB has said that there were breaches of tax law in relation to this. It's an offshore company set up by some very senior people in AIB Group, managed by AIBIM, a subsidiary of the group.

It is likely that the people involved were very senior to have been able to get the subsidiary to ensure that they received favourable treatment in relation to deal allocation - if a trade is happening that they night get a better share of whatever the good deals were. AIBIM did the trading and Faldor were the beneficiaries, meaning they created unfair advantage for themselves over the 'normal' bank customers.
Faldor benefited by €48,000 at the expense of AIBIM in-house accounts.

FALDOR:
Faldor was made up of five former senior executives of AIB and it had a relationship with AIBIM from 1989 to 1996.

The bank's investigation found there was a breach of tax law in relation to this company. It also found that the former AIB executives behind Faldor received a preferential allocation of investments amounting to €48,000 at the expense of other clients of AIB Investment Managers.

Seperately that investigation found that two former and three current senior executives at the bank had tax issues unconnected to Faldor.

INVESTIGATIONS:
A second investigation was supervised by former Central Bank Governor Maurice O'Connell. It found in total there were nine transactions that involved unacceptable practices.

The bank is to compensate clients of AIBIM €330,000 arising from this. AIB is also to underwrite €800,000 arising from tax and penalties.
AIB said in a statement it cannot, for legal reasons, identify the individuals involved but that appropriate disciplinary action is underway.
Mr Michael Buckley, AIB Group Chief Executive, said: ' The practices uncovered have no place in AIB.

The leadership behaviors I expect of senior management in AIB are clear. I am determined that they will be maintained and validated through a regular accountability process.

"I am happy that the historic, unacceptable deal allocation practices in AIBIM identified in the investigations are a thing of the past and had, by 1997, been replaced by the good practices and standards that remain in place."