Office of the Comptroller and Auditor General - Dirt Investigation - Chapter 21

Chapter 21 : GE Capital Woodchester Bank Limited

Background

Woodchester Investments plc was formed in 1977. During the period 1984-96, Woodchester grew significantly through acquisitions, acquiring Bowmaker Bank and that bank's original banking licence in 1987, Trinity Bank and Mercantile Credit Company in 1990, UDT Bank Limited, First Southern Bank Limited and Credit Lyonnais Financial Services all in 1992, and Gandon Capital Markets in 1995. In 1997 Woodchester was itself acquired by GE Capital Corporation.

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 1.38%.

The value of its non-resident book varied between ?24m and ?125m during the period 1986-98.

Key statistics for the group in relation to non-resident accounts are as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

16.2%

11.1%

22.3%

a At the time of inspection of declarations by Revenue in November 1998 the number of non-resident accounts was 562.

b Calculated using Central Bank Data.

Staff Instructions and Procedures

The bank indicated that it had always been its policy to establish both the identity and residency status of non-resident depositors by way of passport, driving licence, utility bills etc. before opening or operating a non-resident deposit account. The bank has written instructions to staff regarding the opening of non-resident deposits. Key provisions are

It is imperative that a non-resident account holder signs a non-resident declaration form on opening an account.

If the official is in serious doubt the bank can ask for a further declaration to be signed in front of a Commissioner of Oaths.

Reasonable measures should be taken to establish both the identity of a prospective customer and his/her residential status.

Both the customer's name and permanent address should be verified, where practicable, against suitable sources. Where such information or documentation is not forthcoming or cannot be verified, then the establishment of a non-resident deposit account should not proceed.

I was informed in oral evidence that a key point in the administration of the deposits within the bank has been the centralisation of the deposit administration. While deposits were taken in branches the centralised administration ensures consistency in relation to documentation received.

The bank did not seek a Form F during the period 1986 to 1993 and neither did it seek an affidavit, in order to satisfy itself about the authenticity of any claim for non-residence or in any case where a resident was opening a non-resident account for the beneficial ownership of a non-resident.

The bank has written procedures in relation to the opening and maintaining of Special Savings Accounts (SSAs). It is also the bank's policy to obtain declarations in relation to companies, pension funds and charities.

I noted that the bank had a number of "hold correspondence" cases. In May 1999 there were 66 such accounts with a value of ?1.6m.

Three Irish agents currently take non-resident deposits on behalf of the bank and as at 21 May 1999 the bank held 19 such deposits with a value of ?370,000. At 1 April 1995 five Irish agents had introduced 200 non-resident accounts with a value of ?4.7 million. In these cases the non-resident declarations are held by the bank.

Internal Management Review

Internal Audit

I was informed in oral evidence that the bank has an internal audit department which reports to the Audit Committee. I was also informed that no internal audit work was undertaken on non-resident accounts as they were not viewed as a high risk area. The bank believed that its account opening procedures and on-going monitoring of accounts would bring suspicious accounts to their attention.

Administrative Reviews

In March 1998, the bank decided to perform a thorough internal examination of its non-resident deposits to ensure that they held the relevant non-resident declaration forms on file in respect of each individual depositor. The review was undertaken due to the publicity this issue received at that time.

Taking into account the growth of the bank's deposit book as a result of the various acquisitions over the years, ie. Bowmaker, Trinity, Mercantile, UDT, First Southern, and the various methods of recording and filing documentation within these institutions, it was felt prudent to manually examine each depositor file to verify the presence of the relevant documentation.

A computer generated listing was produced of all non-resident deposits, totalling 562 accounts with a value of ?59 million. As part of the manual examination process, approximately 6,000 files were examined, in case any misfiling took place over the years.

The bank identified 217 accounts (valued at ?7.2 million) which did not contain the relevant non-resident declaration form. I was informed that many, if not all these accounts, related to deposits which were originally opened in UDT, First Southern or Bowmaker. It was common practice to place these declaration forms in the depositors' files and through culling over the years, many files (including declarations) were placed in off-site storage. I was also informed by the bank that no problems were identified with non-resident accounts in UDT as a result of due diligence on the acquisition of that bank.

It was decided to contact those depositors for which the bank did not possess a declaration form in its filing system, requesting them to re-submit a declaration, rather than trying to dig out files going back years from storage. It was felt that this would be the easiest way of updating the bank’s records and ensuring that all documentation was held on current files. This was done on 7 August 1998.

By October 1998, the bank had received completed declaration forms from 137 depositors leaving 80 accounts (valued at ?1.4 million) outstanding. The bank subsequently contacted these depositors and advised that their accounts would be re-designated to resident status unless the bank received a reply by 16 November 1998. This was effected on 21 December 1998 with the accounts reclassified from 16 November.

At the end of April 1999, having received some further responses and obtained some original declaration forms from off-site storage, there were 50 accounts (valued at ?640,000) which remained designated resident. These comprised 20 depositors from whom no reply was received and 30 where the correspondence was returned unopened.

I was informed in oral evidence that the majority of the 50 accounts are dormant. The last transaction on the most active account was in 1995.

I asked the bank whether any analysis had been undertaken of the 167 declarations that were received by April 1999. The bank informed me that no analysis had been undertaken and that during this review it regarded the completion of the non-resident declaration as proof of non-residence. The reason the account holders were circulated was because their declaration had been misfiled, not because their status was in doubt.

External Review

Central Bank Review

The bank confirmed that no matters were raised in regard to its administration of non-resident accounts by the Central Bank of Ireland.

External Audit Review

I noted from the documentation supplied to me that no reference to non-resident accounts were made by the bank's external auditors during the period under review.

Administration of the Taxes Acts

Revenue Inspection of Declarations

In November 1998 Revenue inspected a sample of declarations in respect of the bank’s non-resident accounts. During the inspection the Revenue officials were informed by the bank that it had a total of 562 non-resident accounts. The bank held 383 declarations with 179 outstanding. The reason for this shortfall was the documentation problem referred to earlier.

Of the 83 declarations requested for inspection 19 were unavailable. 14 of these are included in the 179 which were stated to be outstanding. Of the other 5, 1 declaration was explained as referring to an account which was wrongly designated as non-resident and the remaining 4 missing declarations referred to files which had been temporarily mislaid.

There were also 15 queries relating to deficiencies in the completion of the declarations which were available. Correspondence was ongoing at 1 July 1999.

Investigation Branch Enquiries

Prior to the inspection of declarations in 1998 no matters came to the attention of the Investigation Branch of the Revenue which would have necessitated contact with the bank.

Interest Reporting

The banks returns under Section 891 of the Taxes Consolidation Act 1997 were not filed in all cases.

Result of Work Performed by the Appointed Auditor

The bank was not the subject of an examination by the Appointed Auditor on the grounds that its non-resident deposit book in terms of market share was not material.

The contents of this page were last updated on 26/09/03