Office of the Comptroller and Auditor General - Dirt Investigation - Chapter 23

Chapter 23 : Other Financial Institutions

Background

This chapter deals with issues arising following my examination of the following deposit takers. These predominantly fall into the following two categories:

1. Other Financial Institutions - Predominantly Domestic Business

ABN - AMRO Bank N.V

Anglo Irish Bank Corporation plc

Ansbacher Bankers Limited

Bank of America NT and SA

Banque Nationale de Paris SA

Citibank N.A

Equity Bank Limited

Irish Intercontinental Bank Limited

Smurfit Paribas Bank Limited

2. Other Financial Institutions - Predominantly Foreign Business

Chase Manhattan Bank (Ireland) plc

Pfizer International Bank Europe

Scotiabank (Ireland ) Limited

Westdeutsche Landesbank (Ireland) plc

The focus of the majority of the institutions in this category is primarily geared towards the institutional and medium to large corporate sector especially multinational companies. The private banking business conducted by such banks tends to be small and focused on high net worth individuals. The exception in this respect would be Anglo Irish Bank Corporation plc who have a retail operation through a small number of branches.

Practically all the institutions in this category have stated that they only conduct business with well established reputable organisations and individuals. They all operate a "know your customer" policy. A number of institutions are not interested in personal non-resident accounts and actively discourage such accounts. Deposit taking tends to be targeted to key sectors and is predominantly centralised. The majority do not have branches and do not accept cash deposits. Some institutions operate from the International Financial Services Centre (IFSC) and are exempted from deducting Income Tax from interest paid to non-residents.

The overall perception of the institutions in this category is that they were not aware of an industry wide problem in relation to bogus non-resident accounts throughout the period 1986 - 1998. A number stated that they were aware of isolated incidents particularly prior to the introduction of the anti-money laundering legislation. This problem was not very relevant for the institutions in this category due to the nature of their business, their initial screening process and their focus on the corporate sector. They did express surprise at the reported extent of the problem. A number of the institutions, particularly Irish subsidiaries or branches of American Banks, had money laundering procedures in place prior to the introduction of the relevant legislation in Ireland.

None of the institutions were aware of any loss of deposits to other institutions due to a perceived laxity in the application of the legislation by other institutions. One institution, Banque Nationale de Paris (BNP) commented that it had lost pension fund deposits to the UK in 1992 and 1993 due to the requirement to complete declarations. The point was made by a number of institutions that documentation standards are very high and are rigidly enforced by Irish institutions.

Non-Resident Deposit Levels

At 30 November 1998 these institutions accounted for an aggregate value of ?2.6 billion in non-resident deposits. This represented 28.5% of the value of the total non-resident accounts held by financial institutions in the country at the time.

In 1986 the corresponding figure was 4.3%.

Staff Instructions and Procedures

All but one of the institutions in this category currently have comprehensive written procedures covering the opening of non-resident accounts. All these procedures require the completion of a non-resident declaration and list the proof of identity requirements of the money laundering legislation.

Prior to the Criminal Justice Act 1994 which came into force in May 1995 all institutions required non-resident account applicants to complete a non-resident declaration form together with some form of deposit application. In some cases it is unclear what steps the institutions undertook to satisfy themselves regarding the authenticity of the non-resident applicant or whether it was sufficient to obtain a completed non-resident declaration. I was informed by some institutions that to qualify for non-resident status, the beneficial owner of the interest had to have his/her principal place of residence outside the State. The account would not be opened as a non-resident account if any suspicion attached to the non-resident declaration received.

After May 1995 the institutions were obliged to request, in addition to the previous requirements, proof of residency such as a driver’s licence and utility bill on all non-resident accounts. All institutions have procedures covering the money laundering legislation including money laundering officers.

Key controls for the institutions in this category are centralised deposit taking and segregation of duties. Different personnel are responsible for introducing the customer and for the accounting arrangements. Typically when a non-resident account is opened, an account/relationship manager prepares the account opening forms which are then passed together with the relevant information to an administrative department. In some cases an additional control over non-resident deposits is that a senior officer of the bank must sign off on the account when opened. Most institutions do not take cash which also reduces the possibility of bogus non-resident accounts.

In all institutions the procedures provide that a non-resident declaration must be completed before interest can be paid or credited gross. A number of institutions allow a period of grace for depositors to submit the declarations. I was informed by all institutions who allow this period of grace that they all had procedures in place to follow up such cases and that interest would not be paid or credited gross unless the completed declaration was in place.

A number of institutions have small numbers of "hold correspondence" cases. Where these accounts exist all the institutions stated that they are genuine cases and are regularly reviewed. These would normally apply to clients who spend a lot of time travelling or it may be requested by the customer due to the volume of statements issued. In a number of cases correspondence would not be issued to dormant accounts. In the case of ABN Amro, its internal audit section acts as a hold mail facility until the non-residents visit the country and collect the correspondence.

Form F 1986-1993

The requirement to obtain a Form F in the period 1986 to 1993 caused a lot of confusion. A number of institutions did not obtain the form in this period.

Affidavit Procedure

All the institutions in this category were aware of the legislative provisions that require the furnishing of an affidavit. None of the institutions obtained an affidavit in the period 1986-1998. I was informed that no situation arose which would have required an affidavit.

Declarations for other Exempt Deposits

Most institutions in this category satisfactorily obtained the required declarations for charities and for pension funds and companies after 1 January 1993.

Special Savings Accounts (SSAs)

During my investigation I enquired if the institutions obtained the required declaration and if they had procedures in place to ensure that all conditions pertaining to SSAs were complied with. In particular I enquired if the procedures were adequate to highlight breaches of the ?50,000 capital limit and 30 day withdrawal notice. I was informed by all institutions that the declarations were obtained and no significant problems had arisen.

Internal Management Review

Internal Audit

All the institutions in this category are subject to regular internal audits. The majority of institutions are audited by the internal audit departments of their parent bank. The frequency of these audits would range from every one to three years. Some institutions eg. Anglo Irish Bank Corporation and Irish Intercontinental Bank have their own internal audit department.

The primary focus of internal audit for these institutions in relation to non-resident deposits was on the existence and completion of the relevant documentation. A typical internal audit would examine a sample of deposit accounts to ensure that the account was being operated in accordance with the procedures within the relevant institution. This sample may or may not include non-resident accounts. Where the sample included non-resident accounts, no specific tests on the authenticity of the non-resident account holder was undertaken in the majority of cases. A number of institutions did not deem this area a high risk category in view of their account opening procedures and on-going monitoring of accounts.

Notable exceptions to this were ABN Amro and the Bank of America NT & SA. In both these cases specific annual reviews of non-resident accounts are undertaken to ensure that relevant declarations are on file. In addition, the Bank of America NT and SA confirms the validity of the non-resident status.

In a number of cases a small number of accounts were reclassified following internal audit. However, in no case were DIRT liabilities calculated and paid over to the Revenue Commissioners.

In all cases noted, the internal audit reports were addressed to senior management in the institutions and follow up action was initiated and subsequently verified by internal audit.

A number of instances where procedures in relation to non-resident accounts were less than satisfactory were noted during my review of the internal audit reports submitted by the institutions.

Board Meetings

There was no instance where the question of bogus non-resident accounts was raised at Board level.

External Review

Central Bank Reviews

The only issue raised by the Central Bank related to a review in Smurfit Paribas of non-resident investment account clients under the Investment Intermediaries Act in 1998.

External Audit Reviews

No material issues with regard to the operation of non-resident accounts were raised by the external auditors of the institutions in this category.

Administration of the Taxes Acts

Revenue Inspection of Declarations

Revenue informed me that during 1998-99 it had carried out inspections of non-resident declarations in all the institutions in this category. The financial institutions co-operated fully with the Revenue Commissioners and in fact went beyond their legal obligations by supplying Revenue with a full listing of their non-resident accounts as opposed to copies of all declarations. The main findings in relation to the institutions in this category were

Examinations did not reveal any bogus non-resident accounts.

A number of declarations were not available at the time of the Revenue Inspection. Most were subsequently obtained by the institutions.

A number of declarations held were pre-1986 format (i.e. Form F).

The required declarations in respect of companies, charities and pension funds were not always available.

In 1995 a concession was granted by Revenue in regard to the obligation to obtain a non-resident declaration in the case of short term deposits by corporate clients. A declaration was not necessary if the client was resident in a country with whom Ireland had a Double Taxation Treaty and had a specified corporate status and provided the deposit had a term of less than three months. A number of institutions had difficulties in interpreting this concession.

The Revenue Commissioners are currently in correspondence with a number of institutions following these examinations.

Specific cases where problems arose are outlined under the entry for individual institutions as appropriate.

Investigation Branch Enquiries

Prior to the inspection of declarations in 1998-99 no matters came to the attention of the Investigation Branch of Revenue which would have necessitated contact with any of the institutions in this category with the exception of Ansbacher Bankers Limited.

Interest Reporting

A number of institutions in this category did not comply in full with this requirement.

DIRT Remittances

All institutions in this category made returns and payments in all years and no material payment delays or queries arose.

Result of Work Performed by the Appointed Auditor

The appointed auditor examined DIRT exempt accounts and SSAs in three of the financial institutions - in this category Ansbacher Bankers Ltd., Citibank N.A. and Irish Intercontinental Bank Limited. The summary audit findings are set out in the sections appropriate to those institutions.

ABN Amro

Non-Resident Deposit Levels

ABN Amro's share of the non-resident deposit market as at 30 November 1998 was 1.76%.

The value of its non-resident book varied between ?5m and ?159m during the period 1986-98.

Key statistics in relation to non-resident accounts were as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

13.6%

15.2%

4.6%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 126 in October 1998.

b Calculated using Central Bank data.

Internal Management Review

The bank stated that quarterly internal audits were performed until 1996 to verify that control procedures over the status of non-resident accounts were adhered to. This audit procedure is now performed annually by selecting all deposits and accounts for which no DIRT is deducted and verifying that a non-resident declaration form is on file. To the best of the bank’s knowledge, no abuse of non-resident status has come to its attention.

Administration of the Taxes Acts

In October 1998, the Revenue Commissioners performed a 100% (126 accounts) examination of the banks’s non-resident accounts. This audit discovered 11 cases in respect of individuals and 19 cases in respect of companies where the bank did not have a valid non-resident declaration. In relation to the 11 individual cases Revenue received the following explanation

Second request issued - September 1998 4 cases

Received, not located. Form issued again 1 case

Declaration held is pre-1986 [Form F] 3 cases

No explanation 3 cases

In relation to the 19 cases for non-resident companies the bank informed Revenue that declarations were not required as these cases were covered by the Revenue concession in respect of short term deposits up to three months. The Revenue officers pointed out that a number of companies on their list seemed to be with the bank for longer than 3 months. The bank informed Revenue that they had received advice from their auditors that it was permissible to extend the period of deposits for which declarations were not necessary. There was no written confirmation.

In a subsequent phone call in October 1998 the bank informed Revenue that 12 of the 19 corporate accounts which did not have declarations had been closed as they were inactive or had not been used since set up. No further explanations were subsequently received.

The bank informed me that in October 1998, the Revenue Commissioners performed a 100% audit of the branch's non-resident declarations. At this time, six declarations were outstanding, all of which have been obtained subsequently. The audit concluded satisfactorily and no correspondence has subsequently been received from the Revenue.

I queried the results of the Revenue examination. I was subsequently informed by the bank that they reviewed their correspondence with the Revenue Commissioners after their review in October 1998 and that they could find no indications of "control reservations" being expressed by the Revenue Commissioners. Had any reservations or recommendations been made the bank would have investigated such matters immediately. In relation to the six accounts referred to by the bank, three of these accounts were "new accounts" and ABN Amro paid no relevant interest to these customers prior to the receipt of the non-resident declaration forms. As no relevant interest was paid to these customers, ABN Amro do not believe they were obliged to deduct DIRT. The three remaining accounts referred to were "old accounts". The correspondence on file for these accounts indicated that the relevant declarations had been received in the past but may have been mislaid or misfiled. The declarations could not be located during the Revenue review. ABN Amro requested these customers to re-submit non-resident declaration forms. These customers subsequently re-submitted the appropriate declarations.

The bank believes that the level of non-compliance with the regulations governing non-resident declaration forms to be satisfactory in the case of "new accounts". This is because no interest was paid to account holders who had not provided non-resident forms. With regard to the "old accounts", the bank believes that a level of misfiling, while not acceptable, is inevitable in any organisation. The "old account" holders had no difficulty in complying with the regulations when replacement non-resident declaration forms were requested from them.

Anglo Irish Bank Corporation plc

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 1.03%.

The value of its non-resident book varied between ?13m and ?105m during the period 1986-98.

Key statistics in relation to non-resident accounts were as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

2,873

3,054

n/a

9.4%

10.8%

11.1%

a Information supplied by the bank

b Calculated using Central Bank data.

Internal Management Review

In the period 1986 to date several internal audit reviews have been carried out of the systems procedures and controls in operation in the bank over both resident and non-resident deposit accounts. These reviews included a specific audit on account opening documentation including non-resident declarations.

It is the bank's policy that internal audit reviews are carried out on an annual basis in area offices. The 1994 internal audit included a review of deposits including non-resident and SSAs. In Limerick, Galway, Cork and Waterford it was noted that an unspecified number of the reviewed accounts did not have completed declaration forms on file.

The audit of the Galway Area Office in 1997 discovered that there was no non-resident form on file for one account (out of 42) and that letters requesting this form were addressed to a different individual than on the computer.

Anglo Irish Bank Corporation informed me that the files relating to the internal audit review carried out in 1994 were, in the normal course, archived by the bank in 1996 to an off-site unit which is managed by an independent security company. To date the security company has been unable to retrieve these files. The Chief Executive of Anglo Irish Bank informed me that all internal reports would have been furnished to him and that if any internal audit review in 1994 had disclosed that the number of non-resident accounts for which completed declaration forms were not on file was significant he would recall this issue having been raised.

External Review

The Management letter issued by the bank’s external auditors for the year ended 30 September 1993 included a comment that they had noted a number of corporate resident deposit accounts which did not pay DIRT and did not have completed declaration forms on file.

The bank's records indicate that as at 30 September 1993 it held 259 corporate resident deposit accounts on foot of which interest was paid gross. It is not possible from the records of the bank to determine the number of those accounts in respect of which a completed declaration form was not held as at that date. However, having consulted with the bank's external auditors, in relation to their external audit for the year ending 30 September 1993 they have informed the bank that they reviewed 19 DIRT exempt accounts. Arising from this review, the external auditors identified 2 corporate resident deposit accounts and one non-resident account which did not have completed declaration forms on file. The non-resident account was in fact an Inter-bank account from an overseas subsidiary.

Administration of the Taxes Acts

In February 1998 the bank received a notice under Section 263, of the Taxes Consolidation Act 1997, that it would be subject to a review under the provisions of that Act, in that an examination of non-resident declarations would be conducted. A subsequent letter was received in October 1998 stating that the review would include a review of declarations for accounts open on the 30 October 1998.

Prior to the review, the Revenue Commissioners received a list of names of the non-resident customers as at 30 October 1998. It was agreed that they would review the declarations of every tenth customer included on the list. Two officers of the Revenue Commissioners carried out the review on 1 December and, according to the bank, appeared satisfied therewith.

The Revenue Commissioners examined 215 declarations by prior agreement. Their report noted

(a) that while there were no missing declarations in the sample examined it appeared that an obvious effort had been made recently to obtain declarations as 37 out of the 215 examined were dated March 1998 or since then. The bank stated that a number of these were new accounts opened at the relevant date in 1998. The bank also stated that approximately 15 were older accounts for which they had not held a proper declaration until recently although they were satisfied that the non-resident status in all these accounts was correct

(b) a significant number of the declarations were not fully completed. There were 26 undated out of the 215. Revenue advised the bank to obtain properly completed forms in cases where sections were left blank by the account-holder

(c) there were 3 declarations which were not valid since 5 April 1987. These were Form Fs. The bank was advised to obtain proper declarations for these cases immediately

(d) there were several cases in the sample where there was no original declaration but instead a faxed copy or a photocopy. The bank was advised that DIRT-free status should not be given to accounts in the absence of a properly completed declaration

(e) there were a significant number of declarations dated pre-1990 (23 out of 215) and Revenue asked if the bank ever reviewed their files to check if there was any evidence that any of these "old cases" were now resident. The bank stated that it had no procedure in place to monitor such cases.

At the end of the examination Revenue informed the bank that the overall standard of completion of the declarations was not satisfactory and that there was an obvious carelessness on the part of the bank or its customers regarding the completion of the forms.

The Chief Executive of the bank stated that the matters that arose were minor and of a technical nature. The bank felt that the examination was satisfactory. The bank was advised by letter of 16 December 1998 that a more extensive review to include all periods from the inception of DIRT would be carried out by Revenue. The matter is ongoing.

Ansbacher Bankers Limited

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 0.23%.

The value of its non-resident book varied between ?20m and ?41m during the period 1986-98.

Key statistics in relation to non-resident accounts were as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

326

398

n/a

18.9%

29.4%

36.4%

a Information supplied by the bank

b Calculated using Central Bank data.

Internal Management Review

Anglo Irish Bank acquired Ansbacher Bankers Limited in March 1996. Anglo Irish Bank informed me that in the period from March 1996 to date, the bank’s systems, procedures and internal controls have been subject to both internal and external audit review. Since the internal audit function is a Group function, the bank is currently subject to the same reviews as Anglo Irish Bank Corporation plc.

At no stage were any material deficiencies with regard to the operation of non-resident accounts highlighted nor in fact was the bank aware of any abuse of the non-resident accounts. As such, at no stage were any additional tax payments made to the Revenue Commissioners. To the best of the bank’s knowledge and belief, this applied to the period from 1986 to 1996.

Administration of the Taxes Acts

In 1992, Investigation Branch of Revenue was in contact with the bank regarding concerns about bogus non-resident accounts. As a result of further enquiries one non-resident account was closed and the account holder subsequently made a settlement with Revenue. The circumstances surrounding this case are outlined in Chapter 7 Section 3.

In May 1999 Revenue examined a sample of 120 (from a total of 237) non-resident accounts. Declarations were available for all accounts. Revenue noted 13 incomplete declarations and advised the bank that they should be replaced as soon as possible by properly completed declarations. They also advised the bank that any similar cases of incomplete declarations in the remaining 117 accounts should also be replaced. The Revenue officials also noted that, apart from internal audit, there was no regular review or monitoring of declarations.

Result of Work Performed by the Appointed Auditor

The Auditor reviewed a sample of declarations for Ansbacher Bankers Limited. The following are the results of the review.

Tax Exemption
Documentary Compliance - Declarations of Non-Residence (Form 37)
Sample

250

No Declaration held

13

Late dated Declarations

Undated Declarations

Declaration Validity Exceptions

75

0

25

Total Declaration Exceptions

113

Percentage Exception

45%

Authenticity Risk Profile - Non-Residents
Sample

250

Risk Indicator
Irish Address

29

PO Box or ‘Care of’ Address

26

Hold Mail

37

Transaction Profile

3

Accounts with Liens

0

Other

0

Total accounts with risk indicators

95

Percentage Exceptions

38%

Accounts also with documentary exceptions

44

Accounts where the bank believes it holds appropriate evidence of non-residence

46

19Documentary Compliance - other Exempt Accounts and SSAs
Account Type

Exempt

SSA

Sample

84

60

No Declaration

28

0

Declaration Exceptions

10

9

Total Exceptions

38

9

Percentage Exceptions

45%

15%

Interest Reporting Exemption
Documentary Exemption (Form F)
Sample

198

No Form

139

Percentage Exception

70%

Bank of America NT & SA

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 0.79%.

The value of its non-resident book varied between ?1m and ?71m during the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

13.9%

8.2%

7.4%

a Details of numbers of non-resident accounts were not supplied to me. I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 97 in March 1999.

b Calculated using Central Bank data.

Internal Management Review

All new accounts are reviewed by the branch's Compliance Officer to ensure that all the necessary documentation has been completed both from a local regulatory perspective and from bank policy. The bank is inspected by an internal audit department from London at least bi-annually for compliance to bank policy and procedures. Reviews include a detailed check on non-resident accounts to ensure that there has been no change to the status of the account holders including a systems spot check to ensure tax payments are being deducted where applicable.

The bank informed me that to date it had not detected any abuse of non-resident deposit accounts

Administration of the Taxes Acts

In March 1999 the Revenue Commissioners examined all 97 live non-resident accounts of the bank. The result of the examination was:

There was no declaration for 7 cases which the bank stated were recently acquired customers and the bank were pursuing the non-resident declaration from them. They were noted as "awaiting signed declaration" on the bank's list of accounts. The Revenue inspectors advised the bank that the DIRT non-liable marker should not be attached to these cases until the declaration was received. In relation to these cases the bank informed me that on occasions accounts are opened at the request of a European Branch. Sometimes the foreign branch may not be aware of the requirement for the Irish branch to have a non-resident declaration signed. In these cases the bank would open the account and then send the appropriate paper work out to the customer to be signed and immediately returned to the bank. The bank has a follow up procedure to ensure that the documentation is subsequently received and in the meantime they would confirm that the customer was actually entitled to have non-resident status. The bank has changed this procedure following the Revenue examination.

There were 6 declarations not properly completed.

There were 4 declarations of the pre-1986 type which were therefore invalid since 5 April 1987. The bank has informed me that of these four accounts, one is closed, two have very small balances and have been inactive since 1985 and the fourth account was a genuine non-resident but with an old declaration. The balance on this account was $88,000. The bank has been in contact with the customer requesting a newly signed declaration. If the customer does not sign the new declaration the bank will deduct DIRT back to 1986 and pay the relevant amount over to Revenue.

Banque Nationale de Paris SA (BNP)

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 3.2%

The value of its non-resident book varied between ?6m and ?283m during the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

20.7%

27.2%

24.9%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 118 in September 1998.

b Calculated using Central Bank data.

Internal Management Review

The bank’s internal audit department can undertake reviews either specific to non-resident accounts or new account openings. The regularity of such audits would be at least one review over a two-year cycle. BNP is also subject to an inspection from Head Office every three to five years, and the issue of non-resident accounts would be addressed.

In September 1995 internal audit undertook an examination of DIRT exempt accounts. The auditors were unable to locate declarations for 65 accounts from a total of 368 (210 non-resident and 158 resident corporate accounts). 32 of the 65 accounts related to a category of deposit accounts known collectively as the "Greek Accounts". These accounts were non-resident accounts opened for Greek residents at the request of the bank's Athens branch.

The "Greek Accounts" were subsequently audited in October 1995. The purpose of the audit was to establish the level of compliance by BNP Athens with the source documentation requirements for these accounts.

The audit discovered that source documentation had not been provided for 37 of 66 such accounts. Of these, 14 had matured at the time of audit. Source documentation had been provided for 29 accounts.

The audit report stated that the level of compliance by BNP Athens with the documentation requirements was clearly unacceptable both from an internal administration viewpoint and also from sanctions arising under anti-money laundering legislation.

In response to queries raised by me in oral evidence the bank subsequently informed me that it was only in a position to supply information in relation to the 32 Greek Accounts. To establish the position in relation to the other 33 accounts referred to in the September 1995 audit, the bank would have to refer to the base documents and redo the audit.

The bank informed me that prior to doing this business with BNP Athens the nature of the account opening documentation was agreed between the two branches. This included provision of a signed non-resident declaration form. All monies received for credit to these accounts was by order of the Athens office.

The bank also informed me

In all but one case, all appropriate documentation was received and is held on file. In relation to the one account for which no documentation was ever received, this account was opened on 25 May 1995 as a fixed deposit which matured on 27 June 1995. The total interest credited to the account was equivalent to ?378.14

In several cases interest was credited to these accounts prior to the physical receipt of appropriate documentation without DIRT being deducted. This decision was based on the knowledge that such documentation was forthcoming and although no documentation may have been available at the time of the interest postings the bank was satisfied that these accounts were non-resident because they were introduced by BNP Athens.

The results of the original audit report were followed up by an immediate request from management to carry out a follow-up audit on the Greek Accounts portfolio. The results of this audit was follow by a notification to BNP Athens outlining again the importance of receipt of appropriate documentation and their responsibility under its agreement with the Dublin office and under the BNP money laundering procedures, as the main link with the customers in question.

Administration of the Taxes Acts

Revenue examined declarations for all 118 non-resident accounts held by the bank in October 1998. Other than the absence of one declaration, no material issues arose.

Chase Manhattan Bank (Ireland) plc

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 1.7%.

The value of its non-resident book varied between ?2m and ?176m during the period 1986-98.

Key statistics in relation to non-resident accounts were as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

39.6%

48.3%

24.7%

a I noted from the Revenue inspection of declarations that the number of non-resident accounts was of the order of 181 in March 1999.

b Calculated using Central Bank data.

Internal Management Review

Chase Manhattan Bank (Ireland) plc ("Chase Ireland') operates from the International Financial Services Centre (IFSC). The bank provides services for Irish and non-Irish resident corporate customers and IFSC companies. Prior to 1988, Chase Ireland had a limited retail banking operation for Irish retail customers. No such business has been carried out by Chase Ireland since 1988, when the remaining retail accounts of Chase Ireland were transferred to Bank of Ireland.

The bank has an internal audit function which is based in the UK. The group carries out audits of Chase Ireland on at least an annual basis. These audits have not included within their scope, investigation into the validity of non-resident accounts held by the bank. This has been driven by the fact that as a holder of a 10% Corporation Tax certificate, the bank would normally only take deposits from non-resident customers and other IFSC companies.

Administration of the Taxes Acts

Revenue examined a sample of 94 non-resident declarations held by the bank in March 1999. The Revenue officials raised a number of technical queries in relation to the residential status of unit holders in specified collective investment undertakings. No material issues arose.

Citibank

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 1.72%.

The values of its non-resident book varied between ?19m and ?156m during the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

15.5%

8.6%

10.6%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 207 in March 1999.

b Calculated using Central Bank data.

Internal Management Review

Citibank informed me that all areas of the bank are subject to regular audits by its Corporate Audit function. No issues have been raised in relation to non-resident accounts as a result of those audits.

Administration of the Taxes Acts

In March 1999 the Revenue Commissioners examined all 207 non-resident accounts held by Citibank. The overall standard of completion was good. However, there were 10 companies for which no declaration was available. The Revenue officials prepared a list of these cases and advised the bank to obtain the relevant declarations as soon as possible.

Result of Work Performed by the Appointed Auditor

The Auditor reviewed a sample of declarations for Citibank N.A. The following are the results of the review

Tax Exemption
Documentary Compliance - Declarations of Non-Residence (Form 37)
Sample

30

No Declaration held

0

Late dated Declarations

Undated Declarations

Declaration Validity Exceptions

0

0

3

Total Declaration Exceptions

3

Percentage Exception

10%

Authenticity Risk Profile - Non-Residents
Sample

30

Risk Indicator
Irish Address

0

PO Box or ‘Care of’ Address

0

Hold Mail

0

Transaction Profile

0

Accounts with Liens

0

Other

0

Total accounts with risk indicators

0

Percentage Exceptions

0

Accounts also with documentary exceptions

0

Accounts where the bank believes it holds appropriate evidence of non-residence

0

19Documentary Compliance - other Exempt Accounts and SSAs
Account Type

Exempt

SSA

Sample

30

0

No Declaration

1

0

Declaration Exceptions

19

0

Total Exceptions

20

0

Percentage Exceptions

67%

0%

Interest Reporting Exemption
Documentary Exemption (Form F)
Sample

2

No Form

2

Percentage Exception

100%

Equity Bank

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 0.25%.

The value of its non-resident book varied between ?5m and ?23m during the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

7.9%

12.5%

8.1%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 76 in May 1998.

b Calculated using Central Bank data.

Internal Management Review

In July/August 1990 Capital Bank plc conducted an audit of Equity Bank. This audit expressed concern about the lack of controls over deposit accounts and that there was almost unlimited scope for error and irregular transactions, none of which were likely to be detected under the circumstances that prevailed at that time.

A sample of external deposit accounts was checked at random and the correspondence files were reviewed for completeness. It was found that not only were files incomplete but the standard of documentation held was poor. Forms were not properly completed and it was very difficult to establish the exact history of each account.

Out of the small number sampled, there were two accounts (one, an initial deposit for ?307,731sterling which was converted to Irish pounds, and one for ?5,000) which necessitated further enquiries being made because of the way in which the accounts had been operated. The report stated that in the case of one of the accounts (?307,731 sterling) it had certainly been the intention on the part of the customer to deceive the Revenue Commissioners and there was nothing to suggest that the activities of the customer were not fraudulent. The report discovered that this account was operating without signature cards and that signatures on forms were inconsistent. The report also stated that the account holder was making regular transactions on the account and that non-resident declaration forms were not fully completed. The bank's apparent connivance in this area was simply not acceptable.

The audit also noted that the documentation held for deposit accounts was found to be inadequate, and on numerous occasions there was nothing held on a customer's file to support action taken on an account, in particular those marked as "external" accounts and those flagged as "no correspondence". There were also a number of files which could not be found.

A sample of deposit accounts which had been flagged as "no correspondence" was reviewed in detail. This noted that some of the accounts were marked as "external accounts" and the customers were noted as living at addresses in the UK. Out of 4 addresses checked to the Voters Roll and Credit Register at Infolink none of the customers were listed as residing at the addresses given. No information on the value of these accounts is available.

The report recommended an immediate review of all external deposit accounts. The recommendations were then followed up in detail at the time of the 1991 audit which concluded that there was a considerable improvement.

I obtained the views of the Head of Internal Audit in 1990-91 (Graham Roger, General Manager, Capital Bank). He has no personal recollection of the number of external deposit accounts included in the overall sample of deposit accounts checked. To the best of his knowledge and belief all of the working documents produced in connection with the preparation of the 1990 internal audit report and in connection with the preparation of the subsequent internal audit report in 1991 have been destroyed, and accordingly he has no information or knowledge other than that set out in the 1990 Report and the 1991 Report.

He has no personal recollection as to whether the bank held a fully completed non-resident declaration form for the customer identified as holding an external account whilst making regular personal withdrawals. With regard to the general practice at such time it is his belief that the poor standards described and referred to in the 1990 Report were the product of serious maladministration rather than any deliberate and intentional course of action on the part of the bank. With regard to the conclusion drawn by the auditor, it is his belief that the non-resident accounts commented on in the 1990 Report were set up as "favours" for specific individuals, and were the exception rather than the rule. He does not believe that the setting up of such accounts was part of a larger systematic scheme of tax evasion or avoidance, as such a scheme would have required a degree of sophistication in business acquisition and administration which was not present in any activity of the bank at that time.

He has no personal recollection of the four customers of the bank operating non-resident accounts, but not residing at the United Kingdom addresses given. Similarly he has no personal recollection as to whether non-resident declaration forms were held by the bank in such cases or as to how many external accounts were flagged as "no correspondence" or similar.

To the best of his knowledge by the time of the 1991 audit, the external accounts were either closed, the correct documentation obtained or possibly, in one or two cases, reclassified. No information is available to ascertain whether DIRT arrears were calculated and paid over to the Revenue Commissioners.

The procedures in Equity Bank have been strengthened considerably since 1991. The bank informed me that both its internal and external audits since 1991 have confirmed all non-resident accounts are in order.

Administration of the Taxes Acts

Revenue Inspection of Declarations

Revenue undertook an examination of all non-resident declarations in May 1998. Queries were raised in respect of two cases, one of which was a missing declaration. No written or verbal feedback was received by the bank.

Interest Reporting

The bank has not made a return of interest paid gross for the years 1993-94, 1995-96, 1996-97 and 1997-98 due to an administration oversight. The situation is currently being rectified and the bank is currently liaising with the Office of the Inspector of Taxes with a view to seeking formal clarification and guidance regarding the administrative procedures concerning such returns.

Irish Intercontinental Bank (IIB)

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 5.43%.

The value of its non-resident book varied between ?3m and ?491m during the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

225

236

107

32.2%

27.0%

20.9%

a Information supplied by the bank

b Calculated using Central Bank data.

Staff Instructions and Procedures

The bank has operated from Merrion Square throughout the period and has no retail branches. Deposit account opening was a centralised function throughout the period within the operations department. All new deposit accounts are required to be signed off by the Head of Operations or Treasury Director. The bank stated that its procedures have evolved in line with best practice, the growth in size of the bank and legislation.

Usually, non-resident clients were introduced by money brokers, existing clients, solicitors, KBC Bank N.V (IIB’s parent Bank) or senior staff members. In exceptional cases, for clients unknown to the bank, a bank reference or enquiries were made to ensure that both the funds and client were non-resident.

IIB receives non-resident deposits from one agent, on behalf of that agent's clients. The agent is the stock broking subsidiary of one of the major Irish clearing banks. In such cases IIB receives the non-residency declaration form completed by the agent in question on behalf of the depositor. The Revenue form "Declaration and undertaking on behalf of a Non-Resident Individual to a Relevant Deposit Taker" is used. IIB also receives details of the name, address and country of residence of the beneficial owner of interest on such deposits.

In addition, IIB received deposits from the asset management subsidiary of one of the major Irish clearing banks. The beneficial owners of the interest on such deposits were not non-resident clients of that entity but were exempt from DIRT for other reasons (e.g. unit trusts with exempt unit holders). In these cases IIB received written confirmations from the asset management firm that the deposits were exempt and that declarations from the underlying clients, stating that they were DIRT exempt, were held by the firm. IIB informed me that they have now received declarations in respect of all deposits held now or in the past.

Internal Management Review

During the period under review, internal audit assignments examined the general processing of the deposit book and no adverse issues regarding non-resident accounts were identified.

Administration of the Taxes Acts

Ansbacher Deposits

The Revenue Commissioners wrote to the bank in October 1997 regarding comments made in the report of the Tribunal of Inquiry (Dunnes Payments) and the bank’s operation of the so called "Ansbacher Deposits". In this letter Revenue stated it appeared that the bank was in possession of information which could reasonably be taken to indicate that the deposits referred to as the Ansbacher Deposits which were ultimately deposited with IIB were or may have been relevant deposits. In these circumstances the interest arising on the Ansbacher Deposits was properly liable to DIRT. The bank was requested to state whether DIRT was in fact applied and if DIRT was not applied, the bank was to submit its proposals in regard to the settlement of outstanding liabilities. If it was the contention of the bank that the Ansbacher Deposits were not liable to DIRT, IIB were to let Revenue have its considered view as to why DIRT should not have applied with particular reference to the 'S' accounts operated as sub-accounts of Poinciana Fund Limited.

The response dated 15 October from IIB stated

"As far as Irish Intercontinental Bank is concerned the "Ansbacher Deposits", referred to in your letter and the report of the Tribunal of Inquiry (Dunnes Payments), involved deposits held with IIB by three entities namely Ansbacher (Cayman) Limited, Hamilton Ross Co. Limited and Poinciana Fund Limited. All of these entities are foreign companies registered and based in the Cayman Islands with Ansbacher (Cayman) Limited being a subsidiary, when the accounts were opened, of Henry Ansbacher & Co. a major international bank based in London and now a member of the First National Bank of Southern Africa Group.

On the opening of each of these accounts we received copies of incorporation documents showing that they were non-resident entities and also received non-resident declarations for DIRT purposes. We enclose for your information copies of the declarations received for each of the entities.

Accordingly, it is clear that we took all appropriate steps within the meaning of Chapter IV of the Finance Act 1986 to satisfy ourselves that the deposits in question were not relevant deposits.

In relation to your query on the "S" accounts "operated as sub-accounts of Poinciana Fund Limited" we have no knowledge of any such sub-accounts. However, we can state that a Deutschemark deposit account of Hamilton Ross Company Limited had at one stage on the instruction of the depositor the designation "S9". We had no information that such reference had any significance until the S9 reference was mentioned as a query at the Tribunal.

The general reference to sub-accounts in the Report is not based on records of this bank.

We understand from Counsel to the Tribunal that "S" designations were used by one or more of the account holders as some form of internal accounting procedure to keep track of the movement of funds. The designations were not known to us and had no significance for the operation of accounts here."

A further letter from the Office of the Inspector of Taxes dated 17 October 1997 stated:

"As you are no doubt aware it does not necessarily follow that a company incorporated abroad is also resident abroad. As regards Hamilton Ross Co Ltd and Poinciana Fund Ltd, please advise me regarding the beneficial ownership of the shares in these companies and state the basis on which IIB satisfied itself as to the non-resident status of such beneficial owners"

In response IIB wrote to the Inspector of Taxes on 20 October 1997 stating:

"In our opinion it is not a requirement of the legislation that we satisfy ourselves on the share ownership of a non-resident legal entity.

In accepting the non-resident declarations of Hamilton Ross Co. Ltd & Poinciana Fund Ltd we took the appropriate steps of obtaining copies of their certificates of incorporation and we satisfied ourselves that the director signing the non-resident declaration was an individual located in the Cayman Islands. To the best of our knowledge and belief no evidence has emerged to date which in any way throws doubt on the tax residence of these companies."

As at 14 May 1999 there had been no further correspondence on this issue.

I was informed in oral evidence that currently, IIB holds only two of these accounts which have very modest balances.

Revenue Inspection of Declarations

In October 1998 the Revenue Commissioners examined all 173 non-resident accounts held by IIB at that time. The overall standard of completion of declarations was good. The Revenue officials had a number of queries in relation to the Ansbacher Deposits which were answered by IIB.

Result of Work Performed by the Appointed Auditor

The Auditor reviewed a sample of declarations for Irish Intercontinental Bank Limited. The following are the results of the review

Tax Exemption
Documentary Compliance - Declarations of Non-Residence (Form 37)
Sample

246

No Declaration held

0

Late dated Declarations

Undated Declarations

Declaration Validity Exceptions

0

2

7

Total Declaration Exceptions

9

Percentage Exception

4%

Authenticity Risk Profile - Non-Residents
Sample

31

Risk Indicator
Irish Address

1

PO Box or ‘Care of’ Address

4

Hold Mail

0

Transaction Profile

0

Accounts with Liens

0

Other

2

Total accounts with risk indicators

7

Percentage Exceptions

23%

Accounts also with documentary exceptions

2

Accounts where the bank believes it holds appropriate evidence of non-residence

6

19Documentary Compliance - other Exempt Accounts and SSAs
Account Type

Exempt

SSA

Sample

38

18

No Declaration

0

0

Declaration Exceptions

2

0

Total Exceptions

2

0

Percentage Exceptions

5%

0%

Interest Reporting Exemption
Documentary Exemption (Form F)
At no time during the period under review did the bank hold Form Fs.

Pfizer International

Non-Resident Deposit Levels

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

The value of its non-resident book varied between ?74,000 and ?7,198,000 during the period 1986-98.

Key statistics in relation to non-resident deposits were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

7.9%

71.9%

3.1%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 14 in April 1999.

b Calculated using Central Bank data.

Internal Management Review

Internal auditors, both local and group, review non-resident deposits from time to time and have never had any cause to question their legitimacy.

Administration of the Taxes Acts

The Revenue Commissioners examined all 14 non-resident declarations in Pfizer International Bank on 1 April 1999. There were two accounts for which valid declarations were not available.

The bank informed me in both these cases documentation was not complete but that they were satisfied with the bona fides of these accounts and have since obtained valid declarations. The aggregate value of these accounts was ?70,000.

Scotiabank

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 11.73%.

The value of its non-resident book varied between ?9m and ?1,073m during the period 1986-98.

Key statistics in relation to non-resident deposits were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

95.1%

96.2%

97.0%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 6 in March 1999.

b Calculated using Central Bank data.

Internal Management Review

Independent reviews are conducted periodically (every 12-18 months) by Inspectors from the Audit & Inspection Department of the Bank of Nova Scotia. Their role is to examine the structure, organisation, operation and accounting controls and to ensure that the bank complies with its established standards, procedures, policies and limits. The Inspectors review a sample of deposits for compliance with the Group’s procedures covering new accounts. This review would not necessarily focus on the validity of non-resident accounts but on the Group’s ethos of "Know Your Customer". No matters have been raised by the internal investigative organs of the bank in regard to the operation of non-resident accounts.

Administration of the Taxes Acts

The Revenue Commissioners examined the operation of the bank’s non-resident accounts on 23 March 1999. At the time, the bank had 6 non-resident accounts with a value of ?36 million. The Revenue inspection of non-resident declarations supplied indicated that only four were in the approved format and contained the details as required by Section 263 of the Taxes Consolidated Act 1997. The other two documents were "internal residential status enquiry forms" and, while containing some of the required information omitted important information such as account number, person beneficially entitled to interest and most importantly the declaration relating to any change in residence status.

The bank is currently in correspondence with Revenue. Scotiabank stated that these two accounts were opened in 1981 and 1986. Despite the efforts of Scotiabank to make contact with the depositors they have had no communication for some nine years on these accounts. The last correspondence the bank had from these depositors came from their given addresses in Cyprus and Pakistan. The bank regard these accounts as dormant. I was informed in oral evidence that the balance on one of these accounts was approximately ?600,000.

In a letter dated 7 May 1999 Revenue stated that in the absence of a signed declaration in a form prescribed or authorised by the Revenue Commissioners, a non-resident account does not enjoy DIRT exempt status under Section 256(1)(9) of the Taxes Consolidation Act 1997 and requested the bank to confirm the balance on these accounts as at 31 December 1998.

Interest Reporting

Scotiabank did not make a Section 891 in the years 1993-94 to 1996-97 inclusive. The bank stated that since they were never requested to so they never supplied a return for this period.

Smurfit Paribas

Non-Resident Deposit Levels

The bank's share of the non-resident deposit market as at 30 November 1998 was 0.56%.

The value of its share non-resident book varied between ?1m and ?51m during the period 1986-98.

Key statistics in relation to non-resident deposits were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

37.8%

24.3%

23.3%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 39 in November 1998.

b Calculated using Central Bank data.

Internal Management Review

The bank informed me that with the exception of a short period from 1990 to early 1992, the bank has not had an in-house internal audit function as it was felt that the scale of its operation was too small to warrant such a requirement. In its place Banque Paribas (a 50% shareholder) provided that function via its Inspection General Department. Inspectors were free to audit the bank at any time and did so in 1988, 1990, 1992 and 1998. No matters were raised regarding DIRT and non-resident accounts.

Central Bank Review

The Central Bank of Ireland raised several queries regarding the ultimate beneficiary of funds in a number of non-resident Trusts. Smurfit Paribas has informed me that there were no cases of abuse of non-resident status discovered in the above review and consequently no additional tax payments have been requested to date.

Administration of the Taxes Acts

In November 1998 the Revenue Commissioners examined all 39 non-resident accounts that were on the books of the bank. Following this examination the following points arose

Two of the declarations were not valid. One only had Section D completed, the other had Sections A, B and C completed but not Section D. Both customers have been requested to supply new declarations.

There were three declarations for long-standing corporate accounts that had been obtained by the bank in the previous few weeks. The bank stated that they had realised recently that they did not hold valid declarations for these companies although they were satisfied that the companies are and have been non-resident.

There has been no correspondence from the Revenue Commissioners subsequent to this examination.

Westdeutsche Landesbank (Ireland) plc

Non-Resident Deposit Level

The bank's share of the non-resident deposit market as at 30 November 1998 was 0.02%.

Its non-resident book was negligible throughout the period 1986-98.

Key statistics in relation to non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

1996

n/a

n/a

n/a

2.1%

6.4%

18.1%

a I noted from the Revenue examination of declarations that the number of non-resident accounts was of the order of 118 in February 1999.

b Calculated using Central Bank data.

Staff Instructions and Procedures

I was informed by Westdeutsche Landesbank that during the period under review the bank did not deem it necessary to have written guidelines in relation to non-resident accounts in place as its strategy was to exit this business sector. When it was considered appropriate to open a new non-resident account the staff (three in total) which dealt with non-resident accounts were fully conversant with the procedures to ensure the account holder was genuine and that all aspects of the Criminal Justice Act were satisfied. In addition, senior named management also satisfied themselves that all documentation was in order prior to the opening of new accounts. These procedures remained constant throughout the period under review.

Internal Management Review

The bank informed me that no non-resident account was ever identified as resident and no discrepancies were found or recorded by either the Internal / Regional Auditor or the Team Audit from the bank's head office.

Administration of the Taxes Acts

Revenue Inspection of Declarations

In February 1999 Revenue examined all 20 non-resident accounts that were on the books of the bank. No issues arose.

Interest Reporting

Section 891 returns were never made to Revenue. The advice from their tax advisors was that they were only obliged to make a return if requested.

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