Ireland’s historic banking trial ends in epic failure

Ireland’s longest criminal trial in legal history ended in calamity last week after the judge was forced to acquit the former chairman of collapsed Anglo Irish Bank because the country’s white-collar crime agency had shredded important documents and coached witnesses to secure a conviction.

It was the third time that Sean FitzPatrick had been before a judge to face charges relating to Ireland’s biggest banking disaster, and it is the third time that he has walked free from court—due more to the prosecutor’s incompetence than to the luck of the Irish.

FitzPatrick, who was chairman of Anglo Irish Bank in 2008 when the global financial crisis struck, had been on trial on charges of misleading auditors over details of the bank’s lending (mainly to himself). The case was a retrial after the original trial collapsed in 2015.

In the years running up to the global financial crisis when Ireland was experiencing a surge in economic growth, the bank had lent vast sums of money to property developers, only for the investments to turn sour and lose their value when the downturn hit.

FitzPatrick stepped down as bank chairman in December 2008—a month before it was nationalised for being on the brink of collapse—when it emerged that he had concealed huge personal loans from shareholders for eight years by temporarily transferring them to another bank before each year-end to avoid revealing them in the accounts.

FitzPatrick had pleaded not guilty to 27 offences under the 1990 Companies Act, which included 22 charges of making a misleading, false or deceptive statement to auditors and five charges of furnishing false information in the years 2002 to 2007. The director of public prosecutions withdrew nine of these charges earlier in May.

FitzPatrick’s trial ended on Wednesday, 24 May on day 126 when Judge John Aylmer ordered the jury to acquit him of all charges because there was a real risk that the former bank executive would be denied his constitutional right to a fair trial due to “alarming” flaws in the prosecution, conducted by the Office of the Director of Corporate Enforcement (ODCE).

This was the third time that Irish authorities had put FitzPatrick on trial for his stewardship of Anglo Irish Bank up to its collapse. In 2014 he was acquitted by a jury of all charges of giving illegal loans to a group of wealthy businessmen known as the “Maple 10” to buy shares in the bank to help prop up the share price during the financial crisis.

In June 2015, the jury in FitzPatrick’s first trial for his alleged failure to disclose loans to Anglo’s auditors was discharged following seven weeks of legal argument in the absence of the jury. During legal argument, it emerged ODCE investigator Kevin O’Connell, who had a history of mental health problems, had shredded a small number of documents that May during a “panic attack”, whose content, the judge said, may have been of assistance to the defence and damaging to the prosecution.

“The judge has made a decision. The trial is over and Mr. FitzPatrick is a free man. The taxpayer takes up the tab here.”
Enda Kenny, Outgoing Prime Minister, Taoiseach

The case was unable to proceed after O’Connell became ill and was unable to attend. The retrial—which began last September and was scheduled to end before Christmas—also became heavily bogged down in legal argument that was again thrashed out in the absence of a jury and conducted at great expense to the taxpayer.

The ODCE’s decision to prosecute FitzPatrick followed an investigated it carried when the scale of FitzPatrick’s personal loans emerged in December 2008, prompting his resignation.

Between 2002 and 2007, loans taken out by FitzPatrick, his wife and family members increased from around €10m in 2002 to around €100m in 2007. These were used to finance the development of shopping centres, hotels and offices at a time when property development was a free-for-all and a sure-fire investment.

The prosecution alleged that the amount of loans connected to FitzPatrick was artificially reduced for a period of two weeks around the bank’s financial end of year statement to avoid revealing their true size in the annual accounts. This was done through short-term loans from other sources, including Irish Nationwide Building Society. Described as “refinancing,” this practice was also known as “bed-and-breakfasting” or “warehousing,” as the loans would be allegedly put into short-term storage. During legal argument, FitzPatrick’s defence told Dublin Circuit Criminal Court that there was nothing illegal about the loans arrangement, though many regulators worldwide are increasingly clamping down on the practice, which is regarded as a tax-avoidance measure.

During the trial, the ODCE alleged that FitzPatrick was obliged to disclose the full extent of his loans to the bank’s auditors EY: instead, he simply hid them. After his arrest by the Garda Bureau of Fraud Investigation in 2010 FitzPatrick denied that he had ever sought to conceal the multimillion euro loans. He told detectives that there was no financial benefit to him, his family or the bank in the annual refinancing of some of his loans.

FitzPatrick was declared a bankrupt in 2010 with debts of €147m and assets worth less than €47m.

THE ODCE EXPLAINS ITS FAILINGS

During the trial, the judge criticised the fact that the ODCE coached the way two witnesses central to the prosecution—the audit partners from Ernst & Young—gave their statements, making their evidence prejudicial and “contaminated” as a result.
In a statement released on 23 May after FitzPatrick’s acquittal, the ODCE fully accepted the judge’s criticisms.
The ODCE admits that it “was simply not equipped to undertake parallel investigations on the scale involved.” Some of the “very serious failures” this resulted in included “a small number of senior civilian staff” taking witness statements even though none of them “had any training or experience” of doing so. Moreover, “the inappropriateness of the approach that was subsequently adopted in obtaining those statements was not sufficiently appreciated nor were the attendant risks responded to appropriately,” says the ODCE.
The enforcement agency also concedes that the shredding of a number of documents by an ODCE staff member, who was suffering from stress and had had mental health issues, “clearly should not have occurred.” The staff member, Kevin O’Connell, a legal adviser with the office, was hospitalised for almost two months in the immediate aftermath of those events, which also throws into doubt the level of effective management oversight that the organisation operated under.
However, the ODCE has attempted to ring-fence the organisation’s problems to the period between 2008 and 2012, after which a new director was appointed and governance improvements were implemented. “The practices that were so heavily criticised by the trial judge date as far back as to early 2009. Over the intervening years, the ODCE has undergone substantial organisational change and as a result, some 8 years later, it is a very different organisation to what it was at that time,” it says.
Since the latter half of 2012, the ODCE says that organisational structures have undergone “significant change,” risk management practices have been “enhanced,” and several investigative accountants and a digital forensics specialist have been recruited to help beef up staff resources. Furthermore, the ODCE says that investigative procedures have been “completely overhauled,” with members of An Garda Si´ocha´na (Ireland’s police service) now taking the lead on all criminal investigations.
The ODCE also points to the successful investigations it has prosecuted, namely the convictions during 2014 of William McAteer and Pat Whelan, two former directors of Anglo Irish Bank who were found guilty (but not jailed) of providing unlawful loans to 10 businessmen (the “Maple 10”) to buy shares in the bank. They each received 240 hours of community service.
They were again convicted in 2016. Whelan was fined €3,000 during 2016 after pleading guilty for failing to register with the bank a fraudulent €8.2m loan to McAteer, who was sentenced to three and a half years in jail after pleading guilty to fraudulent trading.
To address past mistakes, the ODCE says that its “immediate priority” is to obtain the trial transcripts to see what further measures are required to improve its performance as ODCE personnel were excluded from large portions of the trial. It also aims to appoint a Detective Inspector—a position that has been vacant since last autumn.
Source: ODCE

However, the case against him was thrown out when Judge Aylmer said that the ODCE’s investigation fell short of an “unbiased, impartial, and balanced investigation” that an accused is entitled to—and not just because O’Connell as the prosecutor’s lead investigator was inexperienced and made fundamental mistakes. The judge added that the ODCE investigation failed to seek out evidence as to the innocence as well as the guilt of the accused: instead, he said, it was trying to build a case rather than investigate a case impartially.

The judge said the most fundamental error was the way in which the ODCE set about taking witness statements. He said this involved coaching of witnesses, contamination of their statements from third parties (such as solicitors for the auditors), and cross-contamination between witness statements. He said warnings to the jury would have been inadequate to address these flaws.

The judge also attacked the quality of some of the key evidence that the prosecution presented. Much of the case rested on “letters of representation” signed by each bank director during the audit, and the judge ruled that this issue was not properly investigated. It also transpired that the ODCE paid more than €300,000 for expert testimony, much of which was not allowed to be put to the jury because the judge felt that the proposed expert evidence would be “entirely unhelpful, unnecessary, misleading, and singularly confusing to the jury” in what was already a complex case.

While FitzPatrick walks away with his reputation intact (or his criminal record, at least), the same cannot be said of the ODCE, the competence of which is in serious question.

Politicians have slammed the agency for the breakdown of the case. Enda Kenny, the outgoing Taoiseach (prime minister), said a full report on the issue would be ordered because “what happened here … is not good enough.” “The judge has made a decision. The trial is over and Mr. FitzPatrick is a free man. The taxpayer takes up the tab here,” he added.

Michea´l Martin, leader of the opposition Fianna Fa´il party, said the collapse was “a damning indictment” of the ODCE, adding that the agency’s handling of the case “shatters public confidence in the prosecution of white-collar crime in this country.”

While the ODCE has issued a statement to explain its actions and failings (see sidebar), Fianna Fa´il Jobs spokesperson Niall Collins has warned that the agency is likely to face repercussions. “I find it incredible that a statutory body such as the ODCE can receive such severe criticism in the High Court without there being very serious consequences.”

“This whole debacle has nothing to do with staff shortages or lack of funding. It is completely unacceptable and indefensible and cannot go unanswered,” he added.