Sins of the Father (22 page)

Mr James Deeny, chairman of the International and Commercial Banks in Ireland, addressed the association’s annual general meeting in April 1991. He told the assembled guests that the IFSC ‘will not be a tax-avoidance haven for international financial institutions as some commentators have claimed’, but rather it ‘will prove to be one of the most cost-effective projects ever undertaken by the Irish government.’
⁵⁵
In August
The New York Times
ran a special report on offshore banking centres. It said:

They occupy a kind of shadowland of finance that is little understood but increasingly important. Broadly, these banking havens are places that offer customers the right to strict secrecy, few regulatory constraints and an official indifference to tax evasion. The leading havens include Switzerland, the Cayman Islands, Luxembourg, the Bahamas and the Channel Islands. Sometimes Hong Kong, Singapore and Bahrain are included as well. New entrants are crowding the field. Ireland, for example, established the International Financial Services Center three years ago as a tax haven in Dublin. Already, 170 financial institutions have set up shop there.
⁵⁶

The report highlighted the fact that the main clients of tax havens ‘are international banks and corporations, seeking higher profits, not tax-dodging rich people or crooks hiding ill-gotten gains.’

In January 1992 the German authorities said that the IFSC was being used by German financial institutions to avoid tax, and that they intended to bring in new tax laws in order to counter it. They said that the IFSC and Shannon zone were little more than ‘tax havens for many big foreign investment companies’, in particular, Special Purpose Investment Companies which handled large amounts of funds but which had ‘no real trading function, and had only located in Dublin or Shannon for their low-tax regimes.’
⁵⁷
Sweden launched an investigation into the IFSC and its tax arrangements at the same time as the Germans. ‘The Swedish authorities have become unhappy about the loss of tax revenue arising from companies establishing in the centre’ wrote
The Irish Times
.
⁵⁸
‘The authorities believe that 20 billion Krone (£2 billion), much of it borrowed, has been placed by Swedish companies in IFSC subsidiaries which then invest in bond and equity markets. After paying 10 per cent tax on their profits to the Irish authorities, they return the rest to Sweden and avoid 30 per cent Swedish company tax.’
The Irish Times
said that Sweden was investigating whether ‘The size of the money invested was being matched by real activity conducted through its centre, or whether the IFSC is being used to channel funds for tax avoidance.’ Its reputation as a money-laundering centre was slowly ‘gaining credence among professionals who specialized in combating the activity.’
⁵⁹

By 2005 the IFSC was frequently referenced as the ‘Wild West of European finance.’
⁶⁰
At the same time a litany of Irish politicians, journalists and financial experts spoke in glowing terms about the ‘light touch’ of the country’s financial regulators and the necessity of a low corporation tax rate in order to keep its economic miracle alive. ‘Light-touch regulation does not mean a free for all or the condoning of illegal or immoral practices,’ wrote Séamus Mulconroy, director of policy for the Progressive Democrats. ‘It does mean as Charlie McCreevy says striking the right balance between protecting the public and the integrity of the market and stifling business with burdensome regulation and unsustainable costs.’
⁶¹
An
Irish Times
editorial in August 2007, written in the wake of the near-collapse of the German bank Sachsen LB as a result of problems arising from its Irish operation, urged caution with regard to regulation. ‘On the face of it, there appears to be a strong case for stricter regulation of international financial services here’ wrote the paper’s editor. ‘In considering any such action, however, it is important to have regard to the role that the existing “light touch” regulatory regime has played in the development of a world-class [Irish] financial services industry in a few short decades.’
⁶²
In December 2007, on the eve of the financial crisis, the chairman of the Financial Services Consultative Industry Panel which provided independent input to the Irish financial regulator, said that he would seriously doubt ‘whether any of the over 10,000 funds and firms regulated by the Irish financial regulator would categorize their regulation as light touch.’
⁶³
He stated that ‘The use by some media commentators of easy catchphrases to help describe the complex matters that have arisen equally have no place in a serious debate on these issues.’

In 2007, the
International Securitization and Finance Report
ran an article on the artificial transfer of profits procedure known as the ‘Double-Irish.’ This was a tax avoidance scheme undertaken by international financial corporations with little more than an address in the IFSC. Such was the scale of these sham corporations that in 2010, the economists Peter Boone and Simon Johnson wrote a post for
The New York Times
’ blog ‘Economix’, in which they pointed out the fantastical nature of the official figures for Ireland’s exports and GDP:

It is possible to set up a corporation in Ireland, channel sales through that head office (with some highly complicated links to offshore tax havens in order to avoid paying Irish tax) and then pay a minuscule corporate profits tax. Ireland boasts a large industry of foreign ‘tax minimizers’ that do this, but these tax minimizers hardly employ any people. Nearly one-quarter of Irish GDP comes from the profits of these ghost corporations.
⁶⁴

The scale of these operations was a reflection of the fundamental changes which had taken place in the financial services sector at an international level. The changes in the way money and finance operated across the world influenced the IFSC as much as the Bahamas or Singapore, Munich or Madrid. In this at least, Ireland was not an island. At the same time, the physical reality of the IFSC as an international financial centre in the heart of Dublin’s docklands made the land on which the docklands was built a very profitable investment indeed.

In May 1996 the Minister for Finance, Ruairi Quinn, announced the creation of the Dublin Docklands Development Authority (DDDA), onto which he conferred ‘overall responsibility for rejuvenating the city’s redundant port area, including the Custom House Docks.’
⁶⁶
It was formally established one year later, with business consultant Lar Bradshaw as its chairman. None of the outgoing members of the Custom House Docks Development Authority, which the DDDA now replaced, were incorporated into the new authority. It was seen as a clean sweep, with Mr Bradshaw in particular singled out for his ‘relative youth, expertise and incredible vision.’
⁶⁷

The DDDA was eventually given extensive powers ‘to grant lucrative planning permissions (known as Section 25 certificates) on lands it controlled along the city quays without the developers having to go through the transparent, if lengthy, procedures involved in facing objections and appeals from residents or city planners.’
⁶⁸
By the time it presented its draft plan for the area, the DDDA had received over 200 submissions, a large number of which were from developers seeking Section 25 tax exemptions for their plans. ‘If estate agents and property developers had their way’ wrote Frank McDonald, ‘Dublin’s redundant docklands area would be peppered with tall buildings, as well as high-density apartment blocks with minimal open space and almost unlimited car-parking. And nearly every site in the area would be a tax shelter.’
⁶⁹

At the heart of these applications was Treasury Holdings, which had been formed in 1989 by two property speculators, Johnny Ronan and Richard Barrett. In 1998 they signed an agreement with the state-owned transport company, Córas Iompair Éireann (CIÉ), where Treasury Holdings were given disused rail freight marshalling yards at Spencer Dock in return for 17.5 per cent of the rental income from the completed developments. ‘When these terms came public in 2002,’ wrote Frank McDonald and Kathy Sheridan in their book
The Builders
, ‘leading to criticism in the Dáil that [CIÉ] had been short-changed, Barrett said CIÉ stood to gain a lot more from the deal over time than it would have raised by selling the site.’
⁷⁰
The deal led to the formation of the Spencer Dock Development Company. It wanted to build a national conference centre on the site, with ‘a massively overblown high-rise development of offices, hotels, apartments and ancillary facilities’ to help fund its construction.
⁷¹

The development of the site was slow, mainly due to legal challenges, but it was given a boost in 2004 when the consortium secured €300 million in funding – with half of the figure coming from Anglo Irish Bank, and the balance coming from AIB and Bank of Ireland. It was billed as the ‘largest and most ambitious urban development in the State’s history, with an expected capital value of €3 billion.’
⁷²
The chief executive of Anglo Irish Bank, Seán Fitzpatrick, was a member of the board of DDDA. In 2006 the property consortium Beebay formed an equity partnership with the DDDA to buy out the former Irish Glass bottle site in Ringsend for €412 million. The transaction was funded ‘through a combination of new debt issued by Anglo Irish and the sale of more equity and loan stock to Beebay’s current shareholders.’
⁷³
The
Irish Times
journalist, John McManus wrote that the involvement of the DDDA in such speculative building raised all kinds of issues regarding conflicts of interest. ‘What it brings to the party is the statutory power to have the developments exempted from planning, which was granted to it by the government in order to expedite its mandate to redevelop Dublin’s docks.’
⁷⁴
The concerns, while raised, went largely uninvestigated. One of the few journalists willing to dig deeper was Frank Connolly, who ended up paying quite a heavy price for his efforts.

In February 2005 the Centre for Public Inquiry, an independent body which set itself the task of investigating corruption in Irish society, was established in Dublin. In September of that year it published a report on the planning procedure surrounding the Trim Castle Hotel. This was quickly followed by a report on the Corrib pipeline. However, in December the centre was fatally undermined by a series of attacks on Connolly, who was the centre’s executive director. These were led by the Irish Minister for Justice, Michael McDowell, who accused Connolly of association with the narco-terrorist organisation, FARC.

The accusations, read out in the Dáil under special privilege and so exempt from libel, were without foundation, but caused enough controversy as to lead the centre’s financier, Chuck Feeney, to withdraw funding from the centre. In April 2006 the chairman of the Centre for Public Inquiry (CPI), retired High Court judge Fergus Flood, announced that the centre had ceased operations, that it would not publish any more reports. It had just completed an investigation into the DDDA and Anglo Irish Bank, but was unable to publish its findings due to threats of libel and a lack of financial cover should such a case be brought against them.

In an article for
Irish Central
in 2010, Connolly wrote that the CPI had come across ‘minutes of specific board meetings of the DDDA where a clear conflict of interest involving Fitzpatrick and [Larry] Bradshaw was evident.’ Bradshaw was chairman of the DDDA and had been appointed to the board of Anglo Irish Bank in 2004. ‘Minutes seen by the CPI researchers showed that both participated in board discussions without declaring their commercial interest or ‘stepping outside’ when issues of potential conflict arose in decisions pertaining to the development of Spencer Dock.’ Connolly said that the CPI ‘got early guidance from well placed sources within the DDDA machine, public servants who were concerned at the way in which a State body was easing the path for the wealthiest business interests at the direction of one the country’s most powerful bankers.’

The conflict of interest between Bradshaw and Fitzpatrick as members of the boards of Anglo Irish and the DDDA also came into play with regard to the Ringsend site, but Ireland in 2006 was not really moved by such concerns. Equally, the slowdown in the US property market in 2007, and the hard-to-follow reports which talked about subprime mortgages and asset-back securities, seemed worlds away from Ireland and its economic miracle. Indeed, during the general election campaign in May 2007 the Labour Party’s campaign slogan was, ‘Are you Happy?’ Over the next three years the painful truth of how Ireland was actually run, and in whose interest economic and political decisions which affected the state were made, would make itself known to virtually every household in the country.

The Irish bank guarantee was the government’s response to the crisis that swept the globe in the aftermath of the collapse of Lehman Brothers. However, the guarantee was not designed to protect the national economy, the State’s citizens, or even the majority of Irish businesses from the effects of that crisis. Instead, its purpose was to protect that section of Irish society which drew its power, and continues to draw its power, from the very fault lines which were exposed by the crisis in the first place. The State’s role as a conduit for international finance; as a tax haven for both domestic and foreign enterprises; the promotion of construction and land speculation as entrepreneurship, and the development of services to exporters rather than the development of actual exports – these were the deep-seated problems that exacerbated the crisis in Ireland.