Do you know what a “below the surface” process is?
If not, a good place to begin your education is page 1,147 of the IBRC Commission of Investigation’s report into the sale of the utilities company Siteserv to an Isle of Man vehicle controlled by the Malta-based businessman Denis O’Brien.
The Commission, sadly behind closed doors, has been investigating the transaction, which required the state-owned IBRC to take a heavy write-down on the company’s debts, since 2015.
At its core, the commission found that there were essentially two parallel sales processes going on at the same time.
The “above the surface” sale process was organised by Siteserv, the company’s sale sub-committee and its advisers. It was observed by a representative of the bank, where the company chose bidders, evaluated the bids, chose to go forward with two, before eventually opting to grant exclusivity and then accept O’Brien’s bid.
However, there was also a “below the surface” process where certain events occurred in the Siteserv sale process without the knowledge of the bank. At crucial moments Siteserv’s advisors, shareholders and full board don’t know what is actually going on. As outlined in the Commission’s exhaustive report, this “below the surface” process meant that steps were taken, and decisions made in the course of the Siteserv sale process “in a manner that was manifestly improper, and which undermined the integrity of the Siteserv sale process”.
There has been some commentary in recent days that the commission rejected many of the claims made by the politician Catherine Murphy in the Dail about the bank’s relationship with O’Brien (the commission made no negative findings in relation to O’Brien at all).
O’Brien himself issued a stinging rebuke stating that Dail privilege “should not be used as a tool of political weaponry to be called into service for political advancement where the truth is the ultimate price”. Alan Dukes and Mike Aynsley, the former chairman and CEO of IBRC, gave thoughtful responses to Tom, highlighting how the report had exonerated the bank and its staff.
Yet, while some of the initial allegations were determined to be unfounded, the Commission’s probe still painted a damning portrait of elements within Irish corporate culture and highlighted the lengths some individuals went to in order to conceal money from a state-owned bank, the company’s own stock market shareholders and the Revenue Commissioners.
And much of this “below the surface” process involved the former CEO of Siteserv, Brian Harvey, and its founder, the financier Niall McFadden.
As Tom also outlined last week, based on the evidence, the Commission has recommended probes by the Revenue Commissioners, the special liquidators of IBRC, and the state’s corporate watchdog into the dealings of McFadden and Harvey. The liquidators have since dispatched the report to A&L Goodbody to decide on its next steps.
As stated in the report: “The Siteserv transaction was, from the perspective of the bank, so tainted by impropriety and – in respect of Mr Harvey’s concealment of his material interest in Mr O’Brien’s bid – wrongdoing, that the transaction was not commercially sound.”
The Commission stated that McFadden and Harvey “orchestrated an elaborate and entirely opaque charade of trusts, trusts upon trusts, offshore companies, fictitious agreements, false letters and false backdating of documents” in order to conceal the income and assets that they generated as part of the transaction from their creditor IBRC at all times.
McFadden later went bankrupt. The bank was unaware of his valuable stake in Siteserv and the Commission recommended that his official assignee be alerted to its findings.
It added that neither Harvey nor his wife paid any tax on the capital gain on the sale of the 500 shares in Siteserv Holdings for €2.3 million. This is something it believes could merit investigation by the tax authority.
Tom delved in some detail into the financial relationship between Harvey and the company, highlighting a paragraph from the commission’s report:
“The Commission finds that all these steps were taken by Mr Harvey, so that Mr Harvey could conceal his bonus income, his shares (and all of these other termination payments) from his creditor, IBRC, at all times and also, as Mr McFadden put it, to ‘avoid’ tax,” it said.
I could go on, but you get the picture. The bank was simply unaware that a shadow game was being played “below the surface” by people within the company. They benefited handsomely.
The taxpayer, meanwhile, was exposed, with the commission finding that the bank could have recovered up to €8.7 million more than the €44.3 million it agreed to accept in the sale.
Publishing the report, the Government said it accepts the findings of the commission, which it said, “shines a light on unacceptable practices by certain parties during the course of the transaction”.
It seems that this will be the commission’s last act. When it was set up, it was mandated, for reasons I am still confused about, to investigate a further 37 other transactions where the bank wrote off debt on commercial deals. Given the cost and the delay in relation to the Siteserv module, there is little stomach in the government to keep the commission going, particularly after the report vindicated IBRC’s former board and employees.
As the government rightly put it the report has exposed “unacceptable practice by certain parties”.
But it has also highlighted, yet again, the failings of the Commission of Investigation model. The IBRC investigation went on for seven years and cost tens of millions of euro. This is not the fault of the commission itself, but rather the legislation underpinning it.
In a Dáil debate in April, even the Taoiseach hinted as much, admitting that “we need a better model of inquiry”.
He was not the only political leader to question the usefulness of the inquiry model, as used in the IBRC probe and a separate investigation into Nama’s Project Eagle deal. In April, Ivana Bacik also argued when commissions of investigation were introduced in 2004 that the intention was to replace “in a much more cost-effective and time-limited way the pre-existing tribunals of inquiry”. However, she said they had “mushroomed and morphed” into effectively the same entities as the tribunals of inquiry.
Catherine Murphy, however, has long argued that a funded and resourced corporate enforcer is a better mechanism for investigating corporate activity.
However, as the work of the High Court inspectors into the FAI and Independent News and Media has shown, even ODCE-led probes are subject to long legal delays.
By exposing the “below the surface process”, the Commission has done the state some service. However, sadly, it took too long and cost too much to get there.
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