The efficacy of Irish whistleblower legislation - a Village magazine cartoon that says a million words...

Villager September-October ’12 including threats to whistleblower, Sugarman

Village, Sep 11th, 2012 | By admin | Category: NEWS
 
Cover-up

Jonathan Sugarman, a former Risk Manager, blew the  whistle on his then employer Unicredit Bank,  Italy’s biggest, which  in 2007 failed dramatically to maintain proper liquidity ratios – which keep banks from customer runs on their funds.  Village was the first to name Unicredit, despite threats from McCann FitzGerald solicitors that Unicredit would sue if implicated. Subsequently the Central Bank Financial Regulator’s Department,  announced that it would consider any information offered about the affair “in confidence” but when Sugarman contacted them they revealed that in fact they reserved the right to report him to the Gardai for criminal activity if he offered the Central Bank information that implicated him.  In the  end – in February – Sugarman bravely nevertheless met the Central Bank, which indicated that they had already asked Unicredit to recreate reports dating back to the alleged breaches in 2007 but gave no information as to how their investigations were proceeding.  Subsequently the Central Bank indicated, with no reasoning, that it was closing the file – and notably failed to produce minutes.  When the Irish Independent’s intrepid Mark Keenan recently started sniffing about the issue, the Central Bank finally sent minutes of the meeting,  It is not clear if the file remains closed, or why, and the Central Bank, for the moment is keeping schtum.

http://www.villagemagazine.ie/index.php/2012/09/villager-3/

Please see my previous blog post in which I make further points about this latest update in Village.
 
Just as a reminder, this is what the Irish Minister of Finance said a year ago about the new legislation introduced to protect whistle blowers in banks:

Central Bank Bill published - The Irish Times, 28 July 2011

CHARLIE TAYLOR

New legislation that enhances the Central Bank's regulatory powers and provides protection for whistleblowers was published today.

The Central Bank (Supervision and Enforcement) Bill 2011 strengthens the ability of authorities to impose and supervise compliance with regulatory requirements and to undertake interventions when necessary.

The publication of the Bill is a further requirement under the EU-IMF programme of support for Ireland.

Announcing the publication of the Bill this morning, Minister for Finance Michael Noonan said the legislation was a response to the regulatory failures which led to the recent financial crisis.

"The publication of the Central Bank (Supervision and Enforcement) Bill 2011 represents a significant further step in the reform of financial regulation in Ireland. The changes introduced by the Bill will underpin an assertive, risk-based model of regulation supported by a credible threat of enforcement," said Mr Noonan.

Among the provisions included in the Bill is protection from civil liability and victimisation for so-called whistleblowers and a requirement for financial service providers to provide independently prepared reports to the Central Bank for diagnostic, monitoring and compliance purposes.

The power to issue regulatory interventions is included in the new legislation as is the ability to fine or suspend financial services providers where necessary.

The Bill is expected to progress to second stage in the Dáil this autumn.

http://www.irishtimes.com/newspaper/breaking/2011/0728/breaking22.html

Pandora's box begins to open despite the best efforts of The Central Bank & McCann FitzGerald on behalf of UniCredit - Upcoming report in Village magazine

Michael Smith, editor & owner of Village magazine, authorised me this evening to publish the following update which is to appear in Village magazine next week:

Cover-up
Jonathan Sugarman, a former Risk Manager, blew the whistle on his then employer Unicredit Bank, Italy’s biggest, which in 2007 failed dramatically to maintain proper liquidity ratios – which keep banks
from customer runs on their funds. Village was the first to name Unicredit, despite threats from McCann FitzGerald solicitors that they would sue if implicated. Subsequently the Central Bank Financial Regulator’s Department, announced that it would consider any information offered about the affair “in confidence” but when Sugarman contacted them they revealed that in fact they reserved the right to report him to the Gardai for criminal activity if he offered the Central Bank information that implicated him. In the end – in February - Sugarman bravely nevertheless met the Central Bank, which indicated that they had already asked Unicredit to recreate reports dating back to the alleged breaches in 2007 but gave no information as
to how their investigations were proceeding. Subequently the Central Bank indicated, with no reasoning, that it was closing the file – and notably failed to produce minutes. When the Irish Independent’s Mark Keenan recently started sniffing about the issue, the
Central Bank finally sent minutes of the meeting. It is not clear if the file remains closed, or why, and the Central Bank, for the moment is keeping schtum.

The implications of the piece above are far reaching. For the moment, I will touch only on some of them:

1. May 2011 was the first time the Central Bank of Ireland invited me to their offices to discuss the liquidity breach I had officially  reported in the summer of 2007. I was invited to come and talk to them "confidentially". During the meeting it became clear that the confidentiality undertaking pertained merely to my identity. I was then threatened by CB officials with the possibility of having to face criminal proceedings as a result of disclosing any facts about what transpired during my employment as UniCredit Ireland's Risk Manager.

2. Having followed the Eugene McErlean case closely, I requested the Central Bank's permission to record our meetings. The answer was NO. Please see the e-mail below for further reference. It took eight long years for the Central Bank of Ireland to admit that it had been less than professional in dealing with the issues McErlean brought to the CB's attention as a senior AIB auditor. Kathleen Barrington reported in the Sunday Business Post in October 2010 that:

"The significance of the apology issued by Elderfield last week should not be underestimated. It was generously and graciously phrased, and it left no doubt that McErlean had been doing his job properly and that he had been badly let down by the regulatory authorities. Elderfield said it was his opinion that ‘‘some matters could have been better handled by the public authorities involved’’ and added that he was ‘‘sorry for any unintended distress caused for Mr McErlean’’http://kathleenbarrington.blogspot.com/2010/10/aib-mysteries-still-unexplained.html

One has to wonder why I was not allowed to record my meetings with the Central Bank of Ireland. After all, I was the one doing the talking, they were doing the listening, why would I not be allowed to record my own voice?!? Unfortunately for the Central Bank of Ireland, I was accompanied to my meetings with them by a person who is well known in Dublin and formally-educated in Irish law. 

3. A second meeting with the Central Bank of Ireland took place on February 23rd. this year.  When minutes of our meeting failed to arrive, the CB was contacted seeking clarification. A reply dated June 6th. was received; it did not include any minutes of the February meeting and stated that the case is now closed. 

This might be pure co-incidence, but on the day that Mark Keenan's first of two references to my story within last week appeared in the Irish Independent, the Central Bank issued minutes of of the meeting. Yes, the minutes of a meeting that took place in February were issued in August after the case had been declared closed in June. 

A crucial aspect of the minutes that were issued last week is the complete absence of an admission made repeatedly during the meeting by Central Bank officials. Whilst there is no recording of the meeting (in this age of alleged transparency & probity in Irish financial services), I was fortunately accompanied to the meeting by the person whom I refer to above. 

4. Anyone wishing to write to me regarding the above, should please do so to the following address:

Whistleblower.IRL@gmail.com

Alternatively, comments/questions can be raised publicly on-line on the following thread on PoliticalWorld.org. I am very grateful for all the encouragement and support I have received from PoliticalWorld members.

http://www.politicalworld.org/showthread.php?t=5528

5. I can not over-state my gratitude to Michael Smith who decided to persist and publish his coverage of the liquidity breaches at UniCredit Ireland, despite ferocious threats from McCann Fitgerald - one of Ireland's biggest law firms. Please see the following article which was published in Village magazine in December 2010:

http://www.villagemagazine.ie/index.php/2010/12/still-waiting-for-the-truth-from-the-regulator/

============================================================

---------- Forwarded message ----------
From: Oakes Peter <peter.oakes@centralbank.ie>
Date: 18 April 2011 21:28
Subject: RE: Jonathan Sugarman - meeting with the Central Bank, Wednesday 4th May
To: Jonathan Sugarman

Dear Mr Sugarman

I had assumed that the meeting was confirmed for 4^th May and that we only had to settle on the time for the meeting (proposed for 10.30a.m.)  I apologise if this was not clear from the exchange of emails. 

Please note that the agenda is simply an open invitation to you to inform the Central Bank’s banking supervisory division of any matter or issue, coming to your attention out of your employment with Unicredit, which you may wish to share with the Central Bank. 

It is not the Central Bank’s intention that the meeting be recorded by either party.  I note that you wish Mr X to attend the meeting.  In what capacity do you propose Mr X attend the meeting please?  For example is Mr X retained to provide you legal advice or would he be attending for another purpose?    

Would you please provide a postal correspondence address and telephone number? 

Going forward Mr Frank Brosnan of the Central Bank (or one of his colleagues) will correspond with you.

I will now be away from the office for a number of weeks.  My PA’s email is s....@centralbank.ie.  Ms SC will forward any emails you might send her to Mr Brosnan’s office until you and Mr Brosnan are in direct contact.

Regards

Peter Oakes

Director, Enforcement

Central Bank of Ireland

Ph + 353 1 224 4040

The Irish Independent referred to UniCredit Ireland again last Thursday

Mark Keenan reported in The Independent last week that:

"...In 2005, Dublin-based Cologne RE played a pivotal role in a sham scheme to inflate the reserves of US insurance giant AIG -- the scandal that originally brought the IFSC its international "wild west" monicker. US Investigators heard that "Cologne RE was seen as an ideal location for the fraud because Dublin "did not report to anyone" and so avoided the "North American problem" of financial regulation.

In 2007, German bank Sachsen LB needed a bailout when it was discovered that its two Dublin-based investment vehicles had insufficient assets to cover their liabilities.There was the Depfa bank scandal. The subsidiary of Hypo real Estate ran into trouble in 2008, eventually prompting a bailout by the German government that is still the biggest in Irish banking history.

The regulator still won't reveal what action, if any, had been taken against Unicredit's IFSC subsidiary in 2007 when whistleblower banker Jonathan Sugarman, then its risk manager, shopped his bank to the Irish regulator after alleging that its liquidity reserves were 20pc below the legally required limit. Sugarman has since claimed the regulator's office did nothing about it.

Meantime, 16 executives from the parent company, including the CEO, are going on trial in Italy for cooking the books in that year.

So what did Mr Elderfield first make of Dublin when he arrived here from Bermuda back in 2009? Was there much cleaning up to do?..."

http://www.independent.ie/business/irish/ifsc-banks-circle-their-wagons-as-elderfield-tries-to-tame-wild-west-3214910.html

And in case you were wondering what took Mr. Elderfield to Bermuda in the first place, here is a quote from The Independent in June 2010:

"THE watchdog brought in to clean up Ireland's banks was the official responsible for supervising Northern Rock in the months before the collapsed bank applied for its first bailout.

The Irish Independent has learned that Financial Regulator Matthew Elderfield oversaw the regulation of Northern Rock in the three months to August 2007...." 

http://www.independent.ie/business/irish/regulator-helped-supervise-northern-rock-before-bailout-2211123.html