AIB makes customers pay up in dispute over DIRT

Allied Irish Banks is deducting tax and interest from customers found to have had bogus non-resident accounts going back to the 1980s and early 1990s.

The bank is levying the tax on behalf of the Revenue Commissioners in spite of an assertion by its chief executive, Mr Tom Mulcahy, that the bank itself would pay all DIRT bills arising from bogus accounts from the period before October 1991.

AIB said last night that Mr Mulcahy's commitment had only ever applied to bogus non-resident accounts which were reclassified as resident by the bank in 1991 as part of its negotiations with the Revenue.

It is understood that a number of AIB customers have received letters from the bank asking them to discuss the matter. Some of the customers believed their liabilities were covered by the comments made by Mr Mulcahy and have contacted their local TDs.

The cases are understood to have been identified during the bank's internal auditing process. The Revenue is at present sampling current and former non-resident accounts at the bank as part of an exercise aimed at assessing AIB's DIRT liability. Accounts examined during this process, which are considered by the Revenue to be bogus, are not being reclassified as resident, but are being noted and may be returned to at a future date.

Once a non-resident account is reclassified as resident the bank automatically gets the power to take money from it to settle the account-holder's DIRT liability.

A spokeswoman for AIB said that there had been no change in the bank's policy. "AIB has already stated its position in relation to DIRT and non-resident accounts prior to October 1991 both at the Public Accounts Committee hearings and in its response to the PAC report. This remains AIB's position."

During its evidence to the PAC hearings in October 1999 AIB argued that it had agreed a deal in 1991 with the Revenue whereby the Revenue would not seek to raise DIRT arrears on bogus non-resident accounts from the period before October of that year.

AIB said that in return for the Revenue agreeing to be "forward-looking" the bank had instigated new audit procedures to tighten up on bogus non-resident accounts.

The Revenue disputed the existence of the 1991 agreement.

Mr Mulcahy maintained that the bank would pay any existing DIRT arrears if it was found that no agreement existed. He said: "Whatever we have to pay, we will pay it and will not seek to recover it from the customers."

AIB has not yet publicly estimated the extent of its liability arising from this commitment. However, it will not meet the liabilities on any bogus accounts which were not reclassified in 1991, as these were not part of the now disputed Revenue deal.

A former auditor, Mr Anthony Spollen, estimated AIB's DIRT liability at £100 million in 1991, an amount described by Mr Mulcahy as "seriously misleading and overestimated".

The figure is understood to have been calculated on the basis that AIB had about 90,000 non-resident accounts in 1991 and that an estimated 60 per cent of these - 53,000 accounts - were bogus. This was estimated to amount to a full-year DIRT liability of £20 million which, projected back to 1986 when DIRT was introduced, would add up to a total bill of £100 million.

Following the 1991 discussions, the amount of DIRT paid by AIB increased by £14 million, but the bank has not said how much of this was due to reclassifying bogus accounts.

The Revenue Commissioners are currently engaged in a comprehensive audit of DIRT-registered financial institutions with a view to raising estimates for underpayment of DIRT.