Depfa in the IFSC was a very peculiar bank. It was only here for tax dodge & low regulation - it;s business remained in Germany. The German authorities were never happy about it. Our Financial Regulator... well dodged regulating it.
GERMAN LAWYERS investigating the near-collapse of the Hypo Real Estate (HRE) group are considering legal action against former board members of its Dublin-based subsidiary, Depfa plc.
Former directors of Depfa include ex-Central Bank head Maurice O’Connell and Frances Ruane, director of the Economic and Social Research Institute.
They could find themselves dragged into a bitter legal battle between Depfa parent Hypo Real Estate (HRE) and Georg Funke, its former chief executive and a former Depfa director.
“We are examining compensation suits against the entire boards of Depfa and of Hypo Real Estate,” Detlef Bauer of Gleiss Lutz, legal counsel to HRE, told The Irish Times.
Many of the risky activities carried out by the Dublin-based bank that brought HRE and Germany’s financial system to the brink of ruin last year took place when several prominent Irish businesspeople sat on the Depfa board.
The final rescue package cost €102 billion in loans and guarantees and was followed last year by full nationalisation.
As well as “gross negligence” in preparation for the Depfa purchase, HRE lawyers accuse Funke of presiding over faulty risk management procedures and “numerous breaches of Irish banking regulatory law” by Depfa.
The Irish Financial Regulator imposed a fine of €250,000 on Depfa ACS Bank, a subsidiary of Depfa plc, on December 16th last.
A German source claimed that the breach only came to light when Depfa itself approached the regulator....
Prior to any sense of global crisis the IFSC's & our regulatory system's reputation was on the line:
And there's been plenty of press in Germany on our poor regulation over the years, e.g. as evidenced here:Indo 2005 : Taming the wild west
With an investigation by New York district attorney Elliot Spitzer into the activities of a Dublin-based subsidiary of insurance giant AIG, the Cologne Re kerfuffle was stunningly bad news for the image of Dublin's financial district. The regulator took a raking. The hugely influential New York Times rowed in to label the IFSC as "the financial wild west".
Now much of the IFSC is good, we're one of the top three places in the world for Funds Administration (and contrary to what many thing, Funds Administration is a complex , challenging & well paid job). However chunks are the IFSC are just shell games, who need directors. In Ireland our native pool of directors is of shockingly low quality.Irish Times June 2009
Even more damaging to its future health has been the degree to which its reputation has been called into question by problems at German banks Sachsen LB and Depfa Bank, and the regulatory approach – or the lack thereof – that the Financial Regulator has adopted to the sector. Coming on the back of reports that Ireland is the “wild west of European finance”, the latest attacks on the integrity of the IFSC may do more lasting damage.
Germany has never been a supporter of the IFSC, and while it continues to question regulatory oversight in Ireland, it is the UK which is emerging as its most vehement critic. Lord Oakeshott, a British treasury spokesman and managing director of investment management company OLIM, described Dublin as a “Liechtenstein on the Liffey”, claiming it “aggressively chases footloose financiers and less scrupulous British companies to move to Dublin to dodge tax”.
This scandal threatens not only the IFSC, but would also threaten Ireland's low tax status... and it comes at a time when we desperately need brownie points , especially from Germany, in order that we get the aid & understanding required to recover.