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News : Irish Last Updated: Nov 23, 2012 - 7:06 AM

Media reports triggered NTMA discovery of alleged €3.2m State Street Bank fraud
By Finfacts Team
Nov 23, 2012 - 7:03 AM

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Media reports alerted the NTMA (Ireland's debt agency: National Asset Management Agency) that it had been allegedly defrauded of €3.2m by London-based State Street Bank Europe (SSBE).

The Boston, Massachusetts headquartered bank has over 2,000 employees in Ireland and first entered the Irish market in 1996. With offices in Dublin, Drogheda, Kilkenny, and Naas, State Street in Ireland services more than $600bn in assets for clients as of June 30, 2012 - - making it one of Ireland’s leading fund services companies.

John Corrigan, NTMA chief executive, told the Public Accounts Committee (PAC) of the Dáil on Thursday that while 3 employees of the bank had been fired, there was no personal gain to them from the fraud and he was concerned that the bank had engaged in fraudulent activity and that it may have occurred in more than one transaction.   

The PAC was holding a hearing on the annual report of the Comptroller and Auditor General, which was published last September and detailed the overcharging.

Corrigan said State Street is being investigated by the UK’s Financial Service Authority (FSA) following the discovery that it took unauthorised payments for disposing of €4.7bn of National Pensions Reserve Fund (NPRF) assets.

The matter has also been referred to An Garda Síochána by the NTMA.

The assets were sold between February and May in 2001as part of the NTMA’s raising of €10bn to inject into Bank of Ireland and Allied Irish Banks.

The C&AG said that the agreed fixed rate for engaging State Street’s services was €698,000. However, State Street took an additional €2.6m and a further €600,000 in profits from the disposal of NPRF’s holding in an index firm.

Corrigan said there had been collusion within the bank to defraud the Irish taxpayer. The money has since been paid back and 3 employees had left the institution even though the bank gained from the alleged fraud.

Eugene O’Callaghan, NPRF chief executive, said that when the invoices arrived from State Street, they showed no commissions or deductions. The money was instead deducted from the sale price of the assets - - (so an NTMA manager signed off the invoice without verifying the details of the transaction  - - a basic accounting routine) .

The money amounted to 0.07% of the sale price of the assets.

“What we are dealing here with fraud. Fraud for it to be successful has to have internal collusion," Corrigan told the committee.

State Street continues to manage €900m in Irish assets.

The C&AG notes in the annual report: "In October 2011, the NTMA became aware through media reports that two senior executives, one based in the United Kingdom and one based in the United States, had departed from the transition team of SSBE. The NTMA requested further information from SSBE."

"In response, on 12 October 2011, SSBE wrote to the NTMA explaining that it had reimbursed a UK client following the application of a commission that had not been expressly agreed with the client, had taken appropriate internal steps to guard against further occurrences of that nature and was conducting a comprehensive review of the small number of other transitions in Europe from earlier in 2011 in which it had agreed to apply a management fee only. One of the transitions being  reviewed was the NPRF’s transition 14."

So the discovery of the fraud was made by a UK client of SSBE not the NTMA. The agency was also a sitting duck for potential fraudsters.

 Pages 60-67 of C&AG's report [pdf]

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