Davy ‘potentially problematic’ €4.1m fine for criminal investigation, law enforcement official has warned

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The Central Bank’s fine on brokerage firm Davy over the 2014 bond controversy was “potentially problematic” in considering a criminal investigation into the case, the company’s official said. the state.

In an unpublished March 2021 letter to Tánaiste Leo Varadkar, Corporate Law Enforcement Director Ian Drennan raised possible complications regarding the initiation of a criminal investigation into bond trafficking given of the fine of 4.1 million euros imposed on Davy in March 2021.

Last year Davy was found guilty of breaching market rules after a Central Bank investigation found the firm had acted as both broker and buyer in the sale of US bonds. ‘Anglo Irish Bank owned by client, Belfast businessman Paddy Kearney, in 2014 to a consortium of 16 employees, including senior executives, without telling him or the corporate compliance team that they were the buyers.

The regulator concluded that Davy acted “recklessly” by failing to identify and manage a potential conflict of interest between company employees and the client, to honor personal account agreements and to ensure the transparency with its compliance officers.

The fine, a record against a broker, led to the departure of senior executives and employees and the sale of the business to Bank of Ireland in a three-part agreement worth more than 600 millions of euros.

Criminal activity

The Garda National Economic Crime Bureau recently turned a review of the circumstances surrounding the bond deal into an official criminal investigation.

A Garda spokesman said he had not commented on ongoing investigations. Davy stressed that the company itself “is not under investigation by the Garda”.

Following the fine and political commentary surrounding the controversy, Mr Drennan wrote to Mr Varadkar to advise whether the Office of the Director of Corporate Enforcement (ODCE) might have a role to play in the investigation into any potential violation of company law arising from the agreement.

The Central Bank said it found no suspected criminal activity during the investigation into Davy that would have required it by law to report to the Garda or the ODCE.

In his March 11, 2021 letter to Mr. Varadkar, Mr. Drennan wrote that “at this stage” the issues “appear primarily to be financial services law issues” rather than potential breaches of company law, the area for which his office is responsible. investigating.

In the letter – released by the Department for Business, Trade and Employment under the Freedom of Information Act – Mr Drennan noted that the bank had told a committee of the Oireachtas that week that she intended to have “a proactive discussion” with the Garda and the ODCE.

Supporting evidence

He told the Tánaiste that if any information reached his office suggesting violations of company law, that information and all supporting evidence would be “carefully considered”.

Mr. Drennan mentioned the possible difficulties linked to the opening of a criminal investigation.

He drew Mr. Varadkar’s attention to the Central Bank Act of 1942, noting that when the bank imposed a pecuniary penalty for a violation of a state law, “the financial service provider or any other person concerned is not likely to be prosecuted or punished for the offense under the law of the State”. this law “.

“The effect of this provision is potentially problematic,” he wrote.

“For this reason, in the event that this office or An Garda Síochána or another agency should, at some time in the future, consider that it has reason to initiate a criminal investigation into the same set of facts, the implications of a fine to have been previously imposed on Davy should be carefully considered.

In a follow-up letter sent the next day, Mr Drennan told Mr Varadkar that his office had received a letter from the bank the previous evening saying that the 1942 law prevented him from disclosing any confidential information concerning the action coercive against Davy.

Asked by The Irish Times last week whether the ODCE was carrying out an investigation or review of the 2014 bond transaction, a spokeswoman for the office said: “The ODCE is subject to strict confidentiality obligations and , therefore, cannot comment on individual cases. ”

A spokesman for Davy said he “has not been contacted by the ODCE or asked to provide any information”.

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