Offshore Ireland Implicated in Bank Collapse, Once Again

Originally published at Tax Justice Network

We have written a great deal about the role of Ireland and the Irish Financial Services Centre (IFSC) and its role as an offshore haven, posing risks not just for tax but for global financial stability too. As Prof. Jim Stewart and others have pointed out: Ireland played an important role in the global financial crisis that emerged in 2007, and in the aftershocks, under a spectacularly tax haven mentality.

Now an excellent piece of digging by two Bloomberg reporters, Donal Griffin and Joe Brennan, takes the story forwards with a tale about Vneshprombank Ltd., a Moscow financial institution that has just had its banking licence revoked after Russian regulators found a $2.5 billion hole in its balance sheet, and a related Irish special purpose vehicle called VPB Funding Ltd. 

“The Irish capital, home of Europe’s costliest banking meltdown, remains a hub for the sort of opaque operations that contributed to the global financial crisis, threatening risks that policy makers are seeking to stamp out.

“There’s concern that Irish SPVs are exporting risk to other financial systems around the world and could have contagion effects,’’ said Shaen Corbet, a lecturer in finance at Dublin City University.

This Bloomberg graph underlines the point:


Risky? Well, the shadow-banking system — including hedge funds, mutual funds and insurers — is more than 10 times the size of the Irish economy. Bloomberg:

“Risks may be building up in the part of the shadow-banking sector for which a statistical breakdown is not readily available,” the European Central Bank, the euro-area’s banking supervisor, said in an e-mailed response to questions.

The story cites Ireland’s central bank as saying that all prospectuses are subject to a “robust approval process.” In 2013 the Irish Times reported that only two employees oversee this entire industry. Let’s hope they’ve tightened up since then.

Now here’s Enda Kenny, the Irish Taoiseach (leader), speaking at Davos:

…we don’t do brass plate companies in our country.

Do tell that to all the losers.

The tale of how the IFSC grew up as an offshore financial centre is one of hubris, greed and of course that old favourite of the Irish political establishment, corruption. See here for the full sordid tale. One snippet from that account:

“All this has been accompanied by a culture of corruption so shameless and spectacular that it makes Dublin look like Kabul. The former prime minister Charles Haughey stole €250,000 from a fund set up to pay for a liver transplant for one of his closest friends. . . . as O’Toole points out, bribery, tax evasion and false evidence under oath have not simply gone unpunished; the very idea of penalising the culprits is viewed by the governing elite as unsporting or even unpatriotic.”

And that’s the offshore attitude right there in those last two words. We like the money, it’s good for us — and we don’t give a damn who else gets hurt.

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  1. TheCatSaid

    Results of the Irish parliamentary elections are being counted. Too soon to tell what a final coalition might look like. Many independents won seats.

    It’s not clear how much understanding there is in the population of the extent of Ireland’s deeply inbred corruption in the largest parties. People complain but still come out and support “their team”. The elites keep getting away scot free. The same golden circle still exists.

    The culture continues of appointing ministers who have no expertise in running anything. Political success is often based on local-level clientelism which is expected to continue at the national level.

    Independents grow in numbers, but often based on relatively narrow issues (e.g., opposition to paying for water usage). Loose groupings and independents and several smaller parties don’t seem to have coherent policy combinations.

    Citizens complain about the horrendous tax increases and the bank bail-outs, but there doesn’t seem to be the strong call for transparency and reform that is needed to create change. Participation in European austerity isn’t seriously questioned.

  2. TheDogSaid

    Well said, Cat. I live in Ireland but grew up in the U.S., and I have to say I’m stunned at how much the professional and political classes in this country operate like organised criminals. If one’s career vocation was white collar crime, moving to Ireland would be the smartest career move, because it’s rampant, unpunished, and the populace appears to be largely oblivious to it. And professional standards organisations here, instead of punishing wrongdoing among their ranks, circle the wagons around “their own.” Desperate need for reform here on a massive scale.

  3. PlutoniumKun

    There is a widespread ‘turn the other eye’ to this in Ireland. The ‘double Irish’ for foreign companies is well known in Ireland, but most see it as just a sly but pragmatic way of bringing jobs. But i can guarantee to you that if you mention ‘tax havens for banks’ to Irish people – and I include educated, clued up people, they will think ‘Cayman Islands’, ‘Switzerland’ etc., not Dublin. I know people who work in and around the IFSC and even they are often unaware at the sheer scale of what goes on (primarily because the main employers are semi-legit, its the brass plate operations that are the dangerous ones). And worst of all, there is, in reality, very little benefit to the country of it, its all benefiting a very small elite.

    It really, desperately needs outside pressure on Ireland to fix this – there are no votes for any politician to make an issue of it (even the far left parties never mention it, probably because they don’t actually know), and it all runs under the surface. I suspect one reason that countries like German and France don’t make an issue of it is because so many powerful people in those countries make use of it. Only the City of London is concerned and thats because its a competitor.

    1. oho

      ” Desperate need for reform here on a massive scale.”

      Ireland doesn’t have any export industry besides being a tax haven—(arguably thanks to centuries of English occupation).

      And given preferred visa rules in the UK, if you’re educated and the corruption bothers you, you move to London or Liverpool (or Australia or America, as have been done for generations).

      So you end up distilling/institutionalizing the culture of corruption. And being such a small country, you speak up against it? —you end up black-balled.

      1. TheCatSaid

        Well, the dairy and beef sector still deserve a mention re: exports. Though cartels continue in these sectors, too. EU rules (as transposed into Irish law) have resulted in the near disappearance of independent food industry producers, butchers and abattoirs. (Note that in France they didn’t transpose the EU rules into French law with the same slavish-to-EU-masters interpretation as in Ireland.)

        However otherwise–if there is an otherwise, given my qualifications above–I agree.

      2. PlutoniumKun

        Sorry, but it simply isn’t true to say Ireland doesn’t have any export industry besides being a tax haven by any standard of measurement. Ireland has (as a proportion of GDP) one of the largest service export industries in the world, in addition to a wide variety of manufactures (the rate is exaggerated by transfer pricing, but it is still by any measure very large). Agriculture and tourism are also very significant. In reality, Ireland doesn’t need tax haven status – the contribution of the IFSC is insultingly small considering the worldwide problems it causes, and the tax incentives to foreign multinationals is generally recognised as just a cherry on the cake for most of them – there are still many advantages for them to locate in Ireland.

        And by most world measurements of corruption Ireland is relatively low. It is at more or less the same level as the UK and Australia and the US in Transparency Internationals rating. Overt corruption in the Irish political is very low by international standards. The problem with the IFSC is a deliberate blind eye being turned to enforcement, not corruption.

      3. Chi

        It’s simply not true that ireland doesn’t have any export industry’s. Besides agriculture there are big chemical, manufacturing and IT businesses that are very successful internationally .

        1. TheCatSaid

          Not exactly.
          The problem is that for economic reporting purposes, most of the REVENUE from these Irish exports in pharma, chemicals, IT and even Agriculture–count towards Ireland’s GDP, but the revenue gets passed through to other low/non-tax jurisdictions, or is separated out as an R&D expense paid to foreign subsidiaries.

          Ireland makes these things, mostly in high-tech sectors, but doesn’t benefit from the revenues. This leads to a gross distortion of Ireland’s GDP, making it appear far larger than it “really” is in terms of revenue staying inside the country.

  4. doug

    Also interesting to note that, based on visual reading of the chart, shadow assets are roughly two-thirds size of non-shadow assets in the US — by far the largest ratio of countries (not including Ireland of course)

  5. plain citizen

    If the Irish offshore financial sector is an admin centre and exchange for assets all over the world with liabities originating all over the world and it all goes pop, what will be the effect on Ireland except for offshore centre unemployment for the spivs?

    1. TheCatSaid

      If the past is a guideline, the Irish citizens would end up with the short stick again. In the recent financial crisis, Irish AND ALL FOREIGN banks were given an unlimited guarantee–this done under pressure from the EU, which threatened they would otherwise halt all funding for the Irish banking system. A prototype for Greece, it seems.

      Equally at the EU’s strong-arm insistence, Unsecured bond holders–both senior and junior–were not “burnt”, but instead the banks’ private debts were transformed into Irish sovereign debt, i.e., debt that the Irish taxpayers must pay! Becuz austerity, and becuz Germany sez so, OR ELSE.

      And what has the effect been on people in Ireland? Gutting of the health service including a push frighteningly towards a neo-liberal more privatized/”insurancized” system, reductions in education spending from universities (again neoliberal pressure for only applied “innovation” which often benefits mostly the MNCs) through primary schools– e.g. cuts were made in budgets to repair dilapidated schools, teachers and social services for children with disabilities were cut back from already shamefully low levels, children and teens with mental/social problems cannot be properly looked after, etc. etc. Wage increases due to the lowest-paid under previous contracts just never occurred, yet giant golden parachute pensions continued to be paid to some of the worst former “civil servants” becuz contracts and becuz lawsuits.

      The ordinary people pick up the tab, general society suffers, the elite make out like the bandits they are, and the sheeple snore away, easily distracted over small-time issues.

  6. susan the other

    use the census to determine how many people live under any given jurisdiction, provide them all with unlimited funds, money for all as needed – no questions asked. it will have to be digital money so we don’t cut down all the trees. We have an excellent digital infrastructure just waiting to be our bank. use the census to estimate the reasonable demand by each and every person. set manufacturing goals by some referendum. set reasonable prices so that the money cycles thru the economy and keeps it going without inflation or deflation. promote good science, green industry and sustainable living. troubleshoot as necessary.

  7. charles 2

    You have seen nothing yet.

    If Brexit happens, the IFSC will become an extension of the City. All European transactions will be booked into “brass plate” companies located there. All City bankers will have a second business card, and second work contract in Ireland.

  8. bob

    What is apple’s role in this? They notoriously use Ireland for tax purposes, are they counted in these numbers?

    Ireland GDP 2013- $232 billion
    apple revenues in 2013- $170 billion

    Take the net income, 35 billion for 2013, and leave it behind, for tax purposes, for a few years, while adding to it. 4 years ending 2014 could be near $200 billion, guessing.

    is apple the shadow bank of ireland? Are they counting them, or not?

    1. RepubAnon

      Once the next collapse occurs, my guess is that Donald Trumpish types will pop up and enact protectionist policies. Once that happens, we’ll see what happens when a ‘too big to fail’ bank – fails.

    2. TheCatSaid

      Well spotted. GDP figures for Ireland because they include the pass-through income from MNCs such as Apple.

      GNP has some meaning, but GDP for comparison purposes is worthless.

      However, in that case, if the table in this post is based on % of GDP, that makes Ireland’s actual exposure to shadow banking risks even more off the charts in comparison to others.

    1. bob

      It’s as a percentage of GDP. US GDP is much larger than canada’s.

      It’s not notional value, as is indicated by the label at the bottom of the chart.

      Economists love to use *everything* as a percentage of GDP, in some sort of attempt to level the playing field,cross borders and economies. It’s an attempt to compare them, on some “level” field.

      You’ve probably heard a lot about gov debt to GDP. These ‘private’* fuckers have them beat by hundreds, if not thousands of percents….

      *TBTF included

      1. RMO

        Oops… thanks for pointing that out. My fault for trying to read this late night after a long day of work out in the cold and rain. Brain was a bit fuzzy last night!

  9. JohnB

    Yea and Ireland just elected another Haughey – one of Charlie’s sons – as a TD in my very constituency last week (as part of the Fianna Fail party, which destroyed our economy…); sickening.

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