Internal documents
During cross-examination yesterday (9 November) on day ten of the trial, Paul Comiskey O’Keeffe showed former Bank of Ireland Senior Business Manager Jim Madden a number of internal emails and other documents.
Madden gave evidence on Wednesday that he prepared an application for finance to purchase eight residential properties. He also said that he met Lynn in 2005 about a proposal for finance for overseas development, but that this did not go ahead.
Madden told defence counsel that he was not aware that Bank of Ireland officials identified any issues with the registration of the bank’s security on a separate loan in 2003 or 2004.
He said that he was not aware a bank official had suggested in 2004 that a complaint should be made to the Law Society, which did not happen.
Madden rejected the defence’s suggestion that he was aware that Lynn had lending with other banks.
Residential properties
Comiskey O’Keeffe put to Madden that he had been aware that it had not been Lynn’s intention to spend that money on those properties, but on overseas developments.
Madden replied that he had not, adding it was “a lie”.
He said that the loan offer was specifically for the purchase of eight residential properties.
Defence counsel then put it to Madden that it “simply didn’t matter” to him what was in documents submitted to the bank, as he had been aware of Lynn’s intentions. Madden replied that the bank would not have given the loan without security.
Comiskey O’Keeffe suggested that the bank had security in the form of a solicitor’s undertaking and professional-indemnity insurance.
Madden replied “no”, saying that the bank wanted the first legal charge. “The rest is a fairytale,” he added.
‘Bad deal for the bank’
During re-examination, he told John Berry BL, prosecuting, that the loan was only for property purchase, and agreed that he had called anything else a “fairytale” during cross-examination.
Comiskey O’Keeffe suggested that some of the emails showed that Madden made an application on behalf of John Riordan in 2005, was aware of a development in Carrick-on-Shannon, and was making attempts “to put right a bad deal for the bank”.
The trial had previously been told that Riordan was a former business partner of Lynn.
Madden said that he did not recall any dealings with Riordan, but accepted that there had been.
He accepted the defence’s contention that, regardless of any arrangements between Riordan and Lynn, his client took over a liability of €176,000.
‘Contingent liability’
Comiskey O’Keeffe put it to Madden that he was “intimately aware” of the situation at the time. The witness denied this, and said that the group credit committee had identified a “contingent liability”.
“I was passing that message on,” said Madden.
He further accepted that Riordan retained liability until the transfer to Lynn and said, “There was no liability on Mr Lynn until he volunteered to take it over.”
He denied any awareness of the background of this particular loan, and said that his involvement was limited to “tidying up the outstanding liability”.
The defence suggested that Madden was “heavily involved” in this process. He said he could not recall, but it had to be “tidied up”, as the group credit committee had issued this instruction in relation to Lynn’s application for finance to purchase eight residential properties.
He agreed that information about Lynn’s overseas projects was included in an application made in October 2006.
Overseas projects
Comiskey O’Keeffe suggested to Madden that he actually spoke to Lynn about finance for overseas projects in 2006, while the discussion in 2005 was in relation to a purchase in Capel Street, which he rejected.
Madden agreed with the defence that it was clear from the documents displayed that there was an earlier application relating to Capel Street. He disagreed that the 2006 application related to foreign development.
Comiskey O’Keeffe suggested that the interest-only application reflected the “bridging nature of the loan” and that Lynn made him aware that “these matters would be redeemed from foreign property deals”.
The witness said: “That was not ever the case. It was a full, normal mortgage from start to finish.”
Judge Martin Nolan told the witness he was being asked by the defence whether the bank loaned money to buy houses, to which he replied: “From start to finish.”
The judge then asked: “Do you understand the question?”
Madden replied: “I understand the insinuation.”
He agreed with Berry that his view of the loan referred to its entire lifetime, not the initial three-year interest-only period.
‘Benefits’ suggestion rejected
Comiskey O’Keeffe asked former Ulster Bank worker Stephen McCarthy yesterday about a meeting with Lynn in September 2006.
McCarthy gave evidence on Tuesday that he was involved in a €3.65 million loan application from Lynn relating to the purchase of 11 residential investment properties in Dublin.
Defence counsel put it to McCarthy that his client paid for his transportation on the day of the meeting, and also gave him around “€200 or €300 in cash” to get a drink.
McCarthy replied: “That is total lies.”
Defence counsel said that Lynn had named McCarthy in previous evidence when listing bank officials who received benefits in kind or direct payments from him.
Asked by Comiskey O’Keeffe if he denied this, McCarthy replied: “Absolutely, categorically 100%. I can’t be more emphatic.”
He said he did not think that Lynn paid for a flight from Cork to Dublin for him.
McCarthy agreed with defence counsel that he was only asked to make a statement to gardaí in 2016.
Not aware of Lynn’s intention
He rejected the defence’s contention that he was “aware of Mr Lynn’s intention to use the money” for his international property-development business.
Defence counsel suggested that the two-year interest-only period was “consistent with a bridging facility” and it was “never intended” that the loan would be maintained for its lifetime of 20 years.
McCarthy said: “No, not at all.”
He agreed with Karl Finnegan SC, prosecuting, during re-examination that the loan documents stated that the repayments would change to capital and interest after the two-year interest-only period.
He accepted that he reviewed the documents submitted as part of the application in order to assess Lynn’s repayment capacity, which included his income from Kendar Holdings.
McCarthy said that Lynn did not tell him that he later took out a loan with Bank of Ireland on one of the properties he had sought a loan for from Ulster Bank.
The trial continues before Judge Nolan and the jury.
Certain powers delegated to Fingleton
Former Irish Nationwide Building Society (INBS) worker Killian McMahon told Comiskey O’Keeffe that he doesn’t think he conducted an audit of Lynn’s lending before October 2007, and doesn’t know if the building society’s external auditors had undertaken one.
He said his direct line manager was Michael Fingleton, but he reported more to INBS’s finance director.
McMahon agreed with defence counsel that he was aware that INBS’s board of directors had delegated certain powers to Fingleton, but said it happened before he joined the institution.
When asked if he was aware of a resolution in relation to the delegation of powers passed by the INBS board while he was working in the audit department, McMahon said: “I don’t know.”
“I’ve seen everything since. It’s difficult to know when I found out.”
Comiskey O’Keeffe noted that the INBS board passed resolutions in relation to the delegation of power to Fingleton in 1981, 1994 and 1997. Copies of the resolutions from 1994 and 1997 were shown to the witness and the jury.
McMahon told defence counsel he didn’t know if these resolutions were lodged with the relevant public office.
Reporting process
When asked if there was a reporting process if Fingleton exercised these powers, McMahon said he didn’t know whether there was a formal procedure.
He noted that Fingleton would sign documents to indicate his approval for certain loans, it would be recorded in the minutes of meetings, or the credit committee would acknowledge it in their approval.
He said if internal audit noted an exception to policy, they would query if Fingleton had signed off on this.
McMahon agreed with Comiskey O’Keeffe that it could be “difficult to be certain” from the audit trail whether Fingleton had exercised these powers.
Secret deals?
Comiskey O’Keeffe put it to McMahon that Fingleton was involved in “secret deals” with Irish property developers. The witness replied he was “not aware of that from documentation”.
McMahon also said that he was not aware if Fingleton had a secret deal with Lynn in relation to a property development in Portugal.
Comiskey O’Keeffe asked the witness if it was fair to say that “secret deals” or the use of “special powers” were “effectively invisible” to the internal-audit department.
McMahon agreed that secret deals would be invisible, but noted that there may have been evidence of the exercise of powers in documents.
McMahon said that his department focused on the internal controls that the building society had in place. When asked if he would audit staff loans, McMahon said they could form part of random samples of accounts audited.
He said he was not aware of any policy in relation to audits of staff accounts, and was not aware of a specific process for reporting any issues with these loans.