Banking and Financial Regulation: Discussion with Mr. Jonathan Sugarman

I welcome Mr. Sugarman, who is accompanied by Mr. Blaney. They are very welcome. I acknowledge the presence of a Member of the European Parliament, Luke 'Ming' Flanagan, former distinguished Member of the House. I welcome him to the committee meeting along with those in the Visitors Gallery. I remind members to turn off their mobile phones.

I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence relating to a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of the proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the longstanding parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I ask Mr. Sugarman to read his opening statement into the record and then members will ask him questions on the subject matter. I thank Mr. Sugarman for attending today.

Mr. Jonathan Sugarman

I thank the committee for giving me this opportunity to finally put on record some of the factors which contributed to the Irish banking crisis and how I believe these can be avoided in the future. For those who do not know me, my name is Jonathan Sugarman. I was the risk manager for UniCredit Bank Ireland, a bank with a roughly €30 billion balance sheet, which was located in the Irish Financial Services Centre in Dublin 1. I joined the bank in May 2007. For those unfamiliar with the term risk manager, it is like a policeman who works within a bank on behalf of the banking regulator, which in this case was the Central Bank of Ireland. Effectively, I was there to look out for the people of Ireland. My job and that of all risk managers in all banks, regardless of where they are located, is to ensure the regulations regarding how a bank is run are adhered to and upheld. If they are not, it is my duty not just to my employer but also to the regulator to inform them of any activities which may not be within the limits of the regulations under which the bank operates. In 2007, the regulations under which I operated in UniCredit Bank Ireland were unambiguous and very clear as were the penalties for any infringement which might occur. In my case, failure to immediately notify the Central Bank of a breach of these regulations could result in a mandatory fine and-or five years in jail.

It is against this backdrop that I wish to talk to the committee today. I spent the first couple of months at the bank in 2007 familiarising myself with the systems, products and internal control mechanisms. Having previously worked for two German-owned banks in Dublin, I was well familiar with the risk management practices and the regulations which governed them. Approximately two months into my tenure at UniCredit, I began to notice anomalies which were irregular but which happened with a frequency that suggested to me that they urgently required further investigation. Within a very short space of time, it became commonplace for me to have daily meetings with the chief executive officer of the bank to discuss the ever increasing number of breaches of regulation that I was observing. I was told not to worry, that these were simply IT related glitches and that there was nothing for me to worry about. I thought this was somewhat unusual as being a risk manager I would personally suffer the full weight of the law if it were proved that I was aware of such breaches of regulations and did not report them to the Central Bank. Needless to say, as a new employee in a new bank, I went along with the instructions of my CEO for another week or two but there was no effort whatsoever being made to prevent or investigate the real cause of these glitches. It must be borne in mind that the relevant liquidity regulations came into force on 1 July 2007, which is two months after I started working at UniCredit, and I was only too well aware of the penalties for not complying.

I now refer the committee to item 6 which I have provided the committee with, which is the requirements for the management of liquidity risk that were issued by the Financial Regulator, as he was called then in 2006, to be enforced in 2007. I refer the committee to page 24 on item 6. It details the penalties applicable for any breach of regulations which took place after 1 July 2007. I will quote from Irish law. Section 58 of the Central Bank Act 1971 which refers to offences and punishments as amended by the substitution of section 9 of the Central Bank Act 1989 states that a holder of a banking licence who commits by act of omission a breach of a condition duly imposed and which relates to their licence "shall be guilty of an offence and shall be liable (i) on summary conviction, to a fine not exceeding £1,000 or, at the discretion of the court, to imprisonment for a term not exceeding 12 months, or to both, or (ii) on conviction on indictment, to a fine not exceeding £50,000 or, at the discretion of the court, to imprisonment for a term not exceeding 5 years, or to both". Further down the page, one can read, "if the contravention, breach or failure in respect of which he was convicted is continued after conviction, he shall be guilty of an offence on every day on which the contravention, breach or failure continues after conviction". That means that every single breach was a criminal act. Section 60 of the 1971 Act contains an extension of the offending provisions. It states "Where an offence under this Act is committed by a body corporate or by a person purporting to act on behalf of a body corporate or an unincorporated body of persons and is proved to have been so committed with the consent or approval of, or to have been facilitated by any wilful neglect on the part of, any director, manager, secretary, member of any committee of management or other controlling authority of such body or official of such body, such person shall also be guilty of the offence", which means not only am I guilty but my regulator is equally guilty once I have notified him.

There is no dispute of the fact that I reported a 20% liquidity breach to the Central Bank in the late summer of 2007. I urge the committee to understand the significance of such a breach. The following explanations should make it relatively easy to understand. Regulation states that a breach of 1% should send alarm bells ringing and red lights flashing. The Central Bank must be notified immediately. In the context of driving a car, this would mean there is a speed limit of 100 km/h. Driving at 101 km/h is a breach of law that has to be reported immediately to the authorities. UniCredit Bank Ireland only bothered to oblige the law and notify the regulator when we were speeding at 120 km/h.

The immediate questions that should have been raised by the regulator as soon as I notified it of this breach should have been, "How on earth did you get to a 20% liquidity breach? Were you not aware when you exceeded 5% or 10%? Where were you when you hit 15%?" A breach of 20% implies that the bank came perilously short of liquid assets. The most liquid asset is cash. The events at UniCredit in the summer of 2007 occurred against the backdrop of the first bank run that Europe had seen since the Second World War. The entire branch network of Northern Rock in the United Kingdom had thousands of customers queuing at the door in fear that the bank was unable to return the cash that they had deposited with it. In the meantime, the management systems at UniCredit Bank Ireland were showing serious shortages of liquidity on a regular basis. As the members can see from the above section of the banking regulations, it would not only have been me as the risk manager who would have been liable for prosecution but also the chief executive officer of UniCredit and, more importantly, and I cannot stress this highly enough, any other controlling authority, which in this case was and still is the Central Bank of Ireland.

What I find incredulous is that my life has been utterly destroyed simply because I did the right thing but the people who are jointly liable for the failure to adhere to the regulations, which this House formulated and passed into law, got off scot free. There were no sanctions whatsoever placed on UniCredit or more importantly, on the Central Bank of Ireland. I remind the committee that I have been unable to work for over ten years and I am totally unemployable as a result of my upholding the law of the Republic of Ireland.

Had the regulator done its job, it is my contention that the liabilities which were placed on the shoulders of the Irish nation, specifically the blanket guarantee which was given to all the Irish banks, overnight, which was effectively a blank cheque underwritten by every citizen in the State, would not have been necessary. This happened just a year after I resigned over the same issue of liquidity. A year after that, the country was saddled with a €64 billion debt incurred by the banks which violated the liquidity regulation, the same regulation that I had tried to warn the regulator about a year previously.

At the heart of this matter is the fact that neither the parent company in Italy nor the Italian central bank knew anything about this breach of regulation until 2010, some three years later, as can be observed in the video clip, provided to the members in item 14, in which Mario Draghi, President of the European Central Bank, recently states this unequivocally. The Central Bank of Ireland should have notified both of them immediately. It is now ten years later and Mr. Draghi has said he has never heard of this. He said that directly to Luke 'Ming' Flanagan, MEP, who is here today.

The question that must now be asked is: how is it that the Central Bank was remiss in carrying out its statutory function and nobody has ever been officially sanctioned because of it? My life was destroyed but the lives of those who work and worked in the Central Bank were not. The members of the committee must ask why and only they can ask why and get the answers.

In the recent banking inquiry with which this committee, and four members of this committee in particular, are more than familiar, another whistleblower emerged. The particular investigation in which they were involved was the regulatory stream. The banking inquiry whistleblower made it very clear to members of the Joint Committee of Inquiry into the Banking Crisis that they were of the opinion that the Central Bank of Ireland was being deliberately obstructive in regard to the investigation and it was alleged that the Central Bank withheld certain documentation. This was later corroborated by a former employee of the Central Bank of Ireland. I am aware that the banking inquiry whistleblower made several attempts to ensure that I would give evidence to the joint committee, but I fail to understand why my attendance was prohibited at that time. The members of the committee were aware of my case and I fail to understand why it has taken the committee this long to invite me in here today.

There are a number of threads of commonality which run through all the banking systems in this country and one of them is most certainly the delay between matters of potential or actual financial malfeasance being reported and the time it takes for official Ireland to admit that it just may have an issue that must be dealt with. The harsh fact of the matter is that official Ireland has absolutely and completely destroyed the lives of every single whistleblower who has come forward regardless of from which organ of the State. It took Maurice McCabe ten years of battling against the State to finally begin repairing his life because the State made it as hard as possible for him and his family. The same goes for John Wilson and how he was treated. I should mention the Mary Boyle case and, more recently, the cover-up of the Grace scandal. The problem with this country is that official Ireland, those civil and public servants at the very top levels, the ones who have their hands on the levers of power, seem to be completely immune from any form of sanction, while those who do the right thing are vilified and their lives destroyed.

The reason there is such a row about getting people to pay for water, or about people lying on trolleys is that at the end of the day, the banks and their highly paid executives have always got to be paid and it will always be the poor people of Ireland who will suffer the most unless this House finally has the guts to do what is right. That is why I am in shock with respect to items I submitted, by 10 o'clock last Monday, for the members of the committee to see that I had to wait until an hour before the close of business yesterday to be told that I had to redact them.

If Mr. Sugarman would just deal with the subject matter, it might be helpful.

Mr. Jonathan Sugarman

I appreciate that.

The other matter is a matter of procedure for the committee.

Mr. Jonathan Sugarman

I understand. I thank the members and I would be very happy to answer any questions that they may have.

I call Senator Conway-Walsh.

I thank Mr. Sugarman for his presentation. I want to pass on apologies for my colleague, Deputy Pearse Doherty. He has obviously scrutinised Mr. Sugarman's opening statement. He is dealing with Brexit issues along with the Taoiseach this morning and discussing those important matters.

Mr. Jonathan Sugarman

I understand. I look forward to meeting him one day.

Indeed, Mr. Sugarman will. I thank him for coming before us. There are very serious allegations and I am glad the members of the committee have had a chance to hear them. Mr. Sugarman has provided many background articles, and the regulations, and it is evident that his efforts to raise this issue go back a long time. What formal paper records did he keep of his initial complaints and the subsequent follow-ups?

Mr. Jonathan Sugarman

I am glad the Senator raised that question. I must make this clear. If I were to be in possession of a single document such as the copy of the breach that I reported to the Central Bank, that would mean that I would be in breach of my contract with my employer.

Those documents are the possessions of my employer. I had no right to have made my own copies and would have been rightly sued by my employer for doing so. What I do have, and this is part of what was redacted yesterday afternoon, is my correspondence with the Central Bank of Ireland. I still cannot understand why I was not able to give that correspondence to the committee in its entirety. It is lamentable that it took from 10 a.m. on Monday until an hour before the close of business yesterday to tell me that I could not present the committee with those documents.

Maybe we will see them in another forum. Did Mr. Sugarman ever contact An Garda Síochána or the Director of Corporate Enforcement and, if so, how did they respond?

Mr. Jonathan Sugarman

At the time I was living in Rathgar. I went to the Garda station that is next to a petrol station and a Tesco store, between Rathgar and Ranelagh. Members may be familiar with that Garda station which is on a corner. I walked into the station in broad daylight, referred to Irish regulations and told gardaí that I had broken the law and when I had broken it. Hopefully there is still a record in that Garda station of that complaint. My complaint was that I was a criminal and was there to tell gardaí about a crime. The garda with whom I dealt was frightfully helpful. She said, "Leave it with me and we will get back to you on this". A few weeks later I received a call informing me that my complaint had been forwarded to the Garda fraud squad. I was told that the fraud squad had a section or a person dealing with financial fraud or finance criminality. Never again did I hear from anybody.

When was that? What was the date?

Mr. Jonathan Sugarman

I will have to look it up. I would say it would have been around 2009 but I will have to get back to the Senator on that with a more definite date.

Is there an issue here with how the complaints of whistleblowers like Mr. Sugarman disappear because the regulations, and laws putting those regulations in place, are created in a behind-closed-doors arena where they can be investigated? Even the penalties can be kept secret at times. Does Mr. Sugarman believe that his claims were never investigated or that they were investigated and then hushed up because the answers were not palatable?

Mr. Jonathan Sugarman

Not only do I believe that, I know it for a fact. I had two meetings with the Central Bank of Ireland which were witnessed by a barrister. At the second meeting, the officials attending the meeting admitted to having had sight not only of the breach that I reported to them in the summer of 2007 but of further breaches that had occurred during that summer which had not been reported to anyone. All that happened that day was that I co-signed, together with my CEO, a statement to the effect that - excuse the language - "Sure, it's grand, it's okay, we don't need to tell anyone." These records have to be maintained for seven years. Every document signed and produced every day is maintained for seven years. Obviously, when the Central Bank went back and investigated, it had full sight of these daily reports. Going back to the letter of the law which I quoted earlier, each and every breach was a crime and yet we never reported them.

The investigation happened. Mr. Sugarman is happy that there was a thorough investigation but is not happy with the outcome. They were never reported and sanctions were never-----

Mr. Jonathan Sugarman

Further than that, the Central Bank did not sanction UniCredit at all - either at the time of the 20% breach or when it went back and found further breaches. I and the barrister accompanying me wrote to the Central Bank and asked for the minutes of our meetings. I asked for permission in advance to record the meetings but this request was refused. This was puzzling to me because I was the one who was coming to do the talking. Why could I not record my own voice? The answer was no, I could not record my own voice, so we waited for the official minutes. We wrote to the Central Bank and received a letter, which is included in the items I sent to the committee, which says "case closed". There were no minutes, no nothing. Three months later, there was a headline in the Irish Independent to the effect that the regulator had remained silent. A week after that headline, all of a sudden there were minutes dated the day after the aforementioned headline appeared. First we have the meeting, then the case is closed and then, after that newspaper headline, there are minutes which bear no relevance to what actually took place at the meeting.

Does Mr. Sugarman believe that the Garda investigated what he had reported?

Mr. Jonathan Sugarman

I have no idea.

Mr. Sugarman worked for a foreign bank, albeit one based and regulated in Dublin. We know that the banking system in other countries did not collapse. Why was that? Was the regulation of banks in Italy and Germany better? Did that prevent a collapse in those countries? Did we have sufficient regulation but no implementation?

Mr. Jonathan Sugarman

I would like to break that question into two parts, one about the collapse and the other about sufficient regulation. In terms of the collapse, the overnight guarantee was put in place a year after I resigned because we had no money. That is what the report says. The Irish banks said that they could not open up on Monday morning because they had no liquidity. The bank bailout that ensued meant all these banks were kept going. I fail to understand why it was decided that a small business was of vital importance to the country but five separate boards of directors had to be maintained and paid for by the taxpayer. These are banks that had all been run into the ground. As an economist, my view is that we should have protected depositors up to a certain amount of money. Given that five banks had collapsed, the State, for the sake of competition, should have taken ownership of two and slowly revived the banking system, much like what was done in Iceland. However, if one looks at Holland and Belgium, one sees that they did something similar to what was done in Ireland in terms of Fortis Bank and Dexia. These were merged into existing banks in the Netherlands and Belgium. Effectively, they collapsed but they just changed their names. I hope that answers the question in terms of collapse.

It does, somewhat. Does Mr. Sugarman think that the lack of interest in the admission was because these were foreign banks and that the ultimate impact of any disaster would not be felt directly by Irish consumers? Does he think there was a different level of scrutiny of Irish banks as opposed to foreign banks, like the one in which he worked?

Mr. Jonathan Sugarman

This is where I urge the Senator to refer to the 2010 article by Ms Kathleen Barrington in The Sunday Business Post, headlined "Norris raises red flag at IFSC". It refers to Senator Norris raising my issue in Seanad Éireann for the response of the then Minister for Finance, the late Brian Lenihan. Ms Barrington wrote that the allegations were of interest to German taxpayers, given that they were picking up the €100 billion tab for the collapse of Hypo Real Estate following its purchase of Depfa, a German bank which was headquartered in the IFSC in Dublin. Ms Barrington asserted that the Germans had pinned much of the blame for the bailout costs on the Irish regulator, citing its light-touch regulation of Depfa. Irish banking sources, however, pointed out that Hypo's due diligence of Depfa should have picked up any problems. They also suggested that the Germans were trying to wash their hands of a problem partly of their own making.

At any rate the Irish taxpayer had a lucky escape when it came to Depfa as the cost of bailing it out would have come on top of the €73 billion we are paying to bail out our inadequately supervised banks, and it would probably have totally bankrupted the country.

That says a lot. I will finish my contribution because I know others are keen to get in. I suggest this committee should write to the Central Bank to ask it explicitly what it did when it had all this information. Could that be agreed? I thank Mr. Sugarman.

Mr. Jonathan Sugarman

I wish to add two things. The first relates to an article by Fintan O'Toole in The Irish Times around Easter 2010. In the article I am referred to as "James". The headline is: "The finance manager who tried to play by the rules". The article states:

Catastrophic as this week's banking bailout figures are, they could actually have been much worse. It is a matter of sheer luck that in 2007, before the credit crunch, a Dublin-based bank called Depfa was bought by the German financial group Hypo Real Estate. Very few people in Ireland had ever heard of Depfa. Although it was as German as sauerkraut, it was actually the largest bank in Ireland - bigger than AIB. It was, in legal and regulatory terms, an entirely Irish company. When the financial crisis unfolded, Depfa brought down Hypo. The cost to the German government so far is €102 billion.

I think that will give the committee some idea of why the people were then coerced into a bailout of roughly €70 billion.

I look forward to the Central Bank's response on what exactly it did when it received the allegations from Mr. Sugarman.

Thank you, Chairman, for arranging to bring Mr. Sugarman before the committee. I welcome Mr. Sugarman.

Why does Mr. Sugarman think he was not invited to the banking inquiry?

Mr. Jonathan Sugarman

I suggest that Senator Burke should direct that question to the members of the banking inquiry and the professionals who were hired by the banking inquiry to do the professional work of investigating the crisis. I have heard from several sources that I was most definitely discussed at the meetings of the banking inquiry and that my name, that of UniCredit Bank and the breaches of liquidity at UniCredit were mentioned at the banking inquiry meetings on more than one occasion. Yet, I am only here today. I do not know why.

Did Mr. Sugarman make any submission to the banking inquiry? Did he send in any articles voluntarily?

Mr. Jonathan Sugarman

The simple answer is "No", because five years earlier Senator David Norris had asked the then Minister for Finance, Brian Lenihan, for an explanation, and that is on the record of Seanad Éireann. Surely it is there for all to see, especially for committees of the Houses. By then, Deputy Joan Burton, before she became a Minister, had raised the issue in Dáil Éireann with the then Minister, Brian Lenihan, as well. Surely, if my issue appears on the publicly available records of Seanad Éireann and Dáil Éireann, it is more than sufficient for committees operating within the Houses to access that information.

Did Mr. Sugarman work with other financial institutions before he took up his position with that bank?

Mr. Jonathan Sugarman

Yes, I worked for German banks in the IFSC.

Mr. Sugarman was working here in Dublin as an economist. Is that correct?

Mr. Jonathan Sugarman

I worked as a risk manager.

Therefore, Mr. Sugarman had all the qualifications. Is that correct?

Mr. Jonathan Sugarman

Yes, I will gladly show the committee my references.

Mr. Sugarman had the necessary experience when he made those recommendations and brought them to the attention of the Central Bank. He had all the necessary experience and so on. Is that the case?

Mr. Jonathan Sugarman

By all means. At that stage I had several years of experience of risk and compliance with regulations issued by the Central Bank.

Did Mr. Sugarman speak to any of his counterparts in any of the other banking institutes or other banks, such as AIB or Bank of Ireland? Did he explain that his bank had a problem? Did he ask whether there were similar problems in any of the other banks?

Mr. Jonathan Sugarman

I am sorry. I was hired for my job because of my reputation. One of the reasons I am here today is because I expect this committee to help me to reinstate that reputation.

Mr. Jonathan Sugarman

First and foremost, I am a banking professional. I would never discuss the business of the bank I work for with anyone working for any other bank. Having said that, let us consider item 2 in the documentation before the committee. It is an article about me written in the Süddeutsche Zeitung in Bavaria. I wish to draw the attention of committee members to the second paragraph on the second page. It states that although the Irish financial regulator audited the bank shortly after my resignation, it did not seem to draw any significant conclusion. The article goes on to say that a top manager of another international bank in Dublin corroborated Roland K.'s story, and I am Roland K. in this story. The article states that the top manager knows Roland to be a scrupulous and very conscientious manger and that he has seen evidence of the breaches at the bank.

We know the way bankers meet. We had a situation where one bank was doing bed and breakfast with another bank. Mr. Sugarman had no inkling that the other banks were having problems with liquidity as well. Is that the case?

Mr. Jonathan Sugarman

I was completely unaware of that until the night of the overnight guarantee a year later. The only reason for the overnight guarantee was because everyone ran dry of liquidity. This meant everyone had broken the law. Yet, not one risk manager has stood up and said that prior to the guarantee in 2008 they followed the same law that Jonathan Sugarman followed by turning up in Dame Street to explain that the bank was in breach and running dry.

That is because had they done so they would be guilty of a crime.

Mr. Jonathan Sugarman

They would have ended up in Mountjoy together with me for five years.

Was Mr. Sugarman surprised at the response he got from the Central Bank?

Mr. Jonathan Sugarman

I was astonished on several occasions. To begin with, when I made reference in my report to a breach of 20% I expected all hell to break lose. The letter of the law, which I have enclosed for the committee, issued in 2006 specifically set out what a material breach was and how much a bank could veer from the limit given by the Central Bank. The limit is 1%. A breach of 1% should have set alarm bells ringing. I walked in and told officials that the bank was at 20%. That meant I breached the limit by 1,900%, and nothing happened – nothing.

Does Mr. Sugarman believe he is the first person to bring this to the attention of the Central Bank? Was he the only person to bring it to the attention of the Central Bank?

Mr. Jonathan Sugarman

To the best of my knowledge, I am, but surely it is representatives from the Central Bank who should answer that question. I would not know of anyone else.

Mr. Sugarman does not know whether that was brought to the attention of Central Bank representatives at the banking inquiry or how they were informed of it. Is that the case?

Mr. Jonathan Sugarman

I know for a fact that members of the Joint Committee of Inquiry into the Banking Crisis were informed of my story. They were informed of the liquidity breach that was reported to the Central Bank and they were informed of the magnitude of this breach. They were informed of the fact that nothing then happened. Yet, I was never invited.

That is astonishing.

Mr. Jonathan Sugarman

It is, because subsequently I read an article in Village magazine.

It referred to the banking inquiry. This is item No. 11, issue No. 41 of Village, January 2016, and the cover story reads: "Cover-up upon cover-up". According to it, key witnesses and evidence had been omitted from the banking inquiry and a whistleblower was "preparing for a public battle". The article reads:

According to sources familiar with the document the whistleblower now claims the Joint Committee inquiry was "grievously incomplete" without hearing evidence from Jonathan Sugarman - a banker who approached the Central Bank in 2007 about significant breaches of legislation on liquidity ratio reporting by Irish banks and whose story has been recounted at length in the pages of Village.

I know little about banking other than loans and repaying them or mortgages. When did Mr. Sugarman first realise that there was a liquidity problem? How did it come to his attention? What alarm bells rang?

Mr. Jonathan Sugarman

I hope that I do not show any disrespect with my answer. Liquidity is basically how much cash there is in the till. I do not care about whether a bank owns St. Stephen's Green or had 20 Ferraris outside because those are illiquid. Cash is liquid. I need to know at least twice per day, if not every ten minutes, during a crisis how much cash we have in the till. That is my job, that is, to ensure that, according to the regulation of the Central Bank, which stipulates very clearly how to count the cash in the till, I am able to tell my bosses at any time of the day what our position is.

Most of us have overdrafts. What happens when there is not enough cash in the till? Does an overdraft or the like come into play to bail a bank out?

Mr. Jonathan Sugarman

Most definitely. This applies to all banks operating out of the IFSC. We are the children of wealthy and established continental European and American banks. We know that if we are short €2 billion or €4 billion during the day, we can ring our parents, ask for a couple of billion euro and promise to give it back by 5 p.m. or tomorrow. The most definitive set of accounts is what we are doing at the close of business at 5 p.m. Every trade done after that comes into the following business day. The close-of-business accounts tell us whether a bank had enough cash at that moment in time. The Central Bank allows a bank to breach by 1% because Senator Burke, for example, might go to it at 4.55 p.m. because he wants €250 million of the €300 million credit line that it gave him. It is the Senator's to be had, so the bank must give it to him. Having done so, the bank might then be in breach because it would not have enough cash, which is why the Central Bank allows a 1% breach, but nothing more. Even then, the bank must notify the Central Bank and its own audit committee immediately about how close it is sailing to the wind.

I see. Did the CEO notify the bank's audit committee of the matter after Mr. Sugarman brought it to his attention or did Mr. Sugarman have to do that?

Mr. Jonathan Sugarman

Turning back to item No. 1, Ms Kathleen Barrington's article about Senator Norris raising my issue in the Seanad, she wrote that, in another strange twist to the story, the central European bank at whose IFSC subsidiary the whistleblower worked - UniCredit - during the relevant period had emphatically denied that it was the bank to which Senator Norris had referred in the Seanad. This was written in May 2010. That means that in May 2010, Ms Barrington of the Sunday Business Post contacted UniCredit Milan and asked what it had to say for itself following Senator Norris's statement that it had been in repeated breach, but it had emphatically denied that it was the bank.

How is it possible that three years after the events, the parent bank is claiming that the matter has nothing to do with it? Theoretically, the bank would have told Mommy and Daddy that it got into a bit of trouble in Dublin. Not only that, but because Jonathan Sugarman notified the regulator and given that Brian Lenihan, in his response to Senator Norris, stated that all central banks co-operated, one would assume that the Irish Central Bank would have notified its Italian counterpart, Banca d'Italia, and asked whether it knew that it had a petulant child in Dublin who did not know how to calculate liquidity and was caught with its pants down. It is only three months ago that Mario Draghi, currently the ECB president but, at the time, the governor of Banca d'Italia, with UniCredit the biggest Italian bank on his watch, told Luke "Ming" Flanagan, MEP, that he had no idea what the MEP was talking about. I have included this in my submission to the committee. How can it be that, if everyone had done what he or she was supposed to do, Mario Draghi claimed three months ago that he had never heard of this matter or that, three years after the situation arose, the bank was emphatically denying to the Sunday Business Post that it was the bank to which Senator Norris referred?

Is there a golden circle between the banks and the Central Bank?

Mr. Jonathan Sugarman

The Anglo tapes make it more than clear that "golden circle" would be the polite way of referring to it. In them, there is a clear reference in a conversation between Anglo executives and the Central Bank to breaches of liquidity. However, that is nothing; we have just discussed it. Where is the report? It had to be reported immediately. Let the public of Ireland, which bailed out this bank, see that it acted in accordance with the law when other people are being locked up for not having a television licence. Let us see that Anglo Irish Bank at least attempted to operate under the terms of the licence and notified the Central Bank on paper that it was in breach but, no, all we have is a phone call. I am sure the committee knows where the figures were pulled out of, or should I repeat it for the record?

Mr. Sugarman should.

No. I think we remember.

I thank Mr. Sugarman. He probably knows that I was a member of the banking inquiry. What two German banks did he work for prior to UniCredit?

Mr. Jonathan Sugarman

Landesbank Baden-Württemberg and, before that, Hypo Real Estate, which took over Deutsche Pfandbriefbank, which is why Germans were landed with a €100 billion bailout and not the people of Ireland. Hypo Real Estate was previously known as Hypo Real Estate Bank International. I had worked for the same bank for five years during which time it had three different names. I sat at the same desk but worked for three different banks. Previously, it was called Bayerische Hypo- und Vereinsbank Ireland, or HVB Ireland.

Did Mr. Sugarman work for those two institutions in Dublin?

Mr. Jonathan Sugarman

Yes.

Mr. Sugarman worked for Hypo Real Estate, which was Depka.

Mr. Jonathan Sugarman

Depfa. Deutsche Pfandbriefbank, the largest bank in Ireland.

Mr. Jonathan Sugarman

There has not been a larger bank since.

Will Mr. Sugarman jog my memory, please? Depka was a German bank.

Mr. Jonathan Sugarman

Depfa, Deutsche Pfandbriefbank. It was a Prussian bank that was almost 200 years old and, overnight, changed its domicile status and became a fully homegrown Irish bank.

For how long was it wholly Irish owned?

Mr. Jonathan Sugarman

I suggest the Deputy checks that with the Central Bank, which gave it its licence.

I was just wondering if Mr. Sugarman knew. The banking inquiry did not investigate any of the IFSC companies.

Mr. Jonathan Sugarman

Why?

That was not part of our remit. We did not investigate Depfa.

Mr. Jonathan Sugarman

The inquiry investigated the conduct of the Central Bank.

Yes, but we did not investigate the IFSC institutions.

Mr. Jonathan Sugarman

I understand, but surely liquidity and the adherence to liquidity regulation was examined by the committee.

Not regarding IFSC companies.

Mr. Jonathan Sugarman

So what was the conclusion on all of the indigenous Irish banks which then needed a guarantee overnight because they broke liquidity rules?

The banks we did look at-----

Mr. Jonathan Sugarman

Yes.

-----were Irish-based Irish-domiciled banks that were regulated by the Central Bank of Ireland.

Mr. Jonathan Sugarman

And how many of their risk managers are sitting in Mountjoy?

I assume Mr. Sugarman should ask the Director of Public Prosecutions, DPP. That is not a matter for the banking inquiry.

Mr. Jonathan Sugarman

But the letter of the law clearly states people face five years in prison. We know for a fact all of the banks ran dry, otherwise why did they need an overnight blanket guarantee? And yet the toy just broke and nobody is responsible.

I am just making the point to Mr. Sugarman we did not investigate the German bank which was the biggest bank with the biggest crash in the banking crisis and we did not investigate-----

Mr. Jonathan Sugarman

Although it was an Irish-domiciled bank the committee did not investigate it.

That is correct; we did not. It was not part of our remit.

Mr. Jonathan Sugarman

But it was an Irish bank. As Fintan O'Toole wrote, it was the biggest bank in Ireland.

It was overseen by the German institutions.

Mr. Jonathan Sugarman

No it was not; it was regulated and registered in Dublin.

The parent bank was Hypo.

Mr. Jonathan Sugarman

Correct.

On the basis of that, similar to Ulster Bank and other institutions where the parent bank was domiciled-----

Mr. Jonathan Sugarman

That leaves us with AIB, Bank of Ireland and Irish Nationwide Building Society. Where are the risk managers of those banks? How come they never submitted a report like I did?

We also did not bring in the risk managers of those institutions because of the constraints of time in the banking inquiry.

Mr. Jonathan Sugarman

Well perhaps this is why the whistleblower, who was in charge of investigating, was hired by the committee to do the professional work for it. This person was in charge of investigating the role of the Central Bank in the banking crisis. Surely she understood a thing or two about how regulation should work, yet this person was told that Jonathan Sugarman could not be brought before the committee. In that case, how come the committee did not ask to see any of the risk managers of Irish Nationwide Building Society or AIB? This was a regulation issued by the Irish Central Bank-----

Mr. Sugarman-----

Mr. Jonathan Sugarman

-----for all banks operating in Dublin.

No, not all of them. We also did not-----

Mr. Jonathan Sugarman

No, I beg Deputy D'Arcy's pardon, it states very clearly-----

Mr. Sugarman, please.

Mr. Jonathan Sugarman

-----that it is legislation related to all banks.

If Mr. Sugarman does not mind, I am just discussing the role and the fundamentals which we as the banking inquiry tried to operate.

Mr. Jonathan Sugarman

Yes, it looked at Irish banks.

We did not look at them all. I will also give Mr. Sugarman-----

Mr. Jonathan Sugarman

May I-----

No, I will expand for Mr. Sugarman's information. The DPP had quite a constraining role relating to the banking inquiry.

Mr. Jonathan Sugarman

I wonder why.

There were criminal cases coming forward. That was why.

Mr. Jonathan Sugarman

So how many people have been convicted?

That is a matter for the DPP.

Mr. Jonathan Sugarman

I note that in Iceland, 25 bankers are in jail.

I ask Mr. Sugarman to allow Deputy D'Arcy.

At the stage when Mr. Sugarman had interaction with the Central Bank there was a different structure than what is in place today. It was broken between the two sectors, including the Office of the Financial Regulator, which was run by Mr. Neary. With which section of the Central Bank was Mr. Sugarman in contact?

Mr. Jonathan Sugarman

As Deputy D'Arcy said, it was not called the Central Bank; it was called the Financial Regulator. In the Financial Regulator there were teams and each team was assigned to particular banks. Obviously, I dealt with the team assigned to UniCredit Bank Ireland. I urge the Deputy to look at today's edition of The Irish Times, which states the Central Bank found weak controls at some IFSC banks. The article states the "inspectors found problems including mistakes in the calculation of credit Risk Weighted Assets ..., the failure to control weaknesses and inadequate resources in the regulatory reporting function". This is ten years later and appears in today's edition of The Irish Times.

The breach of 20% of liquidity-----

Mr. Jonathan Sugarman

Yes.

I am trying to understand whether it was possible for somebody in a financial institution to say "No".

Mr. Jonathan Sugarman

What does the Deputy mean by saying "No"?

To state the institution was beyond its limits and to state he or she would not sanction it and that the institution was at 24% of liquidity. Could any individual have said "Stop"?

Mr. Jonathan Sugarman

Of course. My job as risk manager is to see everything, report everything and touch nothing, because if I intervene and I start trading, then there is nobody to control me. The only reason I am there is as the eyes of the law. I am there as the eyes of the regulation. I am there as the eyes of the mandate given to the trading room by the board of directors. I am there in several capacities, to make sure that whether we buy and sell gold or German government bonds, it is all within the limits.

Mr. Sugarman's role is to observe and notify somebody else.

Mr. Jonathan Sugarman

My role is to observe and notify everybody.

Mr. Jonathan Sugarman

All executives of the bank had to sign off the daily reports every day.

It is not the role of the risk manager in Mr. Sugarman's institution, UniCredit, and in other institutions to say "No". That is not the role.

Mr. Jonathan Sugarman

It is not my position to say "No". My position is to make sure everybody who made these regulations is immediately alerted to the fact we have broken them.

Okay. Mr. Sugarman did this and has outlined it. To go back to the Financial Regulator, did Mr. Sugarman meet the senior personnel in financial regulation in Ireland? Patrick Neary was the Financial Regulator in the Central Bank. Did Mr. Sugarman ever meet him?

Mr. Jonathan Sugarman

No.

Who were the people he met?

Mr. Jonathan Sugarman

I would love to tell the Deputy, but this is my confusion about what happened an hour before the close of business yesterday.

I am asking Mr. Sugarman. He can tell us. He is under privilege.

Mr. Jonathan Sugarman

Am I allowed?

Yes, he is under privilege.

Mr. Jonathan Sugarman

Am I allowed?

Mr. Sugarman is allowed.

What is Deputy D'Arcy asking?

Mr. Jonathan Sugarman

I am interested to know whether I am allowed or not allowed.

Whom did Mr. Sugarman meet when he reported his information to the Financial Regulator?

Mr. Jonathan Sugarman

I await direction. This is part of my confusion.

If Mr. Sugarman gives the title of the organisation with which he engaged, the Central Bank or-----

Mr. Jonathan Sugarman

The Central Bank. I can give the committee the date-----

Deputy D'Arcy has to take from this. I ask Mr. Sugarman to clarify a date and-----

Which office within the Financial Regulator or the Central Bank did Mr. Sugarman met?

We have to be careful.

Mr. Jonathan Sugarman

I understand.

It is more in Mr. Sugarman's interests.

Mr. Jonathan Sugarman

I understand. I have provided the Chairman with the information, which states the dates of our meetings and the senior Central Bank officials who attended those meetings.

I am sure the Chairman can make that available to me afterwards. We are a decade down the line with regard to the Irish banking sector and the crisis that happened. Mr. Sugarman is a senior risk manager.

Mr. Jonathan Sugarman

I used to be.

Mr. Sugarman used to be.

Mr. Jonathan Sugarman

I need the committee to understand this. I have not been able to work for ten years.

I can understand that.

Mr. Jonathan Sugarman

I rely on the kindness of people in Ireland, the US, Greece, France, Switzerland and Germany. This is how I have food to eat and a roof over my head. This is the price I am paying for obeying Irish law.

With regard to the structures in the Irish banking sector, Irish banking groups and financial regulation at present, which Mr. Sugarman's experience and knowledge allow him to understand better than most, is he satisfied the structures in place today can prevent this disaster occurring again?

Mr. Jonathan Sugarman

Let us say my somewhat learned suspicion was that nothing has been learned. This suspicion was confirmed when I saw the headline last night in The Irish Times, which noted there still is a problem relating to accuracy and integrity.

In my resignation ten years ago, I said I was resigning because of issues of integrity. Here we have the Central Bank admitting in The Irish Times yesterday that there are still issues of integrity.

Are those issues, to Mr. Sugarman’s knowledge-----

Mr. Jonathan Sugarman

Sorry, and the failure to control and inadequate resources.

The potential liability for the Irish State is with Irish banks. The bulk of those in the IFSC have parent companies that are domiciled elsewhere. I am breaking it into the Irish banks' lending trade the length and breadth of the country and the IFSC. Are either or both of them correctly constituted so that this will not happen again?

Mr. Jonathan Sugarman

No.

What are primary areas where Mr. Sugarman sees they are not correctly constituted?

Mr. Jonathan Sugarman

I see it in a headline such as this in which the Central Bank is admitting to weak regulatory reporting and, in some cases, regulatory breaches. This was a secondary headline in this item.

Are there other areas, based on Mr. Sugarman's knowledge and experience?

Mr. Jonathan Sugarman

This means we still do not know how fast we are going. We might wake up tomorrow morning and discover that we need another blanket guarantee if we still cannot calculate. I believe that online there was further detail on this item in The Irish Times which says that some of these calculations are being done manually. This is incredible: multibillion-euro banks are doing their calculations of capital and risk-weighted assets basically on the back of a coaster. People are feeding in numbers to spreadsheets and saying here is the figure. This is happening in Dublin today. What has changed?

That is what I am asking Mr. Sugarman.

Mr. Jonathan Sugarman

I do not think anything has changed and this is confirmation of that.

The sector in the Irish financial institutions that did the most damage was that relating to commercial real estate. The latter overheated and that led to the establishment of NAMA to deal with the Irish banks' loan books. Subsequently, there was a substantial commercial real estate sector in the non-Irish domiciled banks. Does Mr. Sugarman have any knowledge of the commercial real estate sector today not, perhaps, being balanced as it should be? I asked the Governor of the Central Bank, Professor Philip Lane, the same question last week.

Mr. Jonathan Sugarman

I would not like to comment on that because I am not well enough versed in its ins and outs. I could not emphasise more, let us not forget and as the Deputy says, that the entire downfall of the Irish banking system was on account of commercial property real estate. The price tag for that was €65 billion or €70 billion, for all of these banks put together.

Of the Irish banks.

Mr. Jonathan Sugarman

Of the Irish banks. Yet this one bank alone, operating from the IFSC, has cost €100 billion. It is incredibly important that people understand the magnitude of business that is carried out every day in the IFSC and, as Fintan O’Toole says, it is by sheer chance that we, the citizens of Ireland, did not have to foot the bill for that €100 billion as well. The anguish of Irish citizens today, between hospitals shutting down, water charges, etc., is only because of the €65 billion. Can the Deputy imagine if we had been saddled with that €100 billion as well? That is only for one bank.

When UniCredit was based in Dublin, was there a transfer of funds from the parent company to UniCredit Dublin?

Mr. Jonathan Sugarman

That could occur 20 or 100 times a day. The question is: when the bank made that call, what did it tell its parents about why it needed the money? I could have easily said that Deputy D'Arcy has just asked us for a loan of €500 million but I have only €350 million so can Mummy and Daddy in Milan give me another €150 million because this is a really good deal. The question is: what was said?

Was the UniCredit parent company in Milan far too trusting of what was happening in Dublin?

Mr. Jonathan Sugarman

We were a subsidiary of UniCredit Milan. The dynamic between parent banks and their subsidiary children banks are, I am sure, unique to each but there are formal legal regulations that govern this. It is not by chance that Deutsche Bank turns up here and says it wants to open a bank. Who is Deutsche Bank? There are forms, regulations, procedures for all of this. That is why I am surprised that Mr. Lenihan said to Senator Norris that the central banks fully co-operate with one another yet, when contacted, the Governor, Mr. Draghi, said he had never heard of this.

Sitting suspended at 12.17 p.m. and resumed at 12.27 p.m.

I welcome Mr. Sugarman. He may not be aware that I was also involved in the banking inquiry.

Mr. Jonathan Sugarman

Yes.

My colleague, Deputy Michael D'Arcy, has dealt with a lot of matters, but I wish to make a couple of points. Mr. Sugarman has said he is attending today to regain his good name.

Mr. Jonathan Sugarman

Yes.

I will deal with the nuts and bolts. New regulations were brought forward on 1 July 2007.

Mr. Jonathan Sugarman

Yes.

On what date did Mr. Sugarman join the bank?

Mr. Jonathan Sugarman

I joined it on 14 May 2007. The regulations were issued in 2006. The old calculation was run in parallel with the new one for the first six months of 2007. The new regulations came into force on 1 July 2007.

Under the old regulations were liquidity limits breached? Mr. Sugarman has said that when the bank ran the calculations in parallel, there was a figure of 20% for breaches.

Mr. Jonathan Sugarman

We do not know because we stopped running them on 1 July 2007, after which they were no longer binding.

No. The calculations were run in parallel for six months up to July 2007. In satisfying the requirements under the old regulations, based on the same financial data, were there breaches?

Mr. Jonathan Sugarman

Yes.

Were there also breaches under the new regulations?

Mr. Jonathan Sugarman

I am sorry-----

How much more onerous were the new regulations compared with the old ones?

Mr. Jonathan Sugarman

Far more.

Mr. Sugarman has spoken about a figure of 20% for breaches. If there was a breach under the old regulations, what would it have been?

Mr. Jonathan Sugarman

There were breaches under the old regulations. When I say it happened with increasing frequency, I saw it as soon as I commenced working in the bank.

What was breached under the old regulations?

Mr. Jonathan Sugarman

There was a minimum figure of 20%. I do not know how familiar the Senator is with the old regulations, but we were in breach of them on more than one occasion.

I want to know the severity of the breaches under the old regulations.

Mr. Jonathan Sugarman

A good few per cent. Again, we are talking about billions of euro.

I ask Mr. Sugarman to advise me on the process. To whom did he report the breaches? Will he, please, explain the line of command in the bank? What was the process involved?

Mr. Jonathan Sugarman

As I said earlier, my job was to see everything and touch nothing. My job was to monitor and report.

Whom did Mr. Sugarman report to?

Mr. Jonathan Sugarman

Obviously, as a risk manager, I made sure at all times that both the CEO and the head of treasury knew anything I knew.

Would Mr. Sugarman have taken it upon himself to report to the Central Bank?

Mr. Jonathan Sugarman

On the day of that breach, I as the bank's risk manager, prepared the letter. It was signed and I hand-delivered it to the Central Bank because at that stage I had lost faith -----

Who signed that letter?

Mr. Jonathan Sugarman

The CEO and myself.

Did that letter go to the Central Bank with the CEO's agreement?

Mr. Jonathan Sugarman

Of course.

When it went to the Central Bank, what was the view taken?

Mr. Jonathan Sugarman

The following day, we got a standard acknowledgement of receipt. It said it had received and noted the letter dated so-and-so, and that was it.

When Mr. Sugarman went to the Central Bank, did he physically hand it over a desk or did he look to meet someone?

Mr. Jonathan Sugarman

No, I just handed the letter over. All the information was contained in the letter. I was acting within the instructions of Irish law.

When the Central Bank came back the following day, what view did Mr. Sugarman take and what view was taken by the bank?

Mr. Jonathan Sugarman

Naturally, the bank was delighted. We got off scot-free, why would we make an issue out of it? We are here to make money.

Mr. Jonathan Sugarman

Nothing happened. As I said in my opening statement, I had expected the Central Bank to be all over the place, asking if we did not know how to run a bank and how we had arrived at a breach of 20%. I had expected that they would ask how we had the audacity to turn up saying that we still wanted a banking licence if it turns out we do not know how to run a bank.

The bank's parent company was an Italian company; am I correct?

Mr. Jonathan Sugarman

The biggest bank in Italy.

Hypothetically, if the bank was to go under, who would bail it out? Would it have been the same as Hypo Real Estate and Depfa? Would the Italian taxpayer have had to take up the tab for that rather than the Irish taxpayer?

Mr. Jonathan Sugarman

If it was the Irish subsidiary, because it is domiciled and regulated here, therefore it would be the problem of the Irish taxpayer. This is clear from what happened with Depfa and Hypo Real Estate.

In that situation, it was the German taxpayer.

Mr. Jonathan Sugarman

By complete chance. Had it happened a year earlier, it would have been our problem. This one bank on its own would have cost us €100 billion, never mind the other Irish ones that cost €65 billion.

In the specific situation with Mr. Sugarman's bank, how did the structure differ?

Mr. Jonathan Sugarman

It did not. We were operating as Depfa would have been until it was taken over by Hypo Real Estate. We operated as an Irish domiciled, Irish regulated bank.

On procedure, the Central Bank came back and said it had no issue with this.

Mr. Jonathan Sugarman

None at all.

What did Mr. Sugarman do thereafter? I want to understand the practical sequence of events. What view did Mr. Sugarman take?

Mr. Jonathan Sugarman

I said we had to get a handle over this. I was signing off reports daily and I did not fancy five years in Mountjoy so I needed to know what was happening. In order to do that, I was made aware of a London-based IT company which specialised in finance and regulatory calculations. At the time these new requirements came into force, this company was the leading company in Dublin doing these calculations. This company was based in London but it was well-versed in the Irish requirement, and rather than going to find another company, I thought I would avail of its services myself. Its leading client in Dublin at the time was an Irish Bank called Anglo-Irish Bank.

Is Mr. Sugarman at liberty to name the IT firm?

Mr. Jonathan Sugarman

I would rather not but it is on record. I engaged with this company with my CEO's permission, and we asked it if it could do the same for us that it was doing for Anglo Irish Bank, because we do not really know what is going on. The reason for resignation was -----

No, I want to get up to the point that Mr. Sugarman resigned but I -----

Mr. Jonathan Sugarman

It was within a few weeks.

No, I want to assist Mr. Sugarman in bringing out the story.

Mr. Jonathan Sugarman

I understand.

What I want him to do is tell me in painstaking detail what happened. This IT company was employed; then what happened?

Mr. Jonathan Sugarman

We employed this company. I was personally involved in facilitating its link to our offices in Dublin.

When was this? Was this July or August?

Mr. Jonathan Sugarman

It was August. I was personally involved in facilitating and arranging its link-up into our system. In the meantime we carried on as usual doing our own calculations.

Was the bank required to file monthly returns on liquidity with the Central Bank? How often were these required?

Mr. Jonathan Sugarman

Yes, the accounting department of the bank was. It is called prudential reporting.

This is a monthly return.

Mr. Jonathan Sugarman

Yes.

When it came to do the August return, was the liquidity rate still pear-shaped?

Mr. Jonathan Sugarman

Ten years later, I cannot say what the figure looked like for 31 August, but I can say ------

I want to go back. The IT company was brought in. Mr. Sugarman needs to explain what it did and what that brought about?

Mr. Jonathan Sugarman

I had my own sets of calculations at the risk department. The definitive set, which is what was audited quarterly and at the end of the year by KPMG, are the sets produced by the accounting department of the bank. It is its responsibility to comply with the prudential reporting as set out by the Central Bank. Obviously, we would all like to think we were singing from the same hymn sheet so we would like to see that my risk figures for 31 August tie in with those produced by the accounting department.

At this time, who had employed this IT company to look at ratios and so on?

Mr. Jonathan Sugarman

I arranged this engagement.

They were working with the accounting department.

Mr. Jonathan Sugarman

We were all working with each other. It was a case that I as risk, had one liquidity figure, accounting is producing another liquidity figure, for the end of the month, for instance, so then we look to see what figure the London company had arrived at.

Then what happened?

Mr. Jonathan Sugarman

We were all trying -----

No, I want Mr. Sugarman to get to the nub of the story. What I am trying to get at is that he brought in the IT company -----

Mr. Jonathan Sugarman

Yes.

There is the accounting department.

Mr. Jonathan Sugarman

Yes.

And Mr. Sugarman is himself in the risk department.

Mr. Jonathan Sugarman

Yes.

I want to establish how all these sections interacted and how Mr. Sugarman got to the point where he felt he had to resign his post.

Mr. Jonathan Sugarman

On the day before my resignation -----

No, I want Mr. Sugarman to talk about the work that he did on the figures arrived at.

Mr. Jonathan Sugarman

I am not sure that I understand. The London company told us it had done the calculation and was fully confident that it knew what the bank's figure was.

What happened then?

Mr. Jonathan Sugarman

They rang me that night, at home.

Mr. Jonathan Sugarman

That was on 12 September 2007. They said "Jonathan, you are worried about the fact that you reported a breach of 20%; our figures show that the bank is at a breach of 40%."

Mr. Jonathan Sugarman

Correct. The next day, I went in and resigned.

At that time, what were the figures that the accounting department was producing within UniCredit?

Mr. Jonathan Sugarman

Ten years later, I cannot say exactly.

Mr. Jonathan Sugarman

On the day of my resignation there was much consternation at the bank. From my point of view, since I arrived on 14 May we had found it very difficult to sing off the same hymn sheet. We had brought in a company to provide us with a definitive assessment of our position.

Is it fair to say that the accounting department effectively stated that there were no breaches of liquidity?

Mr. Jonathan Sugarman

It was my job to monitor that on a daily basis. Accounting would report weekly and monthly.

What did they say in those weekly and monthly reports?

Mr. Jonathan Sugarman

They said that it was fine.

There was a difference of opinion between the risk manager and the accounting department within UniCredit bank.

Mr. Jonathan Sugarman

I beg the Senator's pardon. This is not art. These are facts and figures.

Mr. Jonathan Sugarman

This is not a difference of opinion. Both of us have to look at how fast we are going.

On the returns that were being made-----

Mr. Jonathan Sugarman

I did not make a return.

No. Any returns that were made were made by the accounting department.

Mr. Jonathan Sugarman

Correct.

Is it reasonable to say that when the witness decided in July to hand-deliver-----

Mr. Jonathan Sugarman

That was August.

What date was the letter hand-delivered to the Central Bank concerning the 20% breach?

Mr. Jonathan Sugarman

It was delivered during August of 2007.

When that letter was delivered, is it fair to say that the Central Bank would have had returns from the accounting department of UniCredit stating that there were no breaches of liquidity at the same time?

Mr. Jonathan Sugarman

Yes, because its return was not daily. If one looks at the letter of the law of course it would have had a return.

Why did the witness feel it was necessary to resign instead of going to the bank-----

Mr. Jonathan Sugarman

This is not about feelings. This is about what Irish law stipulates my job to be. Irish law states very clearly that it is my responsibility as the bank's risk manager to make sure that at all times, 24-7, we comply with the law.

I am not disputing that.

Mr. Jonathan Sugarman

When I reported the 20% I was doing so in my capacity as risk manager with the full awareness and consent of the accounting department.

Outside consultants were brought in to do proper due diligence on the liquidity ratios, among other things. They came back with the figure of 40% liquidity. Why did the witness deem it necessary to resign the following morning? Why was a meeting with the CEO and the accounting department not called to sit down and discuss it?

Mr. Jonathan Sugarman

How does the Senator know I did not do that?

The witness told me that he did not. Did he?

Mr. Jonathan Sugarman

Of course.

The witness received a phone call the previous night from the IT company.

Mr. Jonathan Sugarman

Correct.

What did he do the following morning?

Mr. Jonathan Sugarman

I walked in and demanded to see all managers at the CEO's office and told them the situation. It turned out that there were issues of integrity within the bank as to how exactly it was run and who was saying what in terms of our figures. I stated, as I do again now, that this is not open for opinion. One is either plus €10 million or minus €10 million. It is very clear.

Did the bank management - the CEO and others - disagree with that view? Did they take the view that the bank was not in breach of liquidity?

Mr. Jonathan Sugarman

They continued to say that this was just a glitch, as they had said throughout the entire summer.

Their view was that there was no breach in liquidity.

Mr. Jonathan Sugarman

Their view was that there was an IT problem which they had known about since I had started and that things were fine. The London company said that it was faulty so UniCredit would continue working with them until it was fixed. We could only get it right if everybody was telling the truth.

Did the witness take the view that that was not the case?

Mr. Jonathan Sugarman

That was why I mentioned issues of integrity in my letter of resignation.

What date was that?

Mr. Jonathan Sugarman

13 September 2007.

That is virtually ten years ago at this point.

Mr. Jonathan Sugarman

Yes.

The witness is obviously an expert in this area of risk management.

Mr. Jonathan Sugarman

Yes, but I have been unable to find work, even on the European continent.

Mr. Jonathan Sugarman

As soon as my name is googled discussions about me appear concerning my appearances in Dáil Éireann and Seanad Éireann and on Australian, Belgian and Greek television, about the fact that I tend to do my job very well. So well, in fact, that I comply with the law.

Being a whistleblower is a very lonely place.

Mr. Jonathan Sugarman

It certainly is.

The one thing we all value is our good name.

Mr. Jonathan Sugarman

I would like to think so, yes.

What should the system have done for someone in the witness's position? I have to ask hard questions. Are there any circumstances in which the witness may have been wrong? How should the reporting structure have operated? Clearly there were two reporting routes coming out of UniCredit into the Central Bank. One was through the witness in his position as risk manager. When the witness reported to the Central Bank-----

Mr. Jonathan Sugarman

It was by consent of the entire management.

-----was that ad hoc? The report that was made to the Central Bank was not the regular mechanism.

Mr. Jonathan Sugarman

I am afraid that the Senator has not had the time to read through Irish regulation.

Mr. Jonathan Sugarman

Irish regulation is very clear as to how a bank is to be run and as to who is responsible for what and when.

-----I am talking about reporting requirements to the Central Bank.

Mr. Jonathan Sugarman

Those reporting requirements are stipulated in section-----

Pardon my ignorance, but this is an important point.

Mr. Jonathan Sugarman

I regard regulation as very important.

When the witness hand-delivered the letter to the Central Bank was that a regular, routine filing requirement?

Mr. Jonathan Sugarman

No. We normally used couriers.

When the witness gave that letter in to the Central Bank was that a normal monthly or quarterly filing requirement?

Mr. Jonathan Sugarman

No. It was within the stipulations of Irish banking law as issued in 2006, which dictates what is to happen. One does not arrive at an overnight guarantee because all banks are monitoring their liquidity. How did Ireland arrive at the need for a guarantee overnight if everybody is obeying the law?

If that is the case, how did the situation arise that the accounting department in UniCredit were filing returns with the Financial Regulator which stated that there were no problems with liquidity at the bank?

Mr. Jonathan Sugarman

KPMG signed off on the accounts saying that we were brilliant. The accounts for 2007 said that we were brilliant throughout that year.

What is the year-end for UniCredit?

Mr. Jonathan Sugarman

31 December.

The 31 December 2007 accounts were signed off with no issues.

Mr. Jonathan Sugarman

There was also a review to say that we were particularly cautious about risk.

When the witness tendered his resignation with UniCredit bank did he make contact with the Central Bank, the regulator, to inform it of this 40% liquidity breach?

Mr. Jonathan Sugarman

No.

Mr. Jonathan Sugarman

I was on garden leave. I was relieved of my duties. In my letter of resignation I said that I was resigning immediately and that because of issues of integrity I could not contractually perform what I had agreed to do for the shareholders of UniCredit.

Prior to the witness's resignation did he look for the CEO and the bank to agree to report this breach of 40% to the Central Bank?

Mr. Jonathan Sugarman

I spent most of that day in his office.

Was the witness looking for a similar letter to that which issued when there was a 20% breach?

Mr. Jonathan Sugarman

I was looking for clarity as to what truly reflected the position of the bank.

Did the witness believe that UniCredit should have reported to the Central Bank on the 40% breach at that time?

Mr. Jonathan Sugarman

I believe so, yes.

What structure should the system have had to ensure that Mr. Sugarman, as the risk manager, was able to do his job in respect of the bank and his reporting requirements?

Mr. Jonathan Sugarman

I must refer the Senator to this document, which leaves very little to the imagination with regard to who should be doing what, and when. It covers management, employees, the systems, the responsibilities-----

What Mr. Sugarman is saying is that the reporting requirements were there within the new regulations but, when he reported to the Central Bank-----

Mr. Jonathan Sugarman

I did so in keeping with-----

The Central Bank ignored Mr. Sugarman's-----

Mr. Jonathan Sugarman

Correct.

And Mr. Sugarman believes that was the fundamental flaw.

Mr. Jonathan Sugarman

Yes. This is page 22 of the legislation, on reporting and obligations of reporting.

Mr. Sugarman believes that the Central Bank ignored him and that is the heart of the matter for him. Is that correct?

Mr. Jonathan Sugarman

Yes.

I now understand precisely where Mr. Sugarman is coming from.

Mr. Jonathan Sugarman

I appreciate that.

I think that it is something that we as a committee will have to take up with the Central Bank at some stage.

Mr. Jonathan Sugarman

In the absence of a sanction by the Central Bank, I have had no legal recourse against UniCredit.

Mr. Jonathan Sugarman

It is because the Central Bank failed to issue a sanction, as it should have, against the bank for breaching the law by 20 times the permissible deviation. Lawyers whom I have consulted said that until UniCredit had been sanctioned, I did not have a leg to stand on-----

Mr. Jonathan Sugarman

-----which is why I have now exceeded the time to refer it to an employment tribunal, because there is no sanction.

Is there any possibility that Mr. Sugarman got it wrong?

Mr. Jonathan Sugarman

No, because this is not me personally. I went there on behalf of UniCredit Ireland, with the agreement of the entire management of UniCredit Ireland that we were to finally follow the letter of Irish law and actually, for a change, tell the regulator what we were doing.

Did Mr. Sugarman have a follow-up with the Central Bank? When the response came back from the Central Bank, did it basically say that it noted Mr. Sugarman's letter?

Mr. Jonathan Sugarman

Yes.

How long was the letter?

Mr. Jonathan Sugarman

One paragraph, perhaps.

Mr. Sugarman might paraphrase it again.

Mr. Jonathan Sugarman

It said that the Central Bank noted receipt of the letter dated so-and-so, and that it would endeavour to rectify the situation immediately, grand, thank you and bye.

Was there any follow-up with the Central Bank?

Mr. Jonathan Sugarman

No.

Did Mr. Sugarman not think he should follow up with the Central Bank?

Mr. Jonathan Sugarman

I am a banker. I am there to make money. If the police do not want to police the bank, fine. Then there was surprise that Ireland was landed with a €65 billion bill because nobody bothered policing the banks. It is not my problem. The entire nation is now paying for that.

I thank Mr. Sugarman.

To go back to the breach of the regulations and the old versus the new, I ask Mr. Sugarman to put it in terms of the euro-----

Mr. Jonathan Sugarman

In terms of?

Money. When Mr. Sugarman says that the bank was in breach by 20%, how much money was not in the till?

Mr. Jonathan Sugarman

I would estimate that we are talking about roughly €4 billion to €5 billion.

So the bank was running a risk - more than a risk - on €4 billion to €5 billion?

Mr. Jonathan Sugarman

Our entire balance sheet was about €28 billion. These are then calculated as ratios. The euro of equivalent of this 20% breach was in a range of between €4 billion and €5 billion. That is a considerable amount of money-----

By any standards.

Mr. Jonathan Sugarman

-----that we were short by.

I will check this figure with Mr. Sugarman. On the old regulations, was a minimum breach allowed?

Mr. Jonathan Sugarman

The old regulations were a fundamentally different way of looking at the speed at which one is driving. The significance of this document is that, having been guided by the European Central Bank and the Bank for International Settlements, BIS, in Switzerland, the Irish regulator said it needed to firm up its measurement of liquidity, because the existing 20% requirement was too simplistic and was not sufficient for the risks being run, and therefore it would introduce a far more precise measurement of liquidity.

And that was?

Mr. Jonathan Sugarman

These regulations issued in 2006.

Is it all contained in those?

Mr. Jonathan Sugarman

This is how one measures, this is how one reports and how one measures speed, effectively.

On the question of the other, German bank, it was sheer luck-----

Mr. Jonathan Sugarman

Complete luck.

-----that that was sold, otherwise we would have been at €102 billion, just to make that absolutely clear.

Mr. Jonathan Sugarman

Yes. Some €102 billion, plus the €65 billion.

We move on to Mr. Sugarman's job in the bank. He says-----

Mr. Jonathan Sugarman

On the point of the letter of the law, I would like to highlight something which I think is crucially significant. As can be seen, these regulations were issued in 2006. This is item No. 6 of what I provided to the committee. I ask committee members to turn to section 9.4, in which it says that it relates to the implementation of these new regulations. Although the letter of regulation was issued in June 2006, if members look at the last paragraph at the bottom of page 23, it says that the revised liquidity report will be prepared in parallel with the existing requirements for a six-month period commencing January 2007. If members look at the last sentence in that paragraph, it is that limits on the level of maturity mismatch - that is bank-talk for liquidity - will take effect on the completion of the six-month parallel run in 2007. That is to say that both calculations are done in the six-month parallel run. From 1 July 2007, these new regulations and methods were the only ones that applied. It is significant that three years later, we saw that the regulator, still called the Financial Regulator, re-issued the same requirements. It says "Requirements for the Management of Liquidity Risk". This time, it was issued in June 2009.

I ask the Chairman to turn to section 9. It is entitled "Reporting". One can see, if the two sections from these regulations - which were three years apart - are compared, that section 9 is on reporting, reporting obligations etc. Section 9.1 is "Licensed Credit Institutions", section 9.2 is "Banking Groups", section 9.3 is "Branches of EEA and non-EEA Banks". I dare the Chairman to find section 9.4, on implementation. There is no reference in the 2009 legislation to this being law in Ireland in 2007. Reference will be found, in the preamble, to banking Acts going all the way back to 1942, 1971, 1989 and 2001. Nowhere in this document will one find a reference to the year 2007. The simple reason for that is that none of this was upheld. There is only one silly man, Jonathan Sugarman, who took this law seriously.

A year after he resigned, we had a pile up on the M1 called the overnight guarantee so we better reissue the law and pretend it never existed.

I understand what Mr. Sugarman's job within the bank was. There is an audit committee there.

Mr. Jonathan Sugarman

Correct.

Was the breach reported to the audit committee?

Mr. Jonathan Sugarman

The absolute and honest answer is that I do not know because-----

Mr. Sugarman's job is to report it to the CEO.

Mr. Jonathan Sugarman

Correct. The CEO is managing director of the bank. He keeps in close contact with other directors of the bank. It is up to him to alert other directors as to what is happening.

And to inform-----

Mr. Jonathan Sugarman

The audit committee.

And to inform-----

Mr. Jonathan Sugarman

One would have thought so.

Within that bank, apart from the accounting section, the audit committee and the responsibilities of the CEO, the bank was audited. Mr. Sugarman need not mention the audit company's name. He already did. The bank was audited.

Mr. Jonathan Sugarman

Correct.

The bank got clear accounts for every year.

Mr. Jonathan Sugarman

Correct.

That audit is not just about figures. It is about governance and accountability.

Mr. Jonathan Sugarman

Correct.

It is about the bank's requirement under law to comply.

Mr. Jonathan Sugarman

Correct.

All those boxes were ticked and the bank was shown to be a well-performing bank.

Mr. Jonathan Sugarman

Correct, which I find utterly surprising because, as the Chairman said, the annual report is not only a quantitative measure, it is also a qualitative measure so what is the quality of the controls within the bank? We expect the auditors, both internal and external auditors, to form an opinion about how well this bank is run.

Between 2007 and 2009, the law and regulation as issued weakened.

Mr. Jonathan Sugarman

Sorry?

The law and regulation weakened in 2009 compared with 2007 with reference to implementation and all that was-----

Mr. Jonathan Sugarman

Given the events of September 2008, which were brought about by the fact that all the indigenous Irish banks had run dry of liquidity, surely somebody should have said hold on a second the bank has a banking licence - I presume they all do - and that under the terms of the banking licence, this is how we told it two years ago to measure its speed so how can it possibly come to us a year after the implementation of the new speed measurement and tell us that it is at zero.

Mr. Sugarman is saying that in 2009, in the context of that-----

Mr. Jonathan Sugarman

Yes, they reissued the law.

They reissued the law without implementation.

Mr. Jonathan Sugarman

Without referring to the fact that this was already implemented in 2007, so there is no reference-----

What was the consequence of that in terms of a risk manager and the bank?

Mr. Jonathan Sugarman

We just burst out laughing, I suppose, in that this basically meant that we were now in 2009 and had a pile up on the M1 but that it did not matter because nowhere did it say that this was actually binding two years ago. This basically implied one should carry on doing whatever one was doing because the law meant nothing and that we issued the law in 2006 and said in 2007 one will go to prison for five years if one breaks the limit but yet-----

Is Mr. Sugarman now saying this is not the case?

Mr. Jonathan Sugarman

Obviously, it is not the case because one had an overnight guarantee because everybody ran dry of liquidity - not a single person-----

If this happened in 2009 after the law was reissued, what would the consequences be? Would Mr. Sugarman have to report as he did and would the speed be-----

Mr. Jonathan Sugarman

Of course.

So all of that is still the same.

Mr. Jonathan Sugarman

Yes.

So why is Mr. Sugarman making the point about 2007 versus 2009 and the 2009 document not having implementation in it?

Mr. Jonathan Sugarman

I beg the Chairman's pardon for going back to the example of the M1. It is like saying that the reason for the pile up in 2008 was because there were no speed limits and now in 2009, we will tell one that there are speed limits. However, in legislation, there were speed limits so the only reason we had a pile up was that everybody breached them.

We will move on to Mr. Sugarman's resignation. How did the bank react to that because, obviously, he was resigning over an integrity issue?

Mr. Jonathan Sugarman

Yes, and I stated that in my resignation.

That was going to reflect on the bank itself.

Mr. Jonathan Sugarman

Very badly.

Obviously, the bank was concerned. How did it express that concern?

Mr. Jonathan Sugarman

It was concerned enough to actually offer me employment with another Italian bank in the IFSC provided I withdrew my resignation.

Obviously, Mr. Sugarman did not do that.

Mr. Jonathan Sugarman

No.

Is there evidence of that offer?

Mr. Jonathan Sugarman

It should be on the servers of UniCredit Bank. I handed back my BlackBerry. I can tell the committee that I shared this with a friend - the same person referenced in the Süddeutsche Zeitung article. He had sight of that offer.

Mr. Sugarman is currently unemployed.

Mr. Jonathan Sugarman

For ten years.

The remark Mr. Sugarman made relating to the fact that no sanction was taken against the bank-----

Mr. Jonathan Sugarman

Correct.

Therefore, Mr. Sugarman's legal advice is that he cannot take a case against that bank.

Mr. Jonathan Sugarman

At this stage, I have exceeded the statute of limitations on employment tribunals because there has been no sanction by the Central Bank. Had there been a sanction by the Central Bank, I would have been able to go to the employment tribunal and say that no employee can be forced to commit a crime - here I am having been forced to commit a crime and sign over repeated crimes. As I said earlier, every day is a crime and every breach is a crime in its own right. The Central Bank admitted to me at our meeting that it had sight of other breaches that had gone unreported, that is, it had seen other crimes during my tenure at UniCredit. An employee cannot be forced to commit a crime. Therefore, I had no choice but to resign and I should be entitled to receive compensation from the bank and the Central Bank for its failure to do its job as the policeman of banks in Ireland.

Did Mr. Sugarman not think of taking a case?

Mr. Jonathan Sugarman

My problem is that I took this legislation seriously.

Is taking a case against the Central Bank an option for Mr. Sugarman?

Mr. Jonathan Sugarman

Why not?

Why does Mr. Sugarman not do so?

Mr. Jonathan Sugarman

Because I have no means. Thanks to friends, I can feed myself. When I needed to go to the dentist a few weeks ago, my friends got together and paid the dentist.

So this change of lifestyle and being penalised are based on the fact that Mr. Sugarman did his job.

Mr. Jonathan Sugarman

I will happily forward to the committee a medical opinion of a doctor who was familiar with me during those years in which he states the implications for my health quite clearly.

Could Mr. Sugarman do so? It is the intention of the committee to consider everything Mr. Sugarman had to say today. In particular, with regard to Mr. Sugarman's view on the report on the media today about the integrity of the banking system, he quoted earlier from today's paper. What does this mean in layman's language? What are the banks not doing that they should be doing?

Mr. Jonathan Sugarman

They still do not know what speed they are going at. They know roughly, which means we could still end up with yet another pile up.

Does Mr. Sugarman think they are breaking the speed limit?

Mr. Jonathan Sugarman

How can they not be breaking it? I was going to refer to the secondary headline in The Irish Times, which states quite clearly that the Central Bank found weak regulatory controls at some IFSC banks and that remediation plans issued after on-site investigations found unacceptable breaches. Here we are ten years later and the Central Bank is saying-----

The committee's question for the Central Bank is to explain these unacceptable breaches.

Mr. Jonathan Sugarman

It should also be asked to explain how they are still occurring ten years after I drew its attention to the fact I was in breach of the regulations and nine years after all of the Irish banks needed a guarantee because they were also in breach.

The committee should write to the Central Bank on that query.

Mr. Jonathan Sugarman

Nobody is being held accountable.

Let us see. On the report which Mr. Sugarman made to the Garda station, am I correct that he has had no communication from the Garda since?

Mr. Jonathan Sugarman

No. I only received a phone call during which I was told that the matter had been referred to a person or team within the Garda fraud squad that deals with finance. I have not heard from the Garda since.

As part of the recommendations of the committee we should, perhaps, seek an update on that inquiry from the Garda Commissioner.

Mr. Jonathan Sugarman

I would be very interested in knowing that.

I find it incredible that on a daily basis, Mr. Sugarman was calculating the figures and he states the bank was in breach-----

Mr. Jonathan Sugarman

Yes.

-----and that on a monthly basis the auditors signed off on them. In terms of the monthly figures, in August-September 2007 there was a 40% breach.

Mr. Jonathan Sugarman

No, at the end of August, everything was fine. On 31 August 2007 there could have been a sign-off to the effect that there was no problem because these figures change hourly and daily. All the auditor is obliged to do is confirm the situation at close of business on, say, 31 August. A good auditor would have audited not only that day but the preceding days and in his or her review would have stated "however......".

In some cases, Mr. Sugarman's institution was in breach by, on average, 40%.

Mr. Jonathan Sugarman

Correct.

The auditors signed off on that.

Mr. Jonathan Sugarman

The 40% I was alerted to was during the month of September. I can forward to the committee the signed-off audited year-end accounts, which review the entire year, courtesy of the auditors - I shall not name them again - in which they refer to and commend the risk management practices of UniCredit Bank Ireland.

I apologise for interrupting the Senator but a vote has been called in the Dáil and I have to leave the meeting. Senator Horkan will take the chair. Should the meeting conclude before I return I want to reassure Mr. Sugarman that I find what he has told the committee today shocking. It is my intention to discuss with the committee what appropriate action or engagement we can have arising from this hearing. Mr. Sugarman's story is one that I have heard many times in terms of whistleblowers. I respect what he has done and I applaud him for it.

Mr. Jonathan Sugarman

Thank you.

I can assure Mr. Sugarman that his story has been listened to today. It is appropriate to also mention at this point all of those who support Mr. Sugarman in terms of getting through this, particularly Luke 'Ming' Flanagan who is in the Public Gallery.

Mr. Jonathan Sugarman

I would like to add my gratitude to Mr. Blaney who has accompanied me here today. I am very grateful to the Chairman.

Mr. Sugarman's efforts have not gone without notice. The committee has a job of work to do.

Senator Gerry Horkan took the chair.

Mr. Jonathan Sugarman

Would it be possible to take a short break?

Yes. We will break for five minutes.

Sitting suspended at 1.15 p.m. and resumed at 1.20 p.m.

We have resumed in public session. I call Senator Burke to conclude.

I will be very brief. One of the Chairman's questions that Mr. Sugarman answered was regarding staff. Mr. Sugarman said that a company cannot force an employee to commit a crime. When he said that, did he mean that he could not be forced to commit a crime by the CEO or the directors of the bank or that he could not ask the staff members who were under him to commit a crime?

Mr. Jonathan Sugarman

I referred first and foremost to myself, because my position as the bank's risk manager was ratified by the board of directors. I will be more than happy to furnish the committee with the document in which my position was ratified. I therefore bear sole or joint responsibility with the CEO for everything that goes on in that bank. If I have to repeatedly sign off liquidity figures that are breaches and the bank does not report them to the Central Bank, that is a crime.

The witness said that in 2007 the bank was around €4 billion short in the till.

Mr. Jonathan Sugarman

Yes.

I presume that something similar was happening in every other bank at that particular time and that they were all short in the till.

Mr. Jonathan Sugarman

Correct.

So if they were all brought into line at that particular time in 2007, what would have happened?

Mr. Jonathan Sugarman

We might have never seen a bank guarantee or a bailout because it would have meant that everybody would have been told that this is how a bank is run, these are the speed limits at which a bank goes, this is how it issues mortgages, this is how it does not issue mortgages and these are the levels of risk a bank takes. Liquidity is a market risk. Commercial property real estate is a credit risk. There are guidelines for that as well.

But if there had been some sort of correction, or crash on the M50, as the witness described it, there would be a backup in some place if all the banks had to-----

Mr. Jonathan Sugarman

No. Sorry, "No" is a presumption here but effectively, as a bank, we have a licence. That licence allows the bank to conduct its affairs as a bank within the regulations, limits and laws of the Republic of Ireland. If every bank had adhered to those laws, we never would have found ourselves in a position where we had to either give the banks an overnight guarantee or bail them out for €65 billion. How on earth did we arrive at such a situation? Not only were market risks ignored, because liquidity is a market risk, but credit risks were also ignored, which is why there were decisions being made about forking out €50 million and €100 million without any credit analysis. In the same way that my job is about market risk analysis, there is a department in the bank that carries out credit analysis. Is it a wise idea to give €100 million to this developer to build X number of houses on a bog?

I see. That is a whole different department. We better not get into that.

Senator O'Donnell has a very brief final question.

I wish to ask about UniCredit's 20% breach of the liquidity limit. Was 1% the accepted norm or was it less than 1%?

Mr. Jonathan Sugarman

I cannot do more than what I have said already. I have clearly said it is 1%.

Okay. How much liquidity would UniCredit have been short due to that 20% breach? Can the witness quantify-----

Mr. Jonathan Sugarman

This is what I said earlier. I estimate that in terms of euro, we are talking about roughly €4 billion to €5 billion. The entire balance sheet was €28 billion.

Would that have arisen due to short-term borrowing for long-term loans? Was it an overnight-----

Mr. Jonathan Sugarman

That could have been for a multitude of reasons. There are days when we do dozens or hundreds of trades. It could have been for any given reason. It is because-----

Could the bank have had access to a credit line from the Central Bank? Was there a credit line that the bank could have had access to?

Mr. Jonathan Sugarman

I do not know about the Central Bank of Ireland, but we could have easily rung our parent company and said that we are short a few billion euro here and ask to have it until the morning.

Was that the case?

Mr. Jonathan Sugarman

Obviously not, because UniCredit says it never heard about me.

What does the witness mean that UniCredit-----

Mr. Jonathan Sugarman

As Ms Kathleen Barrington wrote in The Sunday Business Post, UniCredit had no idea about the breaches when she contacted them three years later.

But the witness's understanding at the time of the 20% breach was that the parent company ought to have been made aware by the CEO.

Mr. Jonathan Sugarman

I would have thought so, yes.

The witness would have had no role to make them aware of that. It was to come from the CEO.

Mr. Jonathan Sugarman

The CEO deals with the parent company in Milan.

Finally, at that point with that level of breaches, was there any question of UniCredit - the entity itself in Ireland - being at a stage where it could have gone under?

Mr. Jonathan Sugarman

On that day, yes. Subsequently, obviously it is still alive, well and kicking in the IFSC. It is fine. It is grand.

I thank Mr. Sugarman for coming before the committee today. I thank all of his supporters, as well as Mr. Eamonn Blaney.

The joint committee adjourned at 1.27 p.m. until 4 p.m. on Tuesday, 2 May 2017.