They are being reimbursed. I will speak about that matter in a moment. The allegations largely pre-date the introduction of the Consumer Credit Act 1995. A number of significant changes were made to banking practices across the industry after that legislation was passed. In 1996, the bank started to notify customers in advance about the details of the fees to be charged to their accounts. That important change, which introduced a greater degree of transparency, ensures that customers are not charged for services without being informed in advance. The bank has radically overhauled internal systems relating to the charging of fees and interest.
A major difficulty in this area, which was identified in the report, related to the application of an administrative time charge, which was at the centre of many of the allegations made against the bank. As a direct consequence of the extensive reviews carried out by the NIB after the inspectors were appointed in 1998, a series of new and specific tariffs for various ancillary services was agreed with the Director of Consumer Affairs and took effect from November 2002.
I assure the committee that National Irish Bank has put in place robust, transparent and verifiable systems to ensure that its customers are charged fees and interest only in accordance with notified tariffs and following the giving of advance notice. The bank has devoted resources to ensuring that customers who were or may have been overcharged have been reimbursed. That compensation has taken two forms. The bank took steps, in response to specific allegations raised in 1998, to ensure that the affected customers were reimbursed if a fee or interest amendment could not be validated. In other words, the customer was favoured if doubt existed about the validity of the fee or interest amendment. Consequently, more than 1,450 refunds, totalling approximately €1.9 million, were made to customers at that time. The refunds included interest to reflect the time value of money.
National Irish Bank has initiated a further fee and interest reimbursement programme to address the inspectors' broader findings. The inspectors found in their report that the bank could not conclude that all instances of improper charging had been identified because its procedures and controls at the time were inadequate. The bank launched a further reimbursement programme in September 2004 in response to that finding. The programme's underlying principle is that the bank will reimburse all manual fee and interest amendments not validated by reference to surviving documentation. It will ensure that the bank cannot benefit in any respect from its past shortcomings.
I will outline some of the provisions of the programme that was launched last year. To hasten the process of reimbursing customers, all low-value manual fee amendments of less than €13, or £10, between 1988 and 1998 are being automatically returned to customers, with interest to reflect the time value of money. That process is being implemented regardless of whether there is documentation to support such amendments. The bank has dealt with approximately 43,000 customers and 187,000 amendments in this way since September of last year. Approximately 60% of affected accounts have already received reimbursements for their known amendments. The bank continues to seek contact addresses for approximately 9,000 former customers who are known to have been affected by low-value amendments.
In addition to the accounts of those affected above the €13 threshold, the bank has conducted a validation programme to establish the total amount to be reimbursed to customers. The bank has chosen to calculate the amount to be reimbursed on the basis of amendments which cannot be validated by reference to records which are still available today, even though many of the amendments may well have been justifiable at the time they were made. It was found during the sampling exercise that just under 80% of the fee amendments between 1988 and 1988 can still be validated. The bank has commenced a detailed review of all accounts impacted by manual fee amendments above the €13 threshold. If the bank is unable to validate the amendments, customers will be reimbursed again with interest.
National Irish Bank has completed a comprehensive review of all manual amendments to interest charges in all branches for all quarters under investigation. Reimbursements affecting just over 3,900 accounts and totalling €340,000 have been identified and reimbursements have been made affecting approximately 2,800 of those accounts. In common with the fee programme, the NIB continues to seek contact addresses for former customers who have been identified as being eligible for reimbursements. We will effect reimbursements to such customers in due course.
The bank has set aside a total of €10.6 million to cover the total cost of the programme. That sum includes the estimated cost of covering those periods in which there are gaps in the source records of amendments. I refer to periods in the late 1980s and early 1990s. An initial donation of €1 million has been made to the bank's nominated charity, the Community Foundation for Ireland, in respect of such gaps. At the end of the programme, the bank will make a further donation of funds which were set aside but which remain after all the affected customers have been reimbursed. Many of our customers have used the contact line that the bank established to enable them to register their concerns. Some former customers have used the line to inform the bank of their current contact details. I emphasise that there is no onus on current customers to take any action as the bank intends to contact directly everyone who is due a reimbursement.
I assure the committee that all necessary steps are being taken to ensure that customers whose charges for the period now under review cannot be validated will be reimbursed. The bank will not make any gain from fees or interest inappropriately charged during the period covered by the investigation.
I would like to speak about DIRT and non-resident accounts. The inspectors identified significant shortcomings in the bank's systems of collecting DIRT from customers, a matter that was addressed previously by the Committee of Public Accounts. The bank's systems were not seen as robust and shortcomings were identified in systems and controls. To remedy the shortcomings, the control of all accounts exempt from DIRT, including non-resident accounts, has been centralised under an operational tax unit within the bank's finance function. The staff of the unit, who are experts in this area, report to an experienced tax compliance manager. Branch staff can no longer open tax exempt accounts without the authorisation of the unit.
As an extra safeguard, a €10,000 floor has been implemented for non-resident deposits. All staff are being given anti-money laundering training. Every branch has a tax compliance supervisor and an officer charged with reviewing the opening of accounts. An account overview team reviews centrally all new accounts which are opened. A team of compliance managers regularly visits all branches to monitor the level of compliance with procedures.
The bank undertakes an annual review of all non-resident accounts in accordance with the guidelines of the Revenue Commissioners. The accounts are monitored centrally to check for any changes which would indicate that non-resident status should no longer apply. The bank believes it has fully addressed the issues raised by the inspectors and the Committee of Public Accounts. Payments were made in October 2000 in settlement of all DIRT related liabilities following audits by the Revenue Commissioners. The bank has no residual liability for DIRT.
I wish to speak briefly about offshore policies, which are commonly referred to as CMI policies. I can confirm that National Irish Bank no longer sells any offshore products and that its financial advice and services division, which sold the offshore products, has been closed down. The bank is dealing with the cases of customers who claim to have received wrong advice from the division I have mentioned. The bank put in place a comprehensive customer resolution scheme in January 2001 to assist customers who may have received incorrect advice. It has approved settlement offers worth just over €14 million to date, of which approximately €12 million has been accepted by investors. The compensation scheme does not involve compensating people in respect of tax issues they may have had prior to taking investment advice from us.
I turn next to structures, controls and governance issues. The management structures and systems within National Irish Bank have been transformed since 1998. There has been a complete overhaul of the senior management team and comprehensive measures to ensure the matters investigated by the directors cannot recur have been put in place. All our procedures have been overhauled to ensure policy and practice are correct and compliant. All retail and business financial service procedure manuals have been reviewed, rewritten and reissued. New monitoring controls and supervisory mechanisms have been implemented and a significant programme of training and development has been introduced in the bank. The programme covers business ethics and ensures policy and procedural changes are understood and implemented.
On 1 March this year, National Irish Bank and its sister bank, Northern Bank, became members of the Danske Bank Group which has confirmed its intention to invest heavily in bank systems and technology. The investment will result in the migration of our current technology processes to the Danske Bank platform by April 2006. The group has also confirmed its intention to invest in expansion in the Republic of Ireland.
National Irish Bank has adopted the Irish Bankers Federation code of ethics which deals specifically with standards and ethics in professional life and is designed to safeguard the interests of customers, employees and shareholders alike. The bank has also implemented the code of practice for credit institutions issued by IFSRA. Our risk management processes measure staff awareness of the requirements of the various codes applicable to our business. A values in business ethics course attended by all National Irish Bank managers was completed in spring 2000. The course was designed by the Industrial Society, which is a well respected UK training organisation.
Since 2000, all new NIB entrants have attended an induction course which includes a programme outlining the bank's values and explaining how they apply to employees' work. In 2003, we completed training of all supervisory staff through the managing people better programme which provided clarity on self-conduct, coaching and teamwork behaviours. These behaviours have been incorporated into individual performance plans for each job role as part of the bank's appraisals system. Before legislation was implemented, we introduced in 2000 a confidential alert line to provide a confidential mechanism to allow staff to raise matters of concern and provide reassurance to those who do so. I assure the committee that the bank is committed to compliance and actively encourages any member of staff who has a concern of any nature to come forward in confidence and have the concern addressed.
As a business, the bank has paid a heavy price for its past failings. Final costs are expected to reach approximately €75 million. In December 2004, NIB reached agreement of the sale to Danske Bank Group and the transaction was completed on 20 February 2005. The committee should be aware that under the terms of the agreement, National Australia Bank has given warranties and provided indemnities to protect Danske Bank from certain risks, including those in respect of liabilities arising in connection with the High Court investigation. In addition to direct costs, there has been a significant opportunity cost to the bank which did not grow at the same rate as its competitors during the economic boom of the 1990s. We missed out on the growth during the period.
Rightly, we have devoted considerable management, personnel and financial resources to co-operation with inspectors and the carrying out of internal reviews of procedures and processes. I am satisfied that the bank has responded appropriately to investigation to ensure compliance and reimburse customers. We are sorry for what happened and have learned serious lessons from the failings of the past. Our aim is to ensure that National Irish Bank continues to make amends, restores the trust and confidence of our customers and continues to offer Irish consumers a valuable alternative and competitive service operating on a strictly compliant and trustworthy basis. I am happy to respond to questions.
