The National Treasury Management Agency today accused State Street of defrauding Irish taxpayers of 3.2 million through transition management services.
The NTMA, the overseeing authority for the National Pensions Reserve Fund (NPRF) mandated State Street to sell 4.7 billion of assets for the Fund in order to shore up finances in state-owned Bank of Ireland and Allied Irish Bank.
The latest development follows the publication in September of Irelands Comptroller & Auditor Generals report on payment for transition management services in relation to the asset sale, which said the custodian bank had been overcharging above the previously agreed rate for services of 698,000.
Appearing before the Public Accounts Committee (PAC) for the first time since the matter was raised in the report, NTMA chief executive John Corrigan said any sale of assets would see proceeds for that sale passed back to the client. However, he said, and “fraudulently in our view”, that only 99.3% of the sale proceeds went to the NPRF, with the custodian holding the rest. The remaining 0.7% equated to a commission of 2.6 million, which was not agreed, and a further 600,000 in profits from the sale of NPRFs stake in an index firm.
In a live comment to the PAC today, Corrigan added that the fee was paid under verification from State Street that no commissions were charged.
3 million of funds were returned to the agency, which, Corrigan says, was accepted without prejudice. However, he added, the matter is not over.
The issue of transaction management arrangements with the NTMA first came about in 2011. The Comptroller & Auditor General report on the issue of commissions taken by State Street was published in September this year. The report said that in February 2012, the NTMA received a letter of attestation from State Street stating that its compliance department had conducted a review of the two transitions and had not found any issues with either. Following review of the supporting trade data for the transitions, the NTMA wrote to SSBE (State Street Bank Europe) on Aug 21. 2012 raising an issue with the conclusions of the SSBE review in respect of transition number 4. This matter is the subject of ongoing engagement, the report said.
State Street is also being investigated by the UKs Financial Service Authority regarding commissions from the Irish asset sale.
In statement on the latest matter, State Street said: As previously discussed, this relates to a transition management matter that we self-reported to the FSA (UK Financial Services Authority) in September 2011. In a limited number of instances, we charged commissions on transition management mandates that were not consistent with our contractual agreements.
“Our transition management business is predicated on fair and comprehensive disclosure to our clients. As a result of our own internal analysis, we have determined that certain employees failed to comply with the high standards of conduct, communication and transparency that we expect. Those individuals are no longer with the company.
“The actions of these former employees and their interaction with a limited number of clients do not reflect the high standards of conduct, communications and transparency that State Street expects. We took swift and appropriate disciplinary actions in response to this conduct.
“As a result of this process we have strengthened our transition management business and enhanced our controls.
(JDC)