Allied Irish mounts investigation into failed security procedures

Published on Friday 8 February 2002 00:00

AN URGENT search for answers was underway in Dublin last night as senior officials at Ireland’s biggest bank continued crisis meetings to discuss how one of their employees had managed to defraud the company of $750 million.

The boardroom exchanges went ahead as bank investigators hinted that the main suspect in the fraud, John Rusnak, an American trader for the Allied Irish’s main US subsidiary, Allfirst Inc, was not working alone to carry off one of the biggest financial frauds in history.

Yesterday, 48 hours after he failed to turn up at Allfirst Inc’s Baltimore headquarters Mr Rusnak handed himself over to FBI special investigators brought in to track down the missing funds.

Mr Rusnak’s solicitor, Bruce Lamdin, said his client had not been on the run but was avoiding the press camped outside his Baltimore home and had handed himself in at the request of the authorities. He said: "I would like to say at the outset, my client is not a fugitive and is not being treated as such. He is not in custody and is co-operating fully with the authorities. We hope that things will take their natural course from here. That’s up to the US attorney’s office."

Mr Lamdin added that Mr Rusnak had met voluntarily with the FBI but no immediate plans had been made for further meetings with his employers, Allied Irish, who have promised to sack the trader on the spot.

In Dublin, Allied Irish chief executive Michael Buckley, repeated his disappointment that the alleged fraud had not been detected earlier.

He said: "We are hugely disappointed that our Allfirst control procedures failed to uncover this situation at an earlier stage. We are doing all we can to find out why."

It emerged that middle managers at Allfirst had confronted Mr Rusnak by telephone last weekend when the magnitude of the options deals was discovered.

Allied Irish’s director for finance and risk, Gary Kennedy, said "alarm bells went off" when the trader failed to arrive for work on Monday morning. Five treasury workers at the Baltimore-based bank have also been suspended but Allied Irish told the FBI they believe people outside the bank may also have been involved.

The bank said the case involved forged purchasing records for options contracts, starting early last year and ending just after Christmas. Currency dealers normally buy options contracts to hedge their bets on whether a specific currency will gain or lose value. If they buy a currency that loses value, the bank’s losses would typically be offset by an option contract bet on a movement in the opposite direction.

But in this case, the bank said, Mr Rusnak did not buy options contracts to hedge many of his foreign-exchange deals. It said he forged records of options purchases, either to conceal losses or to skim the fees paid for the options.