The Central Bank never asked to see the AIB internal audit report which referred to large potential DIRT liabilities, the Dail Committee of Public Accounts was told yesterday. The Governor of the Central Bank, Mr Maurice O'Connell, said that in 1995 the Bank began systematically checking the internal audits of financial institutions.

But such a system was not in place in the early 1990s when AIB was having discussions with the Revenue Commissioners about tax owing on its non-resident deposit accounts.

Although the Central Bank did have access at the time to whatever documents it wished to see, he was never made aware of the £100 million estimate of DIRT tax liability by the bank's internal auditor, Mr Anthony Spollen, until it appeared in media reports.

At the time, he said, AIB informed the Bank that the liability involved was likely to be about £5 million. He stressed, however, that even if the actual liability had been £100 million, the Central Bank would not have been concerned as AIB had capital resources at the time of £1.7 billion and its stability would not have been in question.

Mr O'Connell said that in October 1990 AIB advised the Central Bank that it "was working with the Revenue Commissioners on an in-depth investigation into all non-resident deposit accounts".

"Subsequently, in April 1991, AIB told us that it had been agreed with Revenue to resolve this matter by the following June and, in May, it confirmed that this work was virtually completed."

He told the committee chairman, Mr Jim Mitchell (FG), that in April that year AIB informed the Bank it had "effectively reached agreement on a settlement with the Revenue Commissioners". He also said the Bank was aware "of a £5 million settlement with the Revenue Commissioners", but had no knowledge of a figure of £100 million.

However, questioned on this later by Mr Conor Lenihan (FF), Mr O'Connell said he should not have the used the word "settlement". The Bank was, in fact, told that the situation had been resolved.

Asked by Mr Sean Ardagh (FF) what part the Central Bank had played in "bailing out" AIB after the Insurance Corporation of Ireland (ICI) collapse in 1985, Mr O'Connell said it had given a loan of £100 million, through the Exchequer, to be repaid by 2000.

Mr Ardagh asked: "What would have happened to AIB if that £100 million had not been loaned?"

Mr O'Connell said: "I don't know but I imagine it would have made things more difficult for it." He stressed that the £100 million was only part of an overall package of several hundred million, 90 per cent of which came from AIB itself.

Asked by Mr Mitchell if AIB could have survived without the £100 million from the Exchequer, Mr O'Connell said he did not know.

He also told the committee that a further £32 million had been loaned in the same manner to AIB in 1992 when it became clear that the previous arrangements were not going to fully resolve the ICI problem. This information, he said, had been given to the committee in the past.

Mr Mitchell said the £100 million had been loaned to AIB to offset any danger that such a major financial institution might collapse. Yet when AIB had informed the Bank in 1990 that it had a difficulty with the Revenue and the figure was £5 million, it seemed the Central Bank had made no other inquiries.

Mr O'Connell said AIB's stability in 1990 was not an issue. The Central Bank had no knowledge of the £100 million figure but even if there was such a liability it would not have threatened AIB's viability.

Mr Mitchell said: "You didn't know and it appears you didn't check."

Mr O'Connell said the Bank was dealing with AIB every day. If AIB had a prudential difficulty "they would have told us . . . there was no prudential problem here at all".

Mr Mitchell continued: "Not that you were aware of."

Mr O'Connell replied: "No, there was no prudential problem." He disagreed with a suggestion by Mr Mitchell that the Bank had not taken what steps were open to it to get further information.

Asked by Mr Pat Rabbitte (DL) if the £32 million top-up loan in 1992 had anything to do with difficulties encountered by AIB in the US and Britain around that time, Mr O'Connell said he did not think so. Further asked by Mr Rabbitte why AIB had not "stumped up" the money itself at that time, Mr O'Connell said he would have to check that and come back to the deputy.

Mr O'Connell also told the committee that the Central Bank did not know of contacts between Revenue and other financial institutions at the time of AIB's discussions with Revenue on the DIRT issue.

"I would not expect any such communication because Revenue is the proper authority to deal with taxation. Besides, it would be in breach of rules of confidentiality if it notified the Bank or any other third party of its contacts with an individual institution," he said.

Throughout the period in question, the Central Bank had conducted its routine programme of prudential supervision on financial institutions including AIB. "The Bank's statutory duty is clearly defined in law and we cannot pick and choose.

"Prudential supervision has as its objectives the protection of depositors' funds and the stability of the banking system as a whole. It may not have a high public profile but it is an extremely important function for the stability of the financial system."

He could assure the committee that there was a "very strong compliance culture" in the banking community today. The Criminal Justice Act of 1994, which placed an obligation on the Central Bank to report to the Garda any suspected case of money laundering by an institution, had "changed the whole system".

The offence of money laundering covered the proceeds of all criminal activities, including tax evasion. Since the Act, the Bank had reported five cases of suspected tax evasion but the financial institutions themselves had reported hundreds.