Advice from the Financial Regulator that the Irish banks should enter into a secret "green jersey" agenda to help each other get through the 2008 financial crisis encouraged both Anglo Irish Bank and Irish Life and Permanent (ILP) to enter into financial transactions the State later argued were a conspiracy to mislead investors, the Anglo/ILP trial heard.

However the judge in the trial, Judge Martin Nolan, decided that the fact that the four accused bankers might have believed the authorities had encouraged them in their actions, was not a defence. He also ruled that the actions of the regulator and the Central Bank did not constitute "entrapment" as that had to include an intention to prosecute.

The attitude of the regulator and the Central Bank might serve as mitigation in the event of the conviction of the accused, the judge ruled at the end of six days of legal argument in February in the absence of the jury. The ruling could not be reported until the jury had come to its decision.

‘Green jersey’ agenda

The prosecution wanted the jury to be precluded from hearing evidence about the so-called “green jersey” agenda, arguing that as it was of no relevance in relation to the legality or otherwise of the transactions. The judge ruled that while no witnesses would be called on the matter, it would not be right or practical to try to stop the jury hearing about the issue in the course of other testimony.

None of the accused chose to give evidence at the trial but Denis Casey gave evidence in the absence of the jury in relation to his dealings in 2008 with the regulator and the Central Bank. Judge Nolan, in his February ruling, said he found Casey's testimony to be believable and that in his view Central Bank governor John Hurley and the Financial Regulator, Pat Neary, were very "hands on" in relation to the "green jersey" agenda. The two men "knew exactly what they were up to" and exactly what the problem was.

Casey said the green jersey agenda was mentioned to him early in 2008 at a time when Hurley had complained about ILP's use of funding from the European Central Bank and how that looked. He told the court he was surprised by the attitude of the authorities.

Judge Nolan said he believed the regulator knew about a smaller, circular transaction involving Anglo and ILP in March 2008. It seemed “inconceivable” to him that the regulator did not know the banks were involved in balance sheet management. “Bad” balance sheet management, the judge said, was when a bank improved its balance sheet by way of lodgements where the depositor was not taking any risk. Casey, the judge said, had been “very clear” that he believed the September transactions did not involve risk for ILP. (It was Casey’s case that he believed Anglo would make this clear in their accounts.)

‘Public optics’

"These were classic back-to-back transactions, done for public optics only," the judge said in his February ruling. He said he believed the regulator "condoned optics-based balance sheet management" as it did not want Irish banks to "go down". The Irish authorities were frightened by what they had seen with Northern Rock, and they had seen central banks in other jurisdictions help their banking systems.

Neary and Hurley were “hands on” and entirely involved in the effort to save the Irish banking system, the judge said. They had put the green jersey into Casey’s mind, and Casey had acted on it.

There was “ample evidence”, the judge said, to support the argument that the September transactions were “totally illegal and fraudulent”. The issue arose as to whether the Irish authorities had been guilty of entrapment. Entrapment usually involved drug dealers and undercover Gardai, the judge noted. The prosecution had argued that entrapment had to include an intention to prosecute. In the case of the Anglo/ILP transactions, the intention was to “save the banking system” and it was only later, following a look-back exercise by other parties, that the idea of prosecution arose. Reluctantly, he had arrived at the view that the defence of entrapment was not open to the accused, the judge said.

Anglo and ILP were involved in six circular transfers of €1 billion each on September 29th and 30th, as Anglo came to its September 30th year end. An earlier transaction had occurred on September 26th. On September 29th Anglo told the Central Bank it didn’t have enough money to finance its requirements for the following day. The following morning the Central Bank gave Anglo €1 billion in emergency funding. That same morning the Government announced the bank guarantee. The announcement brought to an end the 2008 crisis of access to liquidity for the Irish banks.

Circular transactions

The evidence showed that ILP agreed to enter into multi-billion euro circular transactions with Anglo, on the understanding that Anglo would reciprocate when ILP’s turn came to produce its year-end accounts, the trial heard. Both institutions were anxious that the markets would not learn about what was going on.

Judge Nolan, in his charge to the jury at the end of the trial, made it clear the regulator could not condone criminal behaviour and that the regulator’s views could not give a defence to any party. He also said that what the four accused thought was honest or dishonest was not an issue.

The trial heard how Casey told the Garda Bureau of Fraud Investigation (GBFI) he authorised the multi-billion euro transactions between ILP and Anglo Irish Bank, because he felt obliged to help Anglo as a fellow Irish financial institution in the midst of the then global financial crisis.

Casey told the GBFI he was motivated in authorising the deals because of his understanding of a request from Neary and Hurley for Irish banks to support each other as part of the “green jersey” agenda.

The trial heard how Anglo's then head of capital markets, John Bowe, had openly discussed the Anglo/ILP deal with Mary Elizabeth Donoghue of the Financial Regulator's office in October 2008.

“There have been some questions...in relation to the arrangement that you got involved with there with ILP...that it would bolster your position,” Donoghue told the banker, the trial heard. When Donoghue suggested that the transaction was designed to look like an asset manager had placed money with Anglo, Lowe replied, “exactly”, to which Donoghue in turn said: “That’s fine; that’s grand.”

Jury’s decision

Prosecution counsel Una Ni Raifeartaigh, in her summing up to the jury, said the attitude of the Central Bank and the FR was not an issue. "Any indifference, or acquiescence, or turning a blind eye by the regulatory authorities did not provide the conspirators with a defence." She also said the financial crisis in 2008 could not be used as a defence.

Judge Nolan, in his charge to the jury, said the defence had presented their clients as good decent men who had tried to do their best for their banks and for the Irish financial system. The jury had to decide whether in doing so they committed a crime.

Former Anglo executives Bowe and Willie McAteer and former ILP chief Casey were found guilty, while former ILP finance director Peter Fitzpatrick was found not guilty.