National Irish Bank plans to offer compensation to customers hit with large tax bills after buying offshore investment products they thought were tax free - including controversial Clerical Medical International (CMI) policies. The bank will pay part of the customers' tax liabilities in exchange for their agreement not to sue the bank. The move follows legal action by former customers who claim they were incorrectly sold the offshore investment policies.
NIB is writing today to all 470 customers who bought CMI bonds and related products in the mid-1990s. It is the first step in attempting to reach settlements with customers who claim they were mis-sold bonds. The overtures are being made without prejudice or any admission of liability and are intended to head off years of damaging litigation.
The focus of the initiative is 230 customers who bought bonds from Isle of Man-based CMI. They account for £51 million of the £62 million invested in the offshore bond schemes promoted by NIB in the 1990s and have potentially the strongest case against the bank.
Other clients were sold similar products from Scottish Provident International (Isle of Man) and Old Mutual (Guernsey).
The offshore bonds were sold by NIB as tax-free investment vehicles but were, in reality, subject to capital gains tax (CGT). In many cases the bonds should not even have been offered to the bank's customers. These issues form the basis of the allegations.
Details of the scheme emerged in 1998 and led to all the bond holders being investigated by the Revenue Commissioners and CGT assessments were subsequently raised. The Revenue Commissioners also looked into the source of the funds put into the bonds and raised additional demands, including interest and penalties.
Resulting settlements have averaged over £50,000 per customer to date and could total over £20 million.
NIB plans to compensate customers for the portion of the tax demands that relates to CGT, but not the extra bills which are significantly larger in many cases. The cost to the bank has not been quantified but will run into millions.
A spokesman for the bank confirmed last night that NIB would be writing to customers today. He stressed that the bank - owned by National Australia Bank - was contemplating compensating only customers who were mis-sold investment products.
