Did Nama’s reputation concerns stop it from investigating adviser?
Nama’s failure to investigate its former adviser, Frank Cushnahan, is one of the more troubling aspects of the Project Eagle controversy.
The damning report by the Republic's Comptroller & Auditor General (C&AG) Seamus McCarthy on the loan sale does not speculate to any great degree about Nama’s motivation for deciding not to take steps to get to the bottom of things.
However, it does bring into the public domain documents that indicate the agency was seriously concerned its reputation would be damaged if details of Mr Cushnahan’s activities became public.
Nama’s board was informed on March 11, 2014 that a potential issue had arisen during discussions with investment firm Pimco, which had been pursuing a deal to buy the portfolio since the previous April.
During a conference call, a lawyer for Pimco told Nama representatives about a “success fee arrangement” the firm proposed paying in the event of a successful bid.
The Pimco lawyer said this involved three parties – New York law firm Brown Rudnick, Belfast solicitors Tughans and Mr Cushnahan, a former member of Nama’s Northern Ireland Advisory Committee (NIAC).
They were to split a fee of either £15m (€17.6m) or £16m (€18.8m). There are varying accounts of the figure.
It is clear the news set alarm bells ringing at the board meeting. Minutes show it was noted that Mr Cushnahan, who quit the NIAC the previous November, had never disclosed any conflict of interest while in office.
The board noted external NIAC members such as Mr Cushnahan did not have access to sensitive confidential information about debtors.
However, there was a recognition that he would be knowledgeable about Nama’s strategy in Northern Ireland.
Nama also knew Mr Cushnahan had business links with at least seven Nama debtors, who together owed the agency almost £1bn (€1.18bn). The board felt his involvement with Pimco “raised a significant reputational risk to Nama”.
The minutes show the board discussed whether “Pimco’s bid, at this stage, was fatally flawed”.
Two days later, the board was informed that Pimco “felt obligated to withdraw”.
Given the level of concern evidenced in the minutes, it seems strange that Nama did not pursue Mr Cushnahan for an explanation.
Nama chairman Frank Daly said this week that there was little point in pursuing him at the time as the Pimco deal was dead.
However, the C&AG was troubled by this line of thinking. He found Nama should have sought advice or written to Mr Cushnahan to seek an explanation. Mr McCarthy also found that Nama never briefed Lazard, the advisory firm conducting the sale on its behalf.
Had Lazard been told, it could have assessed whether the entire sales process had been compromised. Instead, knowledge appears to have been confined to the Nama board and a small number of senior executives.
The proposed fee arrangement only became public when it was disclosed by Mr Daly at the Dáil Public Accounts Committee in July last year after police began investigating corruption claims.
Pimco’s withdrawal left Nama with two bidders, Cerberus and Fortress, with Cerberus eventually submitting the winning bid.
Nama received an assurance from Cerberus that no one connected to Nama would receive a fee in respect of the deal, but again it seems Nama failed to ask enough questions.
The agency only discovered as the deal was going through that Cerberus had agreed to pay fees to Brown Rudnick and Tughans, the firms who had worked alongside Mr Cushnahan on the Pimco deal. Around £7.5m (€8.8m) subsequently paid to Tughans ended up being diverted by its managing partner, Ian Coulter, to an account in the Isle of Man.
The UK’s National Crime Agency is investigating who was destined to benefit from the cash. In a secret recording broadcast by the BBC, Mr Cushnahan said £6m (€7m) of it was for him.
If Nama’s inaction after it learned of the links between Pimco and Mr Cushnahan was motivated by a desire to ensure damaging information did not become public, it is a strategy that has failed spectacularly. The damage its board was so worried about has only been exacerbated by its failure to act on that information.