AIB hires bank chief to probe $750m US fraud

Allied Irish Banks yesterday brought in an independent outside expert to lead its internal investigation into the $750m (£550m) fraud at its US subsidiary Allfirst.

Eugene Ludwig, a veteran federal regulator and eminent US banking figure who served as the Treasury Department's comptroller of the currency during the Clinton administration, will immediately start his own inquiry and present a report to the bank's board within 30 days.

"He is, I would say, peerless in terms of his qualifications to provide an independent report ... that our board can act upon in full confidence," said Michael Buckley, AIB's chief executive.

An AIB spokesman confirmed it believed John Rusnak, a 37-year old trader at Allfirst, had falsified documents to cover a spiral of bad investments. Mr Rusnak is accused of trying to disguise huge dollar-yen foreign exchange losses with fictitious trades, which went unnoticed by management for more than a year.

Lawyers for Mr Rusnak have denied their client stole money from the bank. The FBI has launched a separate criminal investigation and has interviewed Mr Rusnak, though he has not been charged.

Mr Buckley yesterday accused Mr Rusnak of being at the centre of "a diligent and a devious fraud" that probably involved collusion with at least one person outside the bank.

He said Mr Rusnak's lawyers "have tried to give the impression that this was some sort of 'learner driver' who went out of control. This was a sophisticated fraud."

How a trader in a treasury unit with revenues of less than $10m a year could have brought about such large losses without triggering control mechanisms is a riddle that Mr Ludwig has been charged with solving.

"This was a fraud – there is no question about that. He [Mr Rusnak] set out diligently, deliberately and deviously to get around the controls that existed and to construct bogus contracts," Mr Buckley said.

The Irish bank yesterday said it had no intention of selling Allfirst in the wake of the scandal.

Mr Ludwig, 55, is currently a managing partner of Promontory Financial Group in Washington.