A glaring collusion that took 18 months to uncover

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Bank 'fraudster' has met investigators, says lawyer

Quiet, diligent worker was a model of the American ethos

City traders knew of looming disaster at Allied Irish Bank

Outlook

The fraud of $750m (£530m) at Allied Irish Banks (AIB) is not the first financial crisis to be caused by a currency trader, and it is unlikely to be the last.

Like other examples of rogue trading – notably the £800m of losses run up in 1995 by Nick Leeson, which brought down Barings Bank – the problems appear to have stemmed from an absence of supervision.

John Rusnak made his living by entering into foreign currency transactions with banks and other counterparties. Given the multimillion-dollar scale of the deals, the potential for fraud is enormous, as was demonstrated by Mr Leeson, whose losses were only possible because there was nobody to scrutinise his transactions.

But in the post-Leeson era of improved regulation, this kind of unsupervised trading was meant to be impossible.

The deception ought to be have been stopped by a "back office" required to process Mr Rusnak's transactions, or later by a separate compliance unit overseeing the two. Failing that, the company's internal auditors should have noticed that large amounts of cash were leaving the business. And twice a year, the company's financial position would be reviewed by external auditors.

City observers were aghast yesterday at how Mr Rusnak could have got past all these checkpoints. He created the impression that he had offset his loss-making transactions by entering into separate foreign currency transactions. But those contracts were fictitious – a glaring fact that has taken 18 months to uncover.

It is possible that Mr Rusnak required accomplices. AIB has suspended four managers. Mark Thomas, a banks analyst at the investment research house Fox-Pitt Kelton, said Mr Rusnak might have persuaded friends to sign off contracts as a favour. "You can't book a deal in isolation, but the collusion could have been entirely innocent," he said.

A head of foreign exchange trading at a big investment bank said: "To be fair, it is hard to spot collusion between the front and the back office."

The trades involved would have been large enough to raise eyebrows at the banks with which he was dealing. That ought to have set alarm bells ringing – unless, like Mr Leeson, Mr Rusnak was making too much money for questions to be asked.