“Brian did not emotionally invest, but he couldn’t afford to. At that time, having a sense of what he was facing, he needed all his emotional resources just to stay intact. To keep functioning. It’s like asking me to invest in the stock market. I’d love to, I trust your judgement, there’s profit to be made, but I have to use my money to keep myself fed and clothed. I can’t afford to lose, I absolutely can’t take the chance. Brian had an incredible drive to keep functioning, to be the competent guy with the briefcase. He didn’t have a lot left over to do other things with.
“Our handicap at the time he was here was that we only had two weeks with him. Now it’s an average of four to six weeks, and people might stay longer. Two weeks was just long enough to identify concerns and address crisis issues and make recommendations. When Brian left I think he intellectually grasped what we were talking about but, in the emotional sense, was just beginning to. When someone leaves, there’s something clinicians exchange that doesn’t go on the record — ‘Has this guy got a shot or not?’ I believed Brian had a very good shot because he was scared shitless of what was going on and he used his fear as a motivator. I had a sense that when the realization of what he’d done really sunk in he would hold on to his skills and abilities to see him through. His abilities lend themselves to many productive things, but those same abilities handicap him in the sense that he doesn’t have to change. Doesn’t have to focus on himself. Doesn’t have to address, in long-term therapy, what may be deep down inside.
“When Brian left at the end of his treatment, I felt he was someone who would stay in a position where he could maintain equilibrium, the safe place emotionally. The ironic part, which I don’t think he really appreciated while he was here, is that the last time he chose the safe place — in terms of who I think I am and what I need to do to continue being who I think I am — he ended up doing some of the most dangerous and self-destructive things anybody could do.”
10
SETTLING ACCOUNTS
“The gambling of business looks with austere disfavour upon the business of gambling.”
– Ambrose Bierce
ost people who read about Molony — in the Wall Street Journal or National Enquirer, The New York Times or News of the World, The Baltimore Sun or The Toronto Sun — assumed his fraud had been perpetrated by sophisticated use of a computer. They’d heard about another bank employee who diverted fractions of cents and wound up half a million dollars richer, or the teller who turned her boyfriend’s $300 deposit into $300,000, or the Los Angeles computer analyst who stumbled on the code word and dispatched millions of dollars to himself in Switzerland. How else could an assistant manager with lending authority of $35,000, in a branch with lending authority of $100,000, have committed ninety-three separate frauds, in amounts as high as $1.8-million? Who but a computer expert could have stolen almost $17-million over nineteen months, strategically repaying $7-million to avoid detection, leaving the bank — on the day of his arrest — $10.2-million poorer? Molony must have been a technological whiz, like the eighth-grade students in Manhattan who, using a school computer and a telephone, penetrated the data banks of twenty-one corporations.
In fact, Molony’s frauds had little to do with banking technology. Customers may be subject to the tyranny of the computer — “Sorry, I can’t update your passbook, the computer’s down” — but employees still rely on scribbled notes. As Walter Stewart pointed out in his book about the Canadian banks, Towers of Gold, Feet of Clay, “Eighty per cent of all banking transactions are still paper-based, only twenty per cent consist of electron talking to electron.” Pieces of paper set money in motion; one reason the frauds went undetected is that so many pieces of paper are in motion in a bank that no one has time to look carefully at them all. On a typical day Harry Buckle approved more than a hundred notes. Easy enough to imagine him glancing at each in turn, initialling the corner, his mind wandering. Easy enough, in the Wednesday deluge, to forget the Tuesday entries that had said, “Dummy note to follow.”
After an exhaustive investigation, the bank characterized the defalcation as “brilliant.” The frauds were actually impulsive; perhaps if they had been more carefully planned they would have been more easily detected. It’s tempting, in retrospect, to see the ninety-three transactions as part of a master scheme. But Molony viewed each fraud as the last — the big win, just around the corner, would bring salvation. The size of the embezzlement and its improbably long duration owed more to faulty safeguards and unusual circumstances than to Molony’s brilliance.
A former CIBC employee wrote to Eddie Greenspan: “After working for the Midland Bank [in England] for several years, I was horrified by the systems with which the CIBC controlled their credit operations. On the 5th and 20th of each month, a liability return was sent to head office. Any manager who wanted to be dishonest knew when the returns were due. In England it was done on a surprise basis, and not all branches on the same date. I feel the bank should be partly responsible for the missing funds …” That procedure was changed, coincidentally, midway through the Molony frauds; the liability return became a monthly control that could be sprung on any date. Like the branch audit that failed to turn up a shortfall of more than $2-million, however, the liability return was evidence of the failure of the bank’s systems.
The Molony case brought to light many failures. Sherry Brydson’s signed promissory notes, for instance, should have been numbered and properly recorded. The assistant manager administration should have routinely perused staff accounts and remarked on Molony’s first purchases of U.S. cash at Deak Perera and Friedberg & Co. When Molony used U.S.-dollar drafts, the purported purchaser’s signature should have been required. It was right there in BMO XIII-7-4.01: “A requisition for a draft should be taken on the requisition part of the multipart foreign draft form, or on Form 27, and be signed by the purchaser …”
When a corporate account was opened, the customer signed a standard agreement with the bank that included a list of signing authorities and specimen signatures. When Molony created the fictitious 499726 Ontario Ltd., the bank had no such agreement and no list of signing authorities. The person responsible for ensuring that the agreement had been executed was Molony himself. He showed the numbered company as having an authorized credit of $3-million. Because the credit exceeded the $100,000 branch limit, a loan writeup that included the head-office authorization should have been filed in the manager’s office. Harry Buckle evidently never confirmed the authorization. Given a supposed limit of $3-million, how was Molony able to advance himself more than $4-million through the numbered company’s account? Loan advances in excess of $3-million ought to have prompted inquiries when they showed up on the daily transaction journal.
Each day the branch received a transaction journal reflecting the loan activity at Bay and Richmond. The journal was a computer printout, generated by the data centre beneath Commerce Court, listing every loan advance made the previous day. Attached to the journal were the promissory notes, one for each loan. The journal and the notes were routed through the branch. As manager of post 2, Molony received the journal along with the notes for loans at his post. According to bank procedure, in other words, the person responsible for ensuring that the loans made by post 2 were properly recorded and documented was the manager of post 2. Molony simply initialled the notes, indicating that they corresponded with the journal entries; the journal was then passed to the manager of the next post, who initialled his own notes. After all the assistant managers had initialled their notes, the journal and the notes were passed to the manager. He, too, initialled each promissory note. If anything seemed amiss, he could refer to the transaction journal, or to the loan sheets filed in his office. He was supposed to have a write-up for every loan made by his branch.
The extensive use of dummy notes helped make possible some of the frauds. A branch should lend only to the presigned promissory notes on hand. For anything above that, the customer should have paid overdraft charges at a high
er interest rate. Dummy notes sometimes had to be used in a pinch, when a customer was in urgent need of funds and the branch had no more of his signed notes; but their routine use ought to have been discouraged. When a loan was recorded in the bank’s discount department as having been advanced against a dummy note, the post manager was responsible for ensuring that the dummy note was replaced by a signed promissory note. By the bank’s system, then, Molony was again supposed to have monitored his own loans. A manager on his toes would have followed up the dummy notes, checking with the discount department to ensure that they had been replaced by signed demand notes. Increasingly in recent years the CIBC has adopted the U.S. procedure of using overdraft borrowing to cover a customer’s operating loans, and the use of dummy notes has dwindled.
Once a year every CIBC employee with a holiday entitlement of more than two weeks was supposed to have taken at least two weeks consecutively. The assistant manager administration was responsible for looking through the records and preparing a letter for the manager. By February 28, the manager was supposed to have confirmed in writing to head office that every staff member had taken holidays the previous year in accordance with PAM, the personnel administration manual. Molony did not do so in the last year of the fraud; apparently no one at the branch was aware of the violation. It’s a banking cliché to beware the employee who avoids holidays, and a manager on his toes might have had his curiosity pricked.
No one in the bank was much surprised that the CIBC’s own audit failed to uncover more than $2-million in bad loans. An inspector grades each loan as a good, average, or bad risk, and verifies the terms, conditions, and security. He’s looking not so much for irregularities as for documentary confirmation that this loan — like the huge majority of loans — is legitimate and sound. If the documentation shows that the company is doing well, or that the loan is fully secured, or that the borrower has substantial net worth, the inspector tends to purple-pencil it routinely. He’s more interested in whether the paperwork is in place than in whether the information it contains is accurate. The audit should also have scrutinized employee accounts and noted the unusual activity when Molony first bought U.S. cash.
Had the two branches not been merged six months after the fraud began, Molony would probably have been tripped up sooner. The merger brought confusion, as well as changes to the physical plan of the branch. The changes aided Molony. The securities department was moved from the ground floor to the basement; when Molony sold bearer bonds from Richardson’s to the securities department of his branch, purportedly on instruction from a customer, he was unseen by people in other departments unless they too happened to be downstairs. At the same time, Molony’s office was moved from the ground floor up to the mezzanine level, out of sight of the discount department and the foreign-exchange department. When he picked up cash parcels, pretending that Roger Oskaner was waiting in his office, the head teller would have had to follow him, at least to the foot of the stairs, to see that his office was empty.
The merger also meant the replacement of Alex Osborne by Harry Buckle, and Molony would not likely have survived so long with Osborne at the helm. Buckle was a manager from the old school. He had little contact with junior employees, preferring to let his senior people communicate with them. His management style meant he had less feel for day-to-day operations than a hands-on manager would have had. He was riding out his last year before retirement, no longer motivated by the prospect of promotion. Who, in that position, would have been as rigorous a monitor of branch affairs as someone whose performance would speed his way up the ladder?
Molony’s success at defrauding the bank may also have owed something to his timing in the larger setting. In 1964 a royal commission into Canadian banking called for “a more open and competitive banking system.” The 1967 Bank Act, “A Blueprint for Competition,” was meant to promote that competition, but it had the opposite effect. Canadian banks had previously been limited in the interest rate they could charge, and the limit — 6 per cent — made it uneconomical for them to make consumer loans. Canadians who needed money for a car or a vacation generally went to a finance company. When the 6 per cent limit was lifted, the banks began underpricing the finance companies and soon dominated the consumer-loan market. Between 1967, when the banks moved into personal loans, and 1982, when Molony was arrested, the consumer-credit market grew by a factor of five; the banks’ market share increased from about a third to more than three-quarters. The Bank Act revisions had a similar effect on the mortgage market. In the decade after those revisions, the banks’ residential mortgage portfolio grew from less than $1-billion to more than $18-billion. When Molony started at Bay and Richmond, in 1978, the bank’s total assets were about $37-billion. When he was arrested, four years later, total assets stood at $68-billion.
The 1970s and early 1980s were years of great activity and growth, in other words, and the CIBC — though not performing as spectacularly as some of the other banks — was making money hand over fist. During Molony’s time at Bay and Richmond, the branch limit was raised from $40,000 to $50,000, then $100,000. Business was booming, Bay and Richmond was a busy branch — all the more so after the merger — and Molony’s was the busiest post. Everybody was up to their ears in work.
Which brings us to the single most important explanation of why Molony went undetected while losing, on average, $18,280 of the bank’s money every day, seven days a week, for more than a year and a half. As a bank employee, you’re trained to be careful and skeptical: never sign anything you don’t understand, never initial incomplete documentation, alert your superior to anything dubious. In practice, though, you have no choice but to trust your colleagues. For all the built-in security measures — by-the-book procedures, double signatures, frequent balancing — you rely on mutual trust. When someone hands you a scribbled note and says, “I need a draft, I’ll give you the documentation later,” you assume he’s acting with integrity. You must. If you did everything as scrupulously as you were supposed to, you’d never get the day’s work done.
Everyone who knew him well agreed Brian had changed during his two weeks in Baltimore. The treatment program had evidently given him some answers and some useful tools. He was willing to talk about himself and what had happened. Eddie Greenspan found him no longer skeptical of a defence based on what Walt Devlin called “a disorder of impulse control.” Brenda found him less driven and more communicative. Molony, of course, had a psychological need to embrace any medical explanation of what he’d done, and his newfound understanding might have been suspect if he’d used it to diminish his own responsibility. But his interest in compulsive gambling wasn’t so much a convenient enlightenment — “Great, I was sick, it wasn’t really my fault” — as an intellectual curiosity about the addiction. He was haunted by his actions, and by the knowledge that the repercussions were being felt in many other lives.
In the fall, six months after Brian’s arrest, Dr. Molony took his wife to Ireland to see family and friends, visit horse farms, and play golf. Mrs. Molony began having trouble with her back. It interfered with her swing, then began to bother her so much she could barely move. She refused to go to hospital in Dublin, telling her husband she preferred to wait until they got back to Toronto. She had to use a wheelchair. The day they returned Brian dropped by the house and found her in bed, suffering terribly. Next day she went to hospital for tests, which revealed cancer in her spine.
An operation was performed on Dr. Molony’s birthday. His children took him to dinner, a grim celebration indeed. He had spoken to the operating surgeon. “Sometimes,” he informed his children gently, “I wish I weren’t a doctor.” Mrs. Molony’s kidney proved extensively malignant and had to be removed. She was admitted to Princess Margaret Hospital for radiation. She was able to go home for Christmas, then had to be readmitted. A portion of her spine was removed and metal rods inserted for support.
The family was devastated. They all adored her. What other mother of nine never failed to se
rve a hot meal at midday? Oh, Katie, a budding feminist, teased her sometimes for catering to Dr. Molony, preparing a second dinner when he got home each night. And they all ribbed her about her stock-market forays, though she made shrewder investments than any of them. But in her quiet, gentle way she anchored the family. They went off on their adventures and brought home their pals and girlfriends, knowing she’d always be there to cook their meals and iron their shirts. She had the patience of a saint and never uttered a murmur of complaint.
Only once before had she ever been seriously ill. She had joined her husband in Toronto in 1953, coming from Ireland with her first three children and Maud McCabe, the housekeeper she had hired in Dublin. A year later, about to give birth to her fourth, she was found to have a melanoma on her arm. When the doctors removed it they discovered the cancer went deep into the muscle, right up to her neck. They had to operate, a radical procedure that left her utterly depleted. Giving birth took the last of her strength. When they sent her home she was a frightening sight. Brian Patrick Molony was a healthy 8 pounds, 7 ounces. For many weeks it looked as if his mother would not pull through. Gradually she recuperated, though, and ever since had been in fine health. Once a year, regular as clockwork, she came down with a mysterious flu that made her shiver and moan and scared the daylights out of them. But after a day or two in bed she was good as new, cheerful and uncomplaining.
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