Tuesday, 3 November 1998
Seanad Éireann Debate
Mr. Finneran: I welcome the Minister of State to the House. This is an important debate in the context of recent discussions about the exposure of problems in the banking sector. The debate on problems in financial institutions started in March when a sequence of events unfolded in which irregularities were found and questions were raised publicly about the whole banking system and the activities of financial institutions.
 The first revelations concerned the problems in NIB. We then had a statement from the Central Bank and a meeting of the Joint Committee on Finance and the Public Service. An attempt was made at that stage by the people involved to avoid releasing all the information in their hands. I clashed with the Governor of the Central Bank at that time in regard to the level of information which was being made available, and also with the Revenue Commissioners to some extent. Since then, both institutions have come into the public arena.
For the first time in the history of the Central Bank there was a public interview with the Governor over the weekend; this was welcome. When I was a member of the Oireachtas Joint Committee on Commercial State-sponsored Bodies, I always felt it was inappropriate that we did not have an opportunity to investigate and report on the activities of the Central Bank. It was not in the best interests of the financial institutions that they were unavailable to report to or be questioned by a joint committee of the Houses of the Oireachtas. That is no longer the case.
The banks are now prepared to put their side of the story and the reason they are doing so at this time is that they have come under the spotlight and have received a lot of criticism, much of which was due. They could have avoided much of the criticism if they had explained their position earlier. We have an opportunity today to take an overall look at banking, which is important.
The Coinage Act was introduced in 1926, as far as I recall from my research, and, by and large, the financial institutions and the banking system, which has operated since then and which, in earlier years, leaned heavily on sterling, has served this country well. We have had little scandal and upheaval and we should be thankful and grateful to those who ran our banking institutions over the years because they kept a steady hand on the banking system. I would not like the opportunity to pass without placing that on the record.
The strength of that system has enabled this country to take a number of steps, including the break with sterling. What is considered to be the final step is our decision to become one of eleven members opting for the euro. We have excluded ourselves totally from the sterling system. It is a measure of the development of the banking system and of our confidence in it that we are in such a position internationally and within the EU. While we should be proud of that record, we should not rest on our laurels.
Recently, certain activities which are unacceptable both here and internationally were exposed. It is appropriate that they were exposed but it was a tedious job to so do. Indeed, had not been for certain journalists in RTÉ we would not have the level of information we have today. Had it not been for the committee system in the Dáil and Seanad and the probing of the issues by the  Oireachtas subsequent to their exposure by RTÉ we would not have all the information we have at this time. However, I qualify that by saying I do not believe we have all the information we need.
Two very serious matters were exposed, including the tampering with interest and deposits, to some extent, by one bank. That matter was exposed some time ago. Such activity is possibly illegal and it was an inappropriate use of bank charges, referral fees and so on. To some extent that was a watershed in banking. The myth of confidence among people about the banking system exploded. It showed that one could not be confident about a system where managers, regardless of whether they had the nod from the top, were prepared to cream off money from accounts for the benefit of either the bank or the branch. This scandal was correctly exposed.
More recently the issue of bogus non-resident accounts arose. This is one side of the coin. The other is the attempt to evade the payment of due taxes. Over the years there has always been a whisper that if one was wealthy enough and knew the right people, one could get off more lightly than ordinary PAYE workers. I did not believe that to be the case, but the exposure in recent weeks regarding AIB leads me to believe that an opportunity was provided to wealthy people to evade their responsibilities to the Revenue Commissioners and thereby deny the Exchequer money due to it. This money could have been ploughed into health, education or infrastructural services. The people involved engaged in criminal activity.
We must be clear about what is involved in this matter. Legislation governs the payment of tax and people who evade tax break the law. The line has always been given that it is appropriate to try to evade tax. It does not appear to be viewed as a major crime to evade tax with the connivance of some professions or financial institutions. However, I do not accept that. People who are liable for tax have the same responsibilities as employers or employees who pay under the system where tax is stopped at source. The institutions which accommodated people with bogus non-resident accounts breached the taxation laws. They were complicit and acted in consort with people who did not want to pay tax. It was most important that this matter was exposed in an era of transparency and accountability.
The Central Bank and the Revenue Commissioners were involved in the issues of the creaming off of accounts by one bank and the establishment of bogus non-resident accounts and non-payment of tax by another. I have watched the public operation of the Central Bank since March and it has done a reasonably good job. The bank went public this week when the Governor explained its position further. However, earlier this year at a meeting of the Joint Committee on Finance and the Public Service I attempted to  extract from the Governor of the Central Bank the circumstances in which a bank would lose its licence. The Central Bank is the licensing authority for commercial banks, but I failed to establish the particular circumstances in which a licence would be withdrawn. The Governor was not in a position to outline the specific circumstances in which a bank would lose its licence.
If I have a driver's licence and I commit a certain offence, I will forfeit my licence. The same applies if one has a local authority licence to discharge effluent into a waterway and breaches its conditions. These may be simplistic examples but if one breaches the terms of a licensing system, one should be penalised or lose one's licence. However, I could not establish from the Governor of the Central Bank if there were particular circumstances under which a commercial bank would lose its licence and I informed him that I did not accept that.
I listened to an interview with the Governor on Sunday who has come round to thinking that the Central Bank worked to some extent in good faith with the commercial banks. He called it a peculiar relationship, which it was in so far as commercial banks did what they liked. Not alone did they do what they liked with regard to accounts and, indeed, interest rates, they also acted in concert with individuals to evade paying the State money to which it was entitled. That cannot be allowed continue and it is opportune to appoint a new financial regulator for our financial institutions. I am calling for a new financial regulator who will oversee bank charges and all other matters relating to financial institutions. It is long overdue as people have lost confidence in the system. The public will not accept a touched up edition of the current system. A new financial regulator is important and should be put in place by the Government as soon as possible.
I compliment the Committee of Public Accounts. It has taken a definite line on tax evasion and collusion between banks and individuals regarding bogus accounts and intends to pursue the matter. It should be pursued not alone by the committee but by the Government and the Minister for Finance and we should have definite answers at the end of the day. It is not good enough for the representatives of one of the major commercial banks in the State to appear before an Oireachtas committee and inform it that it had an understanding with the Revenue Commissioners whereby a certain amount of tax was agreed and the bank would put its house in order after a specified date and then days later the Revenue Commissioners appear before the same committee to deny there was such an understanding and say that they pursued the matter as they saw fit. The simple facts are that money has been lost to the State and this dark period in banking should be investigated and, if necessary,  people who were involved or colluded in denying the State its entitlement should be prosecuted. The laws are in place for such people to be prosecuted. I do not believe they should be above the law just because they hold high positions in our financial institutions.
We need to restore the confidence of the ordinary person in the way the State and its financial institutions operate and interact. I have attended meetings and spoken to many people recently who said that those at the highest level must have known what was going on. I do not believe that various Ministers for Finance knew, irrespective of which Government was in power. They left the job of revenue collection to the Revenue Commissioners as they were independent, but the ordinary person does not accept that. It is necessary to have more transparency and to appoint a totally independent financial regulator.
This is also important in terms of the future as we enter an era where Ireland will be one of 11 countries with a new currency, the euro. That will be in place on 1 January 1999 and the last thing the country needs following that date are financial scandals and ongoing investigations. This matter should be dealt with speedily. It should not be allowed to drag on and fester and continue to undermine our financial institutions, particularly for political purposes, by extending the debate and investigations when it is no longer necessary. However, it is necessary to carry out these investigations and conclude them in a reasonable time. There is no need to hold tribunals, which have not served the country well from a financial point of view.
Extended powers for the Comptroller and Auditor General and legal research facilities for the Committee of Public Accounts are adequate to deal with the matter. I believed the Governor of the Central Bank on Sunday when he said things had changed. There were major inappropriate dealings in the past regarding bank accounts, etc. It was an industry culture for many years but I believed him when he said that was no longer the case. Financial institutions comply with the legislation which enables the Revenue Commissioners to deal with such matters. It is only fair that we move forward on that basis but the bile which existed for the past ten years should not be allowed to fester. It should be lanced and its contents exposed in the best interests of financial institutions.
I am pleased the House agreed to this debate. It is important in the interest of alleviating public concern that the Houses of the Oireachtas take the opportunity to speak on matters that sometimes may not directly involve them. If the approach of the Central Bank and other organisations which appeared before the Oireachtas Joint Committee on State-sponsored Bodies over the years had not changed the sacred cows would still be in place and we would not be in the position  we are today. However, it is not too late as we have very sound financial institutions. We should be proud of them in many ways and we must look forward.
I look forward to our involvement in the EU as equal partners in the euro. We should as speedily as possible resolve what was there as a residue and deal with it on the basis that it was a practice which has served us badly in so far as it allowed people to misappropriate, defraud and evade the taxes which were due to the State. I have confidence in the banking system. The way forward is not with the present institutions as regulators but with an independent financial controller with the necessary powers to oversee financial activities.
Mr. Coghlan: I welcome the Minister and look forward with interest to what he will have to say on this important subject. I listened attentively and with interest to Senator Finneran and, indeed, agreed with much of what he had to say. The main questions arising for all of us are one, safeguarding the banking system and ensuring its integrity, two, safeguarding the consumer, the user of a financial institution's services, and, three, the provision of necessary and proper regulation.
There have been huge changes to the banking sector in recent years as banks and financial institutions have expanded to provide more and more services. For a small country, Ireland has a vigorous banking sector which is highly competitive and most institutions compete in all segments of the market. There are over 70 banking operators in Ireland, an increase of 25 per cent since 1995. Activity in the more complex area of banking has increased and rapid advances in technology have played a major part in changing the face of the marketplace.
Legislation such as the Criminal Justice Act, 1994, enacted to combat the increasing threat from money laundering activities, has also had a huge impact on the industry. Despite all the transgressions of the past we are now informed that it is a very compliant culture in the financial system. It is to be hoped that all financial institutions are conscious of their obligations in this regard and that that is a true statement.
The public expects the highest standards of behaviour in its institutions and banks, no less than anyone else, must now cope with the new unprecedented level of examination from the Committee of Public Accounts, regulators and the media. We live in an age of openness, transparency and accountability and none of us wants to roll back the clock in regard to those necessary requirements.
Ireland can be thankful that, on the whole, it has a competent, reliable, well regulated and, indeed, innovative financial sector. There is no doubt that banks have improved since the early 1990s in their work on customer service and improving on best practices. If all that has  emerged recently is true, that was necessary because most of what we are discussing relates to the early 1990s and many years before that.
No doubt recent years have been a tough learning experience for all engaged in the banking industry, but it is good to note that the financial services industry employs over 40,000 people, an increase of 30 per cent in the past ten years and the industry forecasts that it will recruit 11,000 people over the next three years. This is in stark contrast to the UK where 80,000 jobs were lost in retail banking since 1990.
Despite the problems of the past — thankfully what we are discussing belongs to the past — today's banking industry is on the whole dynamic and forward looking. As the economy faces the great challenge of economic and monetary union, the introduction of the single currency and the changes which this will inevitably bring, the Irish banking sector must now lead in its introduction.
Regarding bogus non-resident accounts which have taken up so much time and space in the media and have been of interest to all of us, I am a little amazed that the Revenue has always had the power to examine declarations of non-residency, which are required to contain the name, address and country of tax residence of the person entitled to the deposit interest, and the financial institution has a duty in law to satisfy itself that a deposit is not exempt from DIRT before it pays interest gross. However, despite the Revenue's success in many individual cases, it seems that it never really exercised its power to examine declarations, at least not until April or so of this year.
There is no doubting the conflicts between the Revenue's position and that of AIB as shown up in the recent statements to the Committee of Public Accounts. The Revenue it would appear was assured in the early 1990s that all the necessary steps were taken to ensure compliance with the legislative requirements. The Central Bank was aware of the matter at the time and of the steps being taken, including those of the Revenue Commissioners, to correct the situation. It has also been established that the Revenue had commenced a review of the position generally prior to the media reports earlier this year of historic non-complicance. In fact, a former banking chief executive was quoted in The Sunday Business Post last Sunday as stating that it was very much part of the culture for the preceding 30 years.
The Revenue has assured the Committee of Public Accounts that its ongoing review of any possible DIRT shortfall covers all financial institutions and is well advanced, so I hope the investigations in hand will bring the matter to a satisfactory resolution. The Revenue Commissioners have gained significant additional powers in law over the years and it is to be welcomed that the Minister for Finance has asked them to look at whether any further new powers are needed. The outcome of this review of the Revenue's powers will no doubt be examined in the light of the report of the Moriarty tribunal whenever that will  be to hand so that whatever measures are considered in this area can be taken.
What is not clear is whether a deal was done between the Revenue and any financial institution. One institution is very much in the news but the Revenue assures us that it is reviewing with all banks and as it is alleged to have been an industry wide problem, then it is necessary for the Revenue to deal with all regarding the status of declarations of non-residency. Fifty three thousand accounts out of a total of 87,660, or 60 per cent, is a huge proportion to be alleged to have been bogus, dubious or suspect in any one institution.
All the revelations make clear that the Central Bank was not required to perform contradictory functions. The Central Bank has been charged only with the responsibility for the prudential supervision of the banking system, as its Governor has repeatedly told us. It has not been able or empowered by law to ensure that banks comply with tax law or the interests of consumers. I would suggest it was a fault of successive Governments that such a situation was allowed to prevail. This has been well known and, indeed, I understand the Minister for Finance asked his Department in April to make proposals as to how the role of the Central Bank could be clarified and the interests of consumers safeguarded. A good case can be made for requiring everyone claiming non-residency status to register with the Revenue Commissioners, and I would recommend such registration to the Government, in other words, there would be some sort of tax clearance certificate treatment for a person who wished to open such an account. That would put it beyond doubt and the banking problem we are debating would be prevented from ever arising again. The Government has a duty to satisfy itself that all necessary and possible action is being taken by the Revenue Commissioners, the body charged with and accountable for the collection of tax.
The Fine Gael Party seeks a full investigation into the evasion of DIRT through the use of bogus non-resident accounts. It further believes that the Committee of Public Accounts, with the assistance of the Office of the Comptroller and Auditor General, is well equipped to carry out this investigation. Like Senator Finneran, I congratulate the committee on the significant progress it has made to date. I particularly congratulate the chairman of the Committee of Public Accounts, Deputy Jim Mitchell. Fine Gael supports the political consensus to give the committee and the Comptroller and Auditor General any additional powers or assistance which might be necessary to enable them to complete their investigations.
Fine Gael demands that any outstanding liability for DIRT by any financial institution be paid in full. Evasion of DIRT through the use of bogus non-resident accounts was an industry wide problem and was not confined to one institution. All  financial institutions which owe tax should have to pay it. Fine Gael demands that the Minister for Finance ensures that all outstanding DIRT is paid.
We further demand that the Minister states the policy of the Government in respect of the collection of outstanding DIRT and arranges to meet the chairman of the Revenue Commissioners immediately to discuss the above matters. We also demand that the Minister state what contact and discussions took place between the then Minister for Finance in 1991 and the Revenue Commissioners before the latter entered into any arrangements with any financial institution — if they entered into any such arrangements. Fine Gael calls on the Revenue Commissioners to fully explain their actions and, in particular, why they waived DIRT, if they did, due from any financial institution in 1991 and 1992.
Everybody should clearly understand that the role of the Central Bank as supervisor of the banking system is clearly defined in legislation. Essentially its responsibilities are to ensure the stability of the banking sector and to protect depositors. It is required to follow strict rules of confidentiality. It cannot disclose to third parties its dealings with individuals and individual institutions.
The stability of the banking system is a matter that properly concerns everybody. When it goes wrong the economy suffers and when the economy suffers, everybody suffers. This country's banking system has a good record. There have been few failures and the costs to taxpayers have been small. This contrasts with experience elsewhere in Europe and beyond.
With regard to a regulator, every Member agrees on the need for new arrangements for consumer protection. It is timely that this is being considered and that the Government has brought forward terms of reference for the implementation group it established for the financial regulatory authority that is proposed. In view of the dramatic changes in the banking world — technology, electronic banking, large mergers and, of course, EMU — it is time to look at the structures for regulation that currently exist. What must be decided is whether the establishment of an independent services authority is the best and most suitable approach for our requirements.
A super regulator embracing all financial services and covering all aspects of supervision and consumer protection is a huge step. There might be internal conflicts in such a large regulatory body, if one is established. We agree there is a need for one but the type must be decided. In this regard, it is not clear that the British model is working effectively or that it would suit our needs. We must hope that the implementation group, under the chairman Michael McDowell, SC, will interpret its terms of reference to examine widely various models. There are complex issues involved and around the world many and various solutions have been adopted. It would be better to get it right after considering all options  rather than decide in advance what we want or what we think we want.
The group will have to decide, as laid out in paragraph (c) of its terms of reference, the extent to which, if any, existing regulators — that is, the Director of Consumer Affairs, the Registrar of Friendly Societies, the Central Bank and the Department of Enterprise, Trade and Employment — would continue to have functions in relation to the regulation of the financial services sector, and the extent to which any alteration of the status quo would impinge on the non-regulatory functions of the Central Bank. It would be harmful if we were to impinge on the Central Bank in such a fashion because its integrity has clearly not been impugned. Indeed, with so many of the Central Bank's functions being transferred to the European Central Bank together with its loss of control of interest rates, there must be a case for considering grounding any new regulatory authority in the Central Bank.
It is also important that the implementation group gives due regard, as it is required to do under the terms of reference, to being cognisant of the findings of the working group established by the Minister, examining the legal and consumer issues in banking, the findings of the Moriarty tribunal in so far as its remit extends to the regulation of the financial sector, the findings of the report of the Oireachtas Joint Committee on Finance and the Public Service on the regulation and supervision of financial institutions, the regulatory arrangements operating in other jurisdictions with particular reference to how the individual consumer is afforded protection and, finally, the importance of the International Financial Services Centre.
Many will argue, perhaps rightly, that the regulation of the financial services sector is hindered by the multiplicity of regulatory bodies with different regulatory powers and functions. In a small country such as this, haste could be made from both an effectiveness and efficiency perspective for locating all skills relating to financial regulation in a single location. This appears to be the Government's view. It will be interesting to see what will be recommended by the implementation group.
Ms Cox: I welcome the opportunity to speak on this issue. It is vitally important when discussing issues such as this not to focus simply on what has been in the media in recent weeks. We should take the opportunity to take a broader view of the subject, which is what I intend to do.
Our banking system, in fairness, has provided a good service to the State. The banks make a great deal of money and huge profits from their customers. However, it is legal for people to be in business to make profits, which is one of the good reasons for being in business.
I wish to commend the banks as institutions for their tendency to contribute generously, certainly in my experience, to both national and local charities and causes. It is important to recognise  this and to acknowledge that without such support much of the charitable work in communities throughout the country could not happen. I do not wish to give the impression that the banks are saints. They can make these contributions from the profits generated in their business but it is important to acknowledge their actions in this regard.
One of the reasons for holding this debate is public concern about the various scandals which have hit the banking industry, for example, the £14 million DIRT payment by AIB, the allegations that more tax was owed and the obvious discrepancies between the stories of the Revenue Commissioners on the one hand and of the bank's representatives on the other. It is a cause of great concern that two large and what were considered trustworthy institutions — the Revenue Commissioners and AIB — have different versions of the one story.
It appears that more money was owed by investors than was paid by the bank on behalf of investors. It is important to recognise that in this case the bank was paying the money on behalf of the investors. Not only was there collusion on the part of the bank but there was also collusion on behalf of everyone who signed a form and set up a bogus account which stated that they were resident outside the State. We must not lose sight of this fact when casting blame or aspersions and we should recognise that investors also diddled the State.
Scandals in the banking industry rock our confidence in society because it seems to give credibility to statements such as “everyone is at it, anyone with any little bit of money is screwing society, taking money from the poor and doing the wrong thing”. Such generalisations do no one any good and it is important to put matters in perspective. It causes great concern when it appears that big banking institutions, which are hugely profitable, are getting away with defrauding the tax system and with actions that would not be tolerated from the PAYE sector, the self-employed or those who are just trying to run a business. The Government has reacted to this and there have been various reports to the Committee of Public Accounts who are in the process of investigating the matter. This highlights the seriousness with which both Houses view the matter.
Recent advertisements on the run-up to the 31 October preliminary tax deadline were aimed at the self-employed. “Pay your tax on time or pay the interest. Revenue is getting tough this year, Jim”. I was under the impression this year when preparing preliminary tax details for 31 October that Revenue's attitude towards small, self-employed owner-manager businesses was that they should pay their tax on time. It is vitally important that this rule applies to every section of society. We must realise that things were different in the past. We were operating a system where the rates of tax were very high. Ordinary workers could pay 56p, 48p or 35p in the pound  tax. Young people will not remember when the basic rate of tax was 35p in the pound. I can understand the type of culture that encouraged people to sign a form in their local bank to avoid paying tax on their savings. As we enter an era of more transparency and accountability we need to accept that things were different in the past and it is not always fair to judge what happened in the past by today's standards.
This debate today gives us a chance to discuss banking in general. I welcome the changes that are taking place in the banking industry. There seems to be a move towards more transparency in terms of how large banks charge personal and business customers but there is still room for improvement. There is plenty of room for cutting charges and I do not like the move towards a £9 or £10 quarterly charge on personal accounts when a number of customers who kept their accounts in order might have benefited from free accounting. This is something that would have been welcomed in the past. Banks have been very supportive to small businesses in the past but, perhaps, they were not always supportive to women. There were many stories in the bad old days when a woman entrepreneur went to the bank to look for money to start a business she was asked, “Is your husband going to sign on the dotted line with you?”. Thankfully those days have gone and banks are now courting women in business and women entrepreneurs. I welcome that change and compliment the banks on taking the initiative in this regard.
In general, I do not like scandals in the banking industry as they rock confidence. I welcome the fact that the Government and the Committee of Public Accounts are dealing seriously with this issue. If there has been collusion between the Revenue Commissioners and the banks it needs to be brought out into the open and addressed. However, if there has not been collusion, someone has made a mistake and that needs to be addressed. I look forward to a renewal of confidence in the system and to a system which is devoid of scandal, and a little cheaper.
Mr. Ross: I am somewhat surprised at the excessively moderate tone of the debate because I had expected a greater sense of outrage. I can only put this down to the fact that the banks have begun to indulge themselves in very expensive political lobbying since the recent crisis. I hope it has been as effective as it seems to have been by the calm and considered way this debate has been taking place and where some of the outrages that have occurred have almost gone without comment.
Senator Cox, who made a very balanced speech about banks, sounded like someone who was well briefed on that side. There is nothing wrong with  being well briefed on that side, but it was something I did not necessarily expect to hear, particularly when she spoke about the great work done by banks for charity. Are we living in Walt Disney World when someone can come into this House and say the banks are not all that bad, that they give money to charity? They give money to charity for self-centred, selfish reasons. Do not pretend the banks have suddenly developed souls; they have not. They do it for one reason, and one reason only, it is commercially of use to them. That is not necessarily wrong, but to pretend that they do it for some philanthropic reasons, that they love these charities or feel for these communities they are helping, is complete and utter nonsense and an insult to the intelligence of Members of this House. This has never been the case and it is rarely the case for any business.
If one asks the banks for a list of the charities they help they will say, “Jump in the lake”, because they do not like people having this information, they like the local community and businesses to be indebted. They like various personal links to be made for commercial reasons, but they will not allow anyone outside to discern a pattern of this charity of which they are disposing. Charity and the banks are contradictions in terms. Let us get that out of our systems. It is ridiculous to say that.
I will speak briefly about the personal problems I have with banks. Banks and the manner in which they behave in this country are the very antithesis of business, private enterprise, venture capital, risk taking or any other enterprising role in society. To me they are anti business. They are an essential part of it but their character is anti business. In a few moments I will tell you why.
First, however, I will deal with the recent scandals. It is all very well for Senator Cox to say that the banks were breaking the law but all those individuals who signed on the dotted line were also breaking the law. She is right but that is not the problem here; individuals break the laws on tax evasion every day, that is a venal sin. The problem is that it was institutionalised. The largest three or four financial institutions in the State were robbing the State. They encouraged their bank managers and salesmen to rob the State. That is the problem, not that people who were coming in and depositing money in various accounts and saying they lived abroad. I knew that was going on and so did everybody else. The fact is that the banks, those pillars of rectitude, the very people who lectured us about fiscal rectitude, were breaking the law themselves. That is the problem we should address. It is a cop out to say that it is not going on anymore. We have no proof that it is not going on.
On top of this institutionalised law breaking by not paying tax on vast sums of money, they were also overcharging customers without telling them. Whether that was against the law is a grey area but they did it. This came out and the Government and the banks did nothing about it. The  Bank of Ireland was certainly doing it, settling for large sums of money with people for overcharging them without telling them once it was caught — not when it was not caught. As a result it had to pay out sums of money to others who rumbled it. The bank was not just breaking the law; it was also robbing its customers provided they did not know about it. That is a flawed character in a business and it is bullying to a degree which is completely unacceptable. It is bullying businesses. In at least one case the bank robbed businesses which could barely survive of a small percentage before it was caught on a discount factoring basis. That is what was happening. Let us not paint the banks as whited sepulchres. They were not. They indulged in legitimate highway robbery in certain cases. It is an industry which should hang its head in shame, come out with its hands up, offer to pay and make any retribution necessary.
One of the problems in this country — and I agree with the left on this — is that the banks are too big. The power of the Bank of Ireland and Allied Irish Banks — and I should reveal that I have an account in Allied Irish Bank and I probably have an account in the Bank of Ireland — is unbelievable. The Bank of Ireland has the largest number of retail outlets; it has the largest stockbrokers; it bought New Ireland with its own life plan, making it the second largest insurance broker in Ireland; Bank of Ireland Asset Management is the biggest fund manager; it is the biggest corporate adviser; it owns a building society. I could go on and on. That is too much power for any institution to hold. It gives it leverage in other areas where it should not have leverage and, as a result it is a power to be feared. What then happens is that it starts to behave in the manner in which it did.
Allied Irish Banks, as a larger company in terms of market capitalisation although not in terms of its outlets and division, behaved in exactly the same manner. They feel they are above the law. The question that must be asked is were they above the law, and the answer to that is yes. If the banks were above the law, how can anyone be prosecuted for doing exactly as they did? I do not know how individuals who were Members of this House until five or six years ago feel having been pursued for legitimate tax owed when they see the banks being allowed to get away scot free. It is a sobering thought that individuals are being pursued with the full rigour of the law and the banks are not. Why not? Because they are powerful.
The advantage of having a third force is that it might break up this duopoly run between the two banks, which is basically a cartel in terms of foreign exchange, consumer and spread charges, but the advantages are dubious because it might join the cartel. There is a danger in the recently mooted merger of Irish Permanent and Irish Life that it will become the third force when it takes over another bank and then join the cartel rather than being competitive. The new regulator should look at that carefully.
 Transparency is a problem. Under successive Ministers I have asked for transparency in the banks but I did not get it. In several debates I asked about the State bank which is under the auspices of the Minister for Finance and the Minister of State. Why is the State bank, the ICC, continuously running instruments and refusing to give information on the charges? I referred to BES and how it refuses to reveal how much it charges the company for which it is raising money. Why? The reason is simple — it charges it so much it is ashamed to tell the world. The bank charges 3 per cent to the investor and 9 or 10 per cent to the company for which it is raising the money. It gets nearly 14 per cent without taking any risk whatsoever. The bank will not reveal this, it will not say it in public or mention it in its prospectus because it is robbing the people blind. If it has something to be ashamed of that is fair enough, but the Government should say it wants the ACC and the ICC to reveal their charges. I know the Minister has a script but I would like him to answer that point.
For whom are the banks run? The evidence is that they are not run for the shareholders. The evidence is growing that they are run for the executives. First Active came into existence as a public company some weeks ago when it changed from being a building society into a bank. Who has won and lost as a result of that transformation? I do not know the exact figures but I will give the Minister of State one example. As a result of options, on paper the managing director has made about £490,000 for less than one month's work. For risking £5 he has made £490,000 on paper. He is the chief beneficiary of the change to banking status.
The same happened with Irish Permanent. It has not been a successful bank but the executives have done very well. The same pattern exists in Allied Irish Banks and Bank of Ireland. The directors of these institutions are massively paid, more than any other directors in this country. They also have risk free options and are made millionaires many times over for taking no risks. The banks are giving business and capitalism a bad name because of this sort of activity. Unfortunately, because First Active was sold so cheaply, the people who made that decision are the chief beneficiaries. That is ugly, it is wrong, it is bad for business and for the image of business.
If he felt strongly about this issue, the Minister of State could explain why Allied Irish Banks is still allowed to owe money to the Government as a result of the complete debacle in 1985. The Government gave two loans to AIB at that time for £100 million and £32 million. For some reason these loans were rescheduled in 1992 and do not have to be paid until 2012. Allied Irish Banks repay money every year to the Exchequer because of the complete mess it made of ICI which nearly went bust. AIB was bailed out by the taxpayer. It is making £2 million every day and yet has interest free loans from the Government which have not been called in. At the same  time it is taking money off the Government by encouraging non-resident accounts.
The first thing the Government can do is state that AIB owes it money and that it should pay up. The Government should state that it wants that money today. Will the Minister of State do that? Will he state that AIB owes the Government money, much of which is interest free and that the Government now wants it repaid? He should state that AIB has a lot of money in the kitty, it has robbed the taxpayer and must now repay the loans. He should also state that it will not get any more interest free money. Such a measure would indicate a certain amount of firmness on the part of the Government. It is not a huge amount of money for the Exchequer but it would indicate the Government's intention to come down heavy on the banks. There is no justification for the interest free luxury given to AIB, particularly after the recent revelations regarding its behaviour.
I was disappointed to see an interview in the Sunday Business Post in which the former chief executive of AIB, Gerry Scanlon, was asked if he would come before the Oireachtas committee. As the former chief executive, presumably he could shed some light on this matter. However, he said that if he was invited he would not come before the committee and that he had more to do with his time. That is symptomatic of the arrogance we have seen from AIB. He stated that he would attend if compelled. That is good of him but are we, as parliamentarians, to put up with this type of attitude from those who are crucifying business? The work of the Public Accounts Committee is valuable in securing transparency and it is important that it is treated with respect. If it is not treated with that respect, it is important that it is given the necessary teeth to bring in these people to answer questions. It is shocking that the Oireachtas should be snubbed in this way.
There is another issue on which the Minister of State may be able to assist me, although it may be unfair to ask him about it at such short notice. Irish banks make more money than European banks for their capital base. There is nothing wrong with making a lot of money. It is a healthy activity which we should encourage. However, it appears that their margins are wider and their profits larger because they are allowed operate in an environment which would not necessarily exist in Europe. They have been allowed to get away with too much. For example, their foreign exchange margins border on the criminal, on top of which they also charge commission. Bank of Ireland has a monopoly at the airport and rips off every tourist who comes into the country. Thankfully, the Minister for Enterprise, Trade and Employment, Deputy Harney, is going to put an end to this practice.
The new regulator should look at this issue from the consumer's point of view. I do not know whether the Central Bank carries any blame for what happened with non-resident accounts or any  other crisis in the banks. However, no one has been protecting the interests of consumers and the banks have been able to run riot and kick the consumer around. They took advantage of this situation because of their special position as business bullies. They are anti-people, anti-business and their behaviour is inexcusable. The Minister of State should call in the loans AIB owes the Exchequer.
Minister of State at the Department of Finance (Mr. Cullen): I apologise for my late arrival. I endeavoured to get here as quickly as possible but I am glad that the debate started. I heard the contributions made by Senators Cox and Ross. Senator Ross raised some interesting points to which I will endeavour to respond but he will appreciate that I do not have some of the details with me. However, there are a number of issues which I wish to put on the record.
When I was here on 13 May last, the topic of debate was “Banking: Recent Developments and Future Challenges”. At that time, as well as giving a historical perspective and overview of the future challenges facing Irish banking, I adverted to the emergence of serious allegations against the banking sector which have been a cause of considerable concern not only to the Government and Members of the Oireachtas but to the public at large. At that time, the allegations included reports of over-charging on customer accounts and the existence of a very sizeable number of bogus non-resident accounts in certain banks in the late 1980's and early 1990's. More recently, newer allegations relate to the use of these bogus non-resident accounts for the purpose of evading DIRT and it is on these I will concentrate mostly today.
The allegations against Irish banks are wideranging and very serious. They cut to the very core of the basic trust society must have in its banking sector. I would like to emphasise to the House that the Government is fully conscious of the wideranging public concerns about the recent developments in regard to these allegations.
Before going into the detail of the Government's most recent responses to these allegations, I wish to set out the background to DIRT and the position in regard to the Revenue Commissioners and the Central Bank. Prior to the introduction of deposit interest retention tax in 1986, banks paid interest gross to their depositors without deduction of tax but were obliged to report to Revenue any case in which interest exceeding £50 in a year arose. Building societies, in contrast, deducted tax on the interest due to their depositors and shareholders under a “composite rate” arrangement and were not obliged to make returns of interest to Revenue. At that time, banks did not have to return details of deposit interest over £50 where the account holder served a notice on the bank declaring on a form, known as Form F, that the beneficial owner of the interest on the account was not ordinarily resident in the State. However, under section 17 of  the 1983 Finance Act, a bank was obliged to require an affidavit from a person claiming non-resident status where the bank was not satisfied that the person was non-resident. These claims and affidavits were to be retained and made available to the Revenue Commissioners if requested.
A budget day financial resolution in 1986, which was incorporated into Chapter IV of Part I of the Finance Act, 1986, introduced deposit interest retention tax. The introduction of DIRT was intended to harmonise the tax treatment of deposit interest across the range of financial institutions, to increase tax revenue and to counter tax evasion more effectively. With effect from 6 April 1986, a retention tax, at the standard rate of income tax which was then 35 per cent, was deducted at source out of interest paid or credited on bank and building society deposits in the beneficial ownership of residents. The composite tax arrangement with the building societies was terminated from that date.
DIRT required financial institutions to deduct tax at source from deposit interest earned by individuals who are tax resident in Ireland. Between 1986 and 1993, the rate of deduction was the standard income tax rate and the DIRT was deducted in two half-yearly instalments in October and April. From 1986 onwards, banks and building societies were treated in the same way, both deducting tax from the interest paid to residents and the obligation to notify Revenue of deposit interest was done away with.
Companies could offset the DIRT tax retained against liability to corporation tax. In addition to DIRT, between 1986 and 1993, individuals liable at the higher rates of income tax were liable to tax on their gross interest at the difference between the standard rate and the appropriate higher rate and were obliged to declare this to Revenue when completing their tax returns. In other words, the depositors faced an income tax liability at their marginal rate in respect of the interest income, with credit for the DIRT already paid.
DIRT does not apply where the account holder is non-resident and makes a formal declaration to that effect to the financial institution. The law requires that the declaration should contain, inter alia, the name, address, and country of tax residence of the person entitled to the deposit interest. The financial institution has a duty under the legislation to satisfy itself that a deposit is exempt from DIRT before it pays any interest gross. To qualify for exemption, the deposit taker must hold a valid declaration in respect of the deposit showing the name and address outside the State of the person beneficially entitled to the interest. That declaration is made available to the Revenue Commissioners on request.
The advent of EU wide capital liberalisation from 1 January 1993 led to the very real danger that Irish depositors would choose to evade tax by transferring their funds to other EU countries without declaring interest on these foreign accounts to Revenue. It was considered that a tax  driven outflow of funds would lead to upward pressure on interest rates as well as an unacceptably high loss of tax revenues. In order to deal with this situation, the DIRT régime was altered in three principal respects. These measures were intended to protect Exchequer revenues to the maximum extent consistent with the need to avoid significant capital outflows.
The three principal changes are as follows. Special savings accounts or SSAs were introduced on 1 January 1993, subject to final liability DIRT at the low rate of 10 per cent. This rate was increased to 15 per cent in the 1995 budget and was further increased to 20 per cent in the 1998 budget. This latter increase is with effect from 6 April 1998. SSAs are targeted on the more mobile funds held by small to medium investors and offer a higher net return than ordinary deposit accounts. There are a number of conditions, most notably that an individual may hold no more than £50,000 in an SSA. However, a married couple may hold two individual SSAs separately or two joint SSAs, each with a maximum of £50,000.
Standard rate DIRT tax now satisfies the depositor's full liability to income tax in respect of his interest income, even if he pays income tax at the higher 46 per cent rate on his marginal income. In other words, DIRT became a final liability tax. However, the interest subject to the standard rate DIRT remains liable for PRSI and the other levies and must be included in the taxpayer's return of income. This measure was designed to reduce the incentive for depositors to transfer funds into either low DIRT SSAs or foreign accounts.
Companies may now operate DIRT free accounts, although the interest income is subject to corporation tax. This measure provides a cash flow advantage for businesses, and so reduces the incentive for them to operate overseas accounts.
Since the introduction of DIRT, there have been two special categories of individuals who could receive a refund of DIRT paid. These are individuals over 65 years of age and disabled individuals who would not be liable, or fully liable, to income tax on their deposit interest because their taxable income would be too low. Such individuals are entitled to a subsequent refund or partial refund of the DIRT paid over to Revenue. Almost £12 million in refunds were paid in 1997, representing approximately 7.25 per cent of the gross DIRT yield.
Since its introduction in 1986, the DIRT system has collected approximately £2.5 billion for the State. While the annual yield was as high as £271 million in 1990, the amount of money collected has since fallen. The reduction in the yield reflects, among other things, the significant decline in interest rates, the introduction of the special savings accounts with their low rate of DIRT and also the general decline in the standard rate of DIRT. The yield to date for 1998 is £66.7 million. However, this does not include the  October payment, which accounts for somewhere in the region of two-thirds of the total yield.
At present, it is the general practice of member states not to tax the interest income of non-residents and this has created opportunities for evasion leading to an erosion of national tax revenues. Member states have experienced large capital outflows to other member states from individuals seeking to evade domestic tax. It is anticipated that this problem will be reinforced by the adoption of the euro, which will create a single currency market within the participating states, thus allowing investors to move their funds to other member states without any exchange rate risks.
In the past, the European Commission has favoured tackling the problem by way of an EU wide withholding tax, at a minimum rate of 15 per cent. However, when the issue was last discussed in 1994, a withholding tax solution was not acceptable to certain member states. Like other member states we do not tax non-resident deposits. However, at the ECOFIN meeting in December 1997, member states agreed that a common EU framework to ensure a minimum of effective taxation of interest would be pursued. It was agreed that the Commission's proposal, based on the co-existence model, would form the basis for progressing the matter. The adoption of the co-existence model would give member states the option of either applying a withholding tax, levied at a proposed 20 per cent minimum rate by the paying agent, or of providing information on savings income to other member states, or using a combination of both systems. This model envisages that each member state will be required to either operate a withholding tax or provide other member states with information on savings income paid to residents. The proposal would also take account of the need to preserve the competitiveness of EU financial markets.
Ireland, in principle, has no objection to a common EU framework provided that it is effective in safeguarding tax revenues but does not at the same time undermine the competitiveness of member states' capital markets. Ireland supports the general thrust of these proposals. At this stage the draft directive is under active consideration by an EU Council working group. While it is the intention of EU Finance Ministers to complete the process by the middle of next year, there are a number of significant issues which still need to be resolved.
The report in The Sunday Independent last April that there was a sizeable number of bogus non-resident accounts in the AIB and other banks in the late 1980s and early 1990s has given rise to considerable and understandable concerns. I want to make very clear once again the Government's complete intolerance of those who engage in tax evasion and those who assist or abet tax evaders. Senators will appreciate that the pursuit of particular tax cases is a matter for the Revenue Commissioners. It has always been accepted that  neither the Minister for Finance nor the Government gets involved in such cases for sound and obvious reasons.
The Revenue Commissioners have a wide range of powers to combat tax evasion. They have powers to access bank accounts although only in certain specified circumstances which I will outline. The powers available to Revenue were last added to significantly in 1992 when the Taoiseach was Minister for Finance. These new powers included provision of third party returns to Revenue on an automatic basis, reporting by domestic institutions which act as intermediaries in the opening of foreign bank accounts by Irish residents, provision of information on dealings by related parties such as suppliers, extended inspection powers in relation to certain tax records and accounts and attachment of amounts owed by third parties to a defaulting taxpayer. These were added to further in 1993 and 1995 when reporting arrangements and other duties were imposed on certain company advisers.
The Taoiseach was Minister for Finance in 1992 and most Members of the House will recall the criticisms which he faced from many quarters when he brought forward the proposals to strengthen Revenue's powers to collect the State's taxes. The reaction in 1992 was mild compared with the furore in 1995 when the then Minister, Deputy Quinn, brought forward measures in the Finance Bill which became known as the “whistleblowers' section”. In fact, some enterprising student might find it interesting to go back many years and assess the reaction both inside and outside the Oireachtas to any proposals at various times to strengthen Revenue powers.
I referred earlier to Revenue's powers in relation to bank accounts. The main power is in section 908 of the Taxes Consolidation Act, 1997. This section, which emanates from the Finance Act, 1983, empowers Revenue to apply for a High Court order to require a financial institution to furnish certain information regarding an individual who is ordinarily resident in the State. The preconditions necessary to make an application to the High Court are that the individual failed to deliver a required return of income or such return is unsatisfactory and the authorised officer is of the opinion that the person has undisclosed accounts with the institution, or the institution has information which indicates that the individual's return is false. Where an order is given the High Court may, on application by the authorised officer, freeze bank accounts of the individual concerned.
Similar powers are available under section 907 of the Taxes Consolidation Act. Under this section, which was introduced in 1993, the appeal is made to the Appeals Commissioners rather than the court and the authorised officer must send a copy of any application to the taxpayer and the bank before the hearing. The taxpayer and the institution may also attend and present arguments during the hearing of the application and there are no account freezing powers. It is  important to emphasise that neither sections 907 nor 908 applies to non-resident accounts.
Following the report of the McCracken tribunal, the Minister for Finance asked Revenue and the Department of Finance to look at whether new powers are needed for Revenue in tackling tax evasion. This is a wide ranging review and includes the question of extra powers in relation to bank accounts and the examination of the affairs of banking institutions. The outcome of this review will be examined in the light of the report of the Moriarty tribunal so that whatever measures are considered necessary in this area can be taken.
Senators will be aware that the Moriarty tribunal is charged with looking specifically at “whether the Revenue Commissioners availed fully, properly and in a timely manner in exercising the powers available to them in collecting or seeking to collect the taxation due by Mr. Michael Lowry and Mr. Charles Haughey “and also the adequacy of the current tax laws for the protection of the State's tax base from fraud and evasion in the establishment and maintenance of offshore accounts. Many aspects of the problems relating to offshore accounts will be similar to those relating to the issue of bogus non-resident accounts which are being examined by the Committee of Public Accounts.
I assure the House that the Government will be fully supportive of any measures which can assure that the liability of persons and companies to tax can be reasonably and effectively pursued. Any such proposals would need to be carefully examined to ensure they would be effective, could not be easily circumvented, would not needlessly disrupt the affairs of compliant law abiding taxpayers and would be proportionate in their effect on the financial sector when measured against the problems to be tackled.
As part of the ongoing review of Revenue powers officers from the Department of Finance and Revenue visited a number of other countries to compare Irish powers of access to bank information with those in the UK, Germany, the Netherlands, Sweden, France and New Zealand. This review found that all these countries, except for Sweden and New Zealand, adopt a policy similar to Ireland of providing the tax authority with the minimum access to bank information necessary to properly administer the tax system. However, within these parameters the tax authorities in the UK, the Netherlands, Germany and France appear to have greater access powers than the Revenue Commissioners have under existing Irish law.
This international comparison will provide very useful background for the completion of the review of our own Revenue powers. Senators will acknowledge that in completing this review the  Government will have to ensure that a balance is struck between having wide ranging powers to reassure the public of the equity of the tax system and the need to encourage taxpayers to be compliant and to make it possible to settle liabilities. Revenue attaches great importance to promoting voluntary compliance as well as increasing powers.
While the public climate at present may dictate additional Revenue powers, and there appears to be scope for such moves, the poor reception in the business community in the past must be borne in mind. The extra powers which have been given to Revenue in the past have been used wisely by them. I have no doubt that any further powers will be used just as wisely, but as a people we must decide carefully how far we want to go in giving the State wide ranging powers of surveillance.
While the Revenue Commissioners have come in for a certain amount of criticism over the last year or so I must say I am very aware of the proficiency, expertise, perseverance and balance shown by Revenue in pursuing its task, something which is well recognised even beyond these Houses. They have improved their performance and delivery of services in the past ten years and over that period the amount of taxes collected by Revenue has more than doubled to £19 billion gross.
Developments which have been implemented by Revenue in recent years include the introduction of a self-assessment system, the use of targeted and random audits, more effective enforcement through the sheriffs and other mechanisms, the extended use of the tax clearance system, the development of a new prosecution system and a charter of taxpayers rights.
In view of these developments, we can compliment Revenue on the organisational changes they have made to ensure that the tax system works far better now than it did ten years ago. The challenge of managing and administering the tax system over the years should not be underestimated. I firmly believe that in recent times the strong growth in tax revenues is due in no small part to the determination of Revenue to continue to improve the tax collection system. Vast strides have been made in this area which is strongly reflected in the advances made in overall tax compliance. The greater efficiency and effectiveness achieved by Revenue has been one of the significant contributing factors towards the achievement of national budgetary and economic objectives.
The role of the Central Bank has come in for some scrutiny in recent weeks. Some of the comments made in relation to the Bank fail to recognise the objectives set for it by the Oireachtas. I emphasise, therefore, that the Central Bank's role in relation to the financial services sector is that of prudential regulator. The purpose of this regulation is, as the Governor of the Central Bank correctly pointed out to the Committee of Public Accounts recently, the protection of  depositors' funds and the stability of the financial system as a whole.
Although prudential supervision plays a critical role in helping to avoid bank failure, it should be stressed that the object of this supervision as it exists in Ireland and in the EU is not the prevention of bank failure at any cost. If the main focus was on preventing bank failure regardless of cost, this could only be achieved at the expense of stifling competition, innovation and efficiency and would ultimately be self defeating. Neither is supervision designed to eliminate risk, but to set the parameters within which risk should be contained. We cannot compare banks with other commercial companies unless we first acknowledge that banks have high levels of borrowings in the form of deposits and interbank loans, even after taking into account the stringent prudential limits set by the Central Bank. This is in the nature of banking, not only in Ireland but everywhere else. The Central Bank's prudential supervision has provided Ireland with a safe banking environment for the ordinary saver, whether personal or business, and it is in all our interests to ensure that we do not lose sight of that. The expertise and experience required to conduct prudential regulation in a manner which guards against bank failure is invaluable, and I have no hesitation in acknowledging that the Central Bank of Ireland has performed this role with distinction and success. A recent survey in the 1998 global competitiveness report of the World Economic Forum placed it third in the world in terms of its efficiency and effectiveness in this regard.
Also, the range of services which the Central Bank oversees has developed significantly since legislative provision for supervision was first made in 1971. The Central Bank's powers and duties in relation to financial services supervision are now spread across a wide range of both primary and secondary legislation. They encompass the regulation of banks, building societies, non-bank financial institutions, including those located in the IFSC, as well as investment intermediaries and the Stock Exchange. The Central Bank also operates the deposit protection scheme and has recently been appointed the supervisory authority for investor compensation under the Investor Compensation Act, 1998.
Developments in the area of prudential supervision by the Central Bank have been influenced primarily by evolving international standards as well as financial innovation in Ireland and worldwide. Most directly, however, the Central Bank has been influenced by the development of European Union law, which has been a key influence in the evolution of the Central Bank's statutory role as prudential regulator of financial service providers.
Mention of European law leads to an issue which has been the subject of a number of recent debates and that is the question of confidentiality. Indeed, the Governor referred to this in his address to the Committee of Public Accounts.  Confidentiality is a core element in the prudential supervision of financial institutions, not only in Ireland but internationally. It is seen as a necessary balance to the extremely wide powers of intrusion and information gathering provided to the Central Bank and prudential regulators in other developed countries in legislation. Supervisors need access to such sensitive information relating to bank capital and high exposure loans in order to assess the risks to the financial entities they supervise.
This information has to remain confidential because it may relate to problems in a bank which the supervisor is helping to resolve and which, if disclosed, could lead to a lack of confidence in the bank and consequent loss to customers and the State. Supervisors have access to sensitive commercial data which, if released, would impinge on a bank's competitiveness.
It is, as the Governor also pointed out, the guarantee of confidentiality which facilitates and promotes supervisory co-operation with prudential supervisors within Ireland and elsewhere with a view to providing a comprehensive international and domestic framework for supervising the financial sector. International exchanges of information occur daily. Supervisory authorities must be assured that when transmitting confidential information to their counterparts elsewhere the information transmitted is also subject to stringent professional secrecy requirements in the receiving institution. This is why EU law is so strict on the issue of confidentiality and why Irish law, which reflects this EU law, is equally stringent. If the Irish regulatory authority cannot be assured of the confidence of regulators in other countries the effectiveness of our regulatory system would be severely dented.
These are the Government's most recent initiatives in reaction to the issues currently affecting our banking sector. The Government has already announced that it is fully committed to assisting the Committee of Public Accounts to progress its ongoing investigations as rapidly as possible and to reach early conclusions. The PAC's first interim report on the 1997 Appropriation Accounts recommends significant additional powers to enable the committee to proceed with these investigations. Arrangements are being made within the Department of Finance, subject to legal advice, to respond as quickly as possible to the committee's recommendations.
The committee's report includes recommendations for legislative change to allow Dáil Éireann to request the Comptroller and Auditor General to undertake an investigation of the matter of the non-resident accounts and to give the Comptroller and Auditor General investigative powers in this regard. It is also intended to amend the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, which would facilitate the Committee of Public Accounts in furthering its consideration of the matter.
 I assure the House that the Government is doing everything to advance these matters in the shortest time frame possible while ensuring the appropriateness of any new procedures adopted. The Minister for Finance has already brought the various issues involved to the Government's attention. It is his intention, subject to legal advice, to return to Government as soon as possible with specific proposals to give effect to the recommendations of the interim report of the Committee of Public Accounts including the necessary legislation.
Also, Senators will be aware that the Government has agreed in principle to establish a single regulatory authority for the sector at the earliest date possible. The composition and terms of reference of an implementation group to advise the Government on the establishment of this authority were made public on 21 October. The implementation group, which comprises nine members in all, is being chaired by Mr. Michael McDowell, SC. Membership is drawn from the Departments of the Taoiseach, Finance, Enterprise, Trade and Employment, the Office of the Attorney General and the Central Bank. Mr. Joe Moran and Mr. Maurice Tempany are members also. The group has been asked to report to the Tánaiste and the Minister for Finance by 28 February 1999. This is not a decision that was taken lightly. The Government recognises the fundamental nature of the issues involved.
However, currently the regulation of the financial services sector is hindered by the multiplicity of regulatory bodies with differing regulatory powers and functions. Crossovers between formerly discrete subsectors of the financial services industry are increasing with the development of hybrid financial products and increasing concentration in the ownership of financial institutions.
In a small country like Ireland there is a case from both an effectiveness and efficiency perspective for building a critical mass of skills relating to financial regulation in a single location. The Government believes that this is the case. It will not be an easy task. The issues are complex and fundamental. However, the Government is determined that this initiative will succeed and is confident that the implementation group, with its wide range of expertise, will successfully address the issues.
I reiterate that the Government is very aware of the public concerns, and the concerns within this House, regarding the allegations levelled against the banking industry and is committed to doing everything necessary to help restore public confidence.
Mr. D. Cregan: I apologise for being late as we were welcoming our new Deputy. We have had many long and strenuous arguments in this House on the subject of banking generally and we are very conscious of what the operation of the banks means to the public. Banks can sometimes be faceless, a fact which is borne out in the Minister's  report on the positions of the Revenue Commissioners and the Central Bank in regard to DIRT.
I was surprised that, for the first time, the Governor of the Central Bank was prepared to make a statement on the workings of the Central Bank and to state his views on the banks generally. He has consolidated the situation in regard to our banking structures, for which he is to be complimented. While I do not agree totally with the way in which he replied to some of the questions, I was conscious of the fact he was making sure he gave the impression in the report that he was no lover of how the banks work, although he is aware of their importance to the country.
I know a little about how banks work because I owe them money. The situation in regard to DIRT is very disturbing. However, we must be conscious of how disturbing it would be if the banking system was undermined. I do not wish to protect the banks; however, as the Minister of State said, it is important to be very cautious.
Can one imagine the cost if everyone had to pay their DIRT since the argument began between the banks and the Revenue Commissioners? For example, imagine the cost which would accrue to a person with £30,000 in the bank who had not paid the 15 per cent annual DIRT tax since 1991 — although this has been going on since the tax was first introduced in 1986 — plus the charges. I could broaden that if I wished to. Such a person would owe more than three times the £30,000 to the Revenue Commissioners at this stage. That shows the enormous problem facing the banks, the Revenue Commissioners and us, as a people.
The banks will have to face competition from Europe in the next few years, a move I welcome. They will also face competition within Ireland from building societies and the State banks, with the possible amalgamation of the ACC and TSB. However, we should make it clear that there can be no amalgamation with any State body before we investigate that State body and ensure everything is above board. That could have serious repercussions for us as a people and also for the Oireachtas.
I am aware of the strategy — a very subtle strategy — being adopted by the Minister of State. However, we must protect those who owe money to the banks and are not in a position to save with them — this means the vast majority of people. Given that offshore accounts were created for people who did want to pay DIRT on the interest earned by their accounts, we must question the kind of atmosphere we have created. Could we not create a structure which would allow people to save money legally within the State?
Let us be constructive. People in all financial institutions, such as banks and building societies,  should not give the impression they can protect a person who is saving with them. For example, we do not want representatives of the banks to give the impression to people who have been made redundant or who have retired that they can make more money for them if they stash their money abroad.
The implementation group will not have an easy job, but it should create a structure which would make it more comfortable for people to save with banks, building societies or credit unions at home. If this were done the entire country could benefit. The Minister of State should stress that to the group which is to report back by 28 February 1999.
The Minister of State said the Government recognises the fundamental nature of the issues involved, which it must. People who pay their PAYE every week can see that others, particularly the banks, have made thousands of pounds out of this situation. For example, AIB makes £400 million in six months, that is £1.5 million every day, although they only open for five hours every day, five days a week. Those are massive profits.
I remember debating a Finance Bill in this House when the banks made £14 million a year. That was not very long ago because I have been a Member of this House for only 16 years. That is an example of the profits made by the banks. At the same time, the banks say they are only making a 1 or 2 per cent net profit, but that is what they disclose. Try telling that to ordinary punters who have to pay bank charges, interest charges or even to speak to a manager. That has gone on for far too long.
We are now telling other organisations, such as credit unions, that they must account for every penny. Let us not dive headlong into this issue. Every Senator would have to agree that the banks have not helped to develop the structure of this nation to the same extent as the little credit unions have. I am not saying the banks did not help — they helped those in the business sector and those with money. However, with the light legislation to which they are subject, the credit unions have created a situation where people who thought they would never have an opportunity to save can now do so.
Let us not undermine the whole structure or give the impression that everyone has acted wrongly. The credit union system works at local level. Individuals within the organisation might have been questioned over the years, but the general structure of the credit union system is an example to us all.
In all the years I have been in business I have always advised people to save with their local credit union. Ordinary people depend on credit union loans to pay for house extensions, cars and holidays. We should not look lightly at a structure or legislation which will stifle our credit unions because we want to get at other people or bring them up to the same level as our banks. Over the  years the banking institutions have asked what way the credit unions are going because they cannot compete with them, although it is cheaper to get a loan from a bank than a credit union at the moment. If, however, people want to be comfortable in the long term, they should be members of their local credit union. The credit unions should not be on the agenda of the implementation group and we should make that known. However, that issue is for another day. When the last Government was in power we made strong points about the credit unions.
If we are to look at restructuring our banks and at making the public aware of how its money is being spent, the PAYE taxpayer and anyone who has a few bob should be well informed of how their local credit works. That is not the case with the banks, with their interest rates and charges of which people are not aware. That should also be looked at. These statements on banking are much wider than the point I am making but it is relevant to ordinary people in terms of protecting them.
The Minister rightly said the banking groups must be protected for the good of the country. The banks should be complimented on their strong position in the world arena. However, that has been paid for by the ordinary person who has invested and placed their money in these banks. They have given the banks the responsibility of looking after their savings. As I said, we cannot be seen to undermine the banks.
It is not only the banks that are wrong; so too is the structure we set up in relation to the Revenue Commissioners. How can we allow the situation as regards the self-employed whose preliminary statement of accounts must be in before 1 November continue? For the past two weeks I have heard on radio that if a person's preliminary statement of accounts is not in on time, they will pay interest as and from 1 November. It is a pity the Revenue Commissioners did not tell that to the banks since 1986. Any agreement between the banks and the Revenue Commissioner must be made known. I am very much involved with the Revenue Commissioners, although I do not want to be, but everybody doing business today likes their business to be above board and to be seen to be paying their taxes within a reasonable period. That goes for everybody and not only the PAYE worker and the self-employed. The person who owes a lot of money and finds it hard to pay the Revenue will be charged. However, the banks were not charged. The implementation group is aware of this. We do not want another group to report to Government and to leave it at that. I am conscious of the fact the banks must be protected but somebody should be made to answer.
Mr. Chambers: I welcome the Minister and would like to add a few words to the discussion on the financial institutions, particularly the banks. Banks and financial institutions are fundamental to the development of our economy and play a pivotal role in the economic operations of the State. Over the past five to seven years they have played an important part in the development of the economy. Looking at the development of our main banks, Allied Irish Banks and Bank of Ireland, the number of acquisitions they have made abroad in Canada, America, England and in some European countries has been substantial. As Senator Ross who is involved in that type of business said, they are recognised as substantial financial houses in a European and world context and are in the process of making further substantial acquisitions.
Needless to say they have a strong responsibility to the public and the Government. It is easy to speak in hindsight but there is a problem which has been publicly recognised. The public is annoyed about the number of external accounts held within the State. Many people in the State have availed of these accounts, some of which are classified as bogus. This issue must be rectified and the Government is responding positively by bringing in a regulator to deal with this matter and with financial houses in the future.
While this is the most important aspect from a public point of view, it is only one aspect of the banking service which deals with the well being of the public. Greater issues include the management structure of interest rates, how people are charged, regulation in that regard and how people are treated, particularly those who have defaulted on payments. Citizens deserve better management of those situations. While banks have played an important part in the well being and development of individuals and companies, there has been a downside. If one is on the wrong side of a financial house there is little room for manoeuvre. While a bank might advertise as the people's bank and talk about relationships and friendship, if a person becomes indebted to a financial house they are very much on their own and there is little opportunity to make adjustments to sort out their finances.
I refer to the public and customer service the banks provide. I have seen the depletion of banking services in rural areas, a lack of service for the public and the centralisation of business. There is also a lack of recognition of the importance of banking facilities for the development of our tourism product and State support for our tourism product. Total disregard has been shown based strictly on economic terms. The banks are not prepared to facilitate, expand, develop and improve the well being and livelihoods of those in rural areas.
It is important to note that our regulatory system compares reasonably well. If we are to talk about setting up taxation structures without a cohesive approach from a European dimension, we could do substantial damage to investment in  the State. Given the lack of agreement recently, one can understand the difficulties the Government faces in relation to tax and taking what it regards as legitimate amounts from financial institutions.
Given that Ireland is a member of the European currency, the lack of a cohesive approach undoubtedly could have a serious effect on the amount, buoyancy and flexibility of money in the State. This aspect must be approached in a co-ordinated manner. There is an obvious reluctance by some EU member states to approach the matter in that way because they see themselves having certain advantages as countries with strong economies with much capital inward investment. From Ireland's point of view it is important that whatever mechanism is put in place by the regulator it is conducive to sustaining the development and strength of our financial institutions and maintaining investment in the State in the future.
All the financial institutions were involved in the practice under discussion. I read an article by the previous chief executive of Allied Irish Banks, Mr. Scanlan, in which he stated that there would be a reluctance on the part of the bank to pay the outstanding DIRT. In the past Governments have treated Allied Irish Banks extremely well. They were fair and supported them in a time of need. While AIB is a capitalist and business organisation, there is a need for it to show respect to the Government in terms of straightening out the situation.
There should be a strong element of openness. The matter should be addressed by the financial sector rather than pushing it through the regulatory systems to the extent that people start working against each other and not together. There is a need for openness by the entire financial sector to straighten out this imbalance and to continue our good economic and financial record.
We hear much about a basic minimum wage. When one considers financial services and payments to individuals, a question may arise in the future regarding the maximum wage of some people in the State. People are upset when individuals in companies and financial houses benefit in that regard. This aspect could be addressed if the Irish Bankers' Federation and financial houses fail to open up and deal with the regulator in putting the public's mind at ease while also continuing the important business of developing their services to the State and the public and strengthening the economy.
Mr. D. Kiely: I welcome the Minister and the debate. This is not the first discussion on financial institutions and how they deal with people. I am delighted that the hidden accounts have come into the open. Banks which placed money in hidden accounts should pay the price because it was morally wrong. As Senator Cregan said, individuals saved a few pounds here and there, kept money on deposit for their old age and did everything  by the book, but fat cats siphoned off money by placing funds in non-resident accounts.
They were aided and abetted by advisers in banking institutions. The advisers not only told individuals how to invest their money without paying the tax due to the State but how to hide it to ensure they never paid tax on it. These people must be challenged and ultimately pay the price. The individuals who hid millions and the people who told them how to do it without paying tax committed serious crimes and they should be taken to task.
I would not shed any tears for these people given the way the banks operated years ago when individuals applied for small loans to start up small businesses. They worked away for a number of years and paid enormous rates of interest; the level of interest charges was criminal. At times people paid rates as high as 17 or 18 per cent. The banks then sent individuals to their subsidiaries where they were advised to borrow more money at interest rates of up to 25 or 26 per cent. The banks loaned money until people got into financial difficulty and they immediately sought the deeds to businesses or properties. They would take the deeds to people's homes and even their shoes, if they had the chance.
I have been in business for many years and I have had many dealings with banks. One bank has been mentioned in relation to DIRT and the writing off of £86 million. However, people should wait until the other banks come under scrutiny. I have evidence that other banks advised people how to hide their money and put funds in offshore accounts. I am waiting for the day these people and their advisers are flushed out of the system.
I feel sorry for the farmers and small business people who got into financial trouble and struggled to keep their businesses but found themselves in the High Court facing compulsory acquisition orders. The banks had no regard for people operating small businessess. However, they took notice as soon as one started making and saving large amounts of money.
I am critical of the competition among the banks to get the biggest customer. Banks asked people to move their accounts and said they would show them how to hide money and invest funds without paying a penny in tax. The banks tried to take businesses from small customers and as soon as they got them, they rang the big operators and said a small business would be coming on the market shortly but the bank would sell it to them for a certain price. I have no sympathy for these people and they must be tackled.
I welcome the swift action taken by the Government to establish a regulator. I hope the matter will be addressed and that, ultimately, another amnesty will not be offered to people who defrauded the State of millions of pounds in tax. This money could have been used to build the economy and make it even stronger. Instead, certain individuals were made richer and fat cats  became even fatter. They had no problems. They drove big cars, wined and dined each other, went abroad for holidays and had high times. It was easy for them to do that with the money they evaded in tax while PAYE workers had to pay through the nose for everything. If such workers put a few bob in the bank they have to pay tax on it.
I welcome the debate and I hope that, ultimately, the Government will get to the bottom of the problem. Only one bank has been mentioned to date in relation to the writing off of £86 million in DIRT, but I am waiting for the day the other banks come under scrutiny and the proper taxation owed is paid for the benefit of the State.
Dr. Henry: Nobody has referred to how important the laundering of drugs money may be in this debacle. Drug dealing in Ireland is very serious and the international drug trade involves billions of dollars. Financial services have already been described as useful institutions through which money can be laundered. How relevant is the fact that we have such a compliant banking service and a thriving drugs business? How relevant are they to each other? Drugs money is of little use to individuals unless it is possible to invest it in legitimate business.
I was very concerned that Chief Superintendent Frank Glacken, head of the Garda National Bureau of Fraud Investigation, recently complained that some financial institutions were not as forthcoming as they could be in disclosing suspicious transactions. Financial institutions have been obliged to disclose such transactions for the past three years and the number of disclosures has increased. The total in 1995 was £17 million which increased to £35 million in 1996 and last year the figure stood at £90 million. A considerable amount of money required examination and explanation and in certain cases there were reasonable explanations, such as a Lotto win or the receipt of a large inheritance. However, 200 cases were reported in 1995, and this increased to 500 in 1997, and Chief Superintendent Glacken still felt he had to complain about this.
In a recent money laundering court case which involved money brought in from abroad the judge was very critical of the AIB branch in Cahir, County Tipperary, where £210,000 was lodged by a foreign lady and had not been reported. The branch was much more concerned about her overdraft. However, the TSB branch in Midleton reported a much smaller sum, £90,000, which led to this money laundering case reaching the courts. It is hard to know the rules under which the banks are operating. It is said that they give guidelines to their staff, who also get regular training on reporting. It is extraordinary that over the same period one branch of one bank did not  feel it was worth reporting a lodgement of £210,000 while a branch of another bank in a nearby town felt it should report one of £90,000. What are their guidelines? Massive tax evasion is bad enough but to think a portion of this money results from the drugs trade is even more disgraceful.
Why should we not know who holds Ansbacher accounts? How do we know that these people whose identities have been kept secret are not involved in the drugs trade? How can anything be done about the drugs trade in Ireland unless the use of its profits is dealt with? In a court case today, a witness discussed the vast sums of money from the drugs trade he sent abroad on a regular basis. The banks have serious problems to address regarding what they call “customer confidentiality” as they could be acting as a front.
The role of the Revenue Commissioners regarding non-resident accounts is absolutely fascinating. One could interchange the word “nerd” for compliant taxpayer because apparently there are numerous methods and avenues which one can explore to avoid paying tax. It was most disappointing to listen to the chairman of the Revenue Commissioners when he appeared before the Committee of Public Accounts. All our tax affairs are followed up on a daily basis and I am aware of the interest taken in institutions, such as the Royal Irish Academy, where an official spends months going through all the accounts to make sure they are right, yet from 1991 to this day the Revenue Commissioners were not able to go through the DIRT tax receipts of banks in this State while obviously knowing there was something wrong in the system.
Mr. Norris: I welcome the Minister of State to the House and I wish to make two points regarding his contribution, in which I was very interested. He stated that the allegations against Irish banks are wide ranging and very serious. Although what has come into the public arena thus far appears to be principally directed at AIB and NIB there are other banks and it is not credible that other banking institutions are not involved. The Department of Finance should require and inform all banks that this is the moment when they finally come clean. I do not refer to tax amnesties, two of which we have had. It should be made clear that the Government is taking a serious view of this matter. The public attitude is — and it has been widely written about in newspapers — that it beggars belief that AIB is the only major bank involved. We should have the facts up front from other banking interests.
I am not versed in financial matters but that sounds as if an individual with capital can get  away with a lower rate of interest simply by placing it in accounts where only DIRT is paid. This seems to place citizens on two different levels of advantage. If one has spare capital and can lodge it in one of these accounts, one pays a lower rate of tax.
Private capital should not be advantaged in this manner. Perhaps I have misinterpreted the Minister of State but that is how it reads to an ordinary layman. However, I have provided him with an opportunity to clarify this point. He further stated that there will be special provision for persons over 65 and also those who might not be in a position to pay tax because their level of income is low. I welcome that because it is right that the most financially weak members of society should be protected.
I wish to refer to offshore accounts, etc. The number involved seems astonishing. It was widely mooted that there were 50,000 accounts and 15,000 offshore accounts were held in places such as Tralee. This is staggering and it involved just one bank. I also wish to refer to a contradiction regarding the Revenue Commissioners and I was very interested in Senator Henry's remarks.
It seems there was a cosy deal in the past between AIB and the Revenue Commissioners who were prepared to accept a smaller proportion of tax due to the State from the bank as a result. To put this in context, I heard this being announced on the news on RTÉ radio and it was immediately followed by an advertisement paid for by the Revenue Commissioners where Joe was telephoning Bill and saying “Have you made your return yet?”“No”, replied Bill, “there is plenty of time”. “There is not”, said Joe, “if you do not pay up and pay now, you will pay the capital, the interest plus the penalties”. Therefore, little Joe, who does not have an offshore account in Dingle or Tralee will be whacked. He will have to pay the capital, the interest and penalties. Let us have a little fair dealing. Let us have this mythical level playing field. If the individuals are to be squashed by the hammer of the Revenue Commissioners, let us at least take a forceps to the big banking interests who are bullies and who have got away with murder.
No doubt several people will have raised the first thing which came into my mind when I heard of this. Do we not remember how we bailed out AIB when its professional judgment proved to be faulty when the bank made a massive investment in an insurance company which went wallop? The bank applied to the taxpayers and we happily bailed it out. It involved tens of millions of pounds if not hundreds of millions of pounds. Did we ever get it back? If not, why do we not send the bank the bill stating that there will be penalties attaching and the Irish taxpayer will be looking for interest. What is sauce for the personal tax paying goose should surely be sauce for the AIB gander.
I want to direct the Minister's attention to another matter. I think it is the next scandal waiting to hit and I have heard nobody raise it. It is  the scandal of dormant accounts, the fact that banks habitually hang on to what must be en masse a considerable amount of money. People may die intestate or in circumstances where the relatives do not think to apply to the banks to find out whether there are any accounts. This happens. I see Senator Dardis, as a good countryman, expressing visually disbelief that relatives would not be so grasping.
I know of cases where banks have unscrupulously held on to large sums of money to which they were not entitled. Certainly they make no attempt to contact the relatives or the inheritors. There was one case in the past 20 years where a parish priest, who had collected considerable amounts of money to rebuild a parish hall, died. The account was in his name. The bank must have known it was for this purpose and it lay there for 20 years. It was never claimed. That is a scandal. It is dishonesty or, at least, sharp practice.
We in this country also have a curious ethos in taking no personal responsibility for things in terms of banking institutions, etc.. I spoke at a dinner the other evening for the Institute of Chartered Secretaries and the kind of thing by which I was astonished was the president of this august professional body pointing out that only 40 per cent of Irish companies make full company and tax returns on time compared to 90 per cent in Britain. What are we doing about that?
This man, who is close to the financial sector, also made an interesting point which we should bear in mind. He said that there is no need for any more legislation. We have all the legislation we need but it is just not operated; it is simply left dormant like the accounts from which the banks are profiting. There is something worrying about this and about this whole ethos.
On a slightly parallel angle, I was astonished to hear the other day the farmers' representatives excoriating the politicians for not going out and getting markets for their beef. Why should they? What has happened to self-reliance? What has happened to the entrepreneurial energies of the Irish people?
Again on a slight tangent, I noted the names of Mr. Haughey and Mr. Lowry were mentioned. With regard to Mr. Haughey, the Irish Financial Services Centre was essentially his baby. I was among those who laughed at it, poured scorn on it and ridiculed it but, I take this opportunity during statements on banking to say I was totally wrong and he was 100 per cent right. I am grateful for that vision which created the IFSC. That is the kind of mind we need in this country.
 With all the profits the major banks are making, how can they, in all conscience, operate in such a way as happened under this scheme where they were taking extra money out of people's accounts without their by or leave, where small companies were placed in jeopardy? Why did they not have a conscience? I remember a number of cases rather like that including that of the Rowan's shop in Westmoreland Street, where the Bank of Ireland went in afterwards for a comparatively small amount, did it up and the next thing the bank's foreign exchange department was in Rowan's front window. We should have an end to this.
I welcome the opportunity to say these few words on the banking system. I hope the Minister will be supported in his vigorous attempts to create honour among bankers because we need it. The banks are a fundamental part of the way our society operates. We need, we require and we are entitled to the highest standards from the banks. They should set an example. After all, for all their pomposity we know that banks are shops which sell money and we are their customers. We demand fair trade and a decent whack from the banks.
A Leas-Chathaoirligh, on these occasions under the terms of the ethics Act one is required to declare an interest. My interest is that I have shares in Bank of Ireland. Although had I 20 minutes to expand on the topic before us, I doubt if the bank would welcome that declaration of interest on their part.
It is important to the economic welfare of the country and society that we have a stable banking system. Nobody would say otherwise. However, it cannot be the case that that stability overrides all ethical considerations or that it means that compliant taxpayers should have to bear the cost of those who are manifestly not compliant and those who are complicit with them in that non-compliance.
From the evidence we have seen at the Committee of Public Accounts, there must be serious question marks as to the propriety of the practices  which were indulged in and, indeed, the negotiations, if such existed, between the banks and the Revenue Commissioners. There is a basic contradiction in the evidence of the chief executive of AIB and that of the Chairman of the Revenue Commissioners, and I hope it will be resolved satisfactorily.
We must also look at the efficiency of Oireachtas committees and the powers conferred on them. They strike me as a good way to proceed in matters of this nature rather than having to resort to a public tribunal, although that sometimes can be the outcome of such deliberations. The committees must be given the powers to summon people and there must be a certain degree of privilege involved in the proceedings of those committees. That is the way to get to the bottom of some of these things without the great expense and tedium of tribunals, and the fact that people will resort to the courts anyway to obstruct them.
The chief executive of AIB said that the practice of bogus non-resident accounts was industry wide. That appears to be a great indictment of what took place. I can imagine in a rural town where Joe, who owns a pub, a garage or a farm, arrives to meet his bank manager. They have a cordial chat at the end of which the bank manager asks what he intends to do with the few bob he has on deposit. Then Joe says he is not really Joe and he does not really live in the particular place at which the bank manager knew he lived all his life. He says his name is now Mick, he has an address in Clapham Common or some adjacent area, and he wants to put his money on deposit. Then everything is signed up and in order. It defies logic that such a thing could have happened and that people were not complicit in the practices they used to evade their tax liabilities.
It is important to make the distinction between evasion and avoidance. If there are deficiencies in the law with regard to tax avoidance, it is up to the Oireachtas to correct them. However, where evasion occurs, it must be stamped out by the authorities and the taxes which are legitimately owed to the State and which are used to alleviate the condition of many of our less fortunate citizens must be paid.
I welcome the Minister of State's statement that the Government has agreed to establish a single regulatory authority. Members of the Oireachtas Joint Committee on Finance and Public Affairs heard the Governor of the Central Bank repeatedly state that the Central Bank's function is prudential and that it must not breach confidentiality. Many of us were a little taken aback by his comments but he was technically correct under the law.
The Central Bank has a prudential function with regard to banks while the Director of Consumer Affairs has functions in respect of the protection of bank customers. The Comptroller and Auditor General now also has a function in the context of the Committee of Public Accounts. It  is obvious that these various functions should be consolidated under a single body because this could be a case of too many cooks spoiling the broth.
I wish the implementation group, under the chairmanship of Michael McDowell, SC, well in its deliberations and I look forward to the speedy enactment of the proposals it brings forward. I hope there will be a single regulatory body and that a financial regulator to cover all financial institutions will emerge from it.
Mr. Costello: I thank Senator Dardis for sharing his time. My motion on the Order Paper calling for a debate on the banking system gave rise to this debate in the first instance. My intention was to debate the subject in Private Members' time but the Leader of the House persuaded me to deal with it in this fashion so I would have more time to make my contribution.
That Seanad Éireann condemns the practice by financial institutions of facilitating the defrauding of the State of millions of pounds through bogus offshore accounts; further condemns the practice by the Revenue Commissioners of accepting derisory sums of money to settle outstanding liabilities; demands that those responsible be pursued and prosecuted and that the misappropriated moneys and taxes be paid in full to the State; and finally that new regulatory and enforcement procedures be put in place to ensure that financial institutions cannot operate outside the law in the future.
However, that announcement should not inhibit the prosecution of the investigation of what appears to be gross and grave irregularities in the operation of the financial system and of the legislation on proper and professional financial practices. A full investigation must be carried out in the first instance by the Committee of Public Accounts. If the outcome of that investigation demands it, the relevant matters should be referred to the Director of Public Prosecutions. Prosecutions should take place and no bones should be made about making the people responsible face sanctions that are appropriate to the offence.
The financial institutions are the latest sacred cow to bite the dust, if I am permitted to mix my metaphors. Politicians have been pilloried since the beginning of time but other institutions, such as the farming industry and the church, are now receiving the same treatment while a large number of ordinary citizens are coming before the courts to answer charges of physical and sexual abuse. Many of what were considered to be the pillars of society and people who were regarded  as upright, professional citizens have been exposed in the last couple of decades. Scandals have been uncovered and become the subjects of intense investigation.
It is not unexpected that the banks should also be the subject of such investigations. We will probably discover there was a great deal swept under the carpet which eventually would have been exposed. National Irish Bank was effectively robbing its customers from behind the counter. Allied Irish Banks were facilitating scams through offshore accounts. The banks claim this culture was widespread but that is not much of a justification for the practice.
There is also a serious conflict of evidence between the Revenue Commissioners and Allied Irish Banks which must be resolved. However, it will be difficult to resolve because there appears to be no documentation to support either case. Everything appears to have taken place over the telephone and, given that these institutions deal with hundreds and tens of millions of pounds, it is amazing that there should be no evidence available. I listened to Mr. Mulcahy of AIB explaining the situation. He seemed to think there was enormous naiveté in the Oireachtas and to believe that we should accept half baked excuses for what was happening. He was impatient that questions should be repeated when adequate answers were not forthcoming.
The Central Bank's role leaves much to be desired. Although it claims to have a prudential role it also has a supervisory function. It is not necessary for the Central Bank to adopt a handson approach in relation to each account but where there is a system in operation which facilitates tax evasion, it does have a responsibility and it did not fulfil it in this instance.
The investigation must be completed and prosecutions must take place if that is warranted by the evidence. The regulatory authority is welcome and I wish former Deputy Michael McDowell great success in that regard. We must ensure that a reasonable degree of corporate tax is levied on the banks. The rate has been reduced from 30 per cent to 12.5 per cent. We should also examine the expansion of the banks in terms of their physical facilities, particularly automatic telling machines. The banks should be obliged to seek proper planning permission for these facilities and local authorities should levy a commercial rate for their use because they are effectively operating on the public highway.
Minister of State at the Department of Finance (Mr. Cullen): I thank Senators for their contributions to this important debate. A number of points were raised about the role of the Central Bank. I dealt with many of them in my earlier statement, particularly with regard to the prudential nature of the Central Bank's supervision and the constraints of confidentiality imposed by national and EU law.
 Senator Coghlan mentioned the working group set up by the Minister for Finance to examine legal and consumer issues in banking. To a large extent the work of this group has been overtaken by events, particularly the decision in principle to establish a single regulator for the financial sector and the establishment of an implementation group to further this work. The original group, however, completed a considerable volume of work and analysis and it is intended that its findings will constitute an important input into the deliberations of the implementation group. The Senator also raised a number of valid issues with regard to a single regulator. The points he identified will be fully addressed by the implementation group.
Senator Ross raised the question of AIB and ICI. I want to take this opportunity to set the record straight on this issue. The question was asked what did the State rescue of ICI cost the Exchequer. The only cost borne by the Exchequer consists of the interest foregone and a loan of £32 million made by the Exchequer to the administrator of ICI on an interest-free basis in December 1993. This interest foregone amounts to £2.1 million annually. In other words, by the end of 1988 it will have cost the Exchequer approximately £10.5 million. However, when account is taken of the contributions of the other parties, particularly AIB, it is estimated that the Exchequer's share of the overall funding arrangements by the ICI administration will not exceed 8 per cent. ICI owes the Exchequer £132 million, £100 million is due to be repaid in the year 2000 and £32 million in 2002. My information is that the administator is on course to meet these repayments.
The original funding arrangements put in place in 1985 involved AIB making an annual contribution of £5.5 million for 15 years towards the administrator's borrowing costs, with other banks contributing a further £1.5 million annually. In 1992 the Government decided that AIB should contribute more to the ICI administrator's costs and it was agreed that AIB would make a further annual contribution of £8.8 million for 20 years. The administrator is satisfied that if current trends continue the funding now available to him will allow him to repay the Exchequer loans of £132 million when they fall due. I must reiterate that the two loans mentioned by Senator Ross were made to the Administrator, Icarom, not AIB. Of the two loans, £100 million is not interest free. The administrator is paying full interest on this and the loan will be repaid in the year 2000, not 2012. The £32 million is repayable in 2012.
Senator Ross also raised the issue of fees charged by BES funds, in particular by the ICC. The Senator is correct in stating that BES funds, including the ICC, only provide details of the fees charged to BES investors. Details of the fees charged to the companies in which BES money is invested are not published. The reason for this is that while there is a legal obligation on financial  institutions to publish fees to investors in the BES prospectus, there is no such obligation in relation to fees charged to companies. Operational systems within ICC are a matter for the board and management of the company. Neither the Minister nor I become involved in these issues. This applies generally in the case of all commercial State bodies.
Senator Cregan raised the important issue of the recent television appearance of the Governor of the Central Bank. While I appreciate the independent status of the Central Bank, any measure taken to increase transparency, such as the Governor's helpful and interesting interview, is to be welcomed where national and European law permits.
On the question of credit unions, the Government is well aware of the value of these institutions and the great service they have provided. At present they are regulated by the Registrar of Friendly Societies under the aegis of the Tánaiste and Minister for Enterprise, Trade and Employment. All the issues raised by the Senator will be fully considered by the implementation group when they address the question of their future regulation.
Senator Chambers mentioned people who have problems with their banks. The ombudsman for the credit institutions plays a very important role in this regard and I believe that customers are not sufficiently aware of the existence of the ombudsman.
Senator Henry raised the issue of money laundering. As she is aware, the Criminal Justice Act, 1994, makes money laundering a crime, not only the proceeds of drug trafficking but all serious crime. Ireland was recently the subject of an assessment by the OECD's financial action task force in respect of its anti-money laundering measures. While the report of this body is still confidential, I can say that in general the Irish system and its operation was regarded as very good. The Senator mentioned the head of the Garda bureau of fraud investigations and his comments on compliance by the financial sector. During a wide ranging interview, Chief Superintendent Glackin indicated that the vast majority of financial institutions were fully co-operating in the operation of the anti-money laundering legislation. Problems that exist are being addressed in the context of the anti-money laundering steering committee, chaired by the Department of Finance.
Senator Norris mentioned dormant accounts. I am happy that the Minister for Finance has decided to reopen this issue which was the subject of a report by the Department. The Department is at present in the process of securing legal advice on the subject from the Office of the Attorney General. I believe I have dealt with a number of points raised by Senators regarding the role of the Central Bank.
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