Mairéad Farrell (Galway West, Sinn Fein)
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Tá leithscéalta faighte againn ó na Seanadóirí Cathal Byrne agus Alice-Mary Higgins agus an Teachta Cian O'Callaghan.

Is mian liom na riachtanais bhunreachtúla seo a leanas a mheabhrú do chomhaltaí agus páirt á glacadh acu i gcruinnithe poiblí. Caithfidh comhaltaí a bheith i láthair go fisiciúil laistigh de theorainneacha shuíomh Theach Laighean. Ní cheadóidh mé do chomhaltaí páirt a ghlacadh i gcruinnithe poiblí nuair nach bhfuil siad ag cloí leis an riachtanas bunreachtúil seo. Mar sin, má dhéanann aon chomhalta iarracht páirt a ghlacadh ó lasmuigh den suíomh, iarrfaidh mé orthu an cruinniú a fhágáil. Maidir leis seo, iarraim ar chomhaltaí a dheimhniú go bhfuil siad i láthair laistigh de phurlán Theach Laighean sula ndéanann siad aon ionchur sa chruinniú ar Microsoft Teams.

Fiafraítear de chomhaltaí cleachtadh parlaiminte a urramú nár chóir, más féidir, daoine nó eintiteas a cháineadh ná líomhaintí a dhéanamh ina n-aghaidh ná tuairimí a thabhairt maidir leo ina ainm, ina hainm nó ina n-ainmneacha nó ar shlí a bhféadfaí iad a aithint. Chomh maith leis sin, fiafraítear díobh gan aon rud a rá a d’fhéadfaí breathnú air mar ábhar díobhálach do dhea-chlú aon duine nó eintiteas. Mar sin, dá bhféadfadh a ráitis a bheith clúmhillteach do dhuine nó d'eintiteas aitheanta, ordóidh mé dóibh éirí as an ráiteas láithreach. Tá sé ríthábhachtach go ngéillfidh siad don ordú sin láithreach.

I advise members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where he or she is not adhering to that constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask members participating via Microsoft Teams to confirm, prior to making their contribution to the meeting, that they are on the grounds of the Leinster House campus.

Members are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Today the committee is meeting to discuss the topic of dark money flowing through the Irish financial sector as identified in the Transparency International corruption perceptions index 2025. The committee welcomes this engagement with Transparency International Ireland and looks forward to hearing about the size of Ireland's dark money problem, its impact on our reputation and financial and national security, and the policy and regulatory responses needed to stem the flow of dark money through the Irish financial services sector. From Transparency International Ireland, I welcome Mr. John Devitt, chief executive; and Dr. Alexander Chance, head of policy and research. I invite Mr. Devitt to make the opening statement.

Mr. John Devitt:

I thank the Chair and members of the committee for inviting us to appear today. I will make some short opening remarks before handing over to my colleague Dr. Alexander Chance, head of policy and research at Transparency International Ireland, who has specialised in this area for a number of years.

Transparency International Ireland is the Irish chapter of a global coalition against corruption based in around 100 countries. TI Ireland was founded in 2004 as an independent, non-profit organisation dedicated to fighting corruption in all its forms. We have been managing a programme on this topic for a number of years. Much of the work we are doing is funded by the European Commission. I am also a member, representing civil society, of the Government's Advisory Council against Economic Crime and Corruption. However, I want to make it clear that I am speaking exclusively on behalf of TI Ireland. The committee might also be interested to know that the council has drafted a national strategy against economic crime and corruption which is due to be approved by the Cabinet in due course. I am not fully aware of the timeframe for that but if the committee has any questions on that, it might want to put them to the Department of justice.

I should also note that yesterday the European Council approved the first EU directive on corruption. Ireland will have two years to transpose that directive. We are happy to take questions on its significance and its potential impact on Ireland and the measures that will be required to transpose that directive.

I now hand over to Dr. Chance.

Dr. Alexander Chance:

I thank the committee for the invitation appear here this afternoon. Ireland is often regarded as a low-corruption country. In this year's corruption perceptions index we scored 76 out of 100, which places us among the countries perceived to be least affected by the challenge of corruption. However, this headline figure risks obscuring a more complex reality in terms of how the proceeds of corruption, organised crime and other illicit activities - what we call dark money - flow through legitimate financial systems, including ours. Globally, the risks associated with such illicit financial flows are significant and growing. They are amplified by increasingly sophisticated transnational networks which exploit legal and regulatory gaps across different jurisdictions.

Ireland is by no means immune from these risks. In our 2021 report, Safe Haven?, we assessed Ireland’s framework for preventing, detecting and recovering the proceeds of foreign corruption. Our report concluded that, despite having laws and institutions in place for asset recovery and showing a consistently strong response against the proceeds of domestic criminality, the State’s willingness to take robust action against illicitly obtained foreign assets remained unproven, particularly in light of the country’s fast-emerging role as a key international financial centre.

While Ireland’s position as a major international financial centre brings clear economic benefits, it also creates greater exposure to risks from dark money. The scale of the Irish investment funds industry alone gives some indication of the sums involved. Net assets in Irish domiciled funds total €5.5 trillion, making Ireland the second-largest centre for fund administration in the EU and the third-largest centre globally. While we welcome having a vibrant financial services sector, it is clear that the scale of international capital that flows through Ireland is in no way matched by the capacity of our law enforcement agencies, regulators and supervisors to police those transactions. The International Monetary Fund, IMF, said as much in its 2022 assessment of Ireland’s anti-money laundering framework. It noted that financial sector assets in Ireland had grown by 30% in just three years, totalling at that stage €6.57 trillion, cross-border payments had tripled and financial flows from Ireland to offshore centres had increased five-fold. The IMF described Ireland as facing "significant and increasing threats from foreign criminal proceeds". Our assessment is that warning has not yet been adequately heeded.

In 2024, we published a report, Weak Links, that identified gaps and loopholes in legislation and regulation across four specific areas that are critical for facilitating illicit financial flows, namely beneficial ownership transparency, the regulation of Irish limited partnerships, the integrity of our company registration system and the use of special purpose entities, SPEs.

I will say a few words about beneficial ownership and SPEs. We are happy to discuss company registration and limited partnerships in our discussion afterwards. As members may be aware, beneficial ownership refers to the individual, the natural person, who ultimately owns or controls a company or other corporate structure. Beneficial ownership transparency is critical for detecting and investigating money laundering, corruption and other financial crimes. Yet, Ireland's current rules make access to our beneficial ownership registers - Ireland is unique in having three separate registers - virtually impossible for journalists, academics and civil society organisations. Fortunately, the EU's latest anti-money laundering directive, AMLD6, requires member states to provide access to these so-called legitimate interest applicants by July this year. We respectfully suggest the committee may want to monitor the progress towards that deadline as it approaches.

Special purpose entities are complex legal structures that often span several jurisdictions and are typically established for a narrow purpose, often to segregate and house specific assets or liabilities. They have attracted increased scrutiny from tax and anti-money laundering experts alike, not least in this context due to their ability to avail of so-called section 110 tax-neutral status. In 2020, the Department of Finance assessed certain SPEs, particularly non-securitisation SPEs, as presenting the highest level of money laundering risk, yet the Central Bank acknowledged a few years later that 90% of SPEs still fell outside the scope of anti-money laundering, AML, supervision.

While these are technical details, the weaknesses they permit can have real-life consequences, often in less developed and less prosperous parts of the world. Gaps and loopholes in the oversight of Irish corporate structures, such as limited partnerships and SPEs, offer opportunities for corrupt officials overseas, transnational organised crime groups, sanctions evaders, hostile state actors and other illicit actors either to launder illicit funds or raise capital to sustain criminal or other illegal activities overseas, including military or hybrid operations. These activities are antithetical to Ireland’s stated foreign policy objectives to promote democracy, peace and security around the world.

The State’s response to these vulnerabilities has been underwhelming. AML supervision remains fragmented and inconsistent. Key law enforcement bodies remain significantly under-resourced, despite repeated concerns being raised over several years by various international bodies. Ireland’s financial intelligence unit, for example, has had to deal with a doubling of suspicious transaction reports in the five years to 2024 - the latest year for which data is publicly available - without a commensurate increase in staffing.

In a rapidly changing global environment, it is vital to highlight that dark money is also a national security issue. Opaque financial channels can be used not only to launder money but also to exert influence, interfere in democratic processes and undermine the integrity of our institutions. This requires us to view the issue not only through a narrow regulatory lens, but also as part of a broader strategic response to emerging hybrid threats to our financial system and democratic institutions.

I will conclude by highlighting five key messages for the committee to consider. We are happy to come back to any of these in more detail. First, on a policy level, the Government must be willing to acknowledge and address the illicit finance risks that accompany Ireland’s role as a major international financial centre. Second, access to beneficial ownership registers for journalists and civil society organisations must be restored before the July 2026 deadline, in line with the sixth AMLD. Third, adequate resourcing should be provided for key law enforcement bodies, including the Garda National Economic Crime Bureau and the financial intelligence unit. Fourth, outstanding legislative and regulatory gaps around specific corporate structures and processes, including limited partnerships and SPEs, must be addressed and closed as a matter of priority. Fifth, Ireland’s forthcoming and long-awaited national security strategy should explicitly address the threats posed by illicit finance to our financial system, democratic processes and institutions.

I thank the Cathaoirleach and members of the committee for their attention. We look forward to engaging with their questions.

Shay Brennan (Dublin Rathdown, Fianna Fail)
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I thank both witnesses for their attendance and the opening statement, which is quite useful. What amount or range of the €5.5 trillion in funds under management might be suspect? Is there anything pointing towards any great portion of that being something we need to look at closer? How can we arrive at that, given we do not have transparency?

Dr. Alexander Chance:

The simple answer is that we do not know because there is comparatively little detail about the make-up and origin of those funds. We can extrapolate based on the UN’s estimate of the proportion of global GDP that comes from illicit sources, which ranges from 2 to 5% of global GDP. If we extrapolate that to the €5.5 trillion figure, it is a reasonable assumption that a proportion – in the context of trillions of euro, it is not going to be an insignificant sum – originates from illicit sources.

Mr. John Devitt:

Without naming names and abiding by the rules of these Houses and the committee, one case is still before the High Court, as I understand it, with respect to a mutual legal assistance request filed by the US Department of Justice over ten years ago. It relates to some $300 million apparently laundered through funds managed by an international bank in the International Financial Services Centre, IFSC. Those $300 million were believed to be the proceeds of corruption and organised crime, laundered on behalf of a politically exposed person linked to a head of state in a central Asian republic. That money is still frozen pending a repatriation order or a memorandum of understanding that needs to be filed between the Irish Government and the government in question.

It is indicative of the volume and scale of transactions likely to move through the IFSC. That is just one case we are aware of that was brought to the attention of the Irish authorities by a foreign law enforcement agency. We are not aware of a case such as that being detected by the financial intelligence unit, FIU. However, it would not necessarily be the financial intelligence unit of the Garda National Economic Crime Bureau, GNECB, that would detect that. We are not aware of any similar cases being detected and investigated by the Irish authorities, so we are highly dependent on foreign law enforcement agencies to detect these transactions or these movements of funds. It may be indicative of a bigger problem than this one case would suggest. The volumes are more than likely in the billions than the millions.

Shay Brennan (Dublin Rathdown, Fianna Fail)
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That is an interesting place to go because it seems the particular case Mr. Devitt described was brought to us internationally. Are there any cases detected locally? Is everything that is investigated international? It sounds like there are few investigations. What would an investigation look like? Will he walk us through the Irish entities involved in that investigation? What can they look at and what do they do? Where do they ultimately get to in the context of an outcome and a prosecution and freezing assets?

Mr. John Devitt:

Dr. Chance can talk to the institutional environment here better than I can. However, so far as I am aware, that one case was identified as a result of investigations led by US authorities like the Department of Justice and the FBI into transactions related to the award of a mobile phone licence in this central Asian republic. A settlement was reached with a European company with respect to illegal payments to this politically exposed person. The mutual legal assistance request, as I understand it, was filed with the Irish Department of justice. A proceeds of crime order would normally be filed with the courts by the Criminal Assets Bureau. For example, that is the case with organised crime in Ireland. When an organised crime group is suspected of laundering the proceeds of crime that would be filed under the Proceeds of Crime Act 1996, and the assets frozen pending an order with respect to the origins of those proceeds.

Dr. Alexander Chance:

I go back to the Deputy's questions about how that would be picked up domestically. One of the key tools the anti-money laundering and anti-financial crime framework has to detect illicit finance is what are called suspicious transaction reports, STRs. That is whether the origin is drug trafficking, sanctions evasion, human trafficking or whatever. Various entities are obliged to submit these to the FIU and to Revenue at the same time. One issue we have observed is that while STRs from traditional financial institutions like banks are sent in on a regular basis, there is real inconsistency across different sectors. We included that figure of €5.5 trillion in Irish domiciled funds to give an indication of the scale of assets held and domiciled here. We also did it to flag that the investment funds industry is somewhat deficient in flagging suspicious transactions to the authorities via the financial intelligence unit. The latest publicly available figures go to 2024. They show that across the various categories of funds, fund administrators, fund managers, investment firms, investment intermediaries and other fund service providers there was a grand total of 187 suspicious transaction reports submitted to the FIU. That is out of an overall total of 35,544 across all sectors in Ireland. This is a sector that administers trillions of euro worth of assets and yet is submitting 187 out of more than 35,500 STRs. To us, that speaks of something not being entirely right. There are other sectors we can come onto if we talk about professional enablers but that might go off-topic.

Shay Brennan (Dublin Rathdown, Fianna Fail)
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I will dig into that a little. What is the obligation to submit an STR? Is there anything legally binding there?

Dr. Alexander Chance:

The obligations are contained in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, which has been amended several times since it was initially passed. They impose obligations on obliged entities to submit STRs under various criteria. They are assessed by different supervisors, which is one of the issues in terms of their compliance with that legislation. One of the issues we see is that the supervision is inconsistent. For the Central Bank we are currently involved in compiling a report looking at anti-money laundering supervision across the financial sector and designated non-financial businesses and professions. The Central Bank is a relatively robust regulator, and its supervision of anti-money laundering is fairly consistent. However, if you are looking at non-financial sectors like property or the legal profession it is inconsistent and little information is published by these supervisors about what exactly they are doing to hold their sector to account, in particular for submitting suspicious financial reports, but also in terms of outreach to their sector to make sure they are picking up on suspicious activities. We can come back to the supervision issue.

Shay Brennan (Dublin Rathdown, Fianna Fail)
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There is a legal obligation to file a suspicious transaction report, and yet Dr. Chance is saying that many sectors are not doing this or at least not to the extent they should be. Should we not be enforcing that? Who is charged with enforcing that?

Dr. Alexander Chance:

It depends on which sector you are talking about. For a lot of the financial sector, it is the Central Bank. For various trust and company service providers, it is the anti-money laundering compliance unit at the Department of Justice, Home Affairs and Migration. For the property sector, it is the Property Services Regulatory Authority. For solicitors, it is the solicitors’ regulatory authority. For accountants, I think there are seven prescribed accountancy bodies. All of these different groups publish varying levels of information about how they enforce compliance with anti-money laundering legislation and the extent to which they are taking enforcement action and the use of sanctions, which are provided for in law. There is little information out there, aside from that from the Central Bank, so we can make an informed judgment as to the extent to which they are enforcing compliance.

Shay Brennan (Dublin Rathdown, Fianna Fail)
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Are these bodies in breach of the law?

Dr. Alexander Chance:

I do not think they are in breach of the law by not publishing information. It is just that we simply cannot make an in-depth analysis of the extent of their activity in the context of anti-money laundering supervision because in many cases there is little information published.

Edward Timmins (Wicklow, Fine Gael)
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I will take up that point and I have a few others. Is there a role for the auditors of these companies in supporting what the witnesses are saying? Is it a requirement for auditors to highlight suspicious transactions they feel have been under-reported?

Dr. Alexander Chance:

I cannot speak specifically to the auditing profession. They submit STRs, but in small numbers.

Referring to the latest publicly available figures from the Financial Intelligence Unit, in 2024, accountants submitted 30 STRs and auditors submitted ten.

Edward Timmins (Wicklow, Fine Gael)
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It is on the low side then. Are they obliged to submit them if it comes to their attention?

Dr. Alexander Chance:

If it comes to their attention, yes.

Edward Timmins (Wicklow, Fine Gael)
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In paragraph three Dr. Chance states, "the State's willingness to take robust action against illicitly obtained foreign assets remained unproven". Does Dr. Chance have any specific examples of where it is not proven or is that just a negative term he is describing?

Dr. Alexander Chance:

Unfortunately, we do not have specific examples. That is one of the issues. We have previously made the point that Ireland has been a world leader in following the money - to use the phrase - and going after the proceeds of domestic criminality and organised crime within Ireland or directly connected to Irish organised crime. What we have not seen is robust action against the proceeds of illicit activity from overseas that are passing through, or making use of, the Irish financial system or of Irish financial structures or processes.

Edward Timmins (Wicklow, Fine Gael)
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Dr. Chance does not have examples; that is fine. I will talk about beneficial ownership for a minute. This is something I am well aware of as I have filed accounts that often do not show beneficial ownership. Annual returns do, but it can be quite convoluted as regards the trail. What does Dr. Chance suggest as to how we should fully disclose the beneficial owners, even if we were to disclose ownership of, say, in excess of 5%? Will the new EU directive, AMLD6, solve the issue around beneficial ownership? Does Dr. Chance think who owns the companies will become transparent when companies' accounts are filed?

Dr. Alexander Chance:

I will make three quick points on beneficial ownership. First of all, like any of these systems - to come back to Deputy Brennan's point - it is only as good as the enforcement of it. If the beneficial ownership system is not rigorous, it is not checked and the information is not verified, then it can fall into being a paper exercise that does not actually capture the true beneficial ownership, that is, who owns and controls different corporate structures. Verification of the information submitted to the three beneficial ownership registers is key.

The second point I will make comes back to the investment funds piece. Obviously, the nature of investment funds is that often multiple parties are involved in a particular fund. Under EU legislation, the threshold for declaring a beneficial owner is 25%. In the vast majority of cases, when it comes to complex fund structures, that is not going to capture beneficial owners, so there is a much wider-----

Edward Timmins (Wicklow, Fine Gael)
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The rules are not adequate and need to be changed.

Dr. Alexander Chance:

On that specific issue, yes. There is a wider issue in that when it comes to capturing the beneficial owners of complex fund structures, the threshold is insufficient.

Edward Timmins (Wicklow, Fine Gael)
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Are there other weaknesses in it apart from the very high threshold of 25%? It should clearly be a lot lower.

Dr. Alexander Chance:

It should be lower.

Edward Timmins (Wicklow, Fine Gael)
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Are there other weaknesses in tracking who the beneficial owners are under the current system?

Dr. Alexander Chance:

The other point I was going to make is that in many cases worldwide, illicit finance, money laundering and corruption cases are identified through the activities of investigative journalists and civil society organisations. In Ireland's case, a statutory instrument was introduced in the summer of 2023, which effectively precludes access to the beneficial ownership registers for what are called, under EU legislation, legitimate interest applicants, which are journalists and civil society organisations with a proven record in investigating money laundering. That is one of the issues addressed by the latest, sixth anti-money laundering directive. As I mentioned, by July this year, all member states will have to have in place systems whereby journalists and civil society with a proven record and involvement in tackling illicit finance can apply for and receive, under certain criteria and conditions, beneficial ownership information.

Edward Timmins (Wicklow, Fine Gael)
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Should it not be a lot simpler? Should annual returns or annual accounts returns not include the beneficial owners so that anyone can see it, by going onto the Company Formations International, CFI, website or whatever, rather than going through qualifying? Dr. Chance referred to civil society but it is also about companies. If you are working for a company, they might want to know something about one of your suppliers. You might want to dig in but you may not have access to the information. Dr. Chance referred to civil society but it could also apply to the corporate business world as well. Would it not be a lot simpler if the beneficial owner was disclosed in annual returns and annual accounts returns?

Dr. Alexander Chance:

Yes. Our ultimate objective is to have open, transparent public access to this information, as is the case in some other jurisdictions, including the UK, for example. You can go to the Companies House register there and within seconds be able to access that information.

Edward Timmins (Wicklow, Fine Gael)
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That would be a better solution.

Mr. John Devitt:

Our hands were partly tied by a judgment of the European Court of Justice in November 2022, with respect to a case whereby the plaintiff argued that public registers were contrary to EU charter guarantees and rights around privacy. The EU anti-money laundering directives only provided for this register on the basis that the information was aimed at informing efforts acrosas the EU in tackling money laundering. The legislative base for this would need to be revised for us to allow for public access to that information in the future.

We argue that this information should be, as the Deputy suggests, available to tenants who want to know the owner of their apartment scheme, shareholders who want to know who the real owners of companies are, companies that want to know who they are doing business with on joint ventures and public bodies that want to know who are winning public contracts. We have had cases where public contracts have been awarded to companies whose beneficial owners were unknown to those public bodies. Everyone has a right to know who owns companies but that would need to be legislated for to allow for public access, as is the case in Latvia, I think.

Edward Timmins (Wicklow, Fine Gael)
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I agree 100%. I have just a couple of more questions. Are there any examples of special purpose entities being used for money laundering?

Dr. Alexander Chance:

In terms of Irish special purpose entities, not immediately to hand but internationally there are cases where they have been used. The issue we have with them comes back to what we were discussing earlier. If information is not being requested and captured it is unlikely to come to light. As things currently stand with our legislation, 90% of special purpose entities are outside the scope of anti-money laundering supervision.

Edward Timmins (Wicklow, Fine Gael)
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Are there any examples of political interference in Ireland or elsewhere?

Dr. Alexander Chance:

Over the last number of years, in the EU and other jurisdictions, it is increasingly recognised that illicit finance is not just the preserve of criminal actors but also of state-based actors and others who may seek to influence democratic processes through financial means.

Edward Timmins (Wicklow, Fine Gael)
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Is Dr. Chance aware of any examples in this country?

Dr. Alexander Chance:

Not that I am aware of.

Edward Timmins (Wicklow, Fine Gael)
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I have a couple of other quick questions. Regarding the powers of State bodies, the Revenue Commissioners have powers to come in if someone is not paying their taxes. Do Garda bodies, such as the Garda National Economic Crime Bureau, have enough powers to enter the premises of companies and demand records? Does Dr. Chance think its powers need to be increased?

Dr. Alexander Chance:

Obviously, I cannot speak for An Garda Síochána or the Corporate Enforcement Authority but they do have powers. Certainly, in our interactions I am not aware of them making any complaints that those powers are insufficient. The issues that we hear about are largely around resourcing. There are also potentially issues around how privacy and data protection legislation sometimes comes into conflict with their activities in investigating financial crime in particular. That is perhaps a particular challenge when it comes to investigating the role of professional enablers.

Edward Timmins (Wicklow, Fine Gael)
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The figure for this country is 76 out of 100. I did not read the detailed report. There is detail under various headings. Are we weak in some areas? Is there a breakdown of the 76 under five or ten headings?

Mr. John Devitt:

I am happy to take this question. The corruption perception index, to which the Deputy referred, is a poll of polls. It is an aggregate indicator drawn from up to 13 or 14 surveys, usually political risk surveys, which are conducted by the likes of the Economist Intelligence Unit, the World Bank Institute and so on. Those are used by investors to decide where they should invest. That score is indicative of international perceptions of the degree to which a country is affected by corruption, usually bribery or the theft of state assets. It does not go into specific details.

Eoin Hayes (Dublin Bay South, Social Democrats)
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I thank Mr. Devitt and Dr. Chance for coming before the committee to discuss this important issue. My party cares quite a lot about this issue in terms of transparency and how funds would be utilised for criminal proceeds and other nefarious purposes, political interference being one which I may come later.

It was said that total household wealth in Ireland is €1.3 trillion, a huge proportion of which is in property. We are basically saying that the ratio of the fund administration in Ireland is about four times our domestic wealth. Do the witnesses have any sense of how that compares with other international jurisdictions? Is this way above and beyond what is seen in other places?

The witnesses said they estimate that somewhere between 2% and 3% of GDP is engaged in illicit transactions. If we apply that to the €5.5 trillion figure referenced, we are talking about hundreds of billions of euro in illicit transactions. Is that the sense the witnesses have? That may be the big fear. Do the witnesses have a sense of the breakdown of the €5.5 trillion figure in terms of how much it would be in special purpose entities, SPEs, compared with limited partnerships or what might be called bog standard companies that have more of a reporting requirement?

There are domestic issues of criminality and the use of dark money in the domestic sphere. If Ireland is effectively a gateway for the use of illicit funds in other jurisdictions, in particular in the eurozone, that would very quickly become deeply problematic and a major risk to the financial services industry in Ireland and the confidence people have internationally. What is the view of the witnesses on the financing of international illicit issues that might pass through the Irish financial services industry? They spoke a little bit about the central Asian republic issue. My understanding is that there was a repatriation question over whether the funds should go back to the government, which was now seen as being corrupt, or to the victims of those crimes.

On resourcing, I am getting more and more worried as we speak because there is a question about rules, transparency and enforcement. All three seem to be less than ideal. On the question of enforcement and how the Criminal Assets Bureau, the Garda National Economic Crime Bureau and the Financial Intelligence Unit are conducting themselves, what is the scale of resources we would need to be able to meet a €5.5 trillion fund oversight function?

Mr. John Devitt:

I am happy to respond. I am sure Dr. Chance will have some additional information to share. Of the three cases of which I am aware with respect to detected proceeds of corruption, two relate to funds apparently laundered through insurance policies. The other was through investment funds. I am not sure whether they were private equity funds or some other funds. The issue is obscured in part because of the complexity of these funds and whether they are securitised or collective asset vehicles which then reduce the ownership threshold. Deputy Timmins said there could be 1% in a fund or 100% of a person's wealth could be managed across 100 different investment vehicles. Therefore, it is extremely difficult to tell. We do know, however, that of the three cases I mentioned, two related to insurance policies.

In terms of resourcing, as far as I am aware, the best resourcing is in Australia. The United States FinCEN, which operates out of the US Treasury, has complained about a similar problem. The Deputy will hear its peers at the GNECB complain that they will never have the resources to deal with the volume of suspicious transactions moving through financial services. As much as we would like to see those resources increased, we need the incentives for the movement of these illicit flows to be addressed and rules around transparency, in particular corporate transparency, beneficial ownership transparency with respect to limited partnerships and other measures, introduced. This will not be fixed by throwing money at the problem.

Dr. Alexander Chance:

I thank the Deputy for his questions. I will try to come back to each of them. On comparing the size of the Irish funds industry with that in other jurisdictions, Ireland is a leader in this. We have spoken about the funds industry a lot. I will preface everything by saying that we do not seek to hit the industry. As we said in our opening statement, we welcome having a vibrant funds sector. Our financial services sector, of which the funds sector is one element, is an important part of the Irish economy and we welcome that.

However, there are some structural or systemic issues, which we have already discussed, including the paucity of suspicious transaction reports that go into the FIU from that industry. We highlighted that to show the scale of international assets administered from or domiciled here.

In terms of the scale of the Irish funds industry compared with that in other jurisdictions, I have here the latest report from the representative body with some colourful facts and figures. As I mentioned, we are the second largest funds administration centre in the EU and the third largest globally. Ireland hosts 40% of the world's hedge fund administration. That gives the committee an idea of the scale. Some €5.5 trillion worth of assets in Irish-domiciled funds and €7.2 trillion in Irish- and non-Irish-domiciled funds are administered here.

If we had to pick a part of that industry that we are more concerned about, it would be the alternative investment funds sector, which constitutes, according to the report, 18% of the overall funds industry. This still involves significant sums of money or assets. I am happy to share, via the clerk, a report we commissioned from our research team in Berlin last year on the specific money laundering and corruption risks posed by the alternative investment funds sector, if that would be of interest to members.

The Deputy asked what proportion of the €5.5 trillion is held in SPEs or limited partnerships. It is important to emphasise that special purpose entities and limited partnerships are vehicles. For want of a better phrase, they are the container or vehicle through which many, but not all, investment funds do their work. They are attractive for various reasons. In the case of SPEs, it is because in a lot of cases they can attract section 110 tax neutral status.

In terms of resourcing law enforcement performance, as the committee can tell from my accent, I am originally from the UK and previously worked in UK law enforcement. My personal assessment of the Garda in this respect is that it does a very good job.

It is significantly under-resourced. I agree with Mr. Devitt that resourcing is not everything. It is not going to solve the problem but if we look at the scale of our financial services sector against the resources that are deployed against economic and financial crime and money laundering, they amount to a drop in the ocean. That is inconsistent. As I said earlier, the Garda's efforts against the proceeds of domestic criminality and the proceeds of Irish organised crime, both here and operating overseas, are in general very good. The blind spot that we have is around these very complex corporate structures, the large sums of assets from overseas that are making use of Irish corporate structures or our corporate processes and which we are just not picking up on. As Mr. Devitt said, the incentives are not there to look for those and nobody is asking questions about what proportion of those is from illicit sources. In most cases, the Garda and the regulators do not have the skills or capacity to be able to investigate them.

Coming back to an earlier question, the industry is not submitting suspicious transaction reports. The domestic banks - the retail banks that we do our day-to-day living through - are submitting reports left, right and centre. In fact, in some cases in other countries the FIUs complain that they are over-submitting. When we have this huge disparity and we have 187 suspicious transaction reports coming in from an industry that is administering €5.5 trillion worth of assets - that is just the Irish domiciled assets - we would suggest there is an issue there.

Colm Burke (Cork North-Central, Fine Gael)
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I thank Dr. Chance very much for his presentation. He talks about €5.5 trillion. That is a lot of money. Do we have the expertise among the staff and people we have working in this area to deal with cases where there is a suspicion? Are we comparable to international standards in terms of the banking sector and investment funds? Where is Ireland at in that area? For instance, is there not a very high risk now with this volume of investments? If people are aware that there is not an adequate overview of this, there is a greater risk of corruption and fraud in these funds.

Dr. Alexander Chance:

I thank the Deputy for his question. Last year, as part of the work Mr. Devitt mentioned, which was commissioned by the European Union, we did some work assessing the capacity of Irish law enforcement and the Office of the Director of Public Prosecutions to tackle effectively corruption and related money laundering and financial crime. The skills are there. There are some very capable investigators in the Garda and very capable prosecutors in the DPP's office. I should emphasise that this is not an issue that is limited to Ireland; it is an issue across the world, in particular in those countries that have very active financial services sectors.

It is often the case that as soon as a member of the Garda develops a real expertise and specialism within financial crime, they become very attractive to the private sector. The same is true in terms of tackling cybercrime. Because Ireland is home to so many big financial firms and tech firms, these officers are often - I will not say poached - attracted by the private sector. There are some issues unique to the Garda promotion process which also militate against being able to develop specialisation. If somebody wants to be promoted, they typically have to leave a specialist bureau and perhaps go back into uniform, which means the skills they have built up go with them. We are working with Ulster University on crypto. We are writing a report on this, which I am happy to share with the committee when it is completed. This is a major and fast developing challenge in terms of tackling money laundering. One of the issues that our colleague at Ulster University has identified is that the Garda National Economic Crime Bureau and related specialist departments within the Garda have some of these skills, but they are not widespread, so it is only a handful of members who hold these skills. The crypto analysis tools that are required to be able to delve into crypto transactions are not necessarily there.

Colm Burke (Cork North-Central, Fine Gael)
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Are the financial institutions doing enough as regards getting the expertise? I know Dr. Chance says they are attracted from the Garda into private enterprise, but are the financial institutions and investment funds doing sufficient work in this area to get people with the expertise and ensure they have an adequate number of people dealing with this issue?

Dr. Alexander Chance:

Frankly, I do not know. When we talk about the financial services sector, there are obviously different elements to it. In many cases, anti-financial crime and anti-money laundering compliance is a major part of the activities of financial institutions. In most cases, they take it seriously. I could not comment on the scale at which they are deploying those resources because I am not involved in that industry. In most cases, in particular in traditional financial institutions such as the banks, they devote considerable resources to it.

Colm Burke (Cork North-Central, Fine Gael)
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Coming back to law enforcement and co-operation at an international level, are we doing enough in that whole area? Do we have the expertise within the Garda to co-ordinate that supervision and look at where there may be corruption or fraudulent activity going on? Is there enough co-operation on an international basis?

Dr. Alexander Chance:

From what we have seen, international co-operation between the Garda and overseas law enforcement and between Irish prosecutors and prosecutors overseas is good. Ireland is very active, in particular given the size of the DPP's office and relevant departments within the Garda. They are active in Europol and Eurojust. There are some structural issues in relation to the exchange of information, but those perhaps sit outside the domestic sphere. These are issues around the ability to process mutual legal assistance requests on a timely basis. Irish law enforcement is certainly active internationally.

Colm Burke (Cork North-Central, Fine Gael)
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Is it Dr. Chance's view that we need to put more resources into that area to make sure we are up to date? Is that basically what he is saying at this stage?

Mr. John Devitt:

This was a point highlighted by the Hamilton report some time back. I think it was almost ten years ago. The report led to the establishment of the Advisory Council against Economic Crime and Corruption. It highlighted the need for additional resources in this area. I understand it may also be a priority highlighted in the forthcoming strategy. It is an area the Garda is acutely aware of, and I think the Government is aware of the need for increased resources and investment in this area too.

Conor Murphy (Sinn Fein)
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I thank the witnesses very much for their evidence so far. The first key message in the presentation is that the Government must be willing to acknowledge the issue. It seems remarkable, given that a previous IMF report highlighted the risks in 2022 and referred to significant increasing threats from foreign criminals, that the Government has not yet acknowledged that risk. Given some of the questions that preceded mine, I wonder about putting in sufficient resources to make sure that these issues are examined and dealt with, if required. How did the witnesses assess that the Government has not yet acknowledged such a problem exists?

Is that a reluctance in case it scares off the benefits of the financial institutions coming in, or is that people have simply not got around to it with so many other things to do? It seems to me a remarkable statement that there is a lack of acknowledgement, much less a lack of will, to deal with the issue.

Mr. John Devitt:

I thank Senator Murphy. As he suggests, I think historically there has been a reluctance to talk about these issues for fear of drawing too much attention to them. Every government is afraid of scaring the horses, so to speak. In a previous life I was a consultant to Enterprise Ireland. I worked as a trade and investment manager and a trade representative at the Irish consulate in New Zealand. This was not something Enterprise Ireland or the IDA wanted to discuss, understandably, but it is not for them to address this problem. It is for the Department of justice and the Department of Finance to bring forward legislation to address many of these issues; to see that the resources are invested in law enforcement, in the Central Bank and in the other agencies that will enforce existing legislation; and to provide for a level of transparency that is required for journalists and other actors to detect suspicious transactions and movements of funds. With the forthcoming strategy and the transposition of the EU directive, minds will have to be focused on dealing with or grappling with this issue. Whether the political will and resources are applied to it is another matter, but it is inevitable that we will hear more about this in future.

Conor Murphy (Sinn Fein)
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The Government does not have to be shouting this from the rooftops. It has to get on with dealing with it effectively, but if it is not in the business of acknowledging it in the first instance, it makes one wonder what the preparedness or the intent is in dealing with it. Mr. Devitt suggests that the directive he referenced is to be transposed by July this year.

Mr. John Devitt:

That is the anti-money laundering directive. I do not want to confuse the members. I was referring to two different directives. The directive which was approved by the European Council yesterday is the European directive on corruption, which will harmonise legal instruments across the 27 member states. That deals with bribery, illicit enrichment, trade and influence and so on. Many of the measures required under that directive are already in place under the Criminal Justice (Corruption Offences) Act 2018. The directive to which the Senator is referring here is the sixth anti-money laundering directive. By July this year we have to provide for a beneficial ownership transparency.

Dr. Alexander Chance:

Most of the provisions of the sixth anti-money laundering directive do not come into play until July of next year but this specific one that we referenced was enabling journalists, civil society organisations and academics, subject to certain criteria, to be able to access this.

Conor Murphy (Sinn Fein)
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A lot of these directives come through the Seanad scrutiny committee on EU matters and we, in turn, refer them on to the various committees. We are having real difficulty in getting some of these out of the Departments, both getting them out in a timely fashion and not as the first iteration of them, which is what tends to be transposed by the Department. What is Transparency International Ireland's assessment of both directives of how they are emerging from Europe? Are they sufficiently robust? Do they do what is needed to be done? Obviously then each individual member state transposes them in their own way and that is something we will have to monitor collectively. In the first instance, are they sufficiently robust as far as the witnesses are concerned?

Dr. Alexander Chance:

In broad terms, we and our colleagues are really pleased with the latest iteration of the anti-money laundering directive - AMLD6, as it is known - which is part of a three-pronged wider package of measures. There is a regulation and there was also the creation of the EU-wide anti-money laundering authority. The new anti-money laundering authority is going to be really important, coming back to an issue we touched on earlier in the session, in making sure there is more consistency and transparency around anti-money laundering supervision. I think it was Deputy Brennan who asked the question around this. It is about making sure that the compliance with anti-money laundering measures, including the submission of suspicious transaction reports to the FIUs, is done on a consistent and a robust basis. If the new anti-money laundering authority sees that is not the case, it has the powers to be able to step in and push that.

Conor Murphy (Sinn Fein)
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I also ask about the other directive, the anti-corruption one.

Mr. John Devitt:

Broadly speaking, Transparency International Ireland welcomed the directive. There were some measures which did not make it into the final draft, such as those around abuse of power in public office, which were essentially vetoed by other member states. We will be required, to the best of my knowledge, to improve safeguards on illicit enrichment and to introduce new corporate fine or penalty regimes. Attention may also be focused on the co-ordination and resourcing of existing agencies. As the committee will be aware, we have a very fragmented system whereby we have numerous different agencies dealing with corruption-related offences and economic crime. I am old enough to remember that when the Flood and Mahon tribunals were under way, a former Taoiseach promised a corruption assets bureau, a promise which fell by the wayside. We have since called for a national anti-corruption bureau which would be dedicated to tackling other offences that other agencies currently do not have the mandate or resources to address. We have been calling for the strengthening of the ethics in public office regime, but there have been long delays to the legislation that was promised back in 2011 and the draft legislation that was presented before the House in 2015. We need to ensure we have a strong framework in place. Notwithstanding that we will not have one agency to deal with every issue, we should have a coherent and integrated system to tackle the many different forms of economic crime and corruption that agencies currently are not resourced to address.

Conor Murphy (Sinn Fein)
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Go raibh maith agaibh.

Erin McGreehan (Louth, Fianna Fail)
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The witnesses are very welcome. We had to go to vote in another committee so I apologise if I repeat some of the questions that have been asked. This is a really interesting and important topic. I ask about the dark money which the witnesses describe as a national security issue. What specific examples or threat pathways concern them most, particularly in relation to hostile state actors or sanctions evasion?

Mr. John Devitt:

Dr. Chance has first-hand experience in investigating many of these matters. Many of the cases of which we would be aware are already in the public domain. It would be no secret that many states are collaborating with or providing a permissive environment for organised crime through active measures. Security agents or analysts might describe this as a form of hybrid warfare. Anyone with access to Google will find numerous publications on the links between intelligence agencies and organised crime historically and very often they are using the same funds to finance their operations. Ireland is no less vulnerable to this activity than any other financial centre. While we do not have hard evidence, we need to highlight the risk that these funds can be used to undermine State security. It is something I am sure An Garda Síochána and the Defence Forces are acutely aware of as well.

Erin McGreehan (Louth, Fianna Fail)
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One would imagine so. Regarding the approaching AMLD6 deadline, Transparency International Ireland asked us as a committee to be monitoring that implementation and the transposition of that.

What should we monitor that would genuinely restore that meaningful access rather than a narrowly defined or overly restrictive approach?

Dr. Alexander Chance:

I am looking for the specific statutory instrument so I can refer to the wording in order that the Deputy can see how essentially nonsensical it is. Prior to early 2023, the fifth AMLD provided for public access to beneficial ownership information, returning to Deputy Timmins's suggestion that public access would be great for a whole series of different reasons, which Mr. Devitt elaborated on. Following the judgment of the Court of Justice of the EU in November 2022, the Department of Finance and the Government acted very swiftly to pull up the drawbridge and to end public access to our beneficial ownership registers. In June 2023, the Minister for Finance signed into law SI No. 308 of 2023, which in a sense purports to allow for enacting the judgment. Part of the judgment of the Court of Justice of the EU in 2022 was that the so-called legitimate interest applicants, such as civil society organisations like Transparency International, TI, or investigative journalists who are actively involved in tackling money laundering, could apply for access to this information. However, the statutory instrument puts the onus on the applicant for the information to prove that there is a link between the company they are applying for information about and a person who has either been convicted, not arrested or charged but convicted, of money laundering or that they hold assets in a high-risk third country. This begs the question: why would the likes of TI or an investigative journalist ask for that information if the case had been through a court and if they have been convicted? It essentially puts the cart before the horse. The onus is on us to prove that to the registrar. In effect, it makes it impossible. Our colleagues in our international secretariat in Berlin tested this regime in 14 different member states last October. Ireland, along with Hungary, outright refused our request. That gives the Deputy an indication of where we are at the moment. Respectfully, in terms of our suggestion that the committee might want to accompany this issue towards the deadline of July, we want to make sure that there is not a situation where similar, almost nonsensical conditions are imposed upon legitimate interest applicants in the regime that is put into place as that deadline approaches.

Erin McGreehan (Louth, Fianna Fail)
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It was said that 90% of SPEs fall outside AM supervision. Relative to other countries, where does Ireland rank on that? Why has the gap persisted for so long? What institutions should be responsible for closing it? There is legislation but which institutions should be responsible? Would Dr. Chance recommend reform or rethinking the section 110 tax treatment fundamentally? Is supervision the core issue for the enforcement rather than the tax policy itself?

Dr. Alexander Chance:

In relation to SPEs, I am afraid I cannot give the Deputy a figure in terms of how the number compares with other jurisdictions. A number have similar structures. About 18 months ago there was a review of the overall fund sector called funds 2030 - a vision for the future. The final report of the review, which was published by the Department of Finance, made a series of sensible recommendations. It first acknowledged and recognised that the current regime, in particular around SPEs and the section 110 element of it, carried certain risks and was insufficiently transparent. It picked up on the Central Bank's submission to that review, which highlighted that there were some not inconsiderable risks around the current regime in terms of sanctions. The Central Bank stated: "External financing SPEs pose a high degree of risk of sanctions circumvention ... The Central Bank does not have the legal mandate to ensure that supervised entities are complying with sanctions." That is just one element of it. It also highlighted there was potentially a financial stability risk. Those are in addition to the money laundering risks.

We are asking that the recommendations of that review 18 months ago are taken forward as a matter of priority. As with some of the deficiencies around limited partnerships and other elements of our AML framework, these are not new issues. They have been highlighted for some time. This is why we would characterise perhaps the State's overall response to some of these gaps and loopholes to be somewhat underwhelming.

Mairéad Farrell (Galway West, Sinn Fein)
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I will ask my own questions and then we can have a second round because we have plenty of time. I will start where Deputy McGreehan left off. One issue I have raised a lot over the past couple of years is section 110s. I always find the State's response when it does not want people to look too deeply into something is to say it is too complex. On many of the occasions I raised it I was told that it was too complex to understand. If something is that complex and we are giving it a tax break, maybe we should make it a little less complicated so that we know exactly what is going on.

Of course, it was very much under the radar until the Russian-Ukraine war. It then popped up as "Wait a minute, maybe we need to have some kind of action in relation to it". That has dropped off the radar again. I have tried to raise it again of late. Again, responses are coming back in relation to its complexity. I wanted initially to have an update from the witnesses as to where they see it to be at the moment. The best thing about committees for me is the amount of information we can get from committees that arms us then for when we go forward.

Dr. Alexander Chance:

The simple answer is that we are not able to get a huge amount of information on what the latest situation is. I approached the Department of Finance for an update on how it has used the recommendations, specifically around risk transparency arising from the funds 2030 review. I did not get a particularly forthcoming response. It is under review so we simply do not know, which is unfortunate.

Mairéad Farrell (Galway West, Sinn Fein)
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When it was more topical, I carried out some research into the case if we want to implement sanctions on any state. It seems that we are unable to do so if they are using section 110. They are too complex in their nature and therefore it is nearly impossible to know exactly where the money is coming from. Does Dr. Chance agree?

Dr. Alexander Chance:

I will come back to the Chair's earlier comments that if they are that complex, then perhaps there is an issue with how they are structured and the lack of obligations to provide information about how they are structured and the origin of the funds that are being moved through these structures.

On the specific point of sanctions again, to repeat the Central Bank's own words: "The Central Bank therefore does not have the legal mandate to ensure that supervised entities, including the SPEs that are supervised - that is only 10% of them for AML obligations - are complying with sanctions." The Central Bank is saying that it is essentially blind to this, which is one of the reasons it highlights the serious risks that come with these structures. The bank has put it in unambiguous terms that the way they are currently regulated or, should we say, not regulated, carries risks in terms of sanctions circumvention, anti-money laundering and countering the financing of terrorism and in terms of financial stability. Of course, that all has an impact on our reputation as a location for financial services.

As I mentioned in our opening statement, we pride ourselves on having a progressive approach to foreign policy, but if we are presiding over and dragging our feet on regulating structures through which billions of euro, in the case of SPEs, are flowing or being administered, which creates openings for illicit actors of various different stripes worldwide, there is perhaps a mismatch.

Mairéad Farrell (Galway West, Sinn Fein)
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I agree. We can have all the talk and an impressive foreign policy but if we are not sure that we are not assisting with financial aspects, we are nothing. If we were assisting, we would be complicit because wars cannot be fought without financing. It is an area that probably deserves far more attention that it is getting. Given the fact that they are complex and there is very little information about them, that can end up being brushed off. Unfortunately, a lot of the time, we do not go into the depths of particular issues, which is very concerning. I have also had responses where people have been honest and said that they do not know. We should know. In particular, this committee should be aware of and across what is happening with section 110 structures. Do we know how much of an impact it is having on the economy? Is there any quantification of that?

Dr. Alexander Chance:

Is that in terms of SPEs on the Irish economy?

Mairéad Farrell (Galway West, Sinn Fein)
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Yes, in terms of section 110.

Dr. Alexander Chance:

If the Cathaoirleach will bear with me, I will find the reference in the funds review. I read it earlier and the words were to the effect that they have a minimal effect. Because they are set up for a specific purpose, they tend not to employ people in terms of the employment generated.

Mairéad Farrell (Galway West, Sinn Fein)
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It is more the legal aspect.

Dr. Alexander Chance:

Obviously, there are the support structures that facilitate SPEs, such as lawyers, accountants and company service providers, etc. In terms of employment generated by these structures, the review said it was minimal. I will try to find the exact wording.

Mairéad Farrell (Galway West, Sinn Fein)
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What is Transparency International Ireland's recommendation in terms of section 110 of the tax code? Does it think that should be minimised, made less complex or removed? What is Transparency International Ireland's view on it being totally restructured?

Dr. Alexander Chance:

The tax treatment of SPEs is probably beyond our bailiwick. What we would recommend is greater transparency. Coming back to what I would characterise as sensible recommendations from the funds review, the review team recommended that legislation be progressed to enable Revenue to publish a list of SPEs availing of the section 110 regime, including the name of the entity, with the list updated at regular intervals. We would fully endorse that recommendation and the others around this topic.

Eoin Hayes (Dublin Bay South, Social Democrats)
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It appears that a lot of this reporting is self-reporting. The witnesses highlighted the question of verification of what is actually occurring. I would love to hear if they have a sense of international experience or where there is some departure from the onus being totally on the individual or institution to self-report and what that might look like. I did not take down the numbers exactly but I think Dr. Chance referred to 35,000 STRs and about 1,300 investigations, which would be a rate of about 4%. Am I correct in those numbers?

Dr. Alexander Chance:

A total of 35,500 STRs were submitted to FIU Ireland in 2024, which is the last year for which there are publicly available figures.

Eoin Hayes (Dublin Bay South, Social Democrats)
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How many of those resulted in investigations?

Dr. Alexander Chance:

It does not publish that information.

Eoin Hayes (Dublin Bay South, Social Democrats)
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This is a strange sojourn but I was watching a Netflix show recently where a woman who was caught with an STR and said "Well, once I submit the STR, that's it. I don't have to do anything else.". There is a get out of jail free card in that. It is a case of "We've submitted the report but, sure, we know nothing's going to happen so what does it matter?" There is a real question about what happens after that and whether these are being covered appropriately.

Regarding tax avoidance and evasion in all of this, the Cathaoirleach put it quite well in terms of section 110 and what those entities are doing. If we have this level of financial flows coming through a small economy like ours, there are opportunities for things to be structured in such a way that they facilitate tax avoidance or evasion, not just in this jurisdiction but in other jurisdictions as well, and someone using this jurisdiction to avail of that.

The second major area I wanted to cover concerns political dark money. Those of us around the table who are politicians are fairly familiar with elections. A few million is spent during every election period by the various entities and people on getting elected. At constituency level, one is talking about tens of thousands. In the context of major players like the billionaire oligarch class of the world, that is peanuts. One could reasonably put money into the Irish political system that would meaningfully change the outcome in certain constituencies if one were so minded. There is the question of foreign political money interfering. Do the witnesses have a sense of how that might look? I am conscious of extremist actors of any description from foreign jurisdictions basically inserting themselves into the Irish political system through this dark money and doing so in a variety of ways, including buying people offices, hosting events or giving them posters, and the misinformation or disinformation campaigns that can be waged on social media and financial supports for those. This unregistered political actor dynamic might see itself through in terms of dark money but also in these kinds of legal structures, which in many ways exist outside the political system and political oversight. That may have a deleterious impact on our political discourse. I would like to hear from the witnesses on that as well.

Mr. John Devitt:

I am happy to start with the Deputy's last question about political funding. Dr. Chance and I have also been working on an assessment of safeguards against the use of illicit funds through the political system. Ireland is considered to have one of the strongest frameworks in place across the EU with regard to political financing, with caps on spending and donations under the electoral Acts. However, as the Deputy is aware, much of the funding received by political parties comes from the State itself through what used to be referred as the party leader's allowance, where one fills in the blanks-----

Eoin Hayes (Dublin Bay South, Social Democrats)
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The activities allowance.

Mr. John Devitt:

There is still a substantial amount of funding that is not accounted for, in large part because so many of the declared donations or funds received and declared through party accounts are smaller amounts. Anyone who has watched "Breaking Bad" will know that in money laundering speak, "smurfing" is the manner in which large amounts of money are broken down into much smaller amounts. It would be relatively easy to launder money through, for example, a golf classic, a raffle, a dinner or online funding portals. The risk is there. It is not as substantial as it is in other jurisdictions but it should not be overlooked. Our preference would be for full State funding of political parties, using a scheme similar to that in place at municipal level in Washington state in the US where elections are partly funded through a so-called democracy voucher scheme, with registered voters being given vouchers that they can use to donate to their favourite political party.

We think the less private money in politics, the better. It should be borne in mind that we have relatively strong safeguards. One of the biggest weaknesses we have is with respect to our institutional capacity to police this area. The Standards in Public Office Commission has bemoaned the fact that it does not have the resources and powers to fully audit returns. Past party accounts still have not been presented and still are not prepared in a uniform manner to allow for easier assessment or valuation. Much of the information that is being shared is not done using machine-readable data, such that third parties cannot easily access information on returns from individual candidates at election time, or Members of the Oireachtas or local authorities. There is still work to be done to strengthen our enforcement capacity as well as the ability to provide public access to data that would allow for easier analysis of the use of funds and spending of funds in Irish politics.

I will come back to a point the Deputy made earlier about repatriation of stolen assets before I turn to Dr. Chance to address the other points. We are aware of one case involving $20 million of funds laundered through an insurance scheme by the late President of Nigeria. Those funds were repatriated back to Nigeria, facilitated using a memorandum of understanding between the Irish and Nigerian Governments. We have asked that sufficient safeguards, anti-corruption controls be included in those memorandums of understanding in future and that civil society, particularly in the victim country, so to speak, in that case, Nigeria, have sight at least of the terms on which those funds are being repatriated, so that citizens in those victim countries can hold their own governments to account for the use of those repatriated funds.

Dr. Alexander Chance:

Away from political donations and political expenditure controls, one other area that certainly in other jurisdictions has been a target for dark money is illicit finance or influence or hybrid operations, which Europol highlighted as a key threat in its serious organised crime threat assessment last year. It talked about this confluence between organised crime, state-based actors and the use of corruption as a form of influence. One other area is indirect influence through funding institutions that have significant cultural or social influences such as think tanks, sporting organisations, cultural organisations, even through philanthropic donations and so on. These would not necessarily be picked up through direct political donations. As Mr. Devitt mentioned, Ireland has comparatively one of the strongest political finance regimes within the EU. However, there is still vulnerability, not just in Ireland but internationally. That is something we need to be aware of. Certainly the Garda is aware of this, but it is perhaps not discussed in wider civil society or policymaking circles to a great degree.

Mr. John Devitt:

To touch on the question Deputy McGreehan asked on national security strategy, we are aware of one Irish organised crime group working with foreign actors in both money-laundering, laundering of proceeds of drugs-related crime, and supply of weapons, in east Africa I think it was. This is an issue we believe the Defence Forces and An Garda Síochána need to be aware of, and I am sure they are, but it is also something that needs to be referenced in the forthcoming national security strategy. It needs to be seen as a national security issue given the proven links between organised crime groups and state agencies overseas, or states of interest to our intelligence services. It should be prioritised as such by Government as a whole. We would never know, but we would like to think there is closer co-operation between the intelligence and security branch of An Garda Síochána and our economic crime enforcement agencies, the Garda National Economic Crime Bureau and the financial intelligence unit to identify these threats and have the capacity to detect them much earlier. Whether that is using artificial intelligence and-or investing in the human resources needed to investigate this, we are calling for an intelligence-led approach to policing this area. As I said earlier, we are reliant on foreign law enforcement and intelligence agencies to bring these cases to our attention at the moment.

Eoin Hayes (Dublin Bay South, Social Democrats)
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There are two parts to that. Ireland is a wonderful, magnificent place in so many ways because it is very peaceful. I was in Paris for a conference recently and I saw a military officer walking down the street with a huge assault rifle. I was kind of shocked by it because I had not seen somebody do that in so long. It is a wonderful thing that we have that sense of safety and order in Ireland. However, there are nefarious actors in other parts of the world and they could invariably use and exploit the Irish system to fund certain things in certain other parts of the world, or co-operate with organised crime groups, or whatever it is.

Another side to it is the question that if we are a bit complacent on some of these issues, there is a real risk that people see that complacency and take huge advantage of it. My question earlier about dark money in politics is actually a deep-seated fear I am hearing from a lot of the public, questioning who is funding this or that thing, where this came out of and who that person is now all of a sudden. When we get the questions like that around entities within our public discourse or our public domain, maybe shifting those political conversations as well as the more tangible movement of arms, drugs or financial institutions, there is a real incumbency on the Oireachtas to actually think about whether we are resourcing the entities, giving them the rules and arming civil society with the transparency to be able to investigate these things and hold them to account. We have kind of gotten ourselves into a place right now where we think that it does not affect us or that it is not coming here, or not already here, and it might very well be. People are waking up to that now, as awful as it is to wake up to.

On the question of tax avoidance and tax evasion, what is the witnesses' sense of those €5.5 trillion in fund management? I am sure most of it is above board and legitimate. What is their sense of how international actors use the Irish legal and tax jurisdiction to avoid or evade taxation in this jurisdiction or others?

Dr. Alexander Chance:

It is very hard to put any hard figures on the proportion particularly because, to come back to the common theme throughout this session, if the data is not there, there is no transparency.

Eoin Hayes (Dublin Bay South, Social Democrats)
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It is almost impossible.

Dr. Alexander Chance:

We can only look at the best estimates of expert agencies, such as the UN Office on Drugs and Crime. One study states between 2% and 5% of global GDP - another states 3.6% of global GDP - comes form illicit sources. What proportion of that is tax evasion is hard to say, but it will constitute part of it. Anecdotally, somebody within the private finance world explained it to me. They said that internationally, money will flow. It is like water; it will flow where it is easiest. In the anti-money laundering world we call it regulatory arbitrage. If there is illicit money in a jurisdiction, like licit flows, it will go where there is least friction.

I will highlight that increasingly, law enforcement agencies internationally are seeing the use of professional money laundering networks. These are networks that are extremely skilled and have contacts within professional enablers, whether that is the legal profession or accounting profession, to facilitate their activities. For a proportion of the amount they are laundering, they will launder funds through various mechanisms in whatever jurisdiction they see as most appropriate to their client around the world. That could be somebody looking to evade tax on a large scale, it could be a human trafficking organisation or it could be arms traffickers. Whatever the illicit actor, that is what they do.

One of the ways they are increasingly doing that is through alternative transfer schemes. The committee might have heard of hawala-type banking. It is similar to that, where funds do not actually cross a border so it is much harder to detect. As I mentioned, crypto is not a new issue any more but it is a real vulnerability when it comes to the transfer of funds without visibility from any form of regulatory or law enforcement body.

Mr. John Devitt:

As we understand it, the issue with crypto is it is used by organised crime as much as any group, in part because of the ease with which transfers can be made. Those funds are layered and cleaned into the legitimate economy, so to speak. We are aware of well-publicised cases of drug cartels buying and investing into legitimate business like hotels and resorts, for example. Once that money is cleaned, it is now in the legitimate economy and is extremely difficult to address. If you want a stable home for your money, you are going to be investing it if not in property then in funds, in private equity and elsewhere. You will have a wealth manager managing your enormous wealth on your behalf. Much of that money, by the time it gets to the wealth manager, is likely to have been layered and cleaned such that it is extremely difficult to identify whether the wealth was acquired through legitimate means or otherwise.

One area that I do not know whether we touched on is debt issuance, the issuance of bonds and the bond market. We are aware of one case, again without naming names, where a large volume of funds was issued on behalf of a company whose beneficial owner was overseas trading in commodities. I did an initial search for the beneficial owner of those funds and the company established - it was a special purpose vehicle but registered as a company - with the Register of Beneficial Ownership. I found that the beneficial owner, who was easily identifiable, was not registered as the beneficial owner. In that case, it was the company service provider based in Ireland that was listed as the owner. There is a risk not just in funds that are moving through Ireland but that are originating from Ireland, given the size of our financial services sector.

To come back to national security issue, Ireland has been described by crime correspondents as a permissive environment for foreign intelligence agencies. They are likely to see Ireland's financial services sector as equally permissive, given the reduced capacity of our law enforcement agencies to detect and investigate flow of these funds and the sheer volume of suspicious transactions the financial intelligence unit has to manage. We see it as a significant risk.

Mairéad Farrell (Galway West, Sinn Fein)
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I wanted to ask about crypto and Mr. Devitt mentioned it. I am interested in how that feeds into all of this. Obviously, it is a common thing for people nowadays to invest a bit in crypto. We then get warnings from the likes of the Central Bank when it comes here on investing in crypto, etc. However, we recently had a cryptocurrency trading platform that was fined by the Central Bank because it failed to monitor a lot of the money going through. In Mr. Devitt's view, how does that all fit into what we have discussed to this point?

Mr. John Devitt:

I will let Dr. Chance come in on that point in a moment. To go back to Deputy Hayes's question, which directly links to the Chair's question, crypto is notoriously unstable so it is unlikely the money is going to stay in crypto for very long. As I said, it is likely to be layered and then moved into other legitimate financial vehicles and funds. It is a means by which money can be moved. I would not advise anyone to invest in crypto, such is the volatility of the asset or assets. There are Bitcoin and cryptocurrencies that are more stable than others but they are much more volatile than, for example, a pension fund. If I am investing my illicit wealth in something, I want it layered and then invested in pension funds or even insurance funds. As I pointed out, two of the three cases we are aware of were invested in pensions or insurance.

Mairéad Farrell (Galway West, Sinn Fein)
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How exactly does that happen then?

Mr. John Devitt:

In insurance?

Mairéad Farrell (Galway West, Sinn Fein)
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No, if it is layered like that. How exactly would that happen?

Mr. John Devitt:

Dr. Chance works in this space more directly than I do, so he can answer and correct me if I am wrong. If I receive the proceeds of a drug sale in crypto, for argument's sake, I might convert that into a fixed asset or into currency and then deposit that currency into a company registered in Bermuda or the British Virgin Islands and move that into an investment like a resort. We found this with Mexican drug cartels. They were using funds on deposit with a Swiss or British bank as collateral for loans that they would then reinvest. They are not actually moving the money. They are using the money as collateral from which they can then borrow and invest in other hard assets or fixed assets, which they can then again build their wealth on. As I said, once it is layered, it is very difficult to identify it.

In that one case, again without naming names, the bank was fined for failures to detect.

As far as I am aware, it knew the money was the proceeds of international organised crime, but it had not taken sufficient measures to address that.

Dr. Alexander Chance:

The Cathaoirleach asked about the risks that crypto poses. We have not published our paper on crypto money laundering and the Irish and EU regulatory framework but we will do so in the coming months. Based on the initial findings from our academic partner, these are not issues unique to Ireland. The Cathaoirleach referenced a particular case where the Central Bank imposed, by a long stretch, a record fine. Coming back to our earlier discussion about suspicious transaction reports, that led to thousands of STRs being submitted to the Irish FIU in a very short space of time. That is likely to have had a major impact on its workflow.

While this is not unique to Ireland, the general risks that we see relate to decentralised finance and peer-to-peer transactions. This means that crypto transactions can take place between individuals without any intermediary playing a part. Because of the way the anti-money laundering framework has been set up, it relies on intermediaries, whether banks and other traditional financial institutions or non-financial businesses and professions, to flag suspicious transactions to the authorities and to the FIU. These peer-to-peer transactions enabled by crypto are not captured.

One of the suggestions we are likely to make on this is that the Irish Government along with other governments and the EU should incentivise compliance by code so that these transactions cannot take place technologically without some form of know-your-customer, KYC, and due diligence. That is a big piece of work that probably sits at supranational level. However, Ireland can take some action by ensuring that our FIU, National Economic Crime Bureau, National Cyber Crime Bureau and other specialist agencies have the necessary skills and the career pathways to safeguard those skills so that they are not snaffled by the private sector as soon as they are trained. The actual blockchain analysis tools need to be in place and not just sitting with one or two gardaí but mainstreamed because this is likely to become increasingly just a regular part of normal life. That would be an element where Ireland can take some specific action while also supporting international efforts to close gaps, particularly around decentralised finance. Once this paper is finished, we will circulate it.

Mairéad Farrell (Galway West, Sinn Fein)
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Once that happens, we might invite the witnesses back in. That is very interesting. I thank the witnesses for appearing before the committee.