Joan Burton (Dublin West, Labour)

I move amendment No. 2:

In page 6, before section 2, to insert the following new section:

2.—(1) The Minister may, and shall if required to do so pursuant to a resolution under this section passed by both Houses of the Oireachtas, apply to the High Court for an order under the Companies Acts for the appointment of one or more inspectors to investigate the affairs of Anglo Irish Bank, having regard in particular to the questions as to whether:

(a) its affairs have been conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in an unlawful manner or in a manner which is unfairly prejudicial to some part of its members, or that any actual or proposed act or omission of the company (including an act or omission on its behalf) was so prejudicial;

(b) persons connected with the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members;

(c) that its members have not been given all the information relating to its affairs which they might reasonably expect; or

(d) such additional grounds as the Minister specifies in his or her application to the High Court.

(2) For the purposes of subsection (1), the Minister has all such powers as are necessary to enable him or her to apply to the High Court for an order of the kind referred to in that subsection and the High Court shall hear and determine that application as if the Company Law Enforcement Act 2001, in respect of applications concerning Anglo Irish Bank, vested those powers concurrently in the Minister and in the Director of Corporate Enforcement, so as to be capable of being exercised by either of them.

(3) Notwithstanding subsection (1), the Minister is not required to make an application under that subsection if he notifies both Houses of the Oireachtas that the Director of Corporate Enforcement has applied to the High Court for an order under the Companies Acts for the appointment of one or more inspectors to investigate the affairs of Anglo Irish Bank.

The purpose of this amendment is to provide and make provision for the appointment of an inspector to examine the affairs of Anglo Irish Bank. The Minister said there is some kind of investigation by the regulator going on into various matters regarding Anglo Irish Bank but the regulatory system as it applies to Anglo Irish Bank has failed because the regulator has been unable to answer and give confidence to the market that serious issues which pertain to Anglo Irish Bank have been addressed.

There are two issues in particular to which I would like to draw the attention of the Minister. The first of the two serious events regarding Anglo Irish Bank which are in the public domain is the affair of the loans of the former managing director and chief executive officer, Mr. Seán FitzPatrick, subsequently the chairman of the bank. We all know the sad story. Apparently over an eight year period he warehoused his loans in another Irish institution, which the Minister also guaranteed, namely, Irish Nationwide Building Society. The figure was not small. These were loans that ranged between €87 million and over €120 million during the eight year period.

First year accountancy or auditing students are introduced to the way directors can manipulate accounts and the key way directors can manipulate accounts is to move transactions off the balance sheet at the year end date. That is the reason, in regard to Enron, people became very familiar with the notion of off-balance sheet items either in the jurisdiction or offshore. Essentially, a few days later they go back on the balance sheet. That is a fundamental way of misrepresenting the true and fair view in accounts and I cannot understand why this event is not subject to prosecution under the Companies Act. It seems to me that there is a desire to protect the person involved in this in order to protect Anglo Irish Bank and the larger banking system. Even if the Minister believes that is a noble and reasonable objective, it is a wrong objective because we will only restore our international financial credibility when we are seen to have put a line under this type of event.

Why was the director of this bank getting loans of this amount? That is a serious issue and that is the reason we need an inspector. A regulator is not good enough. It must be remembered that in the case of National Irish Bank an inspector was appointed while the bank continued to trade normally. In fact, the entire culture of the bank was changed and the matters addressed.

This is not a tribunal. This is an inspector but the inspector would have the power of the courts. It would take some period of time but it would send a message to investors internationally that we were addressing whatever has gone wrong in this bank, that there is no hiding place for unacceptable practices and that we were rebuilding Ireland's credibility.

During the period I was in Government from 1992 to 1997, first with Fianna Fáil and then with the rainbow coalition of Fine Gael and the then Democratic Left, the Labour Party went into Government at a time when the fortunes of the Irish economy were very low. Everybody in Government worked very hard in that period to build Ireland's reputation. Unfortunately, the succession of banking affairs, particularly the events in Anglo Irish Bank, has done unbelievable damage to Ireland's reputation. It is very difficult to recover from a damaged reputation. I cannot understand why the Minister has faith in the regulator and the Director of Corporate Enforcement. These issues are much bigger than those officers.

I referred to the second issue previously. There was an astonishing financial event which started perhaps a year ago where an individual sought to acquire 25% of the share capital of the bank — it was the Quinn family or Quinn associates or the Quinn group or Mr. Seán Quinn. I do not know how to describe it properly but that is how it has been described in various statements and by the regulator. Apparently, they initially sought to acquire 25% of the share capital in the third largest bank in the country by means of contracts for difference, CFDs, which is basically a form of stock market gambling. In April 2006, I raised this issue in the House and published statements stating that turning the Irish Stock Exchange into a casino for CFDs was crazy.

Not only did the Minister's predecessor, the Taoiseach, Deputy Brian Cowen, allow that to happen but he had a proposal to tax CFD transactions on the stock exchange to the tune of 1%. However, he withdrew it because he was lobbied by the banks and stockbrokers. It was a Gordon Gekko time, when "Greed is good" prevailed. The Irish Stock Exchange was to be a casino; we do not have casinos in Ireland so the attitude was, "let us make our stock exchange one". It was crazy, and the system of regulation utterly failed. Bear in mind that an ordinary investor who buys shares, be it a pension fund, a fund manager or a single individual, pays stamp duty on those shares. In fact, the investor who was buying with a longer perspective was obliged to pay a tax while the CFD dealer did not have to pay anything. This Government actually incentivised this crazy behaviour. There are products in the worldwide financial markets that people do not have a description of and which are not regulated, but we broadly know what CFDs do.

In this case, the bet on the CFDs appears to have gone wrong. Instead of the share price rising, it fell. We have heard suggestions of very large exposures and losses by that particular group in the context of the share prices. The regulator then issued a statement about a fine being imposed with regard to a sum of more than €200 million that was transferred from the insurance company in the Quinn group to the Quinn family interest — again, I do not know if I am describing them properly — to support the CFD gamble that had gone wrong. An insurance company is almost a bank. When one buys insurance, one pays in advance and hopes that on the rainy day the insurance company will pay out. An insurance company is a cash cow. It is full of the cash customers pay in advance to ensure that if there is an accident with the car, they can claim from their insurance. It is of the utmost importance, therefore, that insurance companies are regulated in a rather conservative way and that they maintain large cash balances.

Deputy Barrett is in the Chamber. I recall when the Bill to establish the Financial Regulator and IFSRA was being discussed. It was thought that the Financial Regulator would come down like a ton of bricks on insurance brokers because it was believed they should be regulated as tightly as possible. Many changes were made and many of them have cost individual brokers a great deal of money. In the long term, they are probably worthwhile but they caused much pain. However, in this case an insurance company was removing large wads of money and putting them into a family company to shore up purchases on CFDs. That is absolute lunacy.

Before Christmas I sought a meeting with the regulator and his staff. I met the regulator, who was accompanied by various important people in the regulator's office. I asked him about the Quinn affair. He effectively challenged me to prove what had happened in that affair. The public papers had contained an announcement that the Quinn family had built up a stake of 15% in Anglo Irish Bank through this rather unusual method. Normally in a publicly quoted company, particularly a bank, if a shareholding goes above 5%, it is supposed to be notified. However, the regulator challenged me to prove how those holdings were held. How could I possibly do that? That is the job of the regulator.

In this case, he was regulating Anglo Irish Bank on the one hand, in which a 15% holding had been built up but in ways that did not have to be advised, while on the other he had fined the other entity he regulated, the insurance company, several million euro. It was the largest fine ever imposed by the regulator. However, he could not helicopter his view over the two and say what was wrong with the insurance company putting money into funding share acquisitions in the bank in a particular manner. Talk about Chinese walls — the man had a Chinese wall running down the middle of his brain, so that what he knew from the insurance company could not transfer over. It is no wonder the Seán FitzPatrick loan affair got locked behind some other Chinese wall for seven or eight months.

We want to restore probity. In capitalism, the big sin is to undermine the freedom of the market. If one finds a way of doing things that essentially interferes in the freedom of the market, it is a big sin. What else did this extraordinary arrangement do? It sent a terrible message about this country. What happens when the Minister does not share information with the Opposition to some degree, on a bipartisan basis, leaving personal details out of it, which I support? Many people work as clerks in these companies. The regulator pops around and there are people working in the bank and in the insurance company. They are all sending out different versions of what really happened. Those versions get picked up and end up on the media and, of course, Ireland's reputation gets trashed. What type of country has that system of regulation?

I subsequently wrote to the Minister and enclosed a copy of a letter I sent to the regulator after my meeting with him. It stated that I was deeply dissatisfied with the explanation he had given me about the Quinn affair. The only reason I am interested in that is that it comes up for mention time and again in international magazines and so forth.

We are offering the Minister a mechanism in the amendment whereby he can put in an inspector to get to the bottom of exactly what happened. My fear as an auditor is one the markets work with as well. When one encounters the non-disclosure of loans by the senior chief executive and subsequent chairman over an eight year period where the loans are warehoused, that sets alarm bells ringing. What happened in the Quinn affair should have set every alarm bell off. The next question one asks is: "If this was happening at a very senior level in the bank, what does it mean?" At any stage with any of those loans, either the director, Mr. FitzPatrick's, loans or the Quinn group transactions, were any of the counter-party transactions to do with supporting the purchase of shares in the bank? That is another big sin. These are the questions the international markets have been asking.

This amendment offers the Minister a mechanism to have an inspector appointed without preventing the bank from continuing its operations under its new business plan as envisaged by the Minister. It would, however, get to the bottom of the issue and stop the rumours. The inspector would also have the authority of the court to examine other issues relating to the manner in which the loan business of the company was conducted and whether foolish and risky preferential treatment was given in connection with these loans. I am aware of the reputation of Anglo Irish Bank for keeping records and so forth.

Many bright young people joined Anglo Irish Bank in recent years. In the past decade, rather than encouraging young people to become engineers, we encouraged them to become financial engineers. Many of these bright, hard-working people ended up in Anglo Irish Bank. Given that much of their pay was made in shares, their rewards have also gone down the Swanee. We need to draw a clear, blue line under this issue and state that the disgraceful practices which took place at Anglo Irish Bank must be sorted out and explained.

Many of the shareholders who attended the meeting held in the Mansion House last week were elderly people who had invested their pensions. While they may not get their money back, they are entitled to an explanation. The advice they received was that there was nowhere safer to put their money and they should be patriotic and invest in an Irish bank. I feel sorry for these people.

On the affair regarding directors' loans, in most jurisdictions the practice in which Mr. FitzPatrick engaged is a five letter word, namely, fraud. First year auditing classes are taught about moving sums off the balance sheet and parking them somewhere. In this case, a sum of €87 million was moved into another financial institution. Unless the loans in question were disguised through the use of other names, a number of people in the bank must have known about them. If they were in the name of the director, members of the loan committee, credit committee and board of directors as well as senior executives in the key management group should have been aware of them.

Even in Anglo Irish Bank at the height of the Celtic tiger, the amounts involved — between €87 million and €120 million — were significant and would not have escaped scrutiny. This gives rise to fundamental questions. Was Anglo Irish Bank facilitating people on the inside track? What about the loans to other directors? It was suggested in media reports at the weekend that directors' loans may have averaged €10 million. It is possible that only one or two directors received much larger loans. In any case, the markets need to have this information. Traditionally, bank directors received loans to buy a larger house rather than to trade. They certainly should not receive loans in any way connected to the acquisition or disposal of shares in their bank. This should not have happened, if it did happen, and the mechanism of the inspector will offer the Government a vehicle to clear up the matter.

We heard from Deputy Morgan that one of his constituents went to jail for not having a dog licence. As the Minister will be aware, people in Dublin West regularly opt to spend a few days in Mountjoy Prison because they do not have a television licence. I try to sort out the problem and advise such persons not to go to jail as they will acquire a criminal record which would, for instance, prevent them from visiting the United States. If such persons get an angry judge on a bad day, they will be given a month in prison, although they will be released from Mountjoy relatively quickly.

I have described the activity in which a person engaged. The relevant sections of the Companies Act are clear in this respect. What is wrong with the system of regulation that those involved in it, the Financial Regulator and members of the regulatory authority, did not feel anger about this or try to find a way to bring this guy to account? Transparency and accountability are needed in this matter. As I stated, once upon a time we had Ansbacher man. We now have Anglo man, the principal one being Mr. Sean FitzPatrick. I advise the Minister to accept the amendment.

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