Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move:

That Dáil Éireann:

— having regard to the specific matters considered by Government to be of significant public concern regarding transactions entered into by the Irish Bank Resolution Corporation (IBRC);

— noting that it is the opinion of the Government that these matters of significant public concern require, as the best method of addressing the issues involved and in the public interest, examination by the establishment of a Commission of Investigation; and

— further noting that a draft Order proposed to be made by the Government under the Commission of Investigation Act 2004 (No. 23 of 2004) has been duly laid before Dáil Éireann in respect of the foregoing matters referred to, together with a statement of reasons for establishing a Commission under that Act;

approves the draft Commission of Investigation (Certain matters concerning transactions entered into by IBRC) Order, 2015, copies of which were laid before Dáil Éireann on 9th June, 2015.

On 27 April 2015, in response to significant public concerns, I directed the special liquidator of IBRC to conduct a review into transactions undertaken by IBRC, with the assistance of an independent person, being retired High Court judge larfhlaith O'Neill and to report in a prompt and efficient manner no later than 30 August 2015.

However, since the review was established new allegations have been made which have increased public concern. Taking these developments into account and the perceived or potential conflict of interest, on 3 June 2015, in response to significant public concern, the Government decided in the public interest to establish a commission of investigation into certain decisions, transactions and activities entered into by the Irish Banking Resolution Corporation, known as IBRC, between the period 21 January 2009, the date the bank was nationalised, and 7 February 2013, the date IBRC was liquidated. The Taoiseach will be authorised to appoint the sole member of the commission of investigation.

The work of the commission of investigation will be focused on the areas where significant public concern has arisen. The draft terms of reference for the commission of investigation were published on 3 June 2015. In addition to their publication, I wrote to Deputies Michael Martin, Gerry Adams and Catherine Murphy seeking their observations and I met with Deputies Martin, McDonald and Deputy Catherine Murphy on 8 June 2015. I would like to thank the Deputies for their observations and I will address the issues that they raised throughout the course of this statement.

The Government agreed this morning, 9 June 2015, the draft order establishing the commission, which incorporates the draft terms of reference and this has been laid before the Dáil along with a statement of reasons for the establishment of the commission.

The draft order and terms of reference provide for the performance of an investigation into certain activities of IBRC and the production of a report by 31 December 2015, in line with the Commissions of Investigation Act 2004. The commission will also have the authority to report on any other matters arising from the investigation and to make any further recommendations as the commission sees fit.

I will now deal with the scope of the review. The review will consider all transactions, activities and management decisions, other than those relating solely to the acquisition of assets by the National Asset Management Agency, which occurred between 21 January 2009, being the date of the nationalisation of IBRC, and 7 February 2013, being the date of the appointment of the special liquidators to IBRC, and which either: resulted in a capital loss to IBRC of at least €10 million during the relevant period, whether by consequence of a single transaction or of a series of transactions relating to the same borrower or entities controlled by the same borrower; or are specifically identified by the commission as giving rise or likely to give rise to potential public concern, in respect of the ultimate returns to the taxpayer.

The€10 million threshold will ensure that the investigation is focused on the largest transactions and that all transactions relating to small and medium enterprise, SME, loans or mortgages are not subject to the investigation. It is estimated at this time that approximately 30 to 40 transactions are in excess of this €10 million threshold. Any series of transactions relating to a single borrower or entity that resulted in a capital loss of €10 million is also included. However, the commission will also have the power to investigate any transaction that may have resulted in a smaller capital loss to IBRC, but gives rise to potential public concern. If Deputies are aware of potential public concerns about specific transactions below the level of the €10 million cap, they should bring these to the attention of the commission.

In effect, the judge will have two powers under the terms of reference. The first is a mandatory and relates to all transactions over €10 million - that is where the write-off is over €10 million. The second is an enabling provision that will empower the judge to investigate any transaction of any value below the threshold that gives rise to potential public concern.

Following consultation with the Opposition, the relevant period was broadened to include any situations where a contractual obligation was agreed prior to the liquidation of IBRC but was not executed until after the liquidation. Deputy Catherine Murphy raised the issue of transactions that were agreed by IBRC in the first instance but were not executed until after the liquidation of the bank. The inclusion of this additional provision will ensure the investigation can cover any such transactions.

The conclusion of the scope of the review at the date of liquidation is deemed necessary to focus the review on the transactions that have led to the significant public concerns.

It is worth recalling that the IBRC Act 2013 contained a number of safeguards to protect the interests of the Irish taxpayer, including the independent valuation of the loan books, transparent auction processes and the prohibition from selling the loan books for amounts less than their valuation. In addition, the special liquidators must meet significant legal obligation both pursuant to the Companies Act, the IBRC Act towards creditors generally and towards the State.

The scope of the review and report covers all transactions, activities and management decisions that fall within the parameters set out above. However, all Deputies consulted were concerned that certain transactions may inadvertently fall outside the scope of the review. For the avoidance of doubt, the terms of reference make clear that the amendments made to the terms and conditions of loans are included within the scope.

The review shall cover each such decision, transaction and activity within the scope and will investigate the following, and accordingly the commission's terms of reference extend to investigating: the processes, procedures and controls which were operated by IBRC in relation to the relevant write-offs to ascertain whether the appropriate internal IBRC governance procedures and controls were adhered to in respect of the transactions under review and whether the said procedures and controls were fit for purpose; whether there isprima facieevidence of material deficiencies in the performance of their functions by those acting on behalf of IBRC, including the IBRC board, directors, management, the staff of the wealth management unit and agents, in respect of any transactions, activities and management decisions identified above; whether it can be concluded from the information available within the IBRC and relevant evidence and witness testimony as appropriate that the transactions were not commercially sound in respect of the manner in which they were conducted, the decisions made and the outcomes achieved having regard to the purposes of the Irish Bank Resolution Corporation Act 2013 set out in section 3 thereof; whether the interest rates or any extension to interest rates or any periods for repayments were given by IBRC on preferential terms that were unduly favourable to any borrower, where those interest rates resulted in a differential of more than €4 million in interest due over the standard

applicable interest rates for loans of that nature or where the amendments give rise to or are likely to give rise to potential public concerns; whether, in respect of any transaction under investigation, any unusual share trading occurred which would give rise to an inference that inside information was improperly provided to or used by any persons, and in the event that such an inference does arise whether any such information was actually improperly provided or used; and in relation to each transaction under investigation, whether the Minister for Finance or his Department was kept informed where appropriate in respect of the transactions concerned, and whether he, or officials on his behalf, took appropriate steps in respect of the information provided to them.

Following consultation, I would like to confirm that any reference to IBRC throughout the terms of reference shall be construed as including references to Anglo Irish Bank, Irish Nationwide Building Society and any subsidiary of IBRC, Anglo Irish Bank or Irish Nationwide Building Society. As a result the wealth management unit will be treated in the same manner as IBRC under the investigation. This was an issue of concern for all the Deputies I consulted with yesterday and, in particular, for Deputy Martin.

For clarity, on the issue of the threshold for the examination of whether any preferential interest rates and terms were given, the investigation is obliged to examine any situation which resulted in a differential of more than €4 million in interest due over the standard applicable interest rates.

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This provision will also specifically empower the commission to investigate any amendment made to the terms and conditions of loan transactions that gives rise to potential public concern even where the €4 million threshold is not met. This was an area of concern for the three Deputies with whom I consulted, in particular Deputy McDonald.

The governance role of the Department and political oversight by my predecessor, the late Mr. Brian Lenihan, and I as the respective Ministers for Finance during the period under investigation was also discussed during the consultation. As outlined, the review will investigate, in respect of the transactions under review, whether the Minister or the Department was kept informed, where appropriate, and the steps taken in respect of the information provided. Therefore, the assessment of the response of the two Ministers and the Department will cover the same scope as the inquiry in general.

A final report to the Government no later than 31 December 2015, subject to section 6(6) of the Act, is envisaged. A report is to be produced in respect of the review. It is to set out the scope and findings of the review in fulfilment of the purposes, to respect commercial sensitivity and obligations of confidentiality where those are not incompatible with the public interest and to set out such recommendations as the commission sees fit.

While the date for the final report is four months later than the date by which I had directed the special liquidator to produce its review, it is deemed appropriate, bearing in mind the different nature of the review and its extended scope. A commission of investigation pursuant to the Commission of Investigation Act 2004 will have certain enhanced powers beyond those that were available to the special liquidators of IBRC. The most significant of these powers include the power to compel witnesses or evidence and to enter and inspect premises. The establishment of a commission of investigation will also facilitate a broader scope of inquiry and enable the interview of witnesses and the investigation of matters, such as the trading of shares, that cannot adequately be investigated based upon on a review of the files held by IBRC. In addition, certain criminal offences apply in respect of the making of false statements to the commission or the destruction of evidence that would not apply in respect of the review proposed to be conducted by the special liquidators of IBRC.

The question of an interim or modular report focused on certain transactions was raised during consultations. It will be a matter for the judge to determine the nature, timing and sequencing of any part of the investigation. It is essential to give the judge full flexibility in this regard. In the event that the commission seeks an extension of time for the provision of its final report, an interim report will be provided in accordance with section 33(3) of the 2004 Act.

A number of the concerns of the three Deputies whom I consulted related to the need to clarify and define areas that were subject to the review. Paragraph 6 has been included in the terms of reference. I draw the attention of the House to the changes. The paragraph states:

In these terms of reference:(a) "IBRC" means Irish Bank Resolution Corporation Limited;

(b) where a contractual obligation was agreed during the Relevant Period but not executed until after the Relevant Period then the contract and any resulting loss shall be regarded as having been made during the Relevant Period;

(c) references to IBRC shall be construed as including references to Anglo Irish Bank or Irish Nationwide Building Society and any subsidiaries of IBRC, Anglo Irish Bank or Irish Nationwide Building Society;

(d) for the avoidance of doubt, references to transactions, activities and management decisions shall be construed as including references to amendments made to the terms and conditions of loans.

The staffing requirements of the commission will reflect the scope of the terms of reference and the ambitious timescale involved. The exact requirements of the commission will become clearer once it is established and begins to scope out its work in more detail. The appointment of staff and their terms and conditions will be subject to approval by An Taoiseach, with the consent of the Minister for Public Expenditure and Reform. In addition to direct staffing costs, set-up and ongoing costs will arise from the establishment of the commission's office, ICT and administration, travel and subsistence, etc. I wish to inform the Dáil, as I did the Deputies to whom I spoke last night, that this commission of investigation will be able to obtain any necessary expert advice or assistance and it will be well resourced. Based on an initial assessment, a cost of €4 million is deemed a reasonable estimate for 2015 and it is proposed to provide for this from the Vote of the Department of the Taoiseach. This estimate is based on the assumption that the commission completes its work by the end of 2015, as specified in the terms of reference. If it is deemed necessary to extend the commission's work beyond that date, further staffing and other costs will, of course, arise.

In addition to salary and administration costs, third party costs are also likely to arise. In accordance with the provisions of the Act, following consultation with the commission and with the consent of the Minister for Public Expenditure and Reform, guidelines will be prepared concerning this matter. The extent and timing of any such cost are difficult to estimate at this stage.

The commission of investigation will bring an end to the review of certain transactions by the special liquidator. The special liquidator will be directed to cease its review. As all Deputies will be aware, the Government had committed, following the completion of the review in August, to facilitate an investigation by a relevant Oireachtas committee, a commission of investigation or any other action that the Oireachtas saw fit at that point to address public concerns. Throughout the course of the review, the special liquidator acted in the correct and appropriate manner. The recent High Court judgment of Mr. Justice Binchy in the case brought by IBRC, in special liquidation, justifies the actions taken by the special liquidators in attempting to safeguard its customers' rights to confidentiality.

It is now the purpose of the commission of investigation that we are establishing to review transactions, activities and management decisions at IBRC that have created significant losses or have given rise to potential public concern. While I maintain the view that the review would have been concluded competently in a prompt and efficient manner and have produced a report by 30 August, the significant public concerns and the change in circumstances that I outlined in my introduction led to the Government decision to establish a commission of investigation. I will, as part of my direction to the special liquidators under the IBRC Act, direct them to co-operate fully with the commission of investigation.

Given the scale of the banking crisis and the amount of taxpayer money involved, it is essential that the public concerns regarding certain transactions in, and issues raised relating to, IBRC are addressed in a comprehensive manner. Let me be clear, in that there is no evidence of any wrongdoing in the various transactions. However, I recognise that there are genuine public concerns, which have grown significantly in recent weeks. A well-resourced commission of investigation with targeted terms of reference and an ambitious timeline is the best way to address public concerns.

I thank Deputy Catherine Murphy, her colleagues in the Technical Group, and Deputies Martin, Adams and McDonald for their oral and written observations. The Government has sought to address the observations in the terms of reference published today and I have outlined the rationale underpinning the decisions on the observations that are not being accepted.

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