Tuesday, 1 June 2004
In recent weeks, the people's confidence in banks, especially Allied Irish Banks, has been rocked. We have experienced a drip-feed of stories involving overcharging, dodgy dealing and tax evasion. This latest catalogue of scandals comes to us from a bank that was bailed out by the taxpayer in the 1980s and was at the heart of the bogus non-resident accounts scandal exposed by the Committee of Public Accounts, chaired by the late Deputy Jim Mitchell.
Every time this bank has been embroiled in a scandal, we are told it is all in the past and that the culture is different now. Every time this bank is caught playing fast and loose with the laws of the land, we are told that those involved are no longer with the bank and that things are different. How can the plain people and the business people of Ireland have confidence that this will be the last scandal to hit this bank? How can the customers of Allied Irish Banks, who never get to benefit from sweetheart deals and perks, are charged for every transaction and pay for every service through the nose, believe nothing more is to come? How can the 25,000 staff of AIB, the vast majority of whom do their work exceptionally well, have confidence in their employer?
The culture of greed and low standards which spawned this and which these scandals now reveal is reminiscent of the culture that permeated Fianna Fáil in Government many years ago. Every time a scandal broke in that party, we were told that the events had happened years before. We were told that that was then and this is now and that things had changed. However, despite the establishment of a number of tribunals aimed at exposing corruption and low standards in political life, we have made slow progress in restoring confidence to the political process.
What assurances can the Taoiseach give that this culture of sleaze and greed will be eradicated from the banking sector once and for all? Is the Taoiseach satisfied that the regulatory bodies involved have the capacity to restore confidence to consumers and to the international community so that everybody will understand that we will put an end to this? If it happened elsewhere, people would be in handcuffs and being interviewed.
Deputy Kenny has outlined a number of facts. There is no point in my talking about the facts because I have already done so. The Deputy is correct that we have had a series of announcements from Allied Irish Banks and the Irish Financial Services Regulatory Authority, IFSRA, which cover a range of matters from foreign exchange charges to the transactions of AIBIM in the early 1990s. Lapses of control and improper practices of this kind are clearly unacceptable. Every bank has a duty to ensure that regulations are complied with and that its clients' money is handled appropriately.
IFSRA is involved in substantial investigation of Faldor and the foreign exchange overcharging matters. While we should await the investigation before drawing final conclusions, many of the issues raised by Deputy Kenny in this regard are facts. I have already stated that I believe customers must be recompensed, systems must be fixed and all the regulatory authorities informed, and that I want disciplinary matters pursued in regard to any offences committed. It is essential this happens.
IFSRA is determined that the highest standards must apply in financial institutions. If issues of general culture or compliance practice need to be investigated and corrected in any other institution, this will also have to be done.
Last year in this House the Central Bank and Financial Services Authority of Ireland Act radically changed the structure of financial supervision in the State. It established IFSRA, bringing together a range of supervisory functions that were previously spread over four separate institutions. It also made for better arrangements for co-operation between regulatory bodies such as IFSRA and the Revenue Commissioners and we are seeing the fruits of this in recent events. Report Stage of a further Bill will resume in this House today to make available to IFSRA a more comprehensive set of penalties which can be applied in appropriate cases as well as giving the regulator considerable powers to require compliance statements from financial institutions. These statements are required in addition to those following recent changes to company law. The Director of Corporate Enforcement will also carry out investigations.
The Central Bank and Financial Services Authority of Ireland Bill before the House today will add to consumer protection, establishing for the first time a statutory financial services ombudsman scheme and consultative panels to allow IFSRA to consult consumer as well as industry interests more easily. New offence provisions have been added to the Bill for bank charges.
IFSRA and the Government have been active in carrying out their respective roles in the financial system. It has been necessary to do that, although it is a pity that is the case. It is also important that we continue to be progressive in ensuring that regulations in other financial sectors are properly monitored.
I share the view of the Taoiseach and the Government that it is necessary for the banking system in this country to be above reproach and be seen to be so in the context of our international financial reputation. Out of all the drip feed of stories in the past week, the last semblance of hope comes from a person with whom I worked in Government, who is now chairman of AIB Bank, Mr. Dermot Gleeson, whom I always found to be a man of total integrity.
The Taoiseach referred to the inquiries being carried out by IFSRA, the Revenue Commissioners and the Director of Corporate Enforcement into AIB Bank. There was a time when the Central Bank operated on a prudential base, only inquiring into a bank's solvency. Is the Taoiseach happy now that the necessary correlation exists between these investigations in terms of sharing information and making progress? Will he consider the appointment of a Minister of State or senior Minister, such as the Minister for Finance or the Minister for Enterprise, Trade and Employment, to correlate the investigations so we can get to the bottom of this as quickly as possible? It would be in everyone's interests and would keep the financial reputation of the country intact.
Does the Taoiseach agree it is late in the day for the Revenue Commissioners and the Director of Corporate Enforcement to initiate their inquiries? Does he have any idea from his discussions at Government level how long this will take? I share with the Taoiseach the view that as a trading nation, we must not be damaged from this perspective.
Mr. Gleeson and previous holders of his position are people of outstanding probity and credibility who do their best to ensure these things do not happen. Unfortunately, people do not do what we expect them to do within the normal standards of business. That is the disappointment, we would expect more of many of the people involved in these issues at different levels. It is not always the case that the people at the top or on the boards can keep track of everything. All of them will now use IFSRA, the Central Bank and the Director of Corporate Enforcement to look for things they did not think would happen and they will do their utmost to stop them.
I would like to be able to say that, because we have introduced much legislation in this area, every malpractice in the financial sector can be fully controlled, but the Deputy knows I cannot give that promise because there is always someone who finds another way around these issues, that is how these things happen. Obviously, the investigations will be of help but in some of these cases wise people know where bodies are buried and it is not easy for regulatory bodies to find them. It is important, however, that all powers and controls, as far as is possible, are used.
I have noticed in the past few days that some people outside the State have been gleeful about some of these things. Apart from these issues, however, I believe that we have a good financial system. We cannot say it is perfect but there are many good people who work hard to make it what it is and I hope we can correct these issues and not let a few people do damage to a valuable Irish industry.
IFSRA, the Revenue Commissioners and the Director of Corporate Enforcement have separate inquiries under way. Will the Taoiseach assure the House and the public that information will be shared between these three distinct and separate inquiries?
IFSRA is under no obligation to make it findings public, the Revenue Commissioners will not do so and the Director of Corporate Enforcement is likely to confine himself to breaches of company law. Does the Taoiseach accept that the public will not accept a situation where some secret settlements are entered into in a matter as grave as this?
I point to the record on this. Since DIRT was a self-assessment tax, the bank was legally complicit in evasion but the Government took no action to cause it to be prosecuted. It made a monetary settlement and there was no prosecution. Will the recommendation of the Committee of Public Accounts, that "the Government consider the imposition of a levy on the financial institutions the proceeds of which to go towards the funding of the Foundation for Investing in Communities", now be implemented? Does the Taoiseach think it appropriate that there should be a surcharge?
People do not believe they are equal before the law. The window cleaner who had a part-time job and was drawing social welfare is screwed to the ground until he pays back the social welfare, even if he is only employed on a part-time basis. That does not apply here. One of the reasons it does not apply is that many years after €700 million was recouped by the DIRT inquiry, when George Lee and Charlie Bird broke the NIB story, the Minister for Finance said:
The sums uncovered are very small in the context of the level of tax paid each year, so I think you need to put it in context. It is an insult to the vast majority of tax payers to say that tax evasion is widespread.... So these things should be borne in mind, rather than people going off half-cocked and making ridiculous and outlandish allegations, both against the Revenue Commissions and against other people as well.
That was the culture and the Minister for Finance was easy with it. There was no prosecution of the bank when it was legally complicit in the evasion of DIRT, but if a window cleaner works in the black economy, he is nailed to the back of the door until he repays the money secured in social welfare.
On the different investigations, last year there was a radical overhaul of the institutional structures for financial services regulation and many of these regulations had not been tried or tested before now. This year we are enacting a second, complementary Bill that will give more powers to IFSRA to protect consumers and the financial system. Today we are debating Report Stage of the Central Bank and Financial Services Authority of Ireland Bill that will give further powers, with appropriate constitutional safeguards, to apply financial sanctions to financial institutions that are not acting responsibly and to individuals within those institutions.
Those powers now exist. For institutions the penalties proposed can be up to €5 million. Individuals may be disqualified from working in the financial sector. New offence provisions are also being added on Report Stage relating to bank charges. Regarding reporting, I understand that IFSRA, having held a meeting of the authority on Wednesday, 26 May, made a public statement on the matter at 4 p.m. on Thursday, 27 May. It went public, which is a change.
The rule regarding settlements is contained in legislation. We have substantially improved the legislation on reporting and compliance. If anything there are now more complaints regarding people who have made a settlement being still listed. The Revenue Commissioners now list quite small settlements made by individuals, including window cleaners.
On the issue of IFSRA carrying out a full check on AIB, IFSRA is involved in substantial investigations with Faldor on foreign exchange. We must rely on IFSRA to design its investigation process to focus on what it sees as the important issues. As I have said, customers must be recompensed, systems fixed, regulatory authorities informed and disciplinary action taken where offences have taken place. I am not in disagreement with any of this. The regulatory organisations now have the necessary powers to take tough action and impose tough penalties.
Does the Taoiseach agree it beggars belief that the most senior executives in the bank profess to know nothing of how they became implicated in these affairs? How can that make sense to the average person? Mr. Roy Douglas, for example, seems to implicate the bank as an institution when he says that when he climbed the corporate ladder he was invited to participate in this scheme. He makes it sound like he was being offered the key to the executive loo, that this was just a perk of the job that came when he achieved high office. I remember questioning Mr. Douglas at the DIRT inquiry, and it was reported in The Irish Times on 14 September 1999. I asked whether it was not the case that the Ansbacher procedure was "a fairly extraordinary legal construct", to which Mr. Douglas replied that it was the simple straightforward set of relationships that exist between a depositor and a bank.
I do not know what that implies. I would like to have the opportunity to examine him again now. I do not know from the Taoiseach's answer whether the information will be shared as between the three inquiries. I do not know whether the Taoiseach has any intention of causing the people concerned to be prosecuted and I do not know whether a surcharge will be levied as a result of the manner in which the banks have betrayed their trust and the trust of the public.
IFSRA has already made details public. I presume it intends to follow such a policy. Since the DIRT inquiry Revenue has been making many more details public. It now has the power to put into the public domain information regarding cases and settlements. There is not now a veil of secrecy as there was in the past. I have mentioned that substantial penalties can be imposed on corporate companies and individuals. I am sure this will be done in respect of all these cases.
Regarding the Deputy's first question as to how people at the top in these institutions could be involved without knowing anything about it, I do not understand that and I find it hard to believe it.
For very many working people in this State, the revelations about massive fraud and tax evasion in the banking system and the air of injured innocence of the most senior people involved might come from a Monty Python script. A chief executive who had €40,000 invested for him with magnificently generous returns is giving the impression that the closest he ever came to hearing a word like "Faldor" might be in a Dubliners' song containing the words "with me right fal-de-o". The same chief executive claims he is an unknowing beneficiary of this structure, resulting in "the generation of an unexpected tax liability", while another senior executive had €33,000 invested in 1989 and, inexplicably, a few short years later it has grown to a massive €81,000, at which he professes amazement. This must be the banking sector's own phenomenon of immaculate conception — amazing things happen but nobody knows how.
How can the ordinary taxpayer have confidence that these crimes will be investigated when we have a Fianna Fáil-led Government and, while the banks were defrauding taxes, speculators were bribing top Fianna Fáil politicians and getting rotten rich on consequent rezoning, and the Taoiseach was writing blank cheques for Charvet shirts? The Tánaiste found her voice yesterday and called for Garda involvement years after the full revelation of much more serious tax evasion, racketeering by the banks. Is the Minister for Justice, Equality and Law Reform, perhaps as we speak, ordering a wing of Wheatfield Prison to be cleared to make way for senior executives of the banks suspected of serious tax evasion as he did around Mayday for young persons suspected of stealing a garda's cap? Perhaps he is sending water-cannon into the bank's boardrooms to flush out the truth about those who organised all this racketeering. The Taoiseach will not be surprised, or perhaps he will be, that ordinary working people are completely cynical regarding the willingness of the political establishment to investigate another powerful sector of the establishment and bring those guilty of fraud to justice.
Thanks to the work of this House and the legislation brought forward by the Government we have good corporate compliance, a good IFSRA Bill and good financial regulators. All these, individually and collectively, have a role to play. They have the powers and functions to investigate, and I have no doubt they will do that. As I said earlier, one can never be certain that any regulatory authority will catch everything but IFSRA has power to investigate. It has shown it is prepared to speak openly on these issues and has done so already. Revenue and Corporate Compliance are also speaking openly. From the point of view of the Government and the House, it is important that these matters are investigated thoroughly and that action is taken. In accountancy terms, internal audit is one aspect that always worked in a company, particularly a bank. Nobody has raised the question, but it does arise, as to where were the internal auditors in the financial institutions.
The banks wield enormous power over the economy and over the lives of millions of ordinary working people. Why should unelected seniour executives, faceless to most people, be able to control the lives of so many people in this way? Is there not an unanswerable case now for the major banks to be taken into public ownership and to have democratically appointed boards to run them? These would represent the real interests of the majority of people who deal with the banks. Is there not a case to break up, for example, the alliance of land speculators, profiteering developers and greedy banks that enchain young working people for the rest of their lives because they need to buy a home?
Should we not have a bank policy that is dictated not by greed for super profit but by social need and the provision of what is necessary for people to be able to live reasonable and dignified lives? Is that not the question raised by what has been revealed not just in the past week but in recent years?
The Deputy is correct that the banks wield a great deal of power and control. They have many responsibilities and there are regulatory bodies to deal with them at all levels. There is disappointment about this issue. The banks are important for international trade and investment. This country does extraordinarily well from foreign direct investment. It is also an export economy, exporting approximately €80 billion worth of goods each year.
I part with the Deputy with regard to nationalising the banks. That would not be a bright idea.