Joe O'Toole (Independent)

I welcome the Tánaiste and Minister for Enterprise, Trade and Employment to the House. She is responsible for a difficult and complex Department. From years of experience in this area, I am aware she has excellent advisers at her disposal. The important legislation before us enjoys my full support, although I propose to refer to a number of issues the Bill omits to address.

As a member of the Irish Auditing and Accounting Supervisory Authority, I declare an interest in this debate. I am also in a position to answer some of the questions Senator Callely raised and outline the reason the proposals before us were not implemented in previous legislation. When the then Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney, introduced the Companies (Auditing and Accounting) Bill in 2003 directors' compliance statements were addressed in a clear and direct fashion. It was subsequently decided, however, to avoid excessively burdening the captains of industry who were ripping us off left, right and centre by ensuring the legislation became what is known as "light touch". Senator Callely's remarks on this matter were made with the best intentions but they angered me because the light touch regulation he calls for is precisely what caused the current trouble. The Senator is nevertheless correct that no one wants to put pressure on honest people.

The Companies (Auditing and Accounting) Bill introduced in 2003 by the then Minister and her advisers, some of whom are in the Chamber, included a provision requiring a clear and unambiguous director's compliance statement which had to be signed off by the company's auditors. Members on the Government side of both Houses as well as a number of Opposition Senators did not like this provision and considerable pressure was brought to bear on the then Minister. Against her own best judgment, the Minister softened the original requirement. In recent months, she has not been given credit for her initial position on the issue.

What difference did the change make? Although I do not propose to dwell in detail on developments in the bank to which Deputy Callely referred, when this stuff hit the fan a couple of months ago many people asked the reason senior banking officials were not before the courts. It is my view, and only time will tell whether it is correct, that the reason they are not before the courts is that the companies legislation does not clearly state where the law was broken. If the original provision in the 2003 Bill - I believe it was section 45 - had been passed, it would have required all company directors to disclose any matters material to the annual report. As such, the individuals involved in recent cases would have been in breach of the legislation if the relevant section had been passed. Perhaps the Tánaiste will indicate whether the section has been commenced because the last time I checked it had still not been commenced. The reason for the change in the Bill was the pressure brought to bear on the Minister. It is not easy to introduce strict requirements in this area because powerful vested interests prevent the Government from taking the action required.

I served on a board with the acting Financial Regulator, Ms Mary O'Dea. Having known her for many years, I hold her in the highest regard. The legislation establishing the Financial Regulator was also softened following its introduction. In recent times, I have listened to cynical and dishonest statements by Members of both Houses as they berated the Financial Regulator for failing to prevent 110% loans being given to borrowers. This practice was not stopped because the Legislature did not provide the Financial Regulator with the necessary powers to intervene. That is the simple, black and white reason. Notwithstanding that, I accept the Financial Regulator failed to intervene in areas in which he should have acted. I can cite examples of areas in which inaction on the regulator's part was due to the decisions of legislators. It is something we need to look at.

Where does all this come from? I will give a brief history lesson. At the time the offshore accounts and the mess involved with them came to light in the late 1990s, which was our last banking crisis, and which also involved an issue about taxation, the Committee of Public Accounts, rather than a tribunal, conducted the investigation into these matters and did so extraordinarily effectively under the chairmanship of the late former Deputy Jim Mitchell. The committee comprised a number of people from both sides of the House, including Deputies Pat Rabbitte and Bernard Durkan and a number of other people. The committee asked at the time for a review of the whole auditing system. In 2002 the then Tánaiste asked me to chair the audit review group. She wanted to get somebody who was seen to have no connection to her areas. We produced a report which was presented by myself and the then Tánaiste to the Committee of Public Accounts in 2002, two weeks after the deadline it had given to us. The report was accepted by the Committee of Public Accounts. I understand the Tánaiste's adviser may have been there on the day.

We went through the report on the day and an important aspect was we managed to change the viewpoint of the Committee of Public Accounts. I will tell the Tánaiste how. Its view at the time was there should be no self-regulation among the accountancy profession and auditors and they should be regulated by the State centrally in some way. We changed that by making a proposal, having a long argument and the committee accepting it on the basis of what the then Tánaiste and I argued, namely, that this was something we should try. It is now what is in place and one of the groups that is investigating. Another major aspect was the director's compliance statement. It was also accepted by the Committee of Public Accounts. The two central issues of the report were accepted by the committee and on that basis, the Department of Enterprise, Trade and Employment produced the Companies (Auditing and Accounting) Act 2003. When it was brought in it was softened and diluted.

I want to take the connections further. In one of the coincidences which life throws up, the secretary of my secretariat when I chaired the group is now the Director of Corporate Enforcement and knows very clearly what is involved. Some time after that the Department of Enterprise, Trade and Employment or the Department of Justice, Equality and Law Reform, I am not sure which, set up the company law review group which recently produced a report. Within the group were all the people Senator Callely was hinting at when he asked who was spoken to. I have listened to the Tánaiste discuss the Bill and I support it. I listened to her argumentation, I support it and I support very much the point she made about the Office of the Director of Corporate Enforcement.

Appendix B to the recent report of the company law review group deals with section 45 of the Companies (Auditing and Accounting) Act 2003. The Office of the Director of Corporate Enforcement, which we all support, produced a minority report and did not agree with what was proposed in the review. Three groups opposed it and I want to put two on the record formally. One is the Office of the Director of Corporate Enforcement and the other is the Revenue Commissioners. I want the House to know this because I will table an amendment to this Bill, which will be an addendum as opposed to a change. I am taking the proposal of the Office of the Director of Corporate Enforcement, which is appendix B and which goes through section 45 of the Companies (Auditing and Accounting) Act 2003 with an entire section of changes.

In the appendix, the director records his reservations and states that as the body responsible for encouraging compliance with company law - it is important to listen to these facts and to move away from a light touch - including the preparation of books of accounts which give a true and fair view of a company's state of affairs, the Office of the Director of Corporate Enforcement finds unacceptable a proposal which omits reporting on obligations which may materially affect the company's financial statements. That is what I want to put into this Bill so Senator Callely does not ask in a year's time why we waited until now.

I do not want the Tánaiste to come back and say she is adding another section to the 1,230 sections in the Bill proposed for next year to deal with this issue. I want her to accept I am putting this forward in good faith. It is not my proposal but is one which has been well tested over the ground. In his reservation, the Director of Corporate Enforcement states the provision for auditor review of the director's compliance state has been entirely deleted. I want this on the record because people in this House stand up and ask what the auditors were doing. They were doing what we asked them to do and if we ask them to do less, they do less so let us get it right.

This was a key recommendation of the auditing review group, of which I was chairperson some ten years ago, in enhancing the public interests of auditors. I will table an amendment to this Bill and I am outlining it so the Tánaiste will know what it is before she sees it. It is a proposal to amend section 45 of the Companies (Auditing and Accounting) Act 2003 in line with what was proposed by the auditing review group of which I was chair and which was recently proposed by the Office of the Director of Corporate Enforcement to ensure matters which are material to the report are required to be reported by the directors and also that the auditor is required to sign off on that. It is entirely reasonable. I will come back with that amendment.

I ask the Tánaiste to take an issue on board. When she deals with this matter in the future I ask her to remember company law is based on common law and civilisation. When people started to trade in financial institutions in places such as Genoa and Barcelona, if one did not meet one's liabilities, one was hanged outside one's shop door, which was the case until the middle ages. I make the point because, as a civilised people, we thought that was the wrong way to do it. We create a privilege and a gift to people in business and financial institutions which is called limited liability.

I say this because the next time the Tánaiste speaks to a group of business people I would like her to say we have given them this, which is a gift - a treasure - of significant importance so businesses can take the kind of risks Senator Callely referred to without people losing their houses and homes. It is a gift which is not to be abused and which can be taken back at any time by a democracy. It is a fairly basic tenet. The Tánaiste could throw away the script, stand up and ask ordinary people how they are honouring it or whether they are aware of it, because generations have grown up feeling this is a right. It is not. It is a privilege awarded by the State under the strictest of rules and regulations requiring us to ensure ordinary citizens are treated properly, fairly and equitably. That is why the problem exists today.

In the first version of the audit review group, when I asked we propose the directors of a company sign off on a statement which more or less said they were in compliance with the law of the land, I thought, in my innocence, that was not raising the bar one inch. I thought any director of any public or private company had at least such a level of responsibility and duty to the shareholders, traders, people with whom they dealt and the State. It did not appear to be the case. The accounting bodies lined up to say how this could not be done and such a burden could not be placed on people.

When I hear the word "burden" in business, I think of the last person who challenged me publicly on this issue when addressing a conference, namely, the man referred to earlier by Senator Callely and the then chairperson of Anglo Irish Bank, who talked about the burden and difficulties of regulation. We know all about that now.

The Tánaiste receives significant criticism. It is a most complex and difficult Department to deal with. I have been of the view for many years that it should be restructured. Its remit is too broad. One need only consider the number of external bodies that report to it to see the degree of complexity.

We must introduce the necessary legislative provisions to ensure those who do not act honourably are in breach of the law. I propose to support the legislation, with the minor caveat that it is almost too rules-based. I come from County Kerry, as did Daniel O'Connell, and when I see a particular descriptive word in a Bill, I know I can find another word to serve precisely the same purpose. There are well paid accountants and others who will manage to do exactly the same in regard to the definition of a loan and who will be able to allow their clients to squeeze out from under this legislation. That is inevitable. I seek a principles-based approach, whereby people are required to act honourably, comply with the law and do what is expected by us as legislators, by customers and by shareholders and stakeholders. I ask the Tánaiste to support my proposals in this regard.