Joe O'Toole (Independent)

I move amendment No. 1:

In page 3, line 30, after "1999" to insert the following:

", TO AMEND SECTION 45 OF THE COMPANIES (AUDITING AND ACCOUNTING) ACT 2003 CONCERNING DIRECTORS' COMPLIANCE STATEMENTS".

I welcome the Minister of State and his advisors but I see no sign that he will accept this amendment.

The Government has had a bad run and I am putting forward two simple amendments, even if the second amendment runs to four pages. A couple of months ago we had the row with the banks. I am proposing what was originally in the Finance Bill 2003 that was changed because of opposition from auditors from the big four accountancy bodies and from IBEC.

These amendments will require company directors to disclose any information that is material to the accounts and will require auditors to confirm it has been done. I doubt there are five people in Ireland who would not agree with that after all we have gone through with the banks. It irritates me because this debate will get no publicity in the newspapers but when any of us are in the pub at the weekend, we will be asked what we are doing about the bankers.

If this had been in place when a certain bank got into huge difficulties three months ago, a board member who had previously been chief executive who had loans of €100 million would have had to declare it. We found ourselves in a situation where the senior Minister and others had to say they did not know if what had happened was in breach of any law. I am correcting that situation with these amendments. In doing so, I am going through company legislation as it was previously.

Where did I find this amendment? This is the amendment the Director of Corporate Enforcement submitted to the Company Law Review Group. I am proposing what the Director of Corporate Enforcement wanted. He is the watchdog for the people and in every amendment the Minister rejected on Committee Stage, one of the reasons given was the view of the Director of Corporate Enforcement. I have turned that around; this is the view of the Director of Corporate Enforcement.

In 2002 following the establishment of the audit review group, which I chaired on behalf of the Government, the senior Minister in the Department was Deputy Harney. The then Minister agreed with the viewpoint I am putting forward today but came under pressure, as did the Government, and there was a change. The Minister had appeared before the Committee of Public Accounts with me and if we revisit what she said at the time, when Jim Mitchell was Chairman and Deputies Rabbitte and Durkan were also members, the point was that never again would she have to listen to the view expressed when the off-shore accounts were revealed, when directors claimed they did not know what was happening. It was like the concentration camps in Germany, they did not know. We will require people to do something.

When the audit review group looked over this, one of the issues it reported on was the directors' compliance statement, where effectively a company director could say that to the best of his knowledge and as far as was practical, the company was compliant with the law of the land. That suddenly became a huge problem for all the wrong reasons. A Senator at the time, who was also a director of a large multinational company, asked how could he know what was going on in a back office of his South African operation. The answer is that a director could not know but he should be able to say what he put in place to ensure compliance and present the reports his executives provided throughout the last year. That is not much to ask. In 2002 I believed naively there was nothing above and beyond what would be required of a company director if there was no legislation.

I asked the following question at the time and I ask it again today. When we, as a democracy, give the privilege of limited liability, what do we expect back? To understand that, we must look at from where it came. It came from a time when conducting financial transactions was based on the honour system. If somebody deliberately conducted business fraudulently, it was a capital offence. That was the case in Genoa, Barcelona and all the centres of trade and commerce in the Middle Ages.

To get away from that savage era when people were hanged outside their financial offices and at a time when usury was a mortal sin in the Christian churches, we developed limited liability. Limited liability is a gift we give people but it has stopped being that. People now believe they can set up a company with limited liability and that they cannot be held responsible for anything beyond the means of the company etc. Why do we allow someone to set up a company, take money from people and trade in a democracy? We do so on the basis of trust.

What is required is that the directors of a company put in place the structure to ensure they comply with the laws of the land. The first argument against that was that people would have to check out health and safety, bullying, environmental issues and so on. In 2002-03, people were not sure. There is not one person on either side of this House who would have an ounce of sympathy for a company dumping dangerous chemicals in a place it should not, as happened in the constituency of the Minister of State, Deputy Kelleher. We would hold people responsible for that. We would not jail the directors but we would ask if the directors knew or, if they did not know, why they did not know and who knew.

I will not go into that issue because I am talking about revenue, tax and company law today. I am touching on the other issues into which one could go. There is a view that company directors believe they are not responsible for anything. I do not know for what they are responsible if they are not responsible for telling me they are compliant with the law of the land and that they have put a structure in place.

Two months ago there were discussions about auditors in the Members' bar, in the Houses and in pubs. What were auditors doing? As I said to the Minister on Committee Stage, the business of auditing is not the business of being a bloodhound but of being a watchdog. The auditor watches for things. One cannot stop fraud. If people want to act fraudulently, they will find a way. That is not what this is about. This is about allowing honest people to ensure their company conducts its affairs honestly and compliantly and that there is a level playing pitch for everybody.

On Second Stage, Senator Callely commented on heavy regulation and it irritated me. In retrospect, I probably over-reacted in the point I made but we have had enough light touch regulation. I have always been in the middle in this argument. I do not like heavy regulation nor do I like light touch regulation. The regulation should meet the needs and no more. It should be fit for purpose and no more. It should be easily and properly met. For instance, the level of regulation on Members of the Houses in terms of the list of things we must fill out each January is too much but we are stuck with it and we get on with it.

I want company directors and the Minister of State to remember the outrage about offshore accounts. In the late 1980s, people tightened their belts only to find there were millions of pounds in offshore accounts even though they were told there was no money in the country. They should also remember the outrage a couple of months ago. All I ask is that directors put in place a structure which will do the business as far as they know, that they take reports so many times in the past year, that they review the structure in the past year and that they ask auditors to ensure that is done.

I support the Bill but one of the flaws in it is that it comes under the American influence of being rules based. This legislation deals with loans to directors. As I said on Second Stage, I come from the county of Daniel O'Connell and we are very good at giving a different name to the same thing, which is what company law does all the time. There are various ways to give money to people other than by way of loans. I believe people will get around this. People must act honourably.

The system in this country, the UK and most of Europe is principles based. Put in simple terms, people must act honestly, must make decisions on that basis and must be compliant. There are 24,000 rules in the American system and they tick the box if they have followed every one of them. None of the rules refers to what happens when an elephant walks into the front office because that is not expected. That is what happened in the case of Enron. The legislation brought in after the Enron disaster in the US was the Surbanes-Oxley Act under which the chief finance officer and, I believe, the chief executive officer can be committed to jail for not doing the things about which I am talking but it is done on the basis of rules.

I ask that the company director looks at what he or she has done in the past year and states that he or she is confident that something fit for purpose has been put in place which will do the business, that he or she has checked and reviewed it, he or she has got reports and he or she is signing off on it on that basis. The company's external auditor also signs off on it. If that was put in place, with all the other issues dealt with in the 2003 and 1990 Acts, including internal auditors, audit committees and the role of independent directors, one would have in place something that works.

Two or three months ago, the auditor of a bank appeared before the Oireachtas Joint Committee on Economic Regulatory Affairs. That is what led to the row in 2000 about the offshore accounts. The internal auditor of AIB was not listened to, was sacked and lost his reputation. I thought I would never again see a situation where an internal auditor of a large bank would come before a committee to say he was not listened to. That reflects a weakness in the legislation for which I take responsibility. We looked at the legislation at the time and thought we had closed the loopholes but clearly we did not do that.

The issues I have put before the House have arisen from our previous experience with offshore accounts, including the importance of limited liability and light touch regulation. I say to Senator Callely, in particular - perhaps this is a better articulated response than that which I made to his Second Stage speech - that I am not asking people to fill out a load of forms. I ask that people say they have been to ten directors' meetings in the past year, that they have put something in place, that they believe it works and that they are signing off on it. That is neither light touch nor heavy touch regulation.

One of the arguments made against such a system is that it would require the engagement of an entire sheaf of consultants. That is what the "big five" companies have claimed, and that it will thus cost billions of euro to implement. If it takes an external person to come in to tell the director how well he or she is performing, then he or she is not performing well. I am a director of a company. I spent an hour and a half this morning dealing with a report to me and the chairman of the company, taking us through some of the issues we have just discussed. We were satisfied with what we heard. This does not mean we could not have been misled by somebody, but that is not the issue. The point is that we followed a process to ensure we were compliant, we are satisfied with the outcome and are signing off on it. This is not about a process of form-filling. It is not about engaging consultants to tell me I am compliant with the law of the land. The structures which we as directors have put in place should be structures which will deliver compliance so long as everybody concerned acts honourably. We have checked that and gone through it.

What I am proposing is what emerged from the audit review group, of which I was chairman, which was established by the Committee of Public Accounts following the controversy regarding offshore accounts. What I am proposing was put forward in the report to the Committee of Public Accounts in 2002, and it is what emerged in the 2003 legislation in its original form before being softened. Bank directors were able to play ducks and drakes with the legislation last year. My amendment encompasses the proposal put forward by the Director of Corporate Enforcement to the company law review group. The latter was in a previous life the boss of the secretariat when I chaired the Committee of Public Accounts. He has been through the system on all sides. He worked at an earlier stage in the same role as the adviser seated directly behind the Minister of State and held various other positions within the Department. He is on the board of the Irish Auditing and Accounting Supervisory Authority, as am I. My proposal mirrors exactly his proposal to the company law review group, because I would not attempt to second guess the Director of Corporate Enforcement.

I conclude by offering some advice to the Minister of State, without wishing to be smart. If I were being grilled in front of a committee, court or elsewhere in the future about what was done to tackle these issues, I would like to be able to say that I followed the advice of the Director of Corporate Enforcement in order to safeguard the interest of the public. I ask the Minister of State to accept my proposal.