Brian Lenihan Jnr (Dublin West, Fianna Fail)

My initial reply to the Senator reflected an understandable view in my Department in placing the issue in the context of the finance Bill. It simply outlined what was being done about bank bonuses in the Bill. I cannot accept the recommendation because it has nothing to do with the Bill. In, fact, its acceptance might even compromise the status of the Bill as a Money Bill, although I do not say that with certainty. The recommendation as proposed does not concern taxation or the raising of money but the credit institutions participating in the eligible liabilities guarantee scheme; it is not, therefore, an amendment to the finance Bill or a matter that arises from it. The official reply dealt with how we were dealing with the bank bonuses issue in the context of taxation. Clearly, this does not involve the appropriation of money or taxation but a view, on which the Senator is anxious to make a recommendation, of how credit institutions should pay bonuses. That is the net issue. Therefore, I maintain it is entirely outside the scope of the Bill. There would be a risk it would cease to be a Money Bill were I to accept the recommendation.

That said, on the merits of recommendation, let us be clear that the Government has a very solid record in dealing with the payment of bonuses. Let us move away from the headlines and see what actually has been done. First, as soon as the guarantee was introduced, all future bonuses were outlawed in the eligible guaranteed institutions. No guaranteed institution has been permitted to pay a bonus in 2009, 2010 or 2011. Clearly, the prospective tax measure in this Bill will copperfasten that position with regard to those that have been capitalised.

Second, difficulties have arisen but they are, by and large, of a transitional character. They relate to commitments to pay bonuses which were made before the beginning of the guarantee and they have had to be worked out in that way. As Senator Alex White and others are generally aware, retrospective legislation and the retrospective expropriation of individual rights is a difficult subject. It is very difficult to take away from people a right to which they can point by way of definite contractual entitlement and tell them they are not entitled to that. We were able in the context of Allied Irish Banks, for example, because a recapitalisation was imminent, to provide that certain bonuses that were payable did not become payable because the State supervened by insisting, in the context of the capitalisation, that these bonuses could not be paid. That meant the directors were able to invoke the legal doctrine of the supervening event, the novus actus interveniens, to justify what would otherwise have been a breach of duty on the part of the directors. That is a very extreme example of how far we had to extend the law to ensure that bonuses would not be paid.

That happened in the context of Allied Irish Banks. In the case of Bank of Ireland, there is an investigation underway. Some concern has been expressed about the delay in the investigation. Again, it relates to an ascertained class of bonuses. It is a serious matter that Bank of Ireland had to apologise to me and to the Dáil for misleading the House in information supplied to my Department. That apology is on record. The reason the investigation is taking some time to complete is that there was a subscription agreement with Bank of Ireland, as there was with Allied Irish Banks, at the time of the initial capitalisation in early 2009. That subscription agreement contained definite contract terms regarding which bonuses could and could not be paid. Again, there was the issue of what past obligations had to be honoured by the bank. A due diligence was performed at the time by the NTMA with regard to all these matters. We have had to retrace the due diligence and all the documentation relating to each bonus and that investigation is approaching completion.