Michael McDowell (Independent) | Oireachtas source

I move amendment No. 7:

In page 11, between lines 19 and 20, to insert the following: “11. The Act of 2010 is amended by the insertion of the following section after section 37:

“Guidelines For Enhanced Due Diligence – Politically Exposed Persons

37A. (1) The Minister, where he or she considers it necessary or expedient, may, with the consent of the Minister for Finance and having consulted the Central Bank of Ireland and such other person or body as he or she considers appropriate, issue guidelines to the competent authorities in relation to the operation by designated persons of the provisions of this Part of enhanced due diligence in respect of customers who are politically exposed persons or their immediate family members and associates.

(2) Guidelines issued under subsection (1) may deal with any or all of the following matters:

(a) whether it is appropriate or necessary to apply enhanced due diligence to conventional personal or domestic transactions of such customers and the extent of such application;

(b) whether it is appropriate or necessary to apply enhanced due diligence to decisions concerning the commencement or continuance of business relationships concerning conventional personal or domestic activities of such customers and the extent of such application;

(c) whether it is appropriate or necessary to apply enhanced due diligence to specified types or classes of persons who may be customers mentioned in subsection (1) and the extent of such application; and

(d) the standard of due diligence and assessment of risk appropriate to enhanced due diligence in relation to such customers or to types or classes of persons who may be such customers.

(3) When issuing guidelines under subsection (1), the Minister shall have regard to—

(a) the terms and purposes of the Fourth and Fifth Money Laundering Directives,

(b) the provisions and purposes of this Act,

(c) the need for the provisions of this Part to be implemented effectively and proportionately, and

(d) subject to the provisions of this Act and the aforementioned Directives, the protected rights and freedoms of customers mentioned in subsection (1).

(4) Competent authorities and designated persons shall have regard to any guidelines issued by the Minister under this section when carrying out their functions or complying with their obligations under this Act.

(5) Nothing in this section or in any guidelines issued under subsection (1) shall operate to derogate from or relieve the general duties of designated persons under this Act to apply due diligence in respect of their business relations or transactions with customers or other persons, or in relation to their obligations in respect of suspected money laundering or terrorist financing.”.”.

The purpose of this amendment is to insert a new section providing for guidelines in respect of politically exposed persons which would issue to the competent authorities for the guidance of designated persons when dealing with politically exposed persons. I will make a few general points at the outset.

There is great dissatisfaction among Members of the Oireachtas with the operation of this directive at present. The reason is that it appears to cast the net of political exposure and, therefore, the duty of enhanced due diligence in a comprehensively excessive manner to people who could not possibly be a risk in the issue of money laundering or, indeed, terrorist financing. It is worthwhile to remind ourselves about what we are dealing with here. Politically exposed persons are defined in the Bill, and I will return to the definition in a moment.The enhanced due diligence obligation is extended not merely to the politically exposed persons, which includes Members of this House whether in opposition or in government, but to their spouses and civil partners, their parents, their children and the spouses and civil partners of their children. This means that every credit institution and person in Ireland carrying out particular forms of property services, including in certain circumstances insurance companies, is obliged to apply enhanced due diligence to a vast category of people who pose no threat of money laundering or terrorist financing above the ordinary risk of such activities.

To take one example, the legislation in its current form states that a politically exposed person includes a person who is on the governing body of a political party. If one applies the obligations, this means that if, much to the horror of a Member, his or her son or daughter joins a party he or she does not like and, worse than that, is enthusiastic enough to get appointed to its administrative council, Ard Comhairle, national executive or other body of that type, not only will the son or daughter be subject to the requirement of enhanced due diligence, but so too will his or her spouse. Not only that, the parents of that spouse become liable to enhanced due diligence. I cannot imagine how this originally went through at the Council of Ministers for Justice and Home Affairs in Europe at the time. Had I still been Minister for Justice and Equality at the time these things first emerged, my antenna would have been raised to this being absurd. It is an absurdity to provide that in the case of a person on, say, the Fianna Fáil committee of 15, his or her son-in-law or daughter-in-law and his or her parents should be exposed to this provision. It is a nonsense and it has to be called out for what it is. It is a grossly excessive piece of nonsense. How it could possibly be thought that the son-in-law or daughter-in-law of a member of a national political party governing body is, by definition, somebody who deserves higher scrutiny as respects their ordinary financial affairs complete escapes me. It should never have been included in any of the directives. It is a shame that it ever was permitted to be included in the directives at that time. It came in sideways in that it came in extended to people in high-risk countries. In a fit of equality thought and the like, it was applied to members of the European Union without it having been carefully thought through. Some of the older member states, looking at some of the newer member states about which they are a bit sniffy, decided that it might be useful to extend it to countries such as Bulgaria and the like and they could live with it for their own. We need to realise that the actual practical consequences of this are very significant.

On the last occasion, Senator Ward mentioned an issue in respect of which I had forgotten I was in the same boat as him.One financial institution asked me to provide audited tax returns for some extraordinary period of time - I have forgotten how many years but maybe it was 15 years - in respect of my income as a barrister. There are no such things to start with. I make my tax returns but to find all my tax returns for all those years and to regurgitate them would take hours and hours of work which most young Members of the Oireachtas are simply not in a position to do. To impose this on me is one thing, but to impose it on a child of mine who might be in the same position, say as a barrister or a self-employed person, is another. To require them, whether they are a self-employed barrister, a landscape gardener or whatever else, to produce audited accounts is nonsense on stilts and yet that has been requested by financial institutions.

In my naivety, I wondered whether the British legislature could possibly have the same approach. I discovered that there are financial conduct authority guidelines in Britain which are different from those in Ireland. The Central Bank of Ireland has issued very stringent financial guidelines to financial service providers as to how this Act should operate. The British have a little bit of common sense and have made the point that an opposition Member of Parliament, MP, is of a different order completely to somebody wielding executive power at any given point in time.

One of the things the directive in its present form, and as amended by the fifth directive, requires is that any institution dealing with a politically exposed person or an immediate family member or associate, and this includes all the people I talked about earlier, such as sons and daughters-in-law of, for instance, people on the administrative council of the Labour Party, to ask, whenever such individuals open an account, to explain the origins of their property and wealth. How absolutely crazy is that? It is utterly indefensible because they have been dealing with a bank for donkey's years. By the way, it is not just opening an account that this obligation takes place but it is continuing to have an account. They have been dealing with the bank for years and have been dealing with a mortgage provider for years. They have been dealing with an insurance company for years and a solicitor has been handling their affairs for years. Suddenly it becomes incumbent on all those institutions because the individual's daddy or mammy gets elected to the administrative council of the Labour Party, or whatever the equivalent is in Fine Gael or Sinn Féin. Individuals are suddenly obliged as a matter of law to carry out a trawl to ascertain where he or she got all their property from retrospectively.

One might say, "For heaven's sake, people are not that unreasonable" but I know of my own experience. One credit institution had provided me with, I think, a 20 year mortgage, of which 18 years had elapsed when I received a letter. It had worked out that I was a politically exposed person because I was a Member of the Seanad. Frightened of the consequences of not making inquiries, it required that I should explain where the money had come from for paying the mortgage for the 18 years, when it was on a direct debit from my main bank account. The ridiculous thing was that it threatened to cut off any relationship with me as mortgage provider. I made it clear to it that if it did, then that would be the end of my mortgage. I did not give a damn if it did not want to provide me with a mortgage anymore.I would not make any further payments to it in such circumstances and I was not going to pay for an early determination fee of my mortgage because it was interpreting the law in that respect. However, it did not merely want audited accounts, as Senator Ward said. It wanted copies of wills under which I had inherited anything. My parents are long since dead. What possible interest was it to it to ascertain what I had inherited 18 years ago? This was how it interpreted the Central Bank guidelines.

The Central Bank guidelines on designated persons state:

Firms should take adequate measures to establish the source of wealth and source of funds which are to be used in the business relationship in order to satisfy themselves that they do not handle the proceeds of corruption or other criminal activity. [In order to satisfy itself that it is not handling corrupt money or criminal activity money, it has to find out where I got all my money over my life.] The measures which Firms should take to establish a PEP’s source of wealth and source of funds will depend on the degree of risk associated with the business relationship.

That is not the person, but the business relationship. One might think paying off a mortgage would be very low on that. Current advice to these institutions is that "[f]irms should verify the source of wealth and the source of funds based on reliable and [wait for it] independent data, documents or information." I thought it was a bank gone slightly crackers, demanding to see wills and tax returns, but it was not. The Central Bank of Ireland is telling the bank it must do so. How bad can that be? It is not enough to take somebody's word for it but it is obliged to verify it. One is asked to show the documents that show how one came into possession of the property one owns. It has to be independent data, documents or information.

It is not just me taking exception to a letter which might appear to all of us as being slightly over-officious. This is what the Central Bank has directed every bank to do in respect of every Member of this House, Member of Dáil Éireann, their children, their parents and every member of every governing body of any political party. This is what the law, as interpreted by the Central Bank, now requires.

The Central Bank guidelines further state that "[w]hen determining the source of wealth and source of funds, the Firms should, at least consider: the activities that have generated the total net worth of the customer (that is, the activities that produced the customer's funds and property);" The least they must do is assess the activities that have generated the total net worth of the customer. They have to ask one one's total net worth before they do anything else. Then they have to decide to start assessing that. The guidelines refer to "the origin and the means of transfer for funds that are involved in the transaction". I have no objection to that except for a matter I will come back to. If one has a main bank and is paying for a credit card, a mortgage and an insurance policy, politically exposed persons cannot delegate the function of monitoring to the main bank whereas non-politically exposed persons can. The British PCA admitted that the capacity to delegate due diligence of one's accounts to other institutions is expressly excluded in the case of politically exposed persons.

Ulster Bank is my main bank. If it is feeding money into a mortgage payment or a credit card in a different institution, it is specifically stated that it cannot just take the fact the Ulster Bank has my main bank and that this comes in by direct debit.It must independently examine this issue.

The provisions in the Act which allow for lesser institutions to rely on other institutions and to delegate the due diligence to them, which affects every normal person, is excluded in respect of politically exposed persons. All of that is simply wrong. I am not imagining it because when I looked at the guidelines I found that the Central Bank of Ireland is demanding these measures of credit institutions in Ireland whereas they are not being demanded elsewhere in the world. That is the background to this amendment.

I know the Department of Justice of old and admire it hugely. I presume that it does not want to get its fingers caught in the mangle of high finance and all the rest of it. However, the Minister for Justice is the one responsible for the operation of this Act. Ultimately, it is not good enough to say to Members of this House that the Central Bank has written a set of guidelines and she is sorry they are having the effect they are but there is nothing she can do about it. There is something the State can do about it. That is what this amendment to the proposed new section 37A is all about. It states: "The Minister, where he or she considers it necessary or expedient, [it does not oblige the Minister] may, with the consent of the Minister for Finance and having consulted the Central Bank of Ireland and such other person or body as he or she considers appropriate, issue guidelines to the competent authorities in relation to the operation by designated persons of the provisions of this Part of enhanced due diligence in respect of customers who are politically exposed persons or their immediate family members and associates." It is simply saying to the Minister that he or she can, if it is expedient or necessary, opt to do it. If the Central Bank saw sense tomorrow and wrote to every bank asking it to lay off the daughters-in-law of those on the administrative council of the Labour Party. It is an absurd requirement that they should be the subject of enhanced due diligence in anything except the most alarming circumstances in which there are reasons to suspect them of anything. The Central Bank could do that but it has not. It has said that every PEP is to explain the source of all his or her lifelong wealth, where it came from and to verify it by independent documentation. Since that is the view of the Central Bank at the moment, somebody has to say this nonsense must end.

The amendment states:

(2) Guidelines issued under subsection (1) may deal with any or all of the following matters:

(a) whether it is appropriate or necessary to apply enhanced due diligence to conventional personal or domestic transactions of customers and the extent of such applications...

In other words, if one has a Visa card, a Mastercard, a PayPal account or whatever it may be, is it really necessary, given that it is probably fed by a direct debit from another source, for an institution of that kind to delve into one's lifelong property history further?

The amendment further states:

(b) whether it is appropriate or necessary to apply enhanced diligence to decisions concerning the commencement or continuance of business relationships concerning conventional personal or domestic activities...

In other words, nobody in this House will get a letter from an institution proposing that it will no longer do any business with him or her unless and until that person documents for it where all his or her money has come from. It is not just reasonably well-to-do barristers I am talking about but self-employed people of whatever kind, and even employed people. They are expected to show where they got their money over the years. I am also talking about farmers. Are they to prove how they got the farm, how they have been doing over the previous X number of years, how much money has come in from Common Agricultural Policy payments and how much from selling heifers or whatever else, what profits and losses they have had and all the rest of it, and to produce audited accounts? Are they to do this? It is absurd.

The third proposed territory for the guidelines is whether it is appropriate or necessary to apply enhanced due diligence to specified types or classes of persons who may be customers mentioned in subsection (1) and the extent of such application. For instance, why in the name of heavens is it appropriate to ask Members of the Oireachtas, who have a mortgage on an apartment in which they live, to explain their wealth throughout their life before giving them a secured mortgage on a property they own? It may be an 80% mortgage or whatever.

The final point relates to the standard of due diligence and assessment of risk appropriate to the enhanced due diligence in regard to such customers or classes of persons who may be such customers. In other words, unless there is something remarkably suspicious or eyebrow raising about the daughter-in-law of a member of the Fine Gael national executive, forget it and do not even go there. Do not write any stupid letters.

These credit institutions are obliged to find out themselves. It is a duty of theirs to find out who is on the administrative council of the Labour Party and who is on the Ard Chomhairle of Sinn Féin. I will not say anything further about that. They are obliged to find these things out for themselves. They are not entitled to say nobody ever told us that, by a quirk, Michael McDowell is now on the Ard Chomhairle of Sinn Féin. They are obliged to go and find that out for themselves and to go hunting around for the information. Presumably, from time to time they are supposed to ask people who are the members of their family, who are their sons and daughters, where are their parents and are their parents still alive. This is the kind of nonsense that we are dealing with now.

Subsection (3) of the proposed new section states:

When issuing guidelines under subsection (1), the Minister shall have regard to— (a) the terms and purposes of the Fourth and Fifth Money Laundering Directives,

(b) the provisions and purposes of this Act,

(c) the need for the provisions of this Part to be implemented effectively and proportionately, and

(d) subject to the provisions of this Act and the aforementioned Directives, the protected rights and freedoms of customers mentioned in subsection (1).

Members will note that it is stated in the directives that these measures respect the rights and freedoms of citizens of the European Union under their charter. They claim that but do they really respect citizens' rights?

Subsection (4) provides that competent authorities and designated persons shall have regard to any guidelines issued by the Minister under this section and carrying out their functions or complying with their obligations under the Act. Subsection (5) states that nothing in this is intended to reduce in any circumstances the amount of due diligence that is applied to a PEP below that which is applied to anybody else in the community. Those are, I respectfully submit, reasonable provisions. They do not offend European law because the Minister is obliged by the terms of the proposed section to have regard in making any such guidelines to the terms of the money laundering directive. It does not entitle the Minister to tear it up but it does entitle him or her to give guidance along the lines of what has happened in the United Kingdom.I took the time to look at the British House of Commons' provisions. This probably applies to some Irish citizens also who are Members of the House of Commons. Whether they take their seats or not, it applies to them all.

Everything I said about family members also applies to people described as close associates. For instance, they apply if one is a solicitor with partners. They are people who are required to be the subject of enhanced due diligence. How ridiculous is that. If Senator Ward and I were members of the other side of the legal profession and we were elected to the Seanad, suddenly our partners in a solicitors firm, wherever they might be, would somehow be the subject of enhanced due diligence. The bank or building society would be obliged to regard our partners as requiring enhanced due diligence in case somehow somebody would fund corrupt money to a Member of the Seanad via their partner. That is utterly ridiculous.

One of the things I find disturbing is that a Senator or a Deputy is fair game because they are out there and there is no doubt about who they are or what they are. Nobody asks if other people in the community are the brother, the partner, the parent or the son-in-law of somebody else. We, however, are in the firing line for this.

With regard to public servants, the first paragraph of Article 20a of the fifth money laundering directive requires that "Each Member State shall issue and keep up to date a list indicating the exact functions which, according to national laws, regulations and administrative provisions, qualify as prominent public functions". The directive refers to members of courts for which there is no appeal, such as constitutional courts, and which would apply to the Supreme Court and perhaps the Court of Appeal in Ireland.

I do not know how we decide whether a principal officer in the Civil Service is above or below the line but it is open to member states to do so provided that they publish that information.

There are, however, many functions. Consider, for instance, membership of An Bord Pleanála. I am casting no aspersions whatsoever against its members, but I would imagine they are much more likely than any Member of Seanad Éireann to make decisions affecting the wealth of others. There must be other administrative tribunals that have the same function, such as members of the agencies involved in employment dispute resolution, the Labour Court and so on. They are much more in the firing line but I cast no aspersions on any of them, nor on any Senator in this House. However, sometimes it is well worth reflecting on how little power we have in this House. If one gave Senators €1 million each, I do not believe we could achieve very much by way of corrupt activity that would influence anything in the way in which legislation is passed or the way in which we carry out our constitutional functions.No matter what is said, the Department of Justice, and the Minister of Justice for the time being, is the political person to whom the Irish State has conferred responsibility for the operation of the money-laundering directives. It is put down as criminal justice measures; not a kind of Central Bank and Minister for Finance measures. It is within the bailiwick of the Department of Justice. All I am seeking to do by this amendment is to ask that the Minister of State, Deputy Browne, who is present, accepts the proposition that the Minister can lawfully issue reasonable guidelines for the guidance of the various institutions, be it the Law Society, auctioneers, banks, insurance companies, building societies, deposit takers of whatever kind or credit card providers of whatever kind, in default of the relevant authorities doing so themselves. I would normally say that one could depend on the common sense of people not to do this. That was my belief until I got a letter asking me to provide audited accounts of my Bar career to date. Senator Ward received a similar letter. One cannot depend on common sense in this instance. When one looks at the requirements of the Central Bank, one sees that the relevant authorities are mandated by the guidelines issued by the Central Bank to require independent verification of these things.

It is difficult enough to get decent people into politics and keep them in politics and it is difficult enough for them to explain to their family members - their spouse, children or parents - that they are motivated to serve the public good and to seek election at the will of the people or otherwise become Members of the Oireachtas. We should not deliberately pile on top of that obligations which make life very difficult for them and their spouses. What does my spouse have to do with any of this? What does the spouse of Senator Bacik have to do with any of this? I congratulate the Senator on her recent marriage. This is nonsense. We are not protecting ourselves or those who will wish to go into politics in the future from unreasonable requirements because the Department of Justice is not issuing guidelines.

I ask the Minister of State to accept the spirit of the amendment and the responsibility which his Department has to protect us from unreasonable enhanced due diligence of the grotesque kind that I have described in proposing the amendment to the House.