Michael McDowell (Independent) | Oireachtas source

I move amendment No. 1:

In page 8, between lines 14 and 15, to insert the following:

“PART 2

GENERAL DUTIES OF THE BANK

General duty of the Central Bank to make disclosure

3.(1) In conducting any proceedings or investigation in respect of any natural person (including any appeal or application to the High Court) where that person may become liable to any prohibition or penalty under the provisions of the Act of 1942, the Act of 2010 or the Act of 2013, the Central Bank shall be subject to a duty of full disclosure within the meaning of this section.

(2) In this section, “a duty of full disclosure” means a duty to draw to the attention of and make available to any such person all information and documentation to which the Central Bank has reasonable access or has in its possession, power or procurement that might reasonably be of assistance to that person in his or her participation in the course of and for the purposes of such proceedings or investigation including opposition to the imposition of a prohibition or penalty or in relation to the mitigation of any such penalty.”.

I wish to lay out a few facts in justification of this amendment. Under the Bill, the Central Bank is proposing to alter the circumstances in which individuals can, by means of a prohibition order, be prohibited from carrying out activities and be made liable, by way of administrative sanction, for financial penalties of up to €1 million in respect of breaches of duties that are found against that individual by reference to regulations creating duties where the Central Bank itself is greatly involved in framing the way in which controlled functions in banks are carried out.

We must examine the legal background to all of this for a moment. The idea of administrative sanctions of up to €1 million against an individual rather than a licensed entity such as an airline that is subject to regulations is located constitutionally in the space recently considered by the Supreme Court in the Zalewski judgment, where the case was made that the Workplace Relations Commission, WRC, was administering justice in a manner that was reserved to the Constitution and was not covered by the exception for limited powers of a judicial nature being carried out by bodies other than courts.The Supreme Court handed down a number of very interesting judgments on this issue. I am supportive of the view that the courts cannot do everything. They cannot decide to fine banks for overcharging interest rates or to fine airlines for under-providing wheelchair access. That kind of system cannot work. In an increasingly complex society, the courts cannot discharge those functions effectively. I have no problem with the introduction of administrative sanctions in principle. It is a matter of degree as to what is or is not a limited function.

There must also be a set of safeguards that adequately deal with the powers being given to a non-court regulatory authority to effectively punish people for things they have done in the past. That is my general, philosophical outlook. I have no problem with it as a concept, but the Bill detaches the obligation or entitlement of the Central Bank to impose individual sanctions, prohibitions and fines, payable by way of administrative sanction, from the process of penalising the institution in which individuals worked. For the first time, it makes it possible for a bank not to be punished for a breach of its customer-orientated duties. It enables individuals, who are or were employed by a bank, and carried out a controlled function to be on the wrong end of a prohibition order, the effect of which could end their career and prevent them from working in the regulated financial services sector. It also allows for the imposition of a sum of money - up to €1 million - as a personal administrative sanction on such persons. It applies not merely to people currently employed by a bank, an insurance company or a regulated financial service provider, but I understand it applies to those who were so employed up to six years ago. It may be more than six years ago. It also provides for these procedures to be deployed against people years after they ceased to exercise the relevant function.

I have some experience, from another context, of how all of these powers can be exercised. For example, individuals under investigation, who no longer work in the bank where the malpractice is suspected to have occurred, have to declare to every potential employer that an investigation is ongoing in relation to them. This is the case if individuals are looking to be approved in Ireland or elsewhere for employment in a similar business. If they are under a duty to disclose the fact that an investigation against them is pending, it effectively means they cannot successfully move jobs or apply for a new job. If I were to say to an employer, be it in Luxemburg, France or elsewhere, that I am subject to an investigation, it is not going to touch me with a barge pole because it would want to know what this is all about and why I am under investigation.

Apart from imposing a sanction of €1 million on an individual, apart from being in the position to issue a prohibition order preventing an individual from exercising a controlled function in a financial service provider subject to the control of the Central Bank, there is also a power envisaged in this Bill that will effectively wipe out the employability and entire work experience of a person while an investigation is ongoing and perhaps thereafter. The obligation on individuals subject to a pending investigation to disclose that they are the subject of such an investigation will, in the real world, have a freezing effect on them. It is very easy to say, "Let us take the case of the tracker mortgage and try to work out who, in any individual institution, was in breach of a duty to the customer and follow that person on an individual basis". That may sound attractive to some people. There should be remedies; people should not be able to simply ride off into the sunset having done immense damage to others. I accept that proposition. However, the converse is that we are putting in place a regime that is immensely powerful and potentially immensely onerous on individuals required to participate in the investigatory process with the Central Bank and to frequently provide information about their own activities to the Central Bank in circumstances where they are liable to be penalised or prohibited, as provided for in the legislation.

Let us consider the Zalewski case. Looking at the thrust of the decisions, of which there were several, of the Supreme Court, it is to say that there are cases where limited functions amounting to the administration of justice can be carried out by non-court bodies, but they must be carried out to a judicial standard. One cannot have bog-standard procedures that do not recognise the far-reaching effects that decisions of these bodies can have on individuals. An employee is entitled to unfair dismissal compensation of up to two years' salary, which can be imposed on a personal or a corporate employer. In that context, the Workplace Relations Commission is not free to choose its own procedures or to run an amateurish regime. It must respect the rights of people with whom it is dealing, both employees and employers.

In the context of respecting people's rights, what I am worried about and what the first amendment in my name is designed to tackle is the following. If I were up on a drunk driving charge, I would be entitled to see all the documents on which it is proposed to charge me.More than that, even the local superintendent, or whoever is prosecuting me, is under a duty to bring to my attention anything in the knowledge of the prosecution that could assist me in defending the case. In rape cases, for example, it is not open to the prosecution just to leave some material unhelpful to their own case in a file somewhere and come to court and produce 90% of the evidence while leaving 10% of the evidence unavailable to the accused person. That duty of full disclosure is part of our criminal law on the basis that the State is the powerful institution and it knows a lot of things. It sometimes knows, to take many cases where this has arisen, the communications the alleged victim has made that could put an entirely different complexion on the case the State prosecutor is making before a jury.

That duty of full disclosure is hugely important. It is a central part. To wipe out somebody's capacity to carry on their career in the future and to put in place a power to fine the person effectively by way of administrative sanction up to €1 million is so far-reaching a set of consequences for an individual that there should be at least the same duty as applies in criminal prosecutions to bring to the attention of the person who is under investigation and is being subject to an inquiry material which would assist that person in defending him or herself.

It is all very well to say that in the great majority of cases people will be employed by a bank, that the bank will show them all of the relevant records and that they will have colleagues in the bank who will say the Central Bank is saying this but you should know that. It is all very well to say of somebody who is employed in a bank that the bank is, so to speak, protecting or at least standing up for its own employees, insofar as their behaviour is capable of being stood over, and that he or she will have access to the records of the bank. Somebody who is gone from that bank will not have access to those records. For example, if I had left KBC three years ago and then I am accused of being in breach of my duty as a controlled function status person towards customers, KBC may not be there in one years' time at all. There will be no material available to me. Knocking on the door of an empty office somewhere in the IFSC is no use to me. I would be in a peculiarly vulnerable position if it were to be said I had misbehaved or I had breached my duty. I could say I had no access to the records now and I was on my own. I can see why one would not want to do it, but this is why the detachment of liability for a prohibition order and administrative sanctions from the sanctioning of the bank, which this Bill provides for, has to be accompanied by safeguards for people whose bank may have gone up in smoke and for people whose bank may have come to an agreement with the Central Bank. There must be safeguards where people in banks who, when faced with a massive penalty of a €100 million fine, for example, decide to blame Joe Soap, their former employee, for their decision when, in fact, it was a lot of people in the organisation, including Joe Soap, who were involved in that aspect of the company's affairs. In such cases, the bank may throw a victim to the Central Bank by saying it was Joe Soap who was responsible for that particular issue, that the bank will accept a deal with the Central Bank to pay a €100 million fine and will not contest or fight the case any further. That puts the individual in an invidious position if he or she - we must not forget about Josephine Soap in all of these circumstances - finds himself or herself in the position where he or she is not being assisted by the bank, is not being assisted by his or her colleagues and he or she is all on his or her own in dealing with an investigation of this kind.

It is noteworthy that the legislation does provide for legal representation, but it does not provide any means whereby it is to be financed. It assumes a former controlled function employee, who has perhaps even been sacked by a bank or made redundant, is in a financial position to undertake his or her own defence in a lengthy investigation. I am concerned about this. The Central Bank is a very substantial institution. It literally prints money. It is in a position to finance its investigations to the extent it wishes. I note the text of the legislation says it is entitled even to give up an investigation where it considers it would be a waste of resources to proceed any further. What about the individual at the receiving end of that investigation? This person gets nothing, no assistance, and is left bereft. I am not suggesting a complex system of legal aid. Just in case anybody thinks this is a barrister's view of the world, I am not suggesting that all of the costs of everything must be underwritten in full. I do suggest in the second amendment that, where the interests of justice so require, and this is part of the Zalewski framework, if I may use that phrase, the Central Bank, in addition to hiring its own lawyers and retaining its own advocates, which it is entitled to do, should ensure it provides legal assistance to enable such a person to participate fully and fairly and be represented in any such proceedings. Many people have directors' insurance which may or may not cover them in this way or that. For many people, their employer the bank will actually finance them in defending it, but the scenario we are discussing is a situation where the bank is entirely separate, may no longer exist, or could be hostile, and the individual is left by him or herself to fend off a charge of personal culpability. In circumstances where the man or the woman on the receiving end of an investigation is in her his or her 40s, a prohibition order will destroy his or her career completely. I am aware all of these things have to be confirmed, but it is a bit too late to say a person can go to the High Court and pause confirmation when the whole process was one where the person was under-resourced in defending the proceeding in the first place or in getting access to relevant information.

These two amendments are about ensuring the Central Bank's role when deploying these very far-reaching powers against an individual.The Central Bank must balance its own plenitude of resources in terms of knowledge, information, documentation and the rest, to assist the person at the other end of the procedure for whom such documentation, information, support from former colleagues may no longer be available. They may no longer be known to the person. The files, documents, board decisions and procedural manuals may no longer be available to that person. Whose duty will it be to make that material available to somebody who is going to be subject of personal sanctions and prohibitions? I say that it has to be the Central Bank's. One cannot put a car thief on trial before a jury without making full disclosure before him or her. By the way, if such people do not have the resources to defend themselves, one cannot put them on trial at all. The Department of Public Prosecutions, DPP, has to provide legal aid. However, while the Central Bank cannot imprison people, it has massive powers in respect of ending a person's career and imposing sanctions on them. This arises from a process in which they are left naked as regards assistance.

In crafting amendment No. 2, its second subsection says that, "in complying with its duties under subsection (1), the Central Bank [can] take into account any assistance otherwise available to that person.” The duties under subsection (1) are to make sure the person has access to legal assistance to permit them to participate fully and fairly in the proceedings. If AIB is financing one of its senior managers, the Central Bank should be in a position to say that AIB can pick up the tab. It is not at any disadvantage. I am concerned, however, about somebody who is left completely marooned. That may be somebody for whom there will be relatively little sympathy, because the Central Bank will be saying it is acting in the interest of the customer. It will be the good guy wearing the white hat in all of this, and the other person is the one against whom these charges are brought. Public sympathy will rarely be with the bank official. This is especially the case with a former bank official who has moved on to a different job in the financial services area, who may or may not have resources. Such people may or may not have €50,000 or €100,000 to spend on lawyers to put together their side of the argument. Telling them they can go the High Court at the very end of the process and have their lawyer there, does not speak to what happened beforehand. It does not speak to how they got to the High Court in the first place. That is the point I am making. I notice that, for instance, this Bill in a later section is going to abolish the right of judicial review in respect of the investigation of breaches of duty. If one is going to knock it out at that stage and tell someone he or she cannot go to the court on a preliminary basis but must wait until the whole procedure is more or less over, that underlines even more the need for some protections to be built in at first instance.

This is not a question of me weeping for misbehaving officers of banks who have abused their positions as holders of office with controlled functions and who are being caught up with and made amenable for the damage they have caused. That is not what I am talking about. I am talking about protecting people who may be very vulnerable and against whom life-changing sanctions, in terms of prohibition and administrative sanctions, may be imposed. It is about ensuring the Central Bank complies with what I consider to be basic duties. I think they are implied by the Zalewski case, which is not the easiest case to follow because they are so many judgments. You could ask somebody who knew about the Zalewski case, a law student for example, to say whether it is the case that the Supreme Court has stated it is okay for non-courts to impose sanctions and make life-changing orders, which might otherwise be seen as the administration of justice, in specialised tribunals. However, the corollary to that is there must be fair procedure guaranteed to the person on the receiving end at every point of this alternative process. That is what these two amendments are about.

I will make one other point. I chaired the group, which came up with the report for the reconstitution of the Central Bank and the Financial Services Regulatory Authority. Our report was not implemented in the end because the Central Bank and the Department of Finance preferred a different model. The Central Bank at that stage was insisting to my group that its biggest worry in the world was not so much defending customers from excessive interest charges and the like; its fundamental duty was the solvency of the entire Irish banking system. This was in the late 1990s. It was true, but where was the risk to our banking system? Everything looked hunky dory at that stage. I remember asking one Central Bank witness what happened to internal audit reports in banks. The Central Bank person told me they were confidential to the bank. I asked them if that meant they did not see what an internal audit has discovered about the way in which interest is being charged or mischarged to customers. They told me, "no, that is confidential." They came back about three weeks later with a different witness. This witness was handed a script by the Central Bank to say that in more recent times, it has required banks to give it access to their audit reports. I asked the witness whether this had happened since I raised it, three or four weeks previously. A blushed face answered it had. I go back to the point in 2007 when the Central Bank stated in its annual report that it had stress-tested the major financial institutions in respect of property and they were sound. It then transpired that it had never asked the banks collectively how much had Michael McDowell, the major developer, borrowed from all of them. How much of his assets were cross-pledged to all of them? That never happened at all. I only mention that because when the Central Bank came before an Oireachtas inquiry, it walked away relatively unscathed. It never emerged before that inquiry that it had been warned by senior officials that there was a solvency issue. Those individuals were kept away from the inquiry and a different impression was given to the Oireachtas.

I am asking this question. Would any person in the Central Bank be happy if, years after he or she had left it and was now working in another bank, some body were established, which could haul him or her back to tell that person he or she had breached some notional duty, and was going to be issued a prohibition order against him or her working in another bank? Moreover, would such people be happy were that body to tell them it was going to impose a sanction on them of up to €1 million because of the errors and breaches of duty for which they were responsible? Nobody in the Central Bank would consider that reasonable, without at least giving him or her the right to have full disclosure or some legal assistance.They might be sitting wherever they live, perhaps in a semi-detached house in Dundrum, and a letter might come through the door stating an inquiry is starting. They might say they do not have the resources to defend themselves, that they do not have access to the relevant papers or any of those things, that they want some assistance and that the Central Bank has plenty of money. I was looking at an infographic it published recently detailing how it finances itself, and it is very well resourced, to put it mildly, although I do not dispute its entitlement to be well resourced given that should be the case. Nevertheless, there has to be some equality of treatment for people who are on the wrong end of its suspicion and who are subject to inquiries and sanctions. It is in that spirit that I moved the amendment.