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Dáil Éireann debate -
Wednesday, 1 Apr 2015

Vol. 873 No. 2

Other Questions

Petrol Stretching

Denis Naughten

Question:

6. Deputy Denis Naughten asked the Minister for Finance further to the meeting between Teachtaí Dála, the Minister of State and senior officials, the progress, to date, on investigations into petrol stretching; and if he will make a statement on the matter. [12950/15]

It has come to my attention that only about a third of the reports of petrol stretching that have been given to An Garda Síochána have been recorded by the Revenue Commissioners. Even though I have highlighted this discrepancy before, nothing seems to have happened. It raises the question of the priority the Revenue Commissioners are giving to the issue of petrol stretching, in light of the devastating impact it is having on families and individuals who have had their vehicles destroyed.

I am advised by the Revenue Commissioners, who are responsible for tackling fuel fraud, that they are very aware of the risks posed to consumers' vehicles, legitimate businesses and the Exchequer by all forms of fuel fraud. The Revenue Commissioners have, since last summer, received reports from a variety of locations around the country of problems relating to petrol quality, and suggestions that these problems are attributable to petrol stretching. Petrol stretching involves the illegal addition of a low-tax commodity to petrol, and the motive of the criminals who engage in this activity is to profit from the sale of adulterated petrol, thereby defrauding motorists and the State.

The Revenue Commissioners have received 141 complaints to date, the majority of which originated in its Border, midlands and west region. Every filling station about which a complaint was made has been visited by Revenue Commissioners enforcement officers and fuel samples taken from them have been sent for analysis to the State Laboratory. In total, 345 samples of petrol from filling stations and other sources have been referred to the State Laboratory. The scientific analysis required is complex and time-consuming, and the State Laboratory has conducted an extensive series of tests and re-tests on the samples. Despite this extensive testing, evidence of the presence of prohibited stretching agents has been found in only two samples, both from one location. The conclusive results received from those tests have resulted in the seizure of the product, and files are being prepared with a view to prosecution.

Following a series of further tests conducted by the State Laboratory, results were received which indicate the presence of traces of road diesel in several samples taken from a variety of locations. This could indicate that petrol was contaminated with road diesel at some point in time. There is no rational economic reason or fraudulent incentive for anyone to mix normal road diesel with petrol. If the problems that have come to light were caused by unintended contamination as a result of diesel being inadvertently mixed with petrol at some point along the supply chain, there would be no Revenue offence involved. However, the Revenue Commissioners are investigating vigorously the possibility of tax fraud being associated with the identified problems. In any instances where the analysis of samples by the State Laboratory indicates the presence of illegal stretching agents in petrol, Revenue will take swift and robust action and pursue prosecutions against alleged offenders where possible. They have been working closely with An Garda Síochána on this matter, and will continue to do so.

The fundamental problem here is that because there does not seem to be a loss to the Exchequer, it is not really an issue for the Revenue Commissioners. In my constituency and the adjoining counties we have families that have had two cars destroyed. In some cases, the replacement car has also been destroyed by this practice. Something serious went on here. The Minister has said 141 cases have been reported to the Revenue Commissioners. Close to 400 cases have been reported to An Garda Síochána, and we were advised by the Revenue Commissioners that if the information was given to the Garda it would then be passed on to the Revenue Commissioners. How can Revenue get to the source of the problem when up to two thirds of the reports that have been made have not actually been investigated by it? Will it not make it far more difficult to identify the source of the problem?

Even though there may not be a loss to the Exchequer, will the Revenue Commissioners act in the interests of the motorists who had their vehicles damaged and try and source where this fuel came from in the first place, whether it is diesel or some other contaminant?

We must distinguish between what may have occurred as a result of negligence and what may have occurred as a result of fraud. In the test carried out by the Revenue Commissioners in the State Laboratory, 345 samples were tested.

Only in two samples is there clear evidence of petrol stretching as defined. There is no economic point or any economic advantage in mixing diesel with petrol, yet in many of the samples the petrol is contaminated by diesel. That is not petrol stretching. Something happened in the supply chain which caused the adulteration or the contamination, but there is no profit margin or motive in that. Revenue are examining to see if there is some kind of connection with tax, but it is not quite clear that there is a connection.

There is no doubt that something happened and that damage was caused to many individuals' cars, but there is no evidence that there was widespread petrol stretching as defined. There was widespread contamination of petrol, but with diesel and not with a low-excise product to allow profit.

I accept what the Minister says. The fundamental problem, however, is that because the Minister believes there is no fraud involved, it is not an issue for the Revenue Commissioners.

I never said that.

The difficulty is that, at the very minimum, negligence is involved. Vehicles have been damaged. Families have been decimated economically by this action. The culprits need to be identified. If it is negligence, the car owners are covered by insurance and the insurance companies should kick in here. However, if the Revenue Commissioners have only received one third of the reports that have been presented to the Garda Síochána, how can they identify the source of this?

I ask the Minister for an assurance that the Revenue Commissioners will do everything possible to identify the source of the contamination, whether caused by negligence or fraud. If the information cannot be used for a criminal prosecution, this information should be made available for a civil prosecution.

Why are there two completely different standards for the recording of the deliveries of petrol fuel and diesel fuel? If these recording systems were similar, it would have been much easier to identify the source of the problem and ensure people were adequately compensated.

I do not have the data to which the Deputy refers. It is news to me that complaints have been made to the Garda Síochána about petrol stretching which have not been passed on to Revenue.

I have raised it previously in the House.

The Deputy has raised it, but if he has a file on it, he might provide it and we will give it to the Revenue Commissioners.

We will let the Revenue Commissioners investigate, if there is a way to do so. One of the central points in my reply to the Deputy's question is that if there is no fraud or if there is no intention of fraud, it is outside the legal powers of the Revenue Commissioners. They pursue fraud and criminal offences. If there is no evidence of a criminal offence and if it looks as if there was contamination of a petrol supply by the addition of diesel, where there is no obvious profit motive, that is a different issue and it is not for Revenue-----

Revenue cannot wash its hands of it. Everyone is turning their backs.

It is not for Revenue to sort it.

Banking Sector Regulation

Michael McGrath

Question:

7. Deputy Michael McGrath asked the Minister for Finance when he, in his capacity as Minister for Finance or as a member of the Economic Management Council, last met the State supported banks for an exchange of views on issues affecting the economy, including mortgage arrears, variable interest rates and lending to small and medium enterprises; and if he will make a statement on the matter. [13054/15]

The purpose of this question is to ascertain the level of engagement of the Minister for Finance with the banks, in particular with the banks in which the State is a shareholder. We own a number of the banks. We have a minority shareholding in Bank of Ireland. The Minister is a member of the Economic Management Council and it is appropriate that he would engage with the banks regularly on key issues of concern in the economy such as interest rates, mortgage arrears and lending to the SME sector.

I can confirm that I last met the CEOs and senior management of the each of the banks last July when we discussed, among other matters, the issues included in the Deputy's question. I also met the CEO of Permanent TSB in the past month. In addition to my own meetings with the banks, officials in my Department meet senior management of each of the banks each month at least. The agendas for these meetings are wide-ranging and typically include updates on mortgage arrears, lending volumes across all portfolios, product pricing and profitability. My officials keep me briefed on these developments.

On the specific question of mortgage arrears, the banks' arrears management teams provide updates on current trends and initiatives being taken by the banks to assist customers in financial difficulty and the distressed credit environment in general. In the case of SMEs, AIB and Bank of Ireland submit their lending plans to the Department and the Credit Review Office at the beginning of each year. The banks also meet the Department and the Credit Review Office every quarter to discuss progress. The Credit Review Office is also available to review cases where credit facilities up to €3 million are refused, withdrawn or offered on unreasonable conditions. There are more than €2 billion of State supports available in the SME and farming sector, including large supports from Enterprise Ireland and the Irish Strategic Investment Fund.

On the topic of variable interest rates, the Deputy may be aware that this was subject to lengthy discussions with the banks' CEOs at the most recent meetings of the Joint Committee on Finance, Public Expenditure and Reform. At those meetings the banks pointed out that in comparing the standard variable rate mortgage margin of Irish banks with other jurisdictions, it is important to understand that the difference reflects many factors and loss experience, in particular, which determines the capital that must be held against these loans. In recent years this has obviously been very different for Irish banks compared with their counterparts in other European countries. Funding models also differ between Ireland and other countries. They pointed out the shortcomings of comparing mortgage rates against short-term ECB funding rates, given the significant liquidity risk which is a feature of mortgages that typically have a 20-year term.

I respect the fact the Minister does not run the day-to-day business of the banks and that there is a relationship framework in place to provide for that separation. I would expect, however, the Minister and other members of the Government to have regular and ongoing engagement with the banks, in particular the State-supported banks, on the key issues of concern to the people and the economy, such as interest rates, the handling of mortgage arrears and the issue of lending to the SME sector.

The Economic Management Council last met the banks in June 2012, almost three years ago at this stage. At that time there was a detailed discussion on mortgage arrears. The Minister has stated he met the CEOs of the banks in July last year. This level of engagement is not sufficient. It is helpful and to be welcomed that the Minister's officials regularly meet the senior management of the banks. When the CEOs of the banks are contacted, however, and a meeting is requested by the Minister or with the Economic Management Council - we have many issues with that council but it exists and it might as well use its powers and influence - there has not been any meeting with the banks since June 2012, and I find that extraordinary. There is a need to step up engagement with the banks on those key issues, while respecting that a relationship framework is in place which separates the Minister from the day-to-day management of those banks.

There is a relationship framework in place, the details of which the Deputy is fully aware of. My officials meet the banks every month. They are sometimes in daily contact with them on specific issues. Otherwise it is weekly contact. I work with my officials who brief me and I give them my view. I transmit views to the banks through my officials. There is merit in doing it on a hands-off basis because it would not be appropriate for very frequent meetings between the political side and the commercial side. It gives rise to the suspicion that there is political interference in commercial decisions. I favour a hands-off approach but I favour a full flow of information. That is the way it is organised in my Department.

The banks do not report to the Economic Management Council. That was one specific occasion when one specific set of issues needed to be discussed at a very high level in Government. The Department of Finance is the interface with the banks because we are the shareholders. I am the shareholder in the banks. There is constant and regular contact with officials who report to me in detail, both verbally and in writing.

To an extent there is also merit in a hands-on approach. If there is a lack of direct engagement by senior people in the Government, this sends a signal to the banks that the Government endorses their approach and is satisfied with what they are doing in respect of mortgage arrears, interest rates and their role in lending to the economy.

The Minister was far from hands-off when it came to meeting people from private equity funds or so-called vulture funds. He met them eight times in 2013 and 2014; personnel from the Department met them 65 times. In contrast, there were five meetings with advocacy groups for those in mortgage arrears and the Minister attended none of them. The Minister can be quite hands-on when he wants to be in dealing with vulture funds but he certainly has not been hands-on in using his very significant influence with the banks on the issues of concern to the Irish people.

Those are just accusations of a personal nature. When the Deputy cannot make any ground in a logical argument, it is an attempt to introduce some kind of smear.

It is not. Those are facts.

I meet the appropriate people. There is nobody at any senior level in any of the banks who does not know that what is being done is being monitored very closely by the Department of Finance and me.

Tax Code

Lucinda Creighton

Question:

8. Deputy Lucinda Creighton asked the Minister for Finance his views on his recent visit to the United States of America; if he will provide details of the companies he met with and an update in relation to any discussions he had pertaining to the knowledge box tax incentive scheme, which is to replace the double Irish scheme following the ongoing consultation process; and if he will make a statement on the matter. [12946/15]

My question relates to the Minister's recent trip to the United States and is to get an account of which companies the Minister met. Will he update the House on any discussions he has had on the so-called knowledge box tax incentive, which is proposed and which I understand is currently out for consultation for a period?

In the 2015 budget, I introduced the new document, A Road Map for Ireland's Tax Competitiveness, to update the objectives set out in the 2013 international tax strategy and to set out a clear path for this country's tax competitiveness into the future. The roadmap set out a comprehensive package of measures designed to reposition Ireland to reap the benefits of sustainable foreign direct investment in a changing international tax landscape.

The knowledge development box, KDB, which the Deputy has asked about, was one of the measures announced in the roadmap. The knowledge development box is not intended to be a replacement for the so-called "double Irish", which was never part of the Irish tax offering, and it was just one example of the many international tax planning arrangements designed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries. However, the reality is that the "double Irish" was damaging Ireland's reputation. For that reason, I introduced a change to Ireland's corporate tax residence rules in budget 2015. I view the knowledge development box as a potentially positive measure for Ireland. It is recognised internationally that investment and growth in OECD economies is increasingly driven by knowledge-based investment, which is related to research and development and intellectual property. Putting in place an attractive tax offering for developing and commercially exploiting intellectual property is therefore important to encourage companies to develop their knowledge-based capital in Ireland and for our continued success in attracting foreign direct investment to Ireland.

A public consultation to gather views on how the knowledge development box should operate was launched on 14 January and will remain open until 8 April. The consultation paper invites submissions from interested parties on their views of how the knowledge development box should be designed to ensure it meets the key objective of being the most competitive in class, within the agreed international parameters for fair tax competition in this area. As is the case with all public consultations that have been undertaken by my Department on corporation tax, input is welcomed from all sections of society and I encourage all interested parties to have an input to this process.

With regard to my recent visit to the US, I met people from a number of major multinational companies, representative bodies and tax advisers with the chief executive of IDA Ireland, Mr. Martin Shanahan, to update them on Ireland's international tax strategy. The feedback from investors on the medium-term corporation tax strategy, which is set out in the roadmap document, was very positive.

It would be interesting for the House to know the companies in question. In terms of the development of proposals for the knowledge development box, has the Minister come to a conclusion on the rate or how it will be structured? Does the Minister have a clear vision for that? Has there been much opposition expressed from interested parties through the consultation process? Has the Minister given much consideration to tailoring it for the benefit of indigenous Irish companies as well? We are well aware of the context, which is a changing international tax environment, and specifically continued inward investment, which we all wish to see from foreign direct investment companies. There is a major opportunity for domestic companies to avail of it as well.

Over a number of years, a number of European countries have had patent boxes, which were designed so that intellectual property would be attracted to the countries that had such patent boxes. Patent boxes became controversial and there were discussions within Europe and driven by the OECD to abolish patent boxes completely. Two years ago, I would have said that I did not foresee these being replaced by anything else. Opinion in the OECD and within Europe has come to a point where the specific encouragement of research and development through something analogous to patent boxes is deemed to be appropriate in the tax portfolios of countries. Quite restrictive definitions are being developed. Talks are ongoing at OECD and European level but we now know that the principle of patent or knowledge boxes has been accepted and the parameters are being negotiated actively. I have not decided on the appropriate rate and any innovation we introduce will apply to indigenous companies as well as foreign direct investment companies.

Any tax measures will apply but my question is whether there is a strategy in the Minister's mind or in the minds of his officials as to how that can be tailored to incentivise the uptake by indigenous Irish companies. Will there be specific tailoring of the knowledge development box for the benefit of particular domestic industries and sectors etc.?

We are open to submissions from interested parties and there is a consultative process. Currently, I do not see a need to distinguish between indigenous and inward-investment companies. If the incentives are available through the tax system for research and development, they should apply equally. I cannot see what added advantage could be designed for indigenous companies.

As Deputy Paul Murphy is not present, Question No. 9 cannot be taken in the Chamber.

Question No. 9 replied to with Written Answers.

Mortgage Arrears Proposals

Mick Wallace

Question:

10. Deputy Mick Wallace asked the Minister for Finance if there are limits to the powers of local branches of banks in negotiating and seeking a resolution for borrowers who are in mortgage arrears; and if he will make a statement on the matter. [13120/15]

I have listened to much debate on the different aspects of mortgage problems this morning. As it stands, matters relating to mortgage arrears and negotiations are governed by the Central Bank's code of conduct on mortgage arrears. These are weighted overwhelmingly in favour of the lender and removing local branches from the decision-making process further weighs against the borrower and makes it a bit more difficult. It does not do much for the borrower getting a fair deal.

Borrower engagement with a bank, including the local branch, is very important in dealing with mortgage arrears. I am informed by the Central Bank that under the code of conduct on mortgage arrears, CCMA, lenders must establish a centralised, dedicated and adequately staffed arrears support unit, ASU, to manage cases under the mortgage arrears resolution process. It is the responsibility of the lender's arrears support unit to carry out certain functions under the code of conduct on mortgage arrears. For example, the lender must pass the completed standard financial statement to its arrears support unit immediately on receipt and provide a copy of the standard financial statement to the borrower; a completed standard financial statement must be assessed in a timely manner by the lender's arrears support unit; a lender's arrears support unit must formally review the borrower's case, including the standard financial statement, immediately where a borrower ceases to adhere to the terms of an alternative repayment arrangement; and a lender must allow the borrower a reasonable period of time to consider submitting an appeal to the appeals board, which must be at least 20 business days from the date of notification of the decision of the lender's arrears support unit.

The code of conduct on mortgage arrears also requires that each branch or office in the case of a lender who does not operate a branch network must have at least one person with specific responsibility for dealing with arrears and pre-arrears cases and for liaising with the lender's dedicated arrears support unit in respect of these cases. Therefore, while the code of conduct on mortgage arrears requires that a lender's arrears support unit, as opposed to the branch, is charged with managing cases under the mortgage arrears resolution process, the code of conduct on mortgage arrears does not preclude a borrower from liaising with the lender's arrears support unit through the branch staff member with specific responsibility for dealing with arrears and pre-arrears cases and for liaising with the lender's dedicated arrears support unit in respect of these cases.

While I realise the Government has introduced initiatives which should help borrowers in their negotiations with lenders, the reality is a little more difficult for the lender. Sadly, despite the initiatives the Minister has introduced, there is very weak compellability on the lender to treat the borrower in a fashion that is 100% fair. I have found the banks inconsistent in their approach to distressed loans, commercial or private and, unfortunately, this is leading to repossessions. If a borrower wants to have the mortgage-to-rent scheme applied to his or her situation but the lender is against it, the borrower will find it impossible to make it happen, no matter how much he or she argues for it. While the Minister referred to the appeal process, given that the lender is not obliged even to inform the borrower of its decision making process, it is very difficult to appeal a decision.

The arrears support unit, ASU, in accordance with the code of conduct on mortgage arrears, CCMA, has responsibility to assess a borrower's standard financial statement, SFS, and recommend the most appropriate course of action to eliminate mortgage arrears over time. The CCMA requires each branch to have at least one person with specific responsibility for dealing with arrears and pre-arrears cases and liaising with the lender's ASU. Borrowers may use this channel to seek assistance, for example, completing the SFS or dealing with any queries that may arise. There is a specific role for a designated branch member within the overall rules. Borrowers should insist on going that way if it suits them best.

While I am aware of that, would the Minister not agree that it worked much better when banking was less centralised, local managers knew the clients with whom they were dealing and it was much easier to build a relationship? It is very difficult for somebody from the country to get a fair deal when dealing with a centralised authority in Dublin. When properties were further underwater, there was more interest on the part of the banks in considering solutions such as mortgage-to-rent, parking part of the mortgage and taking the borrower's capacity on board. Since asset values have recovered, there has been less appetite on the part of the banks to engage in these solutions, the goal posts have been moved and the banks are becoming more aggressive. While the Minister cannot control them completely, he has the potential to put manners on them in this area.

We are continuing to review the position, and we review it on an ongoing basis. The essential element of restructuring is agreement between the two sides. If there is no agreement, there can be no restructuring. There is a menu of arrangements available, not all of which are working as well as others. The enormity of the problem was such that it could not have been resolved at local level. Because of the scale of the problem, it had to be centralised. General rules had to apply and it had to be centralised to make progress. As I said earlier, 115,000 mortgages have been restructured. The local contact is built into the procedure and a person must be designated in each branch to deal with mortgage arrears. This point of contact is still available at a local level and it should be used by the kinds of people the Deputy has described.

Protected Disclosures in the Public Interest

Pearse Doherty

Question:

11. Deputy Pearse Doherty asked the Minister for Finance if he is aware that many of the whistleblowers at Provident Personal Credit Limited have had their contacts terminated; and if he will raise the issue with the Central Bank of Ireland, which found against Provident in December 2014. [13101/15]

I copied the Minister on a letter which Deputy Mac Lochlainn and I sent to the enforcement section of the Central Bank. In the letter, we summarised how, in December 2014, after receiving information from whistleblowers via us, the Central Bank fined Provident Personal Credit €105,000 "in respect of consumer protection failures relating to money lending loans". The charges against Provident were very serious: it was preying on very vulnerable people. I wrote to the enforcement section of the Central Bank because Provident has terminated the contracts of all five of the whistleblowers who sent the information to me and thence to the Central Bank. What does the Minister intend to do? This sends a very bad signal to whistleblowers in financial services. Does the Minister propose to take any action? Does he propose to engage with the Central Bank or the licensed moneylender?

As the Deputy will appreciate, it would be inappropriate for me, as Minister for Finance, to comment on actions taken by any company in relation to specific employees. While I cannot provide legal advice on possible courses of action available to individuals who consider that they have been unfairly dismissed, I would advise such individuals to seek appropriate legal advice.

I am aware that the Central Bank fined Provident Personal Credit Limited €105,000 and reprimanded it for breaches of legislation relating to certain moneylending practices late last year. In its announcement of the settlement, the Central Bank made it clear that, where licensed moneylenders fail to ensure full compliance with their legal obligations, they should expect vigorous investigation and follow up by the Central Bank, and for the Central Bank to exercise its sanctioning powers where appropriate. I have been informed by the Central Bank that it cannot discuss specific regulated financial service providers and I am not aware of the full details of the issue to which the Deputy refers. I understand that the Central Bank would welcome any information anyone wishes to provide regarding concerns they may have about firms it regulates. All such information received is reviewed and considered as part of the Central Bank's ongoing regulation of financial service providers.

Part 5 of the Central Bank (Supervision and Enforcement) Act 2013 provides protections for individuals who make "protected disclosures" to the Central Bank. These protections are separate from the protections which apply by virtue of the Protected Disclosures Act 2014. It is a matter for the Central Bank to ensure it uses its powers to ensure that individuals are protected and that it can continue to receive such disclosures. I am aware that the Deputy has raised the matter directly with the Central Bank and I trust that he will be satisfied that the bank ensures that the provisions of the Central Bank (Supervision and Enforcement) Act 2013 are used in a manner which ensures that employees are not penalised for reporting wrongdoing. The Protected Disclosures Act 2014 is a matter for my colleague the Minister for Public Expenditure and Reform, Deputy Howlin.

I welcome all of that. Five employees of Provident came to me and Deputy Mac Lochlainn and gave us detailed documentation of irregularities in the company, which we passed on to the Central Bank. The Central Bank carried out an investigation, found Provident guilty of the charges that had been levelled and fined it €105,000. However, Provident terminated the contracts of all five employees, and this sends out a terrible signal to whistleblowers in financial services. We need something stronger from the Minister. It is unacceptable that whistleblowers who are in employment, provide documentation to the Central Bank and whose allegations are proven correct have their contracts terminated. I would like to hear more from the Minister about what he intends to so, not just citing the existing legislation and the responsibilities of the Central Bank.

Does he intend to raise this with the Central Bank and to ask it to investigate if the termination of the contracts of these five whistleblowers was connected with the fact that they blew the whistle on the company in the first place or does he just intend to stand by and allow the bank to deal with it itself?

I will bring the Deputy's concerns to the attention of the Governor of the Central Bank.

I thank the Minister.

Written Answers follow Adjournment.
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