I circulated a list of groupings of amendments. Amendments Nos. 118, 119 and 120 are consequential on amendment No. 108 and may be discussed together.
Companies (No. 2) Bill, 1987: Committee Stage (Resumed).
SECTION 90.
A Chathaoirligh, since I will be proposing that Part V of the Bill be significantly amended today, I wonder if I might be allowed to make a brief statement at this point by way of general introduction to Part V of the Bill.
Certainly.
As Senators will be aware, the thrust of Part V of the Bill, as it currently stands, is to make it "unlawful" for an individual who has inside information in relation to a public limited company to deal in the securities of that company. Part V also currently provides civil remedies to persons who can show that they have suffered loss as a result of such unlawful dealing.
It might be no harm if I repeated briefly here the main reasons why this "civil" route was chosen. In the first place, having looked at the experience in other countries which have legislated on this problem, there appear to have been significant problems in enforcing more elaborate systems of control. Secondly, we were rather dismayed at the scale of State resources which might be required if the State were to have a central role in tackling the abuse concerned.
However, while we explained these difficulties here on Second Stage, our concentration on the "civil" approach in the Bill has been almost universally criticised as not going far enough on Second Stage here as well as by most outside observers. To put it simply, most commentators want the Bill to provide, at least, that insider dealing be made a criminal offence.
We listened carefully to what was being said on this, and undertook to bring forward amendments on this Stage to strengthen this aspect of the Bill. We have put a lot of thought into the problem in the meantime and we are now proposing a series of amendments which we are confident will greatly improve the effectiveness of Part V.
It may be for the benefit of the House if I were to say a word about the general thrust of the amendments we are proposing. First, we are now proposing to make "unlawful dealing", in other words, insider dealing, a criminal offence carrying heavy penalties. Secondly, recognising the expertise that already exists in the Stock Exchange itself in this area, we propose to create a kind of "enforcement role" for the Stock Exchange, with backup powers of investigation for the Stock Exchange authorities.
Thirdly, where a person is convicted of unlawful dealing, he will be prohibited from any further Stock Exchange dealings for the next 12 months. Finally, we propose to create a new duty on those who are involved in share dealing as intermediaries not to deal on behalf of a client if they have reasonable cause to believe, or ought to conclude, that the deal involved would be unlawful.
We can discuss the finer points of each of these amendments as we come to them but I thought I should take this opportunity to announce the decision to criminalise insider trading and to point to the very heavy penalties which we are proposing in the amendments, up to ten years imprisonment or a maximum fine of £200,000 on indictment. Hopefully, they will meet with the agreement of Seanad Éireann.
This is a 189 section Bill. It is a very complicated legislation. I have taken the view, since I started this Committee Stage, and I will continue to take it today, that any assistance which Senators can give in regard to the honing of this Bill to make it good legislation will be listened to very carefully. We want to get balanced legislation which, on the one hand, roots out obvious abuses which have been going on for too long in the companies area and which brings our legislation up to date and, on the other hand, makes sure that we do not damage a spirit of enterprise and a spirit of business activity and that we do not send out a message that Ireland is not a place in which to do good business. I want to achieve that balance in this Bill. I look forward to the help and support of Senators in doing that.
Before I call on Senator Bulbulia, the Senator can discuss the points the Minister raised with the amendments.
I wanted to respond to the Minister's statement at the outset and to say how very much I welcome what he has had to say. When I made my Second Stage speech I felt — and I think most speakers on both sides of the House felt — that it should not be a civil offence but that it should be a criminal offence. People were generally of the view that the Bill, as originally presented, did not go far enough. It is very open and broad-minded and it certainly shows that having heard expressed in the debate the Minister had this change of mind. It will strengthen the legislation and it will provide the checks which are necessary when this kind of abuse occurs.
I welcome that kind of response to carefully argued points in the course of debate. I would like to think that it will be an ongoing feature, not only in this legislation but in other areas and that, when carefully thought out good proposals are brought forward by the Opposition, the Government will respond to them with that tolerance, broad-mindedness and openness of approach which can only better legislation and the whole of Irish society.
Like Senator Bulbulia, I would like to welcome the statement made by the Minister in relation to insider dealings. We have seen, over the past number of years, how insider dealings have damaged the credibility of major companies, one of which is a major employer here. The loss of credibility in that company, because of insider dealings, has hurt the Irish economy.
I would like to ask one question. The Minister said that where a person is convicted of unlawful dealing, he will be prohibited from any further Stock Exchange dealings for the next 12 months. Is the Minister speaking in terms of dealings as a dealer, or is he suggesting that he should be totally and deliberately stopped from buying or selling shares? I would go along with the Minister's statement if he is suggesting that, if a person is involved in insider dealing, he should not be allowed to take any part in Stock Exchange dealings. The word "dealing" apparently has connotations. I wonder what is the actual impetus here.
I am not putting a clamp on Senator Lanigan but I am on the amendments to section 90 of this Bill. Could we take the amendments?
A Chathaoirligh, I did not put forward those amendments yet. With your kind permission I made a general statement announcing the Government's decision to make these major changes. If you wish I can put those forward now.
No. We will give Senator Ross the same chance.
I want to respond to the Minister's statement. It is one of the most welcome things I have heard in this House for a very long time. It is obviously a non-political and sensible response not to party political points but to points made by interested organisations and genuine people who have no interest in politics. It is very mature and very sensible of the Government to take these suggestions on board and to amend the Bill.
I would like to ask the Minister as a general point: while the amendments are very welcome in detail—I welcome the fact that two out of three are the ones I put down on criminalising insider dealing and they have really been taken on board by the Government—will he consider very seriously accepting amendments on Report Stage because we only got these amendments yesterday? It is very short notice on a complicated Bill of this sort for us to learn exactly what the Government's intentions are. Some of us have put down a few amendments but we have really been waiting for the Government amendments before putting more down. Will the Minister seriously consider taking on board on Report Stage issues which have not been touched such as off-shore dealings and the prevention of insider dealings because of the short notice?
Perhaps we can discuss Senator Lanigan's point better on the section. It applies to both the principal and the agent. It would not make sense to tackle one without the other. I took very serious note of Senator Ross's amendments which I will debate when we get to them. Every part of this Bill will certainly be open to amendment very much on Report Stage, right up to the line because I want to get this Bill right.
Amendments Nos. 118, 119 and 120 are consequential on amendment No. 108 and may be discussed together.
Government amendment No. 108:
In page 79, line 25, to delete paragraph (a), and substitute the following paragraph——
"(a) a director, secretary or employee;".
Section 90 contains a number of definitions for the purposes of Part V of the Bill. The background to this first amendment is a little complicated but the basis for it is that we think the definition of "officer" in the Bill is incomplete and, therefore, defective. The defect, as we see it, arises mainly from the wording of subsection (6) of section 91. That subsection provides, in effect, that a company must not deal in giving securities if any of their officers or themselves are precluded for dealing on the basis that they have inside information. The problem with this is that the definition of "officer" in section 90 does not take account of people who, while they might not actually be directors, would nevertheless be privy to inside information and be in a position to take advantage of that information. For example, in the case of most investment institutions, such as banks, the person making the dealing decisions is not actually an officer at all but is a dealer who would normally be described as an ordinary employee.
The prohibition in subsection (6) would not prevent the company dealing through its dealer employees rather than its officers. This would obviously create an undesireable loophole. The same reasoning applies to the exemptions to section 91 which currently appear in subsections (7) and (8) of section 91 and where the word "officer" also has this narrow meaning at present. We propose, therefore, that the word "officer" in section 90 should simply be redefined now to include employees for the general purposes of Part V. This would remove what would be a rather unfortunate loophole in the Bill and is the basis for the first amendment, No. 108.
There are consequential amendments to section 91. Amendments Nos. 118, 119 and 120 are consequential to this. These amendments relate to subsection (10) of section 91. In that subsection, as it currently appears, the expression used is "officer or employee". However if we amend the definition of "officer" in section 90 to include "employees" as proposed in amendment No. 108, we will then have to delete the words ‘or employee' from section 91 (10). That is what related amendments Nos. 118, 119 and 120 are seeking to do here.
Amendment agreed to.
Amendments Nos. 109, 110, 122 and 129 are related and may be discussed together. We are on amendment No. 109 to section 90.
Government amendment No. 109:
In page 79, between lines 37 and 38, to insert the following:
"‘recognised stock exchange' includes, in particular, any exchange prescribed by the Minister which provides facilities for the buying and selling of rights or obligations to acquire stock;".
I would like to say of this group of related amendments, which generally set up the Stock Exchange supervision procedure, that amendments Nos. 122 and 129 are by far the most significant since each of these would add a new section to the end of Part V. Amendment No. 109 is related to amendment No. 129, while amendment No. 110 is strictly consequential and therefore minor in nature. Together with the separate amendment making insider dealing a criminal offence and which we will be discussing later, amendment No. 129 represents the real core of my proposed new approach to tackling the abuse of insider dealing.
The proposed new section 98 recognises that the Stock Exchange already carries out extensive surveillance of share price movements and market dealings generally. Section 98 will, in effect, build on this surveillance by requiring the Stock Exchange to report anything suspicious to the Director of Public Prosecutions and to co-operate with the director in any ensuing prosecution. We are not proposing that the Stock Exchange should be under a continuing duty to monitor actual dealings. On balance this would be an unreasonable imposition on a body which is still essentially a self-regulatory one.
It is entirely reasonable to require the Stock Exchange now to report any suspected offence to the Director of Public Prosecutions. The duty on the exchange to report is to the DPP rather than the Minister. This is mainly because the Minister can only prosecute summarily under the Bill, whereas the DPP can prosecute both summarily and on indictment. Having regard to the level of illicit profits which can accrue from insider dealings, it would seem pointless to prosecute such cases summarily since the maximum fine which can be imposed in such cases is £1,000, whereas the fine which I am now proposing today for conviction on indictment is a maximum of £200,000 which I think Senators will agree is a more realistic approach.
There is a similar duty on liquidators already. Section 299 (2) (iv) of the Companies Act, 1963, imposes a similar obligation on the liquidator of the company to report suspected criminal acts to the DPP. The proposed new section is closely modelled on section 299. Section 142 of the Bill proposes to place the same duty on the receiver of a company. The wording of the proposed amendment provides that the duty imposed by this new section is to be discharged by a "relevant authority". This is defined in subsection (6) as being any management body of a recognised Stock Exchange or the actual manager of the authority. The effect of amendment No. 110 is to put a signpost into section 90 as to where the meaning of this term is actually to be found.
There are other avenues of information I want to comment on. One obvious way the relevant authority of the Stock Exchange would become aware of possible unlawful dealings would be from its on-going surveillance of dealings in the exchange. Complaints could also be made by the public in writing or by telephoning. This could be examined. Subsection (2) provides that members of the Stock Exchange should report suspected cases of unlawful dealings to the relevant authority while subsection (3) enables a court to direct the relevant authority to prepare a report in case the court becomes aware of the possible unlawful dealings through other proceedings which were brought before it. That is something they would find out as a result of an existing case, for example.
One final point I want to raise here is that we are not, in the section, proposing to name the Stock Exchange specifically. This is to take account of the possibility that other exchanges may soon be set up here for example, futures or option exchanges. The expression "recognised stock exchange" which we propose to use here is already defined in section 3 (2) of the Bill as the stock exchange prescribed by the Minister. For the purposes of Part V of the Bill, that expression is further refined by amendment No. 109 which will ensure that such futures exchanges and so on can be covered by this Part of the Bill as they evolve. No doubt they will evolve over time. Following the enactment of the Bill, therefore, the Minister can make a regulation prescribing the Anglesea Street exchange as well as any other exchange which would evolve in the meantime or, indeed, subsequently.
On Senator Ross' amendment No. 122, again this amendment was tabled before I had announced the terms of the major amendments which I propose to make to the Bill. In this connection, Senators may recall that one of the two main reasons the original civil route was proposed was that, from our examination of the problem, we were dismayed at the scale of State resources which might be required if the State were to have a central role in tackling the insider abuse. In my examination of how this Part might be strengthened, I sought ways in which this could be done without involving the State in any significant expense but, at the same time, ensuring that the problem could be effectively tackled. I think the package we have come up with which recognises and builds on the existing surveillance operated by the stock exchange is a viable alternative to involving the State machinery in investigations and in prosecutions. I am confident that, in an Irish context, it is the best and most workable solution we can achieve. However, I would like to thank Senator Ross for the thoughtful amendment which he has put forward and to explain to him that we have gone this route rather than precisely his route, although they are very similar, based on my reluctance to involve the State directly in additional bureaucracy.
I am very glad the Government have taken the view in principle which they have taken. Reading amendment No. 129 from the Government convinces me even further that Senator Ross has a very important point. We need not get into an argument about the precise wording of Senator Ross' amendment. I and the rest of the non share-owning people — at least not directly share-owning; I am sure there is an insurance policy of mine somewhere that is speculating its way through the Stock Exchange, but I have to live with the realities of life as they are — have frequently heard officers and, indeed, various senior officials of the stock Exchange deny categorically that there is any widespread insider dealing going on in the Irish Stock Exchange. On the other hand, I have heard Senator Ross, who normally sits on my left, but who is sitting on my right today for reasons that escape me, say quite frequently in this House that insider dealing is widespread in the Stock Exchange. It appears to me that to leave it to the relevant authorities of a recognised Stock Exchange to say "if it appears to them that any person has committed an offence," it is to leave it to those who have already assured us that it does not appear to them that anybody is committing any serious offence on this issue. Precisely the people who say there is no problem are now being left to regulate the problem that they say does not exist, whereas the best authority I have on the Stock Exchange is sitting here beside me and he assures me that it does exist.
I do not really believe that the competent authority to deal with the problem are those who pretend that the problem does not exist. Therefore, it appears to me that, while self-regulation may be a useful part of the enforcement procedures on an issue like this, it does behove us to allow the Minister, where he believes it necessary to conduct an investigation similar to that proposed to be conducted by the Stock Exchange, where it appears to the Minister that an offence may have been committed, not to impose the entire duty of investigation on the State. It is not reasonable to preclude the Minister from carrying out an investigation with all the same powers that are given to the relevant authority under amendment No. 129. That is the nub of the problem. You cannot really expect the public to believe that the Stock Exchange which denies that insider trading exists is realistically going to take an active part in dealing with the problem that it pretends does not exist.
Secondly, I do not believe in too much self-regulation. None of us are saints, least of all those of us who have power and influence, including the extent to which I have it myself. Therefore, to presume that a small body like the Irish Stock Exchange will operate in an independent, detached, dispassionate fashion in investigating one of its own members is a little bit much to expect. It is absolutely necessary that some form of independent investigation should be possible where the Minister believes it is necessary. Otherwise, we could have the ridiculous position when there is a public outcry about some particular share dealing and yet the relevant authority will say: "No, it does not appear to us that there is any problem". It could well be done in good faith and nothing could be done, and it appears to me that nothing can be done. Therefore, it is necessary in my view that there should be another route to investigate other than via the relevant authority i.e., the Stock Exchange.
Taking up the points raised by Senator Ryan, could the Minister define for me what bad faith means in terms of legal documentation? Bad faith are two words that do not have any relevance for me in legal terms to anything. I would like to know. "Knowingly" has been omitted from the new licensing laws that are coming in. So "bad faith" and "knowingly" are two terms that are difficult for me. I would like to know how the drafters of this amendment can put in "bad faith". If somebody goes into court and says: "I did not do it in bad faith", what is the legal situation about "bad faith"?
I would like to welcome the genuine attempt made by the Minister in his amendment here to prevent or at least to discover insider dealing on the stock exchange where it occurs. I read it very carefully and very often and if I thought for one moment, as one who practised in the Exchange for 15 years, that this would work, I would wholeheartedly support it. It seems to me that we have a fundamental problem with our two amendments because what my amendment does — and I make no apology for it and I think it should be spelled out — is it fundamentally attacks self-regulation in the Stock Exchange. It is the only way you can actually police this problem. Self-regulation is a very thorny and difficult subject and is one which has ideological problems. It is an area which I am sure the Government do not want to enter simply in an amendment of this sort but I think they have absolutely no option at all.
The reason I oppose the Government amendment is quite simple. The Government amendment leaves it to the Stock Exchange to take the initiative on insider dealing. My understanding of it is that the Stock Exchange sets up a relevant authority which investigates this and refers it on if it feels it is necessary. There are several reasons why I do not think it will work. The first one is that the Stock Exchange has for as long as I know and as long as I remember by its own rules outlawed insider trading. The Stock Exchange — the Irish Stock Exchange — has policed these rules and this particular rule itself. In policing this rule as far as I know and according to all the public statements that have been made, it has never once discovered a case of insider trading. To me this speaks for itself.
We are really continuing with the same investigating body which has not only publicly maintained that this is not a large problem but has publicly admitted that its own procedures are incapable of discovering it. The conclusion we come to here as a result of this must be that the Stock Exchange will continue to be unable to discover it. Now whether that is for good or bad reasons I do not know, but what I do know is that there has not been such a thing happening. For the Government to say that, in effect, they will continue with this procedure in a more elaborate form is disingenuous because the Government are leaving it in the hands of those who do not believe in its existence. I cannot see how you can expect the stock exchange when it maintains that this is not a real problem to pursue it with any great vigour. It would be an enormous waste of its time.
It is also worth remembering in this context that the Dublin Stock Exchange consists of very few members. It is a small group of people, all of whom know each other extremely well and have done so for many years. It is emerging to a certain extent, but not totally, out of the sort of club atmosphere which was always one of its great characteristics. Clubs of this sort automatically protect each other and it would be unreasonable to expect them to do anything else. What is being asked again here by the Government is that these people should investigate each other, that people who meet each other day in and day out, for drinks, at the market, socially, in a very small clique, should refer each other for criminal prosecution to another body. It is just not going to happen. The pressures that can be brought to bear in a small financial community like Dublin will militate very, very strongly against this.
I do not believe the Government are being dishonest in introducing this. I think they are saying: "We want to wipe our hands of this and it is easier to leave it to them". That is cowardly and it is unrealistic. This is not the system which exists under the Financial Services Act in the UK. The Financial Services Act in the UK is not necessarily any better per se, but it is not the system that exists there. The system that exists there is very similar to the one I suggested in my amendment because it has successfully prosecuted people for insider dealing. It is essential that the initiative comes from the Department and not from the Minister because the Department will be impartial in their investigations. The amendment is meant to be as broad as possible in that basically it gives the Minister power to investigate anything at all where he is suspicious. That is the general thrust of it. In the UK this has worked and it has worked partly because the powers given to the inspectors include the power to ask questions under oath, in other words, those who obstruct it will be committing a criminal offence.
In the suggestion given by the Minister — he will correct me if I am wrong — what happens is that the Stock Exchange gets wind of insider dealing and in an unspecified time it refers it to a relevant authority. Whatever that relevant authority is — it is described as a board of directors, committee of management, or other management body — that takes time and it seems to me that on top of that an authorised person can then be appointed to investigate this. There is a massive delay and a massive bureaucracy involved in it. It is also a massive passing of the buck from one person who is involved in the financial world specifically, I presume, to another person who is involved in the financial world. I would like some indication from the Minister about who this authorised person is likely to be. To me it would seem that it is essential, even though I oppose this amendment, that that authorised person should have no connection whatsoever — and an amendment should go in on Report Stage to this effect — with the people involved in the insider dealing accusations, that he should have no connection whatsoever with the Stock Exchange and should have as little connection as possible with the company involved or with the financial world. We are getting into a web of people who are inter-connected and who will be instinctively protective about this sort of an issue.
I would just like to know who is envisaged as this authorised person, but I would like to hear first the Minister's comments on the impartiality of the Stock Exchange which I think is quite simple. I do not want to knock the Stock Exchange but it is quite obvious that they will be instinctively defensive about anybody who is accused of committing a criminal offence in their midst and the effectiveness of the provision will be enormously reduced as a result.
I would like to welcome the intention behind the Minister's amendments and, indeed, what Senator Ross is proposing in his amendment and trying to achieve. Basically we are trying to get a form of words which will have the effect of outlawing and making a criminal offence of the practice of insider trading. The Minister should listen to what Senator Ross has to say in regard to this matter. First, he has tremendous experience on the Stock Exchange and, secondly, it is important for the Minister to remove himself or herself from any pressure that might come on the Minister of the day in relation to some kind of malpractice or functioning on the Stock Exchange that was far from healthy. You are talking about millions and millions of pounds in Stock Exchange activity. On paper the value of any could go up or down by millions in a matter of hours. There should not be any pressure on a Minister as an individual, as a political representative, through having representations made to him or her regarding this matter. We all know as public representatives that we have pressure on us at particular times to do certain things that may not be at certain times in the common good.
I would not like to have that pressure myself if I were a Minister and no Minister would like to have that pressure. I am in sympathy, as a result of that, with what Senator Ross is proposing. He is removing the issue into an independent arena which would be given authority to settle the issue once and for all. If insider trading is taking place and if it is a criminal offence the Director of Public Prosecutions is the person who should be dealing with it. It should be taken out of the ministerial arena. I shall reserve what I have to say further until I hear the Minister's comments.
Senator Ryan spoke about the statutory duty on the Stock Exchange and I just want to say to him that the submission which I have from the Stock Exchange clearly says that they want this made a criminal offence. They also felt that the existing powers of the Stock Exchange itself were totally inadequate to handle what they see as the problem. If the Stock Exchange sees it as a problem and is urging additional powers to cope with it, I would be reasonably satisfied that it would be responsible enough to use those powers if and when it gets them under this legislation.
Does that submission say it is a problem because in many public statements before it has actually maintained that there was no problem? If the Stock Exchange has changed its position on this, it is significant.
No. I think I had better say that it is not so much saying it is a problem but that the present legislation is totally inadequate to deal with the practice of insider trading. I have yet to meet a stockbroker or any member of the Stock Exchange who has not told me that there is a potential problem there. That is why we have this legislation.
I want to say to Senator Ryan and, indeed, at this stage to Senator Ross that we have been giving a lot of thought to this question of the impartiality of the Stock Exchange. I did not want to draw on the Department of Industry and Commerce or any Department of Government the requirement of policing this system in the first instance. There may be a case for some final arbitration, or some final reserve power. In the front line, I am not satisfied that our Departments of State have available to them the expertise to detect, track down and pursue this type of crime, as it will become. I am not satisfied that the additional bureaucracy which would emerge from it is warranted at this stage. I am also quite impressed with the way the UK have been operating their financial structure and to this extent, even though I know they have problems, there seems to be a movement towards self-regulation and a movement towards ensuring that a profession regards itself as a profession and regulates its members. If the State says that something is a crime, as will be the position if this Bill is passed, it would be unthinkable that any self-regulating, professional body like the Stock Exchange should not carry out the law as it is written once it knows it has got the statutory backing for a particular approach.
All I can say to Senator Ross and Senator Ryan in this area is that we are not really taken with the argument which says: give the Minister the power to initiate the inquiries for the reasons I have given — bureaucracy, expertise and a drift towards self-regulation. I feel we should insist that the Irish Stock Exchange controls and monitors and generally supervises its members and supervises the activities it may become involved in downstream. It is in a far better position to do it and more likely to have the information to do it, than say, the Department of Industry and Commerce would be.
Having said that I do not think the Minister should be in the frontline; I think that would be unreasonable. It would be drawing unreasonable bureaucracy on the State and would be letting the Stock Exchange off the hook. It has a responsibility; if it feels there are any difficulties in this area and we give it the power to deal with them, I have enough confidence to feel that it will do it.
I take the point Senator Ryan makes in particular. If the Stock Exchange is not seen to do its job or does not do its job, there may be a case for some reserve power for the Minister in some way to direct, advise, request or demand the Stock Exchange to do its job. I have no difficulty with that concept or perhaps looking at the notion of having another final arbiter. In the first instance, as Houses of the Oireachtas and as legislators we should lay it on the Stock Exchange to control its members who can go to jail for ten years or be fined up to £200,000. In view of the fact that that is in our legislation I would be absolutely amazed if the Stock Exchange did not take it deadly seriously and did not start to root out any practices it comes across.
In that regard I will take a look between now and Report Stage at whether we might be able to put together some reserve power. At this stage I am opposed to putting the Minister of the day or the Department in the front line. I am also opposed to having a parallel reporting structure whereby you could either have the Stock Exchange or somebody else responsible. Let us put the Stock Exchange in the front line and get it to do it. If it does not do it, we can devise some mechanism on Report Stage for doing that. I am not opposed to that principle. If we want to concentrate on that point first I can deal with the other points later.
I wonder what I am doing here. It is not my role in life to be increasing the credibility of the Irish Stock Exchange. This is not intended to criticise Senator Ross; he is one of the best things that has happened in terms of Irish public perceptions of events in the Stock Market. He seems to be the only one and, presumably because he has a certain privilege in here which will not allow him to end up in various courts, he can say things——
Inside information.
He never gave me any information that was of any use. I have to clear him of that offence. I must remind the House that last October when there was the great stock market crash, The Irish Times in a particularly succinct editorial said two things motivated both the stock and financial markets and they were greed and fear. I do not think they are the sort of motivating forces which guarantee enlightened self-regulation. They are not the basis for the enlightened self-regulation we would expect. I am happy with the Minister's approach when he says it is reasonable that the Stock Exchange should be given the job of looking after its own affairs first. I agree with that. My major quibble with the amendment as it stood was that, in the event of the Minister being dissatisfied with the way the Stock Exchange was doing its business, he ought to have the power either to direct it to standards that he was satisfied with, or to assume the same powers that are given to the Stock Exchange through this amendment.
There are serious questions already about the way people manipulate the Stock Exchange. It has been said, for instance, that a certain newspaper has discovered oil 250 times in the past two years and that certain newspaper is owned by the same person who has a particular interest in off-shore oil exploration in this country. That type of question ought to be addressed by a Stock Exchange which is serious about self-regulation and about ensuring that the public are not conned. That is why I am extremely sceptical about that type of body. I also know Irish life well enough to know that the very fact that people are liable to be subject to penalties of up to ten years in prison will inhibit a body from investigating it.
I agree with the penalties. They are even harsher than the ones I had proposed in my own amendment. They are appropriate, given the scale of the gains that could be made. It is not usual for me to be supporting harsh penalties but I am a great believer in threatening prison on those who are most inhibited by it. I believe that the stockbroking fraternity would be inhibited by the possibility of ten years in jail. Some of them would need about ten years to be inhibited.
May I ask the Minister, on the precise wording of his amendment, what penalties will apply to the relevant authority of a recognised Stock Exchange if it does not carry out satisfactorily the powers it is given? In other words, if it fails to do the things it is expected to do under amendment No. 129, or section 98 as it is proposed to be, what penalties will apply either to the relevant authority or, as in amendment No. 30, to the "authorised person"? What penalties will apply if they do not do the job that it is envisaged they should do? Then perhaps we can come back again. I am happy with the idea that the Minister's power should be a reserved power to be used where he is dissatisfied with what the Stock Exchange is doing.
I very much welcome what the Minister has had to say especially about there being some reserved powers for the Minister. If we could put something together on that before Report Stage it would be very useful. I will not press my amendment if that is what is going to happen.
I have difficulties about certain of the things mentioned. In a general way it should be pointed out that if the Stock Exchange is going to regulate this criminal offence itself, the Stock Exchange will be in the front line. The cases which come to it and which are referred, if any are referred to the DPP, will have an enormously high profile. The Stock Exchange will now come under a lot of pressure from the Press and from outside when these things are raised. It may put the Stock Exchange in an invidious position because the Stock Exchange is obviously going to be the arbiter of its own case. It is a principle which we should consider, whether it is a good principle especially in cases of criminal offences.
I should like to ask the Minister, simply because he did not reply to it, whether he thinks there is any validity in the statement I made that the Stock Exchange has, unfortunately, in the past completely failed to discover any cases of insider dealing. I do not think anybody maintains any longer that this does not happen; otherwise we would not have this legislation. It is very important to realise that it has never been discovered, whether that is because its systems are inadequate or because there is not a will, I do not know, but it is a fact. There is no reason to believe that it will happen in the future.
I would like simply to comment on what the Minister said — the Department do not have the resources. I hope this is not the reason the onus is being put on the Stock Exchange in this Bill. It is a very bad reason. Is he saying: "Look, we do not have the money or the expertise to do it so we had better find somebody else to do it for the sake of the legislation, even if they will be ineffective"? I have a suspicion that that is part of the reason.
I welcome the Minister's amendment. I have listened carefully to the debate. As Senator Ross said, no insider dealing has ever been discovered on the Irish Stock Exchange. It is obvious that it is very difficult to prove that insider dealing takes place. It is nearly impossible. On Second Stage I had reservations about making it a criminal offence for the very reason I have just stated. It is so difficult to enforce that it would take a specific State agency which would have to be funded with substantial amounts of money even to make an effort to monitor and to discover that insider dealing was taking place. I believe for that reason that the only real option we have is a very strong deterrent. I welcome the fact that Senator Ryan also recognises that a deterrent is necessary. I believe the Minister's amendment which has built in a fine of £200,000 and a sentence of ten years in prison is the only realistic way of deterring insider dealing. The people dealing on the Stock Exchange will take cognisance of this amendment and, as such, I believe it will go a long way towards eliminating insider dealing. The consequences of insider dealing are that private investors are reluctant to invest in companies. This hinders the aim of promoting a wider share ownership among the general public. I welcome the amendment.
Senator Lanigan asked me earlier on about bad faith. All I can say is that it is the opposite of good faith. I suppose he will ask me now to define good faith. It appears already in the Stock Exchange Regulations, 1984, so there is a precedent for it.
Is there a legal reason for it?
Yes, there is. There is a well-established legal principle for it. Good faith, too, is a statutory duty which is done reasonably and responsibly — a definition which is generally accepted. Senator Hogan asked the Minister not to get involved because of pressure on him and so on. I think he might be a little bit confused because he is, in fact, supporting the Government amendment with those comments. I am not sure whether he is clear on the actual difference between the amendments. I should point out that I agree with the comments he made that the Minister should not be in the front line, at least initially or at an early stage. That is a job for the Stock Exchange and we will consider what will happen if it does not do its job.
Senator Ryan asked a very good question, indeed, about what happens in the event that the Stock Exchange does not appoint an authorised person or does not make the necessary reports because the amendment says, if it appears to a relevant authority that any person has committed an offence, the Senator is asking me, if it does not move on that, what sanctions do we lay on the Stock Exchange? The short answer at present is that in the legislation, as it is drafted, there is no formal sanction, but there is a statutory duty now laid on the Stock Exchange. In the case where you have a statutory duty laid on Ministers or on semi-State bodies — there are plenty of areas where there are statutory duties laid on public companies or public persons — there is not usually a penalty built in, as such. They could, of course, be sued for breach of duty, but there is no precedent that I can discover for laying a penalty on an organisation like this.
All I can say publicly at this stage is that I will certainly look at all of these things but if the Stock Exchange does not do its job in this regard I can assure Senators that this Government, and I would guess any future Government, will certainly come down like a ton of bricks on them, in regard to amending the legislation if that is necessary.
Another point we have difficulty with is not so much a question of proof, but the legislation says, "if it appears to the Stock Exchange." You might have a difficulty in getting proof that it did not appear to the Stock Exchange because you would nearly need to know its conclusions before you could conclude that it had not appeared to them. That may be semantics. You could probably get a court order in the mandamus area to force the Stock Exchange to carry out its statutory duty. I will ask the legal advisers to give me a closer fix on that one. In other words, we have not laid down a penalty because that brings us into another layer of almost having to have court cases, or some sort of cases, where we start to try the Stock Exchange——
That might not be a bad thing.
——because it did not carry out a statutory duty. There seems to be a well-established way of ensuring that people carry out their statutory duties. If there is another way of handling it, we will certainly have a look at it. I will just finish with one or two other points and then I will hand over to Senators. I wanted to mention also that one of the amendments we are coming to includes provision for an annual report from the Stock Exchange to the Minister and we will dig up the details when we get to the actual section. On an annual basis the Stock Exchange will have to report on the number of cases it dealt with and on general information about the cases, not names as such. Perhaps we can deal with that further when we get to the amendment, but there is an annual reporting mechanism from the Stock Exchange to the Minister. We will know how many cases it looked at, how many it looked at and turned down, how many it was going to go ahead with. We will have that basic information, a bit like the Ombudsman does at the moment.
Senator Ross asked me a very intriguing question, which I am sure he could answer better than I can, as to why the Stock Exchange in the past has not discovered insider trading. I would speculate that first of all it had no legal backup and, therefore, the incentive to do it may not have been as great. Secondly, it may be — again the Senator would know better — a relatively new practice. It may not have been as prominent many years back as perhaps it is today. Again I would not be certain about that. Of course, the Stock Exchange did not have this force of law where it could appoint an authorised person who can get certain documentation. I can only speculate again that the Stock Exchange may not have been able to get the information because it could not appoint an authorised person to go in and get it. It did not have the force of law behind that authorised person and generally did not have a legal framework within which to chase it. I cannot be definite about that but I can say it is a very difficult area to get convictions in. Even if this legislation is passed in its present format — which is very tough legislation — there will still be difficulties in securing convictions. In the UK system where you have the Minister of a Department more directly involved than here, there have been remarkably few convictions achieved.
It may not be as much to do with the way the legislation is drafted as the difficulty of proving things like knowledge, proving who knew what and when they knew it. It is a difficult concept in law. What may have prevented the Stock Exchange in the past was a feeling that it was not going to get anywhere with this. That feeling may have permeated the exchange and it may have felt that it did not want to get into it for that reason. It may now feel that there is a much higher chance of success because there is a statutory framework. I take the Senator's advice on that but I can only speculate as to why it was not more successful in the past and I can only hope — I cannot say for definite — that this structure, which I regard as very tough, is going to work. It is a tough attempt and we will be watching it.
I accept the Minister's point that it is a very difficult area in which to get convictions. There is absolutely no doubt about that. What we are talking about is the best possible route to discover this particular crime. It is a mystery to many why the Stock Exchange has not been able to discover it in the past. I accept the Minister's genuineness when he says that the appointment of an authorised person with strong powers may help. The Stock Exchange in the past has always had the power to ask its members virtually any question it wants about any deal. Presumably through that it has been able to pursue it to its source but no member has been censored or punished in any way under self-regulations by the Stock Exchange. There really is a serious weakness because the Stock Exchange has not been able to prove itself interested in this problem in the past.
At this point — I am not sure whether it is totally relevant but I think it probably is to this section — I would like to refer to the difficulty of getting convictions. There is one problem which is that more and more frequently in recent times there have been appearing on the register of public companies the names of companies purchasing shares from the Isle of Man, from Jersey and from further afield. There is a very strong suspicion that these companies are controlled by Irish people and that these companies are buying Irish shares in highly sensitive situations under the cover of names of professional people or companies in Jersey for which there is absolutely no remedy at all. In other words, the Stock Exchange and the forces of law and order here cannot discover who the beneficial owners of these shares are because they are hiding behind off-shore companies. This is an area which is not attacked by the Bill at all. It is a difficult one to attack but I have suggestions about it which I will be happy to give to the Minister or to put down as amendments on Report Stage. It is one area in which this law will be by-passed. I suggest what will happen is that more sophisticated means of insider dealing than have existed up to now will be adopted. People will deal in the names of Jersey and Isle of Man companies so that their identity is hidden from the public and from the Stock Exchange. Perhaps we could look at that particular problem for a moment. I would like to ask the Minister if he has any plans for dealing with it.
Having established that there has been a complete failure on the part of the Stock Eexchange to discover insider dealing, can the Minister assure me — because what he said is very conciliatory — that on Report Stage he will bring forward an amendment giving power to the Minister or an impartial authority and making him the final arbiter in this particular case? I will certainly not press this one. The difference between our amendment is about who is going to investigate. I accept the Minister's problem about resources and expertise. I do not think they are good enough. Can he promise an amendment on Report Stage saying that, in the event of the Minister being completely dissatisfied with the way a particular case has worked, he can intervene? Let me paint a scenario, and it may not be a very good one. If, despite a large amount of disquiet publicly or elsewhere the Stock Exchange is refusing to investigate a case, the Minister can initiate proceedings. That would be acceptable because that would take the sting out of the whole element of self-investigation which is going to draw a lot of suspicion here.
I want to go back to some questions I asked earlier about the penalties for either the authorised person or the recognised authority who do not do what they are required to do under the Minister's amendment. The Minister spoke about the statutory duty and he said he would examine it again. I would like to make this point in general on this question. It appears to me that in terms of legislation we have very different perceptions about different groups in our society. For instance, anybody applying for a means tested benefit has a statutory obligation to do certain things and it is not sufficient that he must do it. There are very explicit penalties if he fails to do it. It is not simply that people can be sued for damages. They can end up in jail if they do not disclose relevant information when they are applying for a medical card, for unemployment assistance, or some such thing. Doctors, for instance, have a statutory duty not to sign medical certificates for disability benefit unless they examine the person etc. People have gone to jail for fiddling disability benefit but the doctors who signed the certificates for them have not even been reported to the Medical Council.
I suggest to the Minister that perhaps we operate two separate sets of rules, one for those who are relatively well off, influential and important — we presume they will act in a civilised and proper fashion — and another set for those who seem to be dependent on the State. We impose criminal and other penalties on them if they do not do what they are legally obliged to do. If we are going to give the Stock Exchange responsibility for this thing and it fails to do it, at least the authorised person ought to be liable for some penalties if he or she fails to do it. There is no point taking about damages because they can be covered by the relevant authority. The relevant authority could well cover for something like that. I think, for what it is worth, that if penalties are to be applied, they should apply universally.
Since we have a lot of uncertainty about people's views on whether or not insider trading is a problem I would also like to know whether the Government think insider trading is a problem. Are we in a position where the Government are introducing complex new amendments to the Companies (No. 2) Bill because people are talking about insider trading? Do the Government actually think we have a problem with insider trading? That should be susceptible to a yes or no answer.
Finally, I am not sure that we should keep going on about this lack of expertise in the Department. The Minister is working within the Department which successfully rescued the PMPA from its own foolishness and managed to have the expertise to do that in a way which did not cause a collapse in the insurance industry or cause any great hardship to the policyholders with the PMPA. Within the public service also was the expertise to rescue both AIB and ICI from the foolishness of the directors of AIB. Again, notwithstanding the implications of this mysterious thing called the financial markets and all of the expertise that is required there, when the State had to bail out some of the high flyers of the financial market they managed to do it quite successfully, and in my view, with far too little penalty for those who made the cock-up in the first place.
I do not think we should stand up here and say things about the public service that are manifestly less than fair to the expertise that is there. The public service displays a remarkable degree of expertise in many areas. The Minister has given good reasons for leaving the Stock Exchange to deal with this matter in the first place, but let us not knock the expertise that is there. I cannot accept that the Minister or the Government have the expertise to draft legislation like this if they do not have the expertise to ensure that the legislation is enforced. We cannot have it both ways. If we can draft the legislation and pass it, we must presume that the people who gave the Minister the advice in drafting this know what they are talking about and are capable of enforcing it. Otherwise we are living in an unreal world.
I agree with Senator Ryan. The Minister seems to be getting extremely good advice this afternoon and I do not see any lack of expertise there. I would like to quote one case to the Minister on the point I am making about off-shore dealing. There will be enormous loopholes in this area if this Bill goes through. I have not picked out this case myself because I am always getting into trouble with the Stock Exchange if I pick particular cases. I have taken it from the "Today Tonight" programme on insider dealing. Merchant Warehousing is a small company dealing on the Dublin Stock Exchange but not dealt very often, and it has a small capitalisation. I want to point out a share movement which illustrates very well what has been happening. On 30 October 1986, the shares in Merchant Warehousing stood at 43p, on 31 October at 50p, on 3 November at 55p, on 11 November at 75p, and on 17 November the shares were suspended and the company announced that takeover negotiations were in progress. That is a rise from 43p to 75p which is almost double in a week. What happened was that there was one significant buyer of these shares in the market, and only one. Three quarters of the transactions which happened were in the name of one company and this buyer was a nominee company based in Jersey. There is nothing that can be done about that under the present law and there is nothing that can be done about that as this Bill stands.
It is obvious that in this case whoever was dealing in those shares had knowledge of the takeover that was coming. That is very alarming. It is obvious to me that there are other companies operating from overseas in this way. It is a reasonable suspicion — it cannot be a certainty — that these are Irish people, and that these companies are fronting for an Irish person. The movement in the share price in that situation is just too suspicious because of what happened almost immediately afterwards. This illustrates a classic case of what is happening and what will continue to happen and will get worse if that loophole is not closed.
The off-shore situation is not attacked in the Bill but if we can find a way to attack it we will. There are a number of difficulties. First of all there is a difficulty in the area of jurisdiction, which is a problem we have yet to face. The European Communities are drafting initiatives in the area of insider trading and this may be a case where we should do something at EC level because there are a number of stools here and perhaps this is just one leg of it.
I recognise an increasing problem in the area of off-shore dealers in our companies. I assume that if the people behind the company subsequently on investigation turned out to be Irish citizens and they were also investing in the Irish Stock Exchange, that would bring them into the legislation in the sense that they would now be insider traders. I will have to double check that for the Senator. I assume that if somebody has a company abroad and is hiding behind that company in order to buy shares on the Irish Stock Exchange — which is one of the things the Senator is concerned about — if it then turns out that the person behind that company is an insider trader, as an Irish citizen he is amenable to Irish law and we could catch that person in that way.
It is the problem of catching them.
Of course. I would imagine that the Stock Exchange authorised person would go after this area, in so far as he can. We cannot write the law for the Isle of Man. That is the difficulty, but reasonable efforts will have to be made by the authorised person to find out who is buying Irish shares behind foreign companies. I will give the Senator a more definitive version of that when I come back to him again on it. If there are any proposals in that area which the Senator can offer me any road out of, I will consider them. It is a jurisdiction problem.
I would not want to be on record as doubting the expertise of our officials. Quite the contrary. They are extremely expert people. I was referring to their day-to-day experience, not so much their expertise, of what is going on in the Stock Exchange. The people who are closer to it are the Stock Exchange itself, so it is not a lack of expertise and I would not want to give that impression. There would not be as much experience available in the Department of State on the day-to-day operations of the Stock Exchange. I also meant to refer in that statement — and I do now — to the additional resources we would need to try to encompass it. Senator Ryan asked me if we have a problem and Senator Ross was saying earlier that the Stock Exchange does not seem to have rooted out one in the past. A rhetorical question for all of us would be that if we have not got a problem why have we been making speeches and bringing in Bills about it? We will have to get back to the source of all of that. People are wearing handcuffs in the United States for insider trading. People have been dragged through the courts in the UK. Those Stock Exchanges have a problem and ours has not surfaced because we have not had the legislation. It may take the legislation to discover the extent of the problem but one would want to be extremely naive to see it operating in other jurisdictions and not to know and assume it goes on here.
I will give Senator Ryan a very practical example. I understood Senator Ross's example to be an indication of the kind of practice that can go on and the kind of difficulty we can be faced with. I am sure there are many more examples where one could trace the share price and also trace the activities of individuals connected with that company. I am sure I could sit down with Senator Ryan and Senator Ross and trace a large number of such share movements and we could link them to specific knowledge of connected persons to companies. That has not been done but if there was a serious suggestion that this was not a problem we would get down to digging up that bit of research work. It is safe to assume that it is the practice on other exchanges and, from general knowledge here, it is also a practice on this exchange. If it is not a practice in this exchange there is nothing to worry about.
Since the Minister accepts that he, Senator Ross and I could trace the prices of shares over the past couple of years and come up with very suspicion generating conclusions, perhaps he would ask the Stock Exchange between now and Report Stage why they have not done that.
I do not think I should make that specific request to the Stock Exchange. The Government have decided to tackle a practice called insider trading which we are satisfied exists through general knowledge and observation of the exchange and the business scene and the international activities of which we are aware and, include a small number of obvious examples which a student of the financial press could follow very carefully. I think that is enough to go on to get this on the Statute Book.
That would be fine if we were not essentially giving the Stock Exchange a preponderant role in implementing this legislation. I am not trying to play games. A serious question arises. If the Stock Exchange has not investigated, in proper detail, the sort of suspicious share price rises we are talking about, why should we, as legislators, now believe that because it is given all of these powers it will now be more diligent in investigating than it was before? The fundamental wording is "if it appears that a person has committed an offence under this Part." As it stands, its own regulations would suggest that a person who does these sort of things is in breach of Stock Exchange regulations. Yet it appears from what we have heard and, as Senator Ross has said, from what we know, that it has not even bothered to investigate these suspicious trends in some share prices. Why should we believe now that it will behave differently? That is why I think the Minister ought to ask it, before we come to Report Stage, why it has not done this in the past and why he should trust it with this sort of major responsibility in the future.
I just want to respond to that very quickly. I have no direct evidence that the Stock Exchange has not investigated insider dealings and dealt with them. If Senator Ross tells me it is true, I accept that. I have no direct information which tells me that the Stock Exchange has not conducted its internal investigations. There is a different situation. Internal regulations are one thing. The law of this country is an entirely different operation, and a law that is backed up by very tough penalties is an entirely different operation. If the Stock Exchange has been coy about tackling practices which worry it one could perhaps take the view that it was just shy about it and did not regard it as a priority but had other priorities. Certainly, it has to move up its agenda right now because it will become, with the agreement of the Seanad and the Dáil, the law of the land. It is an entirely different ball game when it has a legal, statutory duty to do this work as opposed to when it is just one of its internal regulations. I have no proof that that will be the case but, if it is not the case, we will look again and we will also look at this reserve power.
I am very reluctant to push my amendment to a vote. I asked the Minister a question a few minutes ago which he has obviously forgotten about. Could he assure the House that on Report Stage he will introduce an amendment to give the Minister final power as the final arbiter to take initiatives in this area? That is a totally acceptable compromise. What we are talking about in the end, between the Minister's amendment and mine, are two very different principles. We are talking about two very different parties taking the initiative in investigating this. I would like to see is there some way in which this could be bridged. If the Minister could introduce an amendment on Report Stage literally saying that the Minister, in the event of being dissatisfied with the operation of section 129, will himself take the initiative and order an investigation.
It would be foolish of me to be tied to the wording of an amendment at this stage. I need to be very careful about that. I have no difficulty with the principle of what the Senator is suggesting if I interpret it as follows: I want, in the first instance, to make sure that the Stock Exchange stays in the front line and to make sure that the law lays it on the Stock Exchange to keep its house in order and carry out these investigations, get its authorised person in place and report to the Director of Public Prosecutions. I want to make sure that that duty is firmly placed there. A worry that I want to share with the Senator is that if I open up a second avenue which is parallel to that, I want to be careful not to open up the opportunity that everybody will use the second avenue and the Stock Exchange will start to feel that it can deflect people to the second avenue, rather than tackling the problem.
That is a difficulty if I put in an equally accessible parallel mechanism, so I cannot do that. That would deflect people and the exchange might conclude that it would be better if the person went to see the Minister because it did not want to get involved as it might upset its members. I do not want to give the Stock Exchange any way out of the statutory duty we are proposing to lay on it. Having said that I am certainly taken with the idea of putting in a power after that. I want to make sure that it does not become an "instead of"
That would be a major requirement; otherwise the Stock Exchange might sit back and leave it to the Minister. Then we might as well have gone the ministerial route, but that also has other difficulties. I want the Stock Exchange to be there on the front line. I can give the Senator an undertaking to bring forward something along the lines he is talking about which would give the Minister, in certain cases, a final say without in any way undermining the main thrust of the attack.
Thank you very much. That is perfectly satisfactory.
Amendment agreed to.
Government amendment No. 110:
In page 79, between lines 40 and 41, to insert the following:
"‘relevant authority' has the meaning assigned to it by section 98*;".
Amendment agreed to.
An Leas-Chathaoirleach
Amendments Nos. 113 and 117 are consequential on amendment No. 111 and may be discussed together.
Government amendment No 111:
In page 79, lines 42 and 43, to delete paragraph (a) and substitute the following paragraph—
"(a) shares or debentures issued or proposed to be issued by a company and for which dealing facilities are, or are to be, provided by a recognised stock exchange;"
In the present version of the Bill securities are defined as shares or debentures issued, or proposed to be issued, by a public limited company. In view of the new functions we are now proposing to give to a recognised Stock Exchange, we feel it would not be realistic to have the exchange investigating suspected insider dealing cases involving companies outside its direct sphere of operation and control. Having looked further at the matter we can find no particular evidence suggesting that insider dealing is a significant problem in the case of unquoted companies but, again, that is a matter of knowledge and information which I do not have. In the circumstances we are proposing to confine the definition of securities and thus the application of this part of the Bill to company securities which have some form of quotation on the Stock Exchange. This should have the effect not just of making the new arrangements that much more workable but also of concentrating our efforts on where the real problem appears to be.
I should also like to say a brief word about the phrase "recognised stock exchange" which appears in this amendment. This is the expression used throughout the Companies Acts and throughout this Bill. However, by virtue of section 3 of the Bill, the Minister will be able to recognise not just the Anglesea Street Exchange but also any other exchange which is set up or evolves in the future. I should add also that the wording of the amendment would cover not just shares which have a full listing on the Stock Exchange but also those which have any form of quotation on the exchange, for example, on the unlisted securities market, the smaller companies market, or whatever. We have already used this form of wording in previous parts of the Bill, for example, in section 29 of Part III of the Bill.
Acceptance of this amendment will involve two consequential amendments, Nos. 113 and 117. This would amend section 91 (5) and section 91 (9), respectively. In the case of section 91 (5) it will not now be necessary to mention specifically securities traded on a recognised Stock Exchange. Hence paragraph 91 (5) (a) can, we think, be omitted. Exactly the same applies to the similar reference in section 91 (8) to securities traded on a recognised Stock Exchange.
Amendment agreed to.
Section 90, as amended. agreed to.
SECTION 91.
An Leas-Chathaoirleach
Amendments Nos. 112 and 115 are similar and may be discussed together.
Government amendment No. 112:
In page 80, line 26, to delete "obtained" and substitute "received".
These amendments are very technical in nature and arise from a very recent insider dealing case at Southwood Crown Court, London in which it was held that to "obtain information" means not simply to get or have the information but to actively seek or acquire it. For our part, we would obviously not want the word "obtained" to have this narrow construction in section 91. What we want to provide is that no matter how the insider got his information, in other words, whether he went looking for it or not, he should still be prohibited from dealing under the section. Therefore "received" seems a better word for this purpose than "obtained". I understand that the definition in the London case has been criticised in some quarters since it was taken. In this context we could have waited to see whether there were any developments in the UK following the case. It might also be argued that our courts would not feel bound by the decision of the UK court in any particular case. On balance I thought that it might be wise to take the opportunity to remove any doubt about the matter in our own Bill. These two identical amendments would, therefore, simply substitute "received" for "obtained" in subsections (3) and (8) of section 91.
Amendment agreed to.
Government amendment No. 113:
In page 80, lines 38 and 39, to delete paragraph (a).
Amendment agreed to.
An Leas-Chathaoirleach
Amendments No. 114 and No. 127 are related and may be discussed together.
I move amendment No. 114:
In page 80, between lines 43 and 44, to insert a new subsection as follows:
"(6) It shall not be lawful for a person (including a member of a recognised stock exchange or any authorised dealer in securities) to deal in securities on behalf of any person whom he is aware, or ought reasonably to be aware, is precluded by subsection (1), (2) and (3) from dealing in any securities, or to cause or procure any person to deal in those securities.".
This is very similar to the Minister's amendment No. 127. The only difference is the last phrase in it which is "or to cause or procure any person to deal in those securities". The object of this really is to tighten up the policing of insider dealing. The problem all along in the US, the UK and everywhere else has been to actually prevent it and to discover it. The objective of this amendment is to put a strong obligation on intermediaries, stockbrokers, authorised dealers, members of the Stock Exchange and on everybody involved in actually dealing not to deal for those who are insider dealing. It is incumbent on them, according to this amendment, not to deal on behalf of anybody doing this.
The reason for this is that every single deal which is carried out by an insider must go through a trader of one sort or another. If these traders commit an unlawful offence by doing this, it would make them much less willing to do so. The reason I put in "or to cause or procure any person to deal in those securities" is that the Stock Exchange and the financial world in recent years have become increasingly competitive. It is a real jungle of very ambitious and competitive people. There is undoubtedly a temptation in the search for business to relay information which is highly sensitive. It is absolutely no secret that those who are trading in shares are, from time to time, in possession of very sensitive information. Part of this is the result of what they call Chinese wars, where one person in the office is dealing in corporate business, another is dealing in shares and another is dealing in something else and they, like it or not, switch information which they should not be doing.
Stockbrokers come across information which is extremely sensitive in the work they are doing dealing in shares. The temptation, therefore, would be there for them to ring their clients and say they just heard there was going to be a take over or to get into these shares very quickly and they would make an absolute killing. That is a conflict of interest which they would have. By making this a criminal offence, we will deter them from behaving in this way. It will deter them from using information which they might have heard next door in another part of their office. The idea of this is to put that sort of pressure on them not to relay iformation to encourage people to get themselves involved in insider dealing, and indeed, to refuse to do so if they have any suspicion that the client is involved in it.
I fully support Senator Ross. There is a phrase coming out of my mouth that I may well be hanged on. I am surprised to hear the Minister constantly refer to the two Senators; it is unusual for me to be described in collective terms along with Senator Ross. Senator Ross has made a very valid point. He has also made the point that there is a difference between his own amendment and Government amendment No. 127 about advice. If we are to stamp out or attempt to stamp out the practice of insider trading, it should be an offence to offer any sort of advice or assistance to any third party to make what is euphemistically described as a killing.
It is true that the public perception of the Stock Exchange is not what the Stock Exchange would wish which is an exchange to raise money to invest in useful projects, but it is more seen as a gamblers' den where people with either luck, good fortune, or access to extra information can make a "killing". In order to restore the proper function to a Stock Exchange, even in a free market economy that perhaps I do not altogether approve of, it ought to be clear that the people who make money out of the Stock Exchange are those who invest in companies that end up being successful in the production of goods or services which can be traded either domestically or internationally. That ought to be the idea of a Stock Exchange — to entice or persuade people to invest in various areas of investment in order to make money out of a risk that they take in developing something and not out of some sort of short cut equivalent to backing the heavily doped outsider in some horse race or other. In order to restore that image of the Stock Exchange, it should be quite clear that any advice, any assistance, direct or indirect, which enables somebody either by nods, winks, hints or otherwise to by pass the normal operation of the market in terms of the way the Stock Exchange operates ought to be illegal and ought to carry similar penalties to those who directly use insider information. Therefore, I support Senator Ross's amendment which I think is more comprehensive than the Government's amendment.
I appreciate the context in which Senator Ross tabled this amendment. We have come to the same view ourselves, looking back on what the Senator had to say on Second Stage, that an amendment along these lines would be worth making. The wording of the Government amendment is slightly different from that proposed by Senator Ross. For example, the Government do not mention authorised dealers as the Senator does, principally from the point of view that this was not a concept which was recognised here. Secondly, we did not mention causing or procuring a person to deal in securities since that would seem to be covered in section 91 which provides:
It shall not be lawful for a person at any time when he is precluded by subsection (1), (2) or (3) from dealing in any securities, to cause or procure any other person to deal in the securities.
That is on page 80 of the existing Bill. The Government amendment meets Senator Ross's point. The actual wording of the Government amendment is preferable for the reasons which I have mentioned.
The Minister is absolutely right. The only question I would like to ask here is whether the Government amendment covers people apart from authorised dealers in the Stock Exchange. In other words, does it cover bank managers and accountants and other people who are in the way of giving advice all the time on this sort of thing? In other words it shall not be legal for them to encourage people as well.
That is a good point. In addition to covering brokers as agents the section would also apply to any person who deals on behalf of another person. This would apply to nominee companies, for example, those operated by financial institutions and others, those nominee companies whose business might involve buying and selling shares on behalf of clients. It will also apply to any nominee company or other person who might be interposed between the client and the market. I think it covers the point. I appreciate very much the tabling of that amendment because it did concentrate our minds.
Amendment, by leave, withdrawn.
An Leas-Chathaoirleach
Amendment No. 115 was already discussed with amendment No. 112.
Government amendment No. 115:
In page 81, line 12, to delete "obtained" and substitute "received".
Amendment agreed to.
Government Amendment No. 116:
In page 81, lines 14 and 15, to delete "relates only to proposed dealings by the first-mentioned company", and substitute "consists only of the fact that the first-mentioned company proposes to deal".
It has been suggested to us that the wording of the last two lines of section 91 (8) may open up an undesirable loophole. That is on page 81. The intention of this subsection is to actually allow straightforward dealings by one company in another's securities to take place and the exemption it embodies is a narrow strictly technical one. The very fact that financial institution A proposes to sell its complete holding in blue-chip company B could be regarded as inside information since, first of all, no one outside institution A would have this information and, second, if such information were generally available it would be likely materially to affect the share price. On reflection, however, the wording of the last two lines of subsection (8) does not make the narrow nature of the exemption which I want to bring out here clear enough. The expression "relates only to proposed dealings" could be capable of a wider meaning than the one we intend.
For example, in the case I just quoted, institution A could have some real inside information on company B, for instance, that its next annual returns were going to be worse than expected.
Under subsection (6) the institution would, quite rightly, be prohibited from dealing on the basis of such information. However, if this real information did indeed prompt the institution to sell its holdings, it might be argued that under the terms of subsection (8) this would still be information that relates only to proposed dealings by the institution in the second company's stock. This amendment, I hope, will make it clear that all that is being exempted here is the very possession among the personnel of institution A of the single piece of information that the institution proposes to buy or sell the other company's stock. I am sorry about the long explanation but, because of its technical nature, it is important to get this on the record properly.
Amendment agreed to.
An Leas-Chathaoirleach
Amendment No. 117 has already been discussed with amendment No. 111.
Government amendment No. 117:
In page 81, lines 17 to 19, to delete ", being securities or rights or interests that are permitted by a recognised stock exchange to be traded on that exchange,".
Amendment agreed to.
An Leas-Chathaoirleach
Amendment No. 118 has already been discussed with amendment No. 108.
Government amendment No. 118:
In page 81, line 29, to delete "or employee".
Amendment agreed to.
An Leas-Chathaoirleach
Amendment No. 119 has already been discussed with amendment No. 120.
Government amendment No. 119:
In page 81, line 39, to delete "or employee".
Amendment agreed to.
An Leas-Chathaoirleach
Amendment No. 120 has already been discussed with amendment No. 108.
Government amendment No. 120:
In page 81, line 41, to delete "or employee".
Amendment agreed to.
An Leas-Chathaoirleach
Amendments Nos. 121, 123 and 128 are related and may be discussed together.
I move amendment No. 121:
In page 81, between lines 46 and 47, to insert a new subsection as follows:
"(12) A person who is guilty of an offence under subsection (1) or subsection (2) of this section shall be liable on conviction to a fine not exceeding £20,000 or to a term of imprisonment not exceeding five years, or to both.".
We are in a competition here as to who can be the most draconian. I see no point in pursuing my amendment. Whatever else I grumble about, I have no objections to the penalties per se the Minister is proposing. I would like to withdraw that amendment.
Amendment, by leave, withdrawn.
Question proposed: "That section 91, as amended, stand part of the Bill."
I do not have any particularly very strong views on this, but prevention is much more important than a penalty in all criminal cases. Having said that. I would like to know where the Minister gets his figure of £200,000 from. There is a wide variety of punishments in these amendments. To see Senator Ryan only fleecing rich capitalists of £20,000 is an enormous surprise to me——
It is an enormous surprise to me as well.
——when the soldiers of destiny who have a different ideology, if they have one, are prepared to take £200,000. This is a strange paradox. My amendment, for what I think is very good reason, does not specify a fine. The reason for this is that, although £200,000 sounds an enormous amount of money and is an enormous amount of money, on the scale that insider dealing can take place, it is not an enormous amount of money. It seems to me that it is absurd that there should be a limit, unless this is an actual statutory limit, which I do not know about, that you cannot fine anybody more than £200,000 for a crime of this sort.
Remember that Mr. Boesky in America has done quite well out of this. He has paid over £100 million and he is doing two years in jail but he will come out a very rich man. I do not know where the £200,000 came from but it would appear to me that it should be left open, if that is legal, to say how much the fine is because it is quite possible for people in this sort of situation based in Ireland or overseas to make millions of pounds on this sort of crime and £200,000 really is not very much to them. If it is possible to leave it open I think what any judge or jury should do is fine them an appropriate amount. It is obviously absurd to fine people £200,000 if they do not have it and have no hope of getting it. If they have made millions of pounds on this sort of a transaction, which is not inconceivable and which happened in America, it is absurd to fine them as little as this. To put such a rigid maximum is a pity.
My interpretation of the Senator's amendment about the fine — to clear it up from a legal point of view — is that by leaving it the way it is actually worded we would get caught on page 141 of the Bill under "General", in line 33 where it states: "on conviction on indictment, to a fine not exceeding £10,000." My current advice is that the Senator's word "fine" would refer to that clause. His amendment, in fact, means a fine not exceeding £10,000. I am not trying to be clever about that but I want to bring it to his attention because that would be the impact on the currently drafted legislation of leaving the word "fine" hanging there. I do not think it is possible to leave legislation open-ended to the extent that it could be left to the court.
It is normal in legislation to lay down "minimums" or "maximums". I do not think that those are the plurals of those words. They may be minima and maxima. It is normal in legislation to lay down limits. We have never, to the best of my knowledge, brought in open-ended offences where the court was free to make up its own mind. Between now and Report Stage I will check that but, in general, one has to make up one's mind to guide any court of law as to what the Legislature have in mind. As regards the limit I would have to say quite frankly that the Senator's guess is as good as mine. We could have made it £500,000 or we could have made it £1 million.
Considering that this is the first time we have introduced a criminal offence for this activity, it seems to be a sensible starting figure and I would remind the House that there is also the option of a ten year jail sentence. If some judges feel that someone has made millions of pounds and that £200,000 is not enough, they have the option of the jail sentence as well. I am not sure what the inflation rates will be, but ten years of inflation could put some hole in one's profit. That depends on one's investment strategy, I suppose.
The limit is not scientifically put together. It would be foolish of me to pretend here that we have a slide rule and a formula. Given the kind of money involved in the exchange and the kind of money that can be made, it seems to us like a sensible figure when you combine it with a ten year jail sentence. It is £200,000 and ten years, or either. Certainly if people want to run the risk of having both those penalties imposed on them, they are obviously very foolish indeed. When you take the £200,000 with the stiff jail sentence, perhaps it might be enough. If experience shows it is an insufficient limit, it would not be a major legislative matter to increase it.
I take the Minister's point. In that case I was completely wrong about putting down a fine. I thought that by putting a fine in my amendment it meant that it was open-ended. I accept the Minister's explanation regarding £10,000 or more. In that case this is far too small an amount. If this legislation is passed, I suspect that will be the end of it for a very long time. It is not normal for these Bills to be changed by separate legislation, to go to the trouble of doing it. A sum of £200,000 in the context of what we are talking about is a very low limit indeed. I know it is a lot of money but, if you are talking about people who are professional insider dealers, as happened in America, it will not take long for them to make £200,00. I know Boesky was doing it on a scale which is enormous by comparison with what we are talking about here but he parted happily with £100 million and that was all ill-gotten gains. There is no doubt about that. He presumably has a lot to spare.
I urge the Minister to consider putting a much higher limit on this type of transaction. Perhaps it is difficult for him and for many other people to realise the enormous sums which change hands on the Stock Market from day to day even in Ireland. The turnover is quite staggering in an active market. The sort of profits which an insider could make in an active market are absolutely enormous. To limit it to £200,000 is, I think, giving people a reasonably easy way out. A really professional insider dealer would be able to make much more than that in a short time. I understand the point the Minister made about the ten years jail sentence. That is a matter for the courts and for future conjecture.
I cannot predict whether the courts will be handing out sentences of ten years for this sort of crime but the first case they had in England on this matter involved an individual who did not receive a jail sentence. He received a fairly small fine. I would be surprised if long jail sentences of this nature were handed out initially. To my mind people who are involved in this crime are motivated by one thing and that is greed, and the best way of hitting them back is by taking their ill-gotten gains from them and anything else which they have. I would ask the Minister to consider raising this threshold a great deal higher. Surely there is no harm in having a ceiling of £1 million plus because it is up to the courts to use their discretion about the scale of the crime.
There are about 100 companies quoted on the Stock Exchange here, give or take a few. My Department would have no direct knowledge about the kind of insider deals that might pull in the kind of money the Senator is talking about. He is talking about a small number of companies. If the Senator is saying to me that in those small number of companies you can still make those large kind of killings and get the major fluctuations at share price, I will certainly have a close look at it. It seems to us that in this whole section we are talking in round figures of about 100 companies. We are not talking about thousands of companies. They seem to be largely stable type companies which we consider did not show the huge fluctuations in share prices that would give rise to killings but again the Senator would have a better knowledge of that area. Perhaps in the energy area there are opportunities which there would not be in banking shares. There may be a case for increasing the fine. People who make a lot of money, — hundreds of thousands of pounds, millions of pounds — in deals like this do not mind paying large fines.
If you make a few million pounds in a killing, you do not mind paying a few thousand pounds in a fine. Where you really get petrified is when you have to spend even one day in jail. We are putting into this legislation "up to ten years". I suggest that the real deterrent here is not the money because people who operate like that and make those kind of killings, are calculating enough to build a fine in, almost as part of their costs, particularly if the deal is big enough. If you make £5 million and you pay £2 million fine, what is the difference? People like that are petrified of spending one week in jail because of what it does to them in all sorts of ways. Those people are not accustomed to that kind of treatment. Therefore, I think the ten year jail sentence would petrify anybody who would run the risk of getting that kind of jail sentence. That is the real deterrent and the money is more of a token. For the moment I would like to let it stand and I will think about the comments which the Senator has made in the meantime.
I accept what the Minister says about jail sentences being a deterrent but I am not sure that I believe it. I suspect that those people who are dealing in this way feel that they will not be caught, so the deterrent in that case will not be as powerful as it might be. I know we are talking about 100 companies or so, but the turnover is quite staggering in active times in these companies. A profit of £200,000, in circumstances in which there is insider dealing, would be very small. He would be in before a sensitive movement and out very quickly, so he could deal with the larger companies in very large amounts.
The Minister touched on it when he said that a profit of £200,000 in the oil companies, in the energy companies, is quite a normal type of profit to make in widely fluctuating times. Everybody knows that the profits taken out of these companies and the losses made on these companies have been enormous and are way over the £200,000 mark and that, if the fine remains as low as that, the risk of discovery, as this Bill stands at the moment, is minimal.
The deterrent effect is very small. I will probably put down an amendment on Report Stage because it would be no harm to have a much higher ceiling and leave to the discretion of the court how they impose it, because a court will decide the scale of the operation. It seems a little absurd that if someone goes into court and it is discovered that he made £1 million or £1.5 million on insider dealing, the maximum fine he can get is as little as a seventh of that. I leave it totally to the discretion of the Minister but that is the sort of thing we are talking about. It would be helpful to have a high ceiling and to leave it to the discretion of the court to decide the scale of the actual insider dealing.
Progress reported; Committee to sit again.