I remind Senators that at noon today we will pause for peace. There will be a minute's silence for the marking of St. Brigid's Day. The Minister of State has ten minutes, group spokespersons have ten minutes, and the Minister of State will be called to reply at no later than 1.05 p.m., with no less than ten minutes to reply to the debate. The Minister of State is very welcome.
Finance (State Guarantees, International Financial Institution Funds and Miscellaneous Provisions) Bill 2023: Second Stage
Question proposed: "That the Bill be now read a Second Time."
I apologise for the Minister for Finance, Deputy McGrath, who is in the Dáil at the moment. I welcome the opportunity to address the Seanad on the Finance (State Guarantees, International Financial Institution Funds and Miscellaneous Provisions) Bill 2023.
It goes without saying that support must be given to the people of Ukraine as they continue to suffer almost two years into this illegal war. Through this Bill, the Government is seeking to contribute to instruments of financial support through the European Union and international financial institutions that are working to ensure the resilience of and, when the time comes, the reconstruction of Ukraine.
The Finance (State Guarantees, International Financial Institution Funds, and Miscellaneous Provisions) Bill 2023 is intended to facilitate potential participation in certain donor or trust funds established by certain European-based international financial institutions. The Bill also provides for Oireachtas approval to enter into guarantee and contribution agreements associated with EU financial assistance to Ukraine, while providing a basis for payments from the Central Fund.
Under its miscellaneous provisions, the Bill also seeks to amend section 38(1) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, so as to require those engaging in correspondent banking relationships to conduct enhanced due diligence when the respondent is in the EU and not just when outside, as is currently the case.
Before I detail the relevant sections, it is worthwhile to note the policy context behind this important Bill. Since the outbreak of war, the European Commission has proposed and implemented a number of macrofinancial assistance, MFA, programmes to help with Ukraine’s immediate financing needs. Such programmes have a complex financial architecture, which I might briefly try to explain.
MFA programmes are typically provisioned by the Common Provisioning Fund of the EU budget at a rate of 9% of the value of the loans. However, due to the unusually high level of MFA activity since the invasion of Ukraine, the Common Provisioning Fund has been virtually depleted. This, coupled with the relatively elevated risk of potential non-repayment of MFA loans by Ukraine, has led the EU to adopt a bespoke approach to the guarantees. For the final €6 billion in loans disbursed during the second half of 2022, provisioning for the loans is at a higher rate of 70%, split between the Common Provisioning Fund, at 9%, and member state guarantees, at 61%. The EU has also proposed to cover interest rate costs of 2023 MFA loans, to the extent possible by the EU budget and, where funds available in the budget are insufficient, directly by member states. In this regard, the relevant EU regulation provides for an interest rate subsidy to be paid by contributions from member states, the terms of which are set out in contribution agreements between the European Union and member states. EU macro-financial assistance plays a key role in helping the Ukrainian Government to maintain a basic level of state services for its citizens. It is important that this legislation is quickly enacted. Ireland cannot fully participate in the EU’s MFA initiatives for Ukraine for 2022 or 2023 unless it is.
In addition to the EU’s MFA, the European Investment Bank, EIB; the European Bank for Reconstruction and Development, EBRD; and the Council of Europe Development Bank, CEDB, play important roles. This has included financing emergency repairs to Ukraine’s infrastructure; providing supports to the economy including liquidity for businesses; improving food security and nuclear safety; and providing the practical supports needed in neighbouring countries following the displacement of people. While this has mostly been done through existing levels of capital in each of the banks, the banks are increasingly relying on contributions to trust and donor funds to facilitate the additional investment required for this and other crises. This Bill will provide a new mechanism that will enable the State to participate in certain donor or trust funds, subject to certain conditions, more rapidly and effectively. Should the legislation be passed, it is the Minister for Finance’s intention to seek approval for Ireland to contribute €7 million to the EIB’s newly established EU for Ukraine trust fund using this framework.
I will now give an overview of the operation of the Bill, which has 22 sections and is divided into seven Parts. The first two sections of Part 1 are standard legislative sections and provide for the Short Title and citation of the Act and relevant definitions. Parts 2, 3 and 4 concern contributions to IFI trust funds. They enable the State to participate in certain donor or trust funds established by the EIB, the Council of Europe Development Bank or the European Bank for Reconstruction and Development. Part 2, covering prescribed European Investment Bank contribution agreements, provides in section 3 that the Minister may, by order, prescribe a contribution agreement between the State and the EIB that relates to a trust fund established by the EIB. Provisions related to limitations on the amount Ireland can contribute under any single contribution agreement and overall aggregate limits, reporting requirements and an approval process in the case of future amendments to the contribution agreement, are also included. Part 3, covering sections 4 to 7, amends the European Bank for Reconstruction and Development Act 1991 to do two things. The first, set out in section 6, is to provide that the Minister may, by order, prescribe a contribution agreement between the State and the EBRD that relates to a trust fund established by the EBRD where the terms of the contribution agreement have been approved by Dáil Éireann pursuant to Article 29.5.2° of the Constitution. Similar to Part 2, there are provisions covering limits, reporting requirements and future amendments to contribution agreements. The second, set out in section 5, is to amend the definition of the agreement set out in section 1 of the 1991 Act to incorporate amendments to the definition of the agreement establishing the European Bank for Reconstruction and Development adopted on 30 January 2004 and 30 September 2011, and any further amendments approved by Dáil Éireann. Section 7 provides that the Schedule to the 1991 Act be substituted with Schedule 1 to this Bill, the text of the agreement establishing the European Bank for Reconstruction and Development, as amended. Schedule 1 includes the current wording of the agreement.
Part 4, covering sections 8 to 11, amends the Council of Europe Development Bank Act 2004 to do two things. The first, set out in section 10, provides that the Minister may, by order, prescribe a contribution agreement between the State and the CEDB, where the terms of the contribution agreement have been approved by Dáil Éireann pursuant to Article 29.5.2° of the Constitution. Similar to Parts 2 and 3, there are provisions covering limits, reporting requirements and future amendments to contribution agreements. The second, set out in section 9, is to amend the definition of the agreement set out in section 1 of the Act of 2004 to incorporate amendments to the articles of agreement establishing the Council of Europe Development Bank adopted on 26 November 2010 and 25 November 2011, and any further amendments approved by the Dáil. Section 11 provides that the Schedule to the 2004 Act be substituted with Schedule 2 to this Bill, which includes the current wording of the agreement. Parts 5 and 6 of the Bill enable the State to participate in the provision of exceptional MFA by the EU to Ukraine. In summary, Part 5 of the Bill makes provision to enable the State to enter into a guarantee agreement with the Commission in relation to the EU MFA to Ukraine in 2022 and provides for payments to be made out of the Central Fund for this purpose.
Part 6 concerns the MFA+ contribution agreement. In summary, Part 6 of the Bill makes provision to enable the State to enter into a contribution agreement with the European Commission in relation to the EU MFA to Ukraine in 2023 and provides for payments to be made out of the Central Fund for this purpose. Parts 5 and 6 each provide for reporting to Dáil Éireann on payments to and from the Exchequer regarding the guarantee and contribution agreements. Part 7 amends section 38(1) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 by deleting the words “situated in a place other than a member state”. The effect will be to require those engaged in correspondent banking relationships to conduct enhanced due diligence with respondent institutions within the EU as well as outside of it. This will address an issue in Ireland's framework for anti-money laundering and countering the financing of terrorism identified by the financial action task force, the global standard-setter in this area, of which Ireland is a member.
The Bill is extremely important in how Ireland is seen to respond to the Ukraine crisis and any other future crises in which EU financial assistance and IFIs play a role. I hope we can move the legislation through the Seanad as quickly as possible, having already passed through the Dáil stages without amendment. I look forward to the contributions today and hope to respond to them as best I can.
I welcome that the European Union this morning agreed €50 billion in additional aid for Ukraine. We welcome that. I remind Members that at 12 noon we will pause for peace. I call Senator Doherty. I will interrupt at 12 noon if that is okay.
Sure. I think I will be finished by then.
I echo the Cathaoirleach's words about the €50 million announced unanimously, supporting the decision made by all 27 leaders this morning to allocate €50 million of current MFF funding. It shows the strength of unity in the European Union behind Ukraine against the illegal invasion by Russia. The €50 million will be made up of grants and loans to the Ukrainian people through the MFF. This legislation will allow us to increase Ireland's allocation to current 2022 to 2027 MFF funding. It also allows for the creation of MFAs, which are also very welcome. They will be responsible for rebuilding, enhancements and changes to our trusts and donations. For example, the EIB will allow countries - not exclusive to Ukraine - to access funds at cheaper rates than they would have heretofore. This will allow them to do major infrastructure projects. We can envisage the kind of restructuring that will have to happen in Ukraine, having been destroyed to such an extent by Russia. I welcome this Bill. It is a technical Bill but is very much needed.
The final Part of the Bill which I want to welcome is the amendment to the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. We as Members of the Houses or those involved in politics are concerned as PIPs, as are our extended families. It is a somewhat cumbersome process. It is welcome when you see criminal organisations caught by CAB and millions of euro taken from them and used for better purposes. I support this Bill fully.
Debate adjourned.