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COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 14 May 2015

Chapter 2 - Government Debt and Finance Accounts 2013

Mr. Derek Moran(Secretary General, Department of Finance) called and examined.

I ask members, witnesses and those in the Public Gallery to turn off their mobile telephones as they interfere with the transmission and sound quality of the meeting. I advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are reminded of the provision of Standing Order 163 that a committee should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I welcome Mr. Derek Moran, Secretary General of the Department of Finance, and ask him to introduce his officials. This is Mr. Moran's first time to attend as Secretary General of the Department of Finance.

Mr. Derek Moran

It is a daunting prospect.

I wish you well.

Mr. Derek Moran

Thank you. I am accompanied by Ms Ann Nolan, second Secretary General in the Department; Mr. John McCarthy, our chief economist; Mr. Declan Reid, shareholder management unit; and Ms Cep Carty, finance unit.

Mr. Terry Walsh from the Department of Public Expenditure and Reform is also present. I invite the Comptroller and Auditor General to give his opening statement.

Mr. Seamus McCarthy

The annual finance accounts present the receipts into and issues from the Central Fund of the Exchequer, together with a set of bespoke supporting statements that analyse the transactions. Members of the committee may wish to note that the accounts do not include a balance sheet. The accounts have a statutory purpose of providing an annual statement of Central Fund transactions on a cash basis and are not intended to be a comprehensive set of annual financial statements for the State or for central Government.

The national debt accounts, which are prepared by the National Treasury Management Agency, NTMA, and audited separately by me, are also presented in full as Part 2 of the finance accounts.

The chapters from my Report on the Accounts of the Public Services 2013 that are the subject of today's meeting were compiled to highlight key aggregates and trends in Central Fund transactions and in broader State liabilities. Chapter 1 summarises the Exchequer's financial outturn for 2013, when Central Fund issues exceeded receipts by €11.5 billion. Receipts into the Central Fund in 2013 totalled €44.1 billion, an increase of 7% year on year. Issues from the Central Fund amounted to €55.6 billion in 2013, a decrease of 1% year on year. Figure 1.1 shows the trends in issues and receipts from 2002, and the progress being made in closing the gap between them that emerged during the recession. Some significant developments during 2013 which the committee may wish to note are an increase of approximately 28% year on year in the cost of servicing the national debt, which in 2013 amounted to €7.5 billion; an increase of 24% year on year in Ireland's contribution to the EU budget, which amounted to €1.73 billion in 2013; and payments of just over €1 billion under the Credit Institutions (Financial Support) Act 2008, following the winding up of the Irish Bank Resolution Corporation in February 2013. These were mainly payments made to bondholders and depositors with IBRC, arising from protection provided under the eligible liabilities guarantee scheme.

At the end of 2013, Ireland's general Government debt stood at approximately €216 billion. The debt represented 123% of Ireland's gross domestic product, compared with 117% a year earlier. The principal component of the general Government debt at the end of 2013 was borrowing by the NTMA on behalf of the State, totalling €197.5 billion. This is referred to as the "gross national debt" and is accounted for in the national debt account. It increased by €36 billion or 22% during 2013.

A substantial part of the increase in the national debt in 2013 related to the extinguishing of the promissory notes issued in 2010 by the Minister for Finance to the predecessor institutions of IBRC. These notes were not included in the NTMA's national debt accounting but were included within the definition of the general Government debt. The promissory notes held by the Central Bank as collateral for lending to IBRC were replaced with floating rate Government bonds issued by the NTMA when IBRC was placed in liquidation in February 2013. The new bonds form part of the gross national debt, accounting for 23% of the Government bond debt in issue at the end of 2013.

Medium and long-term debt at the end of June 2014 accounted for just over 90% of the gross national debt. Figure 2.3 presents a maturity profile of this debt, which indicates that, at that date, approximately €100 billion falls due for repayment or refinancing in the period up to and including 2020. Funding received under the EU-IMF programme of financial support for Ireland accounted for over one third of medium and long-term debt. Since the publication of my report, Ireland has repaid €9 billion of EU-IMF funding ahead of schedule, with the agreement of other programme lenders. The Accounting Officer can update the committee further on this.

As I said, Exchequer payments in 2013 related to servicing of borrowing undertaken by the NTMA were approximately €7.5 billion. The NTMA estimated that the weighted average cost of servicing the gross national debt was just under 4% at the end of June 2014. At that date, around 88% of the debt was at fixed rates, including debt where hedging had been undertaken. The balance of the debt was at floating interest rates.

Cash and other financial assets held by the Exchequer totalled €23.6 billion at the end of 2013, rising to €25.4 billion at the end of June 2014. High levels of cash balances had been maintained since the beginning of the financial crisis and the Accounting Officer can update the committee on the level of balances held currently. In the past, the bulk of Exchequer cash balances were held in the form of deposits with the Central Bank. In contrast, by the end of June 2014, only around 19% of the total was held as cash on deposit in the Central Bank. The rest of the assets were held in a variety of forms, including short-term bank deposits with commercial banks, non-Irish treasury bills and instruments called tri-party reverse purchase agreements with financial institutions. Such investments typically earn a higher rate of return than the interest on Central Bank deposits, but they also carry a higher risk.

While the form in which Exchequer balances are held has changed significantly, with greater investment in higher yielding and higher risk instruments, the average return on Exchequer balances is still lower than the average cost of borrowing. This means that there is a cost to the Exchequer associated with holding high levels of cash balances. The Minister for Finance has not set a specific monetary limit for the level of cash and financial assets maintained by the NTMA. At the time of my report, the NTMA stated that its aim was to maintain these balances at a level high enough to cover at least 12 months' Exchequer funding requirements.

Finally, the 2013 appropriation account for the Vote of the Office of the Minister for Finance records expenditure totalling €27.3 million on five programme areas, up from €26.2 million in 2012. The programme areas relate to the costs incurred in respect of European Union and international policy; financial services policy; fiscal policy; and economic policy and provision of shared services. The expenditure on financial services policy recorded in the appropriation accounts is €9.6 million. However, it should be noted that this is not the full cost of the financial services policy function, because it does not include costs associated with staff who are seconded to the Department from the NTMA to deal with banking sector issues and certain related consultancy costs.

These costs are borne by the NTMA and not recouped from the Department. The level of costs incurred on these services is not disclosed in either the appropriation accounts or the NTMA's financial statements. At the end of 2013 the Department had underspent by €8.6 million, which amount was, accordingly, liable for surrender back to the Exchequer.

I thank Mr. McCarthy. I invite Mr. Moran to make his opening statement.

Mr. Derek Moran

With me today are Ms Nolan, second Secretary General and head of the banking directorate; Mr. John McCarthy, chief economist; Mr. Declan Reid, shareholder management unit, and Ms Cep Carty, finance unit.

As the committee is aware, I was appointed Secretary General in July last year. In addition to speaking to the issues and items on the agenda, I propose to touch briefly on some of the things we have done within the Department during that time.

The first item on the agenda is the 2013 appropriation accounts for the Department. The Estimate for 2013 was set at €33.187 million. The spend was €24.6 million, leaving a surplus to be surrendered of approximately €8.6 million. The savings arose in three main areas: banking related consultancies, in respect of which there was a saving of €3 million because of cost-sharing with the industry and the later than anticipated timing of national payments plan projects; non-administrative pay budget costs, in respect of which some €2 million in savings were recorded because economies had been achieved in our EU Presidency work, while certain IT infrastructure projects such as ePQ and eSubmissions systems were undertaken in-house rather than being contracted out; and budgets provided to enhance external and international engagement which had been completed using internal and cross-departmental resources or funded by the receiving organisation.

Since 2013, the Department has operated within reduced budgets of €31.2 million and €30.6 million in 2014 and 2015, respectively. This reflects a number of key changes, including the transfer of some staff to the shared payroll services in the Department of Public Expenditure and Reform. It also reflects the ongoing focus on cost control, having regard to appropriate resource allocation in the context of wider deliverables in the Department.

With regard to the other three items on the agenda which are Exchequer focused, I draw the committee’s attention to the following key statistics. Tax revenues increased from €37.8 billion in 2013 to €41.2 billion in 2014. That trend is continuing in 2015, with tax revenues for the first four months at €12.8 billion, or 4.2%, above the expected profile. The Exchequer deficit fell to €8.2 billion in 2014 and we are forecasting that it will drop to about €3.5 billion by the end of the year. We expect to move toward a balanced budget by 2018. On general Government debt, the debt as a percentage of GDP is projected to drop to 105% in 2015 from a peak of 123.7% in 2013. We project that this downward trend will continue and that by 2020 we will be well below 90%. All of these trends are very positive and encouraging.

After a number of very difficult years, the economy is showing signs of recovery and the medium-term prospects are bright. Budgetary policies continue to focus on the need to reduce public debt and, within this, to generate sufficient funding for public services and boost the growth capacity of the economy. A modest recovery in the economy has been under way since 2011, but it has gained momentum in the past 12 or 18 months. We are seeing improvements in domestic consumption, people have more confidence and are willing to spend and, for the first time since the crisis, made a positive contribution to economic growth in 2014. We expect this to continue. Much of the competitiveness lost during the boom has been recovered. Unemployment, while still high, has fallen by 5 percentage points and is set to fall below 10% in the coming months. The number in employment has grown by 95,000, or 5%, from its lowest point. The Department forecasts that employment lost during the downturn will be recovered by 2018.

The improvement in the public finances goes hand-in-hand with the improvements in the economy. The general Government deficit has fallen from a peak of 11.5% in 2009 to an estimated 2.3% by the end of this year. Gross Government debt has peaked and fallen. We expect to get to a rate of around 100% of GDP by the end of 2016. Appropriate fiscal policies will continue to be necessary to ensure deficit and debt levels maintain their downward trajectory. The recently published spring economic statement clearly signals that this can be achieved within the fiscal rules, allowing for a modest increase in expenditure, balanced by a focus on taxation measures, while still complying with the rules of the Stability and Growth Pact. The spring economic statement is an important development and reform in how we budget.

Tax policy is one of the core functions of the Department. For several years we have been reforming and modernising the way we develop tax policy advice. Central to this is much greater emphasis on open public consultation processes which lead to better evidence based policy making. The contributions of all stakeholders, interest groups and individual members of the public are welcome as part of this process and carefully assessed. We are using public consultations more and more across the entire Department as a way of improving policy outputs. Last year there were seven separate public consultations on tax policy, ranging from the OECD BEPS project all the way through to agricultural taxation expenditures. This year there will be three additional consultations on the knowledge development box, the local property tax and the taxation of zoned but undeveloped land. To ensure policy proposals are robust, we introduced in 2015 new tax expenditure guidelines to assist with ex ante and ex post evaluations of expenditures. A workshop was held for all Departments and State agencies to set out the requirements of the new guidelines, which will have to be followed when tax expenditures are proposed. The Department has also initiated an annual tax policy conference, now in its third year, at which more than 150 stakeholders, academics and policy makers discuss tax policy issues. Papers on topical issues which are examined by the tax strategy group in advance of the budget have always been published and provide a very good source of data and a narrative from the Department across all tax heads.

Work continues on a wide range of challenging issues within the banking and financial sector. The investment by the taxpayer in the banks has been unprecedented, totalling over €64 billion. This investment comprised €34.7 billion in Anglo Irish Bank-INBS and €29.4 billion in the three viable banks of AIB, Bank of Ireland and PTSB. Our objective in the Department is to help recover as much and preferably all of the money the taxpayer invested in these living banks. Over the course of the past two years major steps have been taken to reduce the overall cost of recapitalisation. The liquidation of IBRC and the replacement of the promissory note by floating rate bonds in February 2013 reduced the gross borrowing requirement of the State in the next decade by some €20 billion. The sale of debt investments in Bank of Ireland, the sale of Irish Life and the repurchase of the contingent capital notes by PTSB have led to the return of around €5.5 billion to the State in the form of capital receipts. In addition, some €5.9 billion has been received in interest and fees across all of the banks. The preliminary independent valuation of the State’s equity and preference shareholding in AIB, recently completed by the NTMA, stands at €11.7 billion. The State also holds €1.6 billion in convertible capital notes in the bank. Our equity investment in Bank of Ireland, based on current market prices, is approximately €1.6 billion. That brings the total current value of the State’s investments to over €16.1 billion, including its equity investment in PTSB. We are confident that over time the aggregate funds the State has invested in the three banks will be recovered. PTSB has recently announced that it has raised €525 million, a significant milestone in its recovery. As part of the raising of capital, the State will recoup €509 million in capital receipts from the sale of shares and the repurchase by the bank of the contingent capital notes invested in by the State as part of the 2011 recapitalisation of the bank.

The success of the liquidation of IBRC to date has far exceeded expectations at the time of the promissory note transaction in 2013. In October 2014 the debt acquired by NAMA as part of the promissory note transaction was fully repaid. The success of the loan sales process removes any residual risk of further calls on the Exchequer. To February 2015, the second anniversary of the liquidation, €16.5 billion in cash inflows had been generated. This has allowed for the payment of €14.7 billion to IBRC creditors and resulted in a cash balance of €1.85 billion, which ultimately will be available for distribution to creditors, including the State.

The international financial services strategy commits us to protecting and enhancing the competitiveness of the funds industry. The Irish Collective Asset-management Vehicles Act 2015 is an important step towards that goal. There is a strong linkage between a number of work streams within the Department and the IFS2020 strategy launched in March. We are fusing these together to ensure we can fully support this important Government initiative and deliver on our commitments in the strategy actions.

There has been a suite of interventions designed to address the issue of mortgage arrears, including specific Central Bank targets, the code of conduct on mortgage arrears, the recasting of personal insolvency legislation, the provision of advice through Department of Social Protection-led initiatives and the mortgage-to-rent scheme.

It is a positive development to be able to report that the number of mortgages in arrears is declining year on year, although the issue of longer-term arrears remains a big challenge. For example, according to Central Bank data, the number of principal dwelling house accounts classified as restructured at the end of 2014 stood at 114,674, an improvement of 29% on the number of restructured accounts for the same period in 2013. As members will be aware, further enhancements were announced by the Government yesterday in terms of bank vetoes in the insolvency process, further resources for Department of Social Protection-led initiatives and changes to the mortgage-to-rent scheme.

At the end of 2014 NAMA had redeemed a total of €16.6 billion of senior bonds, which represents approximately 55% of senior bonds issued. NAMA is confident, assuming current market performance is sustained, that it will be in a position to fully repay its borrowings and hopes to achieve a surplus over its lifetime, thus eliminating the State’s contingent liability.

Turning back to the Department, we have placed a high emphasis on resources in the past few years, including the upskilling of staff through a continuous training programme and an improvement in information systems that are integral to our day-to-day business. This is and will be a continuing process. In the past year the executive board and I have concentrated on three areas - learning and development, the structure of the organisation and governance. The Department of Finance is a knowledge-based organisation and our people are our most important asset. As an organisation, we must always seek to ensure staff have the requisite skills for the job, complemented by our investment and focus on performance management, the enhancement of our IT systems, employee engagement, workforce planning and learning development. These developments are managed and led by our senior management team and actively contributed to and supported by our staff.

The learning and development strategy 2014 to 2016 was published in October 2014. It is aligned with our business needs and plays a crucial role in supporting the organisation. It is a living document that will change as the needs of the Department change. Strategies for learning include building skills capability through effective training and the development of a learning culture within the organisation; developing talented staff through bespoke training; continuously acquiring new knowledge and skills; and learning and improving from experience. For example, consistent with our overall emphasis on learning and development in the Department, a comprehensive technical tax training initiative has been put in place for departmental staff through a strategic training partnership with the Irish Tax Institute, as has a training initiative on project management, leading to the award of both a diploma and international accreditation. The Department is very proud to have been shortlisted, in the top three, for the best learning and development organisation in the Irish Institute of Training & Development awards 2015. It intends to build further on this initiative, particularly in the context of benchmarking our learning against industry standards.

Our organisational structure derives from our core job of providing policy advice for the Minister and the implementation of Government decisions. For the purposes of day-to-day management, we have significantly simplified the structure of the Department by creating two directorates - an economics and fiscal directorate and a finance and banking directorate. Within each there are a number of divisions. The economic and fiscal directorate reports directly to me and is focused on economic, budget, tax and international engagement. As Accounting Officer, corporate affairs, HR and departmental finances also fall within my remit in this directorate. The second directorate focuses on finance and banking, including credit, lending, EU and domestic financial legislation, shareholding management, risk, legal and compliance matters and engagement with international financial institutions. This directorate reports to Ms Nolan in her role as second Secretary General. She also acts as deputy to me in the overall management of the Department. This change meets one of the key recommendations made in the Wright report.

My other objective has been to enhance and promote good corporate governance and compliance within the Department. Work has just been completed on a governance framework for the Department, the purpose of which is to provide a clear and comprehensive summary for all staff of how we work within the Department. It ensures a framework of structures, policies and processes are in place to deliver on our obligations. It is envisaged that the governance framework will be further developed over time and have regard to implementation of the Civil Service renewal plan which will inform any update in the future. The codification of the governance framework for the Department, its roll-out to all staff and the embedding of its principles in how we do our work are important developments.

I acknowledge the work and contribution of all the staff of the Department. The progress we have made would not have been possible without them.

May we publish Mr. Moran's statement?

Mr. Derek Moran

Yes.

I welcome Mr. Moran and his officials. I understand he was only appointed in July 2014, but I wish to refer to some historical issues on which we need answers because this is the first opportunity Department of Finance officials have had to respond to parliamentarians directly on these issues - Siteserv, in particular - the timelines involved and the issues that have arisen. Mr. Moran may delegate as necessary to provide responses to the questions. Although he may not have been the person involved in the meetings, we need clarity on the issues involved, notwithstanding the written responses we have received from the Department in recent days.

I will start by asking questions about the Siteserv shares. Media reports in the past couple of months have suggested there was a sudden spike in Siteserv share activity between November 2011 and February 2012. I find it curious that it took a request from a Member of the Dáil to the Office of the Director of Corporate Enforcement to initiate a potential investigation into issues that might have arisen from the sudden spike in share activity. When the Department read media reports on an organisation, of which it had oversight through IBRC, which was in effect sold by the State, what did it do? Did it make inquiries about the share prices and activity reported in late 2011 and early 2012?

Mr. Derek Moran

I have brought with me Ms Nolan and Mr. Reid who are more familiar with this issue. I would preface any comment by saying I am anxious to assist the committee on this issue and that we provided a comprehensive background document for the committee on Tuesday evening. I am also conscious of the review of the transaction being carried out by the special liquidators, assisted by Mr. Justice O'Neill, which needs to take its course. Therefore, we will stay away from the transaction and its details and talk around the framework and the relationship.

On the alleged spike in share transactions, the monitoring of share transactions is a matter for the Stock Exchange which does not fall under the aegis of the Department. Where there is suspicion of anything happening along the lines the Deputy has described, the Stock Exchange is obliged to communicate with the Office of the Director of Corporate Enforcement.

Let me stop Mr. Moran. The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago, we are now finding that we are conducting another inquiry into a bank we own. Somebody might ask the question: "What is worse governance wise?" Was what happened in the 2000s in banks we did not own and of which there was no oversight and regulation worse?

The answer is that that was worse, given the devastation caused to our country and people. Technically, though, what is worse in governance terms is that we are holding an inquiry into a bank that we owned. That is how I will premise my comments. If the Department of Finance technically does not have a remit over the investigation of alleged insider trading, I am not sure whether it is sufficient to assert that that was not the Department's job. The Department had oversight of IBRC. The State owned it. When the media reported an alleged spike in share activity, did anyone in the Department contact the Stock Exchange, the Garda or the Office of the Director of Corporate Enforcement, ODCE? If the answer is "No", we have a problem. If someone robs my house, I go to the Garda and make a statement. A Deputy has made a request of the Director of Corporate Enforcement. His office's answer was that it wondered whether it had a remit in this area. We have an issue with the process when it comes to the investigation of alleged insider trading. The answer to my question is that the Department did not contact anyone about an alleged spike in share activity. Is that the case?

Mr. Derek Moran

It is important to get the timelines right. My understanding is that the alleged spike happened several months before the transaction was executed or during the run-up to the transaction. The Department had no visibility of that transaction until after it had happened.

I know that. That is fine. I am talking about what has been reported on in recent months. Does Mr. Moran have any opinion at all about what has been reported?

Mr. Derek Moran

Opinion does not matter. We are talking about a spike in a transaction-----

Mr. Derek Moran

-----that happened before the Department had any sight or knowledge of that transaction. This was an issue to be monitored by the Stock Exchange and reported to the ODCE if the former saw a problem. It is alleged. I do not know what the evidence is.

Does Mr. Moran know what? I am talking about the process. We have a problem. Compare this with the US Securities and Exchange Commission, SEC, which is a law enforcement commission, has an enforcement division and prosecutes civil cases before courts. It is unclear what happens in Ireland where there is an allegation or report, but the SEC acts on media reports. If it reads something about the industry in The Wall Street Journal, it acts on it. The Director of Corporate Enforcement's response in a news article was that his office "did not receive any requests from any other regulatory authority asking us to commence an investigation" into Siteserv share trading. This begs the question of what the office needs. Is it a papal bull from the Vatican? I do not know what initiates an investigation. If the Department of Finance has no interest, we have a serious problem.

The problem with the Stock Exchange is that it is owned by stockbroking firms. Someone might ask whether it is in the public's interest for them to have responsibility and remit for initiating an investigation. Is this a fair analysis or point to make? It is unbelievable that, if something like this is reported in the press, the Department of Finance does not have an opinion or will not ask even basic questions of the bodies and agencies that have a remit for alleged insider trading. Is this not even remotely reasonable?

Mr. Derek Moran

The regulation of the market is a matter for the Stock Exchange and, where there are irregularities, to report to the ODCE. These do not fall within the remit of the Department. I just want to be clear on that. The alleged spike happened before the Department had any visibility on the Siteserv transaction.

The response to the suggestion that there were irregularities was to make available the share register. To date, this is still an allegation of which I am unsure there is any evidence. Do my colleagues wish to speak?

Mr. Declan Reid

We are not aware of any evidence that has been brought forward other than what we have read in the press. The share register has been made available by the liquidator of Siteserv for scrutiny.

Mr. Reid is the person in the Department who would deal with this matter.

Mr. Declan Reid

Now, but not at the time of the transaction.

Has Mr. Reid or any of his predecessors contacted the Stock Exchange or the ODCE regarding this issue-----

Mr. Declan Reid

No.

-----to find out whether they are looking into it? I am not asking whether Mr. Reid has evidence. I am asking whether anyone in the Department of Finance, which had oversight of transactions involving IBRC, picked up the telephone and called these organisations?

Mr. Declan Reid

We have not contacted them directly to see whether they have conducted an investigation, but they have come out in response to parliamentary questions of which we are aware and stated their positions.

Does Mr. Reid not have any human curiosity about a matter over which he has responsibility on behalf of the public and into which he might make initial inquiries? Before Ms Nolan speaks, I find it unbelievable that someone from the Department of Finance would not pick up the telephone if there were several reports about a spike in Siteserv's share activity, given what has been in the media in recent months. The response from the ODCE was equally amazing. The office made contact with "a number of other regulatory authorities with a view to seeking to establish as to whether any issues arise that might come within remit". It did not even know what its remit was in this situation. The Stock Exchange is responsible for monitoring any suspicious trading, but we are none the wiser as to whether it has conducted a preliminary inquiry or investigation. It passes its files to the ODCE, which then investigates any alleged breach in company law. Is it not always the case of something being someone else's job? This must change. Given what the country has gone through in the past ten years, surely the Department of Finance would have some interest in finding out whether someone or some agency or body was examining what has been reported. This is reasonable, fair and simple. Does Ms Nolan wish to respond?

Ms Ann Nolan

The reality is that we do not have any evidence that there was a spike, never mind evidence of wrongdoing, but I agree that it is for the Stock Exchange and the ODCE to investigate such matters.

Does any of the witnesses have an opinion on whether the procedures in terms of alleged insider trading are appropriate?

Ms Ann Nolan

Insider trading is in no way appropriate. A number of changes to the procedures are upcoming. We are examining the market abuse directives. We expect there to be changes in the next 12 to 18 months in that regard to bring the entire matter under the Central Bank rather than the Stock Exchange, which would be more appropriate than the current arrangements. We are working on that front.

I will leave it at my next comment on this aspect. The public will be amazed that the Department of Finance did not make even the most basic of inquiries of the ODCE, the Stock Exchange or the Garda into whether the issue was being examined, investigated or inquired into. It is amazing. The witnesses might say that they were not there at the time, that this was not their job or that, statutorily, this was not an issue for them, but the public will not buy that any longer.

What Deputy Catherine Murphy asked in the Dáil was reasonable. This committee should make inquiries, as the issue relates to taxpayers' money. The Department of Finance held the opinion that there was potential for an awful lot of taxpayers' money to be lost, so a review was commenced. It was concerned about an asset being sold for a price that was too small. The very least the Committee of Public Accounts should do is to inquire whether the Office of the Director of Corporate Enforcement has looked at the matter and whether it is inquiring into it. We should echo what the Deputy asked for in the Dáil Chamber, if the Department is not going to do anything, and take it from there. It is unbelievable that the Department might not be prepared to make inquiries over the telephone, so the committee will have to do so.

I wish to inquiry about Siteserv. As I said earlier, this is the first time the officials from the Department of Finance have had an opportunity to respond to questions regarding Siteserv. They have given written answers to some of the questions we asked and, in many respects, the replies are comprehensive. I will start with the date of the review conducted by the Department, which was a meeting with senior IBRC officials held on 11 June 2012. What prompted the review by the Department? What concern prompted the Department to seek a meeting on Siteserv?

Mr. Derek Moran

As I said at the outset, the timeline is important. The Department did not have visibility on the Siteserv deal. Critical to this issue is when we first had an inkling that there might be an issue. We got a representation from a member of the public expressing concerns, and then there was a series of one or two parliamentary questions which brought up issues of concern.

A routine monthly management meeting was held in April at which the question of alerting the Department was raised. It was agreed with the chairman and CEO on 31 May that we would do so. It was in response to an e-mail from a member of the public, some press reporting and parliamentary questions. The review took place on 11 June, and Departmental officials and officials of the bank went through the various details on how the transaction was done.

The key element of concern was the first point that Siteserv led the sale and not IBRC - it was handed off to them - which gave rise to a range of other issues. It was those types of concern. We listened to the response, and there were five issues, all of which flowed from the fact that the company was allowed to run the sales process: not opening the sale to trade buyers, entering into exclusivity with a single bidder, the payment, the quantum of the payment to shareholders, and certainly the suggestion of not accepting higher bids. That is what gave rise to it, and it was immediately afterwards.

We have looked at the records and we have searched thoroughly in the Department. There is no record of details of Siteserv being provided by the IBRC to the Department before April 2012.

The shareholding management unit has responsibility for the day-to-day relationship. Is that right?

Mr. Derek Moran

Yes.

So, by June or July 2012, when it expressed a concern that the State had not recovered as much as it possibly should have, was that not a bit late in the day? What was it doing previous to that, at the time Siteserv was being sold? Has the Department asked the unit about what was disclosed?

Mr. Derek Moran

Yes, I have.

Ms Ann Nolan

Under the relationship framework that was before that, the fiduciary duty of the interests of the State was held by the independent board which had been appointed by the Government after the takeover or nationalisation of the IBRC. We did not get involved. In fact, the relationship framework was designed in such a way that we would not get involved in the ordinary day-to-day activities of the IBRC.

We now know that that design was extremely faulty, which led to a revised relationship framework. Is that fair to say?

Ms Ann Nolan

I think-----

Is there an admittance or agreement that the unit was completely ill-equipped to deal with the relationship and communications from the IBRC and the Department of Finance, and that is why it resulted in a completely revised framework document?

Ms Ann Nolan

That would probably not be quite the full story. I want to be fair to all the people involved. At the time the bank was taken over it was a going concern, and the ordinary course of business was, of course, ordinary banking business. It was, I think, August to September 2010 when we put the bank into wind-down. The ordinary course of business, in extent, changed because, at that point, they were then winding down. This type of transaction was not captured. It became an ordinary course of business and probably should have been captured.

We are getting to the kernel of the issue, which is commercial freedom-----

Ms Ann Nolan

Yes.

-----and the kind of oversight that the State provided when it came to something that was owned by the public. As I said to the witnesses earlier, it is ironic that before concluding a banking inquiry into something that happened historically, we have initiated another inquiry into a bank that we did own.

I asked a question about the framework that existed initially. I understand what Ms Nolan is saying, but a lot of people have reached the conclusion that, regardless of the issue of commercial freedom, the State and the Department of Finance did not act accordingly in terms of the oversight of IBRC, and had to change the framework document subsequently. That is really what happened.

Ms Ann Nolan

We changed the framework document when the nature of the relationship changed because the nature of the organisation changed.

Mr. Derek Moran

I wish to emphasise that point. The 2009 relationship framework was based on a company that was supposed to return to being a bank. Its normal trade was to be banking. That changed in the latter half of 2010, with a business plan being agreed with the EU in January 2011, after which it went into wind-down.

There was a provision in the original relationship framework that any material acquisition, disposal, investment, realisation or transaction other than in the course of ordinary business would be a reserved function of the Department. When it went into wind-down, such disposals became part of the ordinary business, and fell out. That meant the relationship framework was no longer the right one.

Mr. Derek Moran

They were not required to notify, and they did not.

The Department had an epiphany. The note issued by the Department reads:

We are concerned at the number of large transactions that have been poorly executed under the direction of the current CEO.

The note refers to June or July 2012. What other transactions did the Department look at? What other large transactions was the Department concerned about in terms of the disposal of assets within IBRC? What else are we looking at here?

Ms Ann Nolan

The list of transactions is in that same document. There is the Allsop transaction.

Ms Ann Nolan

There was the engagement of Blackstone on an exceptional basis.

Is the Department looking at anything else?

Ms Ann Nolan

No, I think that is an exhaustive list. Looking through all our other files we cannot find a reference to any other.

This reference to a number of large transactions-----

Ms Ann Nolan

That is all we can find any record of. The individual who wrote that particular note is no longer with the Department and he has no recollection of any others.

Mr. Moran's predecessor, Mr. John Moran, met the CEO of IBRC. There are no minutes of that meeting. Will Mr. Moran give the committee an idea as to what was expressed on behalf of the Department?

Mr. Derek Moran

There are no minutes but there is a record of what happened at the meeting and it was largely a follow-up from the meeting with the Minister a fortnight earlier about improving the relationship and getting better oversight going forward, and that culminated in putting somebody from the Department into IBRC in a specific role. There is a record, which has been released under FOI, from Michael Torpey recording John Moran's debriefing of that meeting, and that sets it out. Am I right in that?

Ms Ann Nolan

Yes.

Mr. Derek Moran

The key was to follow up the items that were discussed with the Minister on 25 July. The main one was to action out the improvement of the oversight and the improvement of the relationships going forward.

When one looks at the Anglo Irish Bank Corporation Act 2009, it is pretty specific when it comes to the flow of information that should be going from the bank to the Minister and the Department. It talks about any material acquisitions, disposals, investments, realisations or other transactions other than in the ordinary course of Anglo Irish Bank's banking business. In hindsight, was the Act followed?

Ms Ann Nolan

It depends on what one considers as the ordinary course of business and there was a difference of opinion at different times between ourselves and the board of the bank as to what constituted-----

As far as the interpretation of the Act?

Ms Ann Nolan

The interpretation of the Act.

And was that made clear at the time?

Ms Ann Nolan

The Deputy can see the documents that we had at that time. One of the other issues that has to be taken into account is the relationship-----

The suspicion is that it was not made clear. We will get down to the nub of this now. The suspicion is that the Act was enacted and the details within the Act were not followed through on and there was not a sufficient level of communication or inquiry when it came to the Department and the bank. There is some reasonable evidence to suggest that the details of the Act and the spirit of the Act were not followed through on. Ms Nolan has said that she went back through the files. When it came to full access to information, does Ms Nolan believe now that there was a serious problem? I think the answer is obviously, "Yes," because the whole framework was revised subsequently.

Ms Ann Nolan

To go back to the framework, the reason the framework was written the way it was the first time was because that is what was insisted on by DG Comp, the competition authority in Europe. We had no option but to allow commercial freedom to the bank and to limit our inquiries, and that was insisted on by DG Comp. One of the reasons the second relationship framework took a long time to negotiate was because DG Comp was reluctant to allow us to put in the kind of thresholds that would say certain documents would have to come to us.

Is that the reason the revised framework was not implemented until March 2012?

Ms Ann Nolan

That is the reason.

Is that the only reason?

Ms Ann Nolan

In 2010 there were a lot of other things going on in the Department and the bank was reluctant to change it, but the main reason was that in March 2011 there was the recapitalisation of the other banks, the PCAR, and the burning of the bondholders during June and July, and there was a set of things agreed under the programme. The question of the revised relationship frameworks came up in August when we had the other major bits done and they were discussed then between August 2011 and March 2012 and that is when they were put in place.

Mr. Derek Moran

It is very easy to forget that this was an exceptional period. We were going into a programme and a general election. All conditionality that went with that programme had to be implemented as a priority for the release of funds. In addition, the State was locked out of the markets. As Ms Nolan has said, the rewriting of the relationship framework became a condition of the programme after the third review. It was originally to be delivered by the end of December 2011 and it was not delivered until the end of the first quarter. There was slippage on that. That was a relationship framework negotiated between us, the bank, the three members of the troika, and DG Comp. It was not simple. It was multi-party. To paraphrase what Ms Nolan has said, I think DG Comp wanted us to be even further away and more hands-off in our relationship with the banks rather than closer.

At a certain point the Department made a determination that Anglo Irish Bank was not forthcoming enough with regard to its decisions and transactions. Mr. Moran has said that the Department then decided to put an official in on the board to keep an eye on things. The board did not like it. It begs the question whether it should have occurred much earlier. That is the issue. Therefore, we go back to Siteserv and other transactions, and we now have a public inquiry into whether the public achieved what it should have achieved through the sale of that. The public did not expect the Department to fall down so badly so quickly after what occurred. The requisite scrutiny was not there. The Department changed it, effectively, at a certain point, but I do not believe that it was there. I think the Department fell down.

Ms Ann Nolan

I would absolutely not agree with Deputy Deasy. The independence of the banks was an absolute prerequisite of DG Comp. It remains the issue that the responsibility for the running of the banks is a matter for the boards of the banks and we appointed a board chaired by Alan Dukes, a former Minister for Finance, a very capable man. I have no evidence, to this day, that any of the transactions were wrong, but I accept that there are many questions about Siteserv. We had questions ourselves about Siteserv. We do not know the outcome of the inquiry. We have set up an inquiry to look not only at that but all of the other deals that that board did.

Ms Nolan's word choice is interesting - she has no evidence that any transactions were wrong. The Department of Finance would have a very clear opinion with regard to the amounts of money that were recovered from the sale of Siteserv, and the opinion of the Department of Finance was that it was not enough and that the State did not achieve what it should have. That was, in effect, the opinion within the Department of Finance and that is why things changed. So when Ms Nolan says that there is no evidence of anything that went wrong, there is a clear opinion that came from the Department of Finance that things were not as they should have been.

Ms Ann Nolan

No, I think the opinion within the Department of Finance at the time, and as reflected in those documents, was that there were aspects of that transaction that it was not happy with. There were aspects of it where we felt it was possible that a different set of actions could have brought a better solution. The board told us and assured us and the Minster that that was not the case, that this was the best possible transaction. We have now asked the special liquidators under Mr. Justice O'Neill to inquire into that and look at all of the facts and establish whether or not they agree with the board. Certainly, there were aspects of that transaction we were unhappy with. There is a big difference between that and suggesting that everything that that board did was wrong-----

I am not suggesting everything the board did was wrong.

Ms Ann Nolan

-----or that there was huge-----

That is very unfair. Did I say-----

Ms Ann Nolan

Deputy Deasy said that the entire position-----

Did I suggest that everything that the board did was wrong?

Ms Ann Nolan

No, what the Deputy suggested was that everything that happened between the-----

No. Do not put words in my mouth.

Ms Ann Nolan

I am sorry. I withdraw that completely. I apologise to the Deputy. I was not trying to challenge him in that way.

KPMG and former Justice O'Neill are looking into all transactions that took place over €10 million. We are aware of that. What we are delving into here is how quickly a Department acts when it actually raises concerns itself. The answer is - not very quickly.

Regardless of the regulatory body dealing with this, there was an awful long time between the raising of the initial concerns and the establishment of the revised framework document.

Ms Ann Nolan

I do not understand. The revised document was put in place in April 2012.

It was March.

Ms Ann Nolan

Sorry, it was March 2012. That was before concerns were raised.

My point is that concerns were raised within the Department on the operation of the bank, which led to the revised framework document. Is that a fair point?

Ms Ann Nolan

Yes.

I am saying that that took too long.

I welcome Mr. Moran and his colleagues. I have a number of issues relating to our normal business, but I will start with Siteserv, and if I do not have time to get to the other, routine items I will come back and deal with them later. What is the agreed fee with KPMG for this inquiry and the report?

Ms Ann Nolan

We have not agreed a fee yet. We do not know how many hours it will take. The rate will be the same rate we pay for all the other work they do.

I am almost lost for words. After all Ireland has been through, and especially the Department of Finance, the Minister for Finance has now set up an inquiry, to report back to him at the end of August, with a blank cheque and with no fee having been agreed. Have we learned nothing? Has the Department of Finance learned nothing? I understand daily rates and hourly rates, and I will pursue the witnesses on that in a moment, but we now find that the Department has appointed people to carry out an inquiry and to compile a report but cannot give me a figure for the fee. Is it €1 million? Is it €2 million? As was said in the opening statement, it will be paid by the liquidator and may ultimately come out of what is available for distribution to the creditors, including the State. So the Irish taxpayer is now paying for this inquiry.

I am sure the Department has agreed the number of staff and the hourly rate for those staff. Can Ms Nolan tell me what KPMG charges for the work it is doing today? How many additional staff will be required? KPMG was given a ministerial directive to carry out this function. There was no bid for the contract and it was not put out to public tender, which the Department could have done. Instead, the Department decided to take a short cut and appoint KPMG because it was in situ and had the most access to the books. We spoke about procurement and tendering a few days ago. The Comptroller and Auditor General might comment on whether this was such an exceptional measure that it required normal public tendering processes to be put to one side.

How much is it costing per day? Even if the Department cannot tell me, it must have an estimate.

Ms Ann Nolan

I do not have an estimate with me.

We have heard an opening statement and we have pages of stuff the Department has released under freedom of information. I have 21 more pages of questions and answers about Siteserv and I probably have a total of 60 or 70 pages about Siteserv in my folder this morning courtesy of the Department. I am asking a simple question. There were calls for an independent commission of inquiry into what happened with Siteserv. A decision was made to appoint KPMG so that it could get the job done by the end of August, but the Department does not know the figure for costs and does not even have the daily rates being charged. Mr. Moran, that is a bad day for the Department. We look at the Department as the custodians of the national finances, but it has appointed consultants to do work willy-nilly, without an agreed fee or a ceiling to the fee. I am a former employee of KPMG and it is a good organisation. I know the rates they charge. They could easily have said, for example, that if the job took a month it would cost €600,000 or if it took two months or more it could be a different figure. They must have given the Department some indication. Can the witnesses tell me about the discussions it held with KPMG about the total fees for this project?

For clarification, is it that the witnesses do not have the figures with them today, or is it that they do not know them at all?

They do not have them?

If they do not have them, can they go outside and make a telephone call and get them?

Ms Ann Nolan

No. The fee rates are already set by the contract that they already have under the special liquidation.

Tell us what those fees are.

Ms Ann Nolan

I can get those for the Deputy before this meeting is over. I do not have them here, but I do have them.

They will be the hourly rates, namely, the charge-out rates for the different categories of staff. Will Ms Nolan then be able to tell me how many are working on the job this week and the cost for this week's work?

Ms Ann Nolan

Yes.

I am still horrified that, in this day and age, the Irish taxpayer is being asked to write a blank cheque, and I am horrified that the Department of Finance is handing KPMG a blank cheque. They could come back and say the price is €1 million, €2 million, €3 million or €4 million. The Department does not know.

Ms Ann Nolan

They are working with Mr. Justice Iarfhlaith O'Neill at the moment on the scoping exercise and they will return to us with an estimate on that, which we will robustly challenge if we are not happy with it. Because the judge was out of the country when this started, it has taken a little bit longer than we expected.

The retired Mr. Justice Iarfhlaith O'Neill has the highest, most impeccable standards and nobody anywhere would suggest anything to impugn his good character or ability. Am I right, though, that the judge himself will also be paid by the special liquidator?

Ms Ann Nolan

The arrangements for the independence of the judge are under discussion this week. I cannot give the Deputy an answer to that.

The judge was appointed a couple weeks ago, and now we are discussing the arrangements for appointing him. I will tell the public, if Ms Nolan will not, that the special liquidator will be the person who will pay the judge. Who else could pay the judge?

Ms Ann Nolan

We could pay him.

Yes, but that is not the arrangement. I saw in the media that it was confirmed by the Department of Finance over the weekend that this is coming out of the special liquidator's funds. The special liquidator is the person paying the independent judge who is overseeing the person carrying out the investigation.

Ms Ann Nolan

I think that is unfair. The fact that it was in the media does not make it right. The judge has been away so we have not put those things in place. We have had preliminary discussions with him and I understand there is a meeting tomorrow at which things will be fixed. The judge is extremely concerned about his independence and we will ensure his independence.

The legal mechanism under which the Minister put in place this process was via legislation, and he issued a ministerial order for the project to be carried out by the special liquidator. In the interests of the judge, the Department should tell him when it meets with him that it will pay him directly, because it is not in the judge's interest, in the inquiry's interest or in anybody's interest that he be on the payroll of the special liquidator. I hope Ms Nolan will take that point on board.

Ms Ann Nolan

Absolutely. I agreed that on Monday.

I doubt if it was going to happen. How many weeks are we into this process? We have no details of the fee and we have not yet spoken to the people involved.

Ms Ann Nolan

The judge was not in the country.

Why did the Department not appoint a judge who was in the country?

We are not so short of retired judges. Is this matter not urgent? I will move on, but there will be more about this because in 2015 the Department of Finance is still appointing consultants without a tendering process and giving them a blank cheque to do a job. A couple of weeks into it they will ask for a scoping document and there will be argy-bargy about the few extra hours they will take. Does Mr. Moran have an indicative figure, to the nearest million, as to what this process will cost?

Mr. Derek Moran

No, not at this stage.

My God, is all I can say.

Mr. Declan Reid

The scoping exercise is to determine the number of transactions that were reviewed, what those transactions were and the extent of investigation required to fulfil the objective.

Would it not have been prudent for the Department of Finance to have done a little bit of scoping before it announced this inquiry?

Mr. Declan Reid

The Department of Finance would not have direct access to those records. Those records are held by IRBC.

It announced this inquiry not knowing what was involved and not knowing what it will cost. We are here weeks later and we still do not know.

Mr. Declan Reid

There would have been an initial scoping by the special liquidator to get a general sense, but a more detailed scoping is under way in discussions with the judge to ensure it is appropriate.

I will not get into what the Minister did. I will leave him out of it because he is not here. Did Mr. Moran not advise the Minister to take a few extra days? There was talk during the week it all happened. The Taoiseach wanted the Comptroller and Auditor General to do it and did not understand he could not do it. The next day in the Dáil the Tánaiste wanted an independent authority to do it. Independent people called for somebody independent to do it. On Friday morning we had an announcement from Riga that KPMG would do it. Then there was confusion and a judge was appointed. The Secretary General is the Accounting Officer and the headlong rush into this by the Department to get it done quickly has exposed the taxpayer to the possibility of greater costs than might have been necessary had the Department taken its time and planned this or had the project put out to tender. It might have taken longer but it would have been more independent. Is this how the Department of Finance is still doing its business? It just appoints people and tells them come back in a few weeks to tell it how much they think it will cost. This breaches all public procurement rules.

Mr. Derek Moran

What was needed was an expeditious response to concerns. The person with all the information to have the capacity to review the concerns the public might have is the special liquidator. A contract is already in place, which was properly negotiated . A fee structure is in place. Many statements have been made but at the end of the day this will be charged against the surplus in the liquidation, although possibly not the judge's fees. It will not fall back on voted expenditure. We have in place an existing arrangement, existing contracts and an existing fee structure. The Minister has the power in the Act to issue a direction for the liquidator to take this on, which is what was done. We should have a report by the end of August which will then be made available for consideration and we will see where we go from there. This is a very quick turnaround.

I know I will not have time to deal with all of the issues I want to discuss so I will spend the time I have left on this. Mr. Moran gave getting this job done expeditiously as the only reason for taking this route. Getting to the full truth and having it done independently should have ranked more seriously in his considerations than getting it done quickly.

Mr. Derek Moran

Just to answer-----

Mr. Moran used the word "expeditious". It is in his statement.

Mr. Derek Moran

I said the person who had the full information on these transactions is the liquidator. The liquidator has all the papers. With regard to getting to the full truth in the speediest possible way, if I did not make that explicit, he has the documentation and access to it. He can carry out the review. Getting to the truth is implicit in this, it is getting to the truth in an efficient way.

However, it is not independent. We will move on and agree to disagree on the independence issue.

I hate to say it but Mr. Moran's wording was very clever and accurate but nicely confusing to the public. He made it very clear a minute ago, and rightly so, technically correct but giving the wrong impression, that the cost of this would not have to come out of any voted expenditure. In his opening statement to us an hour ago with regard to IBRC, he said the liquidation has resulted in a cash balance of €1.85 billion which ultimately will be available for distribution to creditors including the State. What he is actually saying is it will come out of taxpayers' money because the State is the taxpayer. He is saying any cost that comes out of this extra inquiry will come out of the amount available for distribution to the State. That is in his opening statement and it is accurate. He also said a minute ago that the cost of this inquiry will not come out of any voted expenditure. That is also accurate. If the people of Ireland, whom we are here to represent, listened to what he said a minute ago they would think this cost will not be voted in some way by the people because he said it would not come out of voted expenditure. I must highlight he said a half an hour ago it will come from any distribution available to the State and the taxpayer. The taxpayer is paying for this through the amount of funding that will come back as a result of the distribution. A lower distribution will now be available to the taxpayer and the State because of the cost of this, and we still do not know to the nearest million how much it will be.

I apologise to the Chairman for the time I have taken on this point. I expected a straight-up answer in this day and age on how much it will cost. I was expecting to be told it was commercially sensitive, but I expected somebody somewhere to have a cost.

The essence of what Deputy Deasy said about Siteserv was a relationship framework was in place since 2009. In the documents we received during the week Mr. Moran stated IBRC received further significant levels of State support and ultimately began pursuing an orderly wind-down strategy in accordance with the joint restructuring and work-out plan for IBRC dated 31 January 2011 which was approved by the European Commission and EU state aid rules.

Mr. Moran said he had a busy year, and everyone is busy, but the public will be disappointed that a decision was made on 31 January 2011 but it was 15 months later before the Department of Finance came back. The revised framework was all under Mr. Moran's control. Under the revised framework, the new arrangement states that representatives of the Minister can attend board meetings in an observer capacity. Had the Department of Finance been doing its business in 2011 or earlier than that, the Minister would have had the right to have an observer at all the board meetings in 2011, long before the Siteserv deal was on the agenda. The revised agreement also stated the Minister was entitled to be notified of any information he reasonably required. All of this could have been in place long before the Siteserv deal came in. It was in the ability of the Department of Finance to do that. What is even more worrying from what Mr. Moran said a few minutes ago is that, ultimately, the troika put a deadline on it. He said the troika had in its third review that this was to be done by the final quarter of 2011 and that it slipped to the first quarter of 2012.

Even if the troika had not been in town, the Department of Finance should have done this in a more expeditious manner. If it had done so, that revised framework agreement would have been in place 12 months earlier than it was. Why did it take 15 months to put the revised framework in place when the Department knew this was in a wind-down situation, approved by the EU on 31 January 2011?

Mr. Derek Moran

I said it became a formal conditional programme in the third review. The discussions about a relationship framework were happening from the beginning. I have emphasised that it was a matter not just for us. The negotiations included multiple partners including the Department and IBRC, but there was also the negotiation of relationship frameworks for the other banks, the three members of the troika and the Directorate-General for Competition. It was negotiated over a prolonged period of time. While it would have been much better if it had been put in place earlier, nobody was sitting on their hands and ignoring the issues. The issues had to be worked through.

Ms Ann Nolan

I agree. The issue for us was trying to get the frameworks in place for all the banks in a way that gave commercial freedom and involved no political interference in ordinary day-to-day business but enough oversight for the Department to ensure we were happy with how they were doing. There was tension in the negotiations between the Department, the banks and the Directorate-General for Competition. I am not sure the troika members had such a major issue in that regard. It took longer than we would have liked to get them in place.

What were the dates of the revised frameworks for the other banks?

Ms Ann Nolan

It was the same date.

Which bank caused the longest delay? IBRC was not a bank at that stage. It was a separate case. While the other banks are continuing and, hopefully, prospering into the future, IBRC was not in that category. It should not have held it up because it was in an entirely different category from the other banks.

Ms Ann Nolan

It was not held up. The three were done together. No one bank held it up for the others.

In February 2013, the legislation to appoint the special liquidator to IBRC was passed by the Dáil in a late night sitting. This is how things happen. It has been well reported that the legislation had been drafted several months beforehand. Although people think it was rushed legislation, it was not. It had been properly planned and drafted over a long period of time external to people and, understandably, the board was not made aware of it. I understand the need for confidentiality. I am sure Mr. Kieran Wallace had it in his top drawer and was out with it the minute he received the phone call. It was rushed through the Dáil. There is an impression that it was produced that evening and rushed through the Dáil. When exactly in 2012 did the Department make the decision? It was simultaneously expressing concerns about Siteserv. Ms Nolan has said the two events were not linked. When did the Department begin the process and memos about the special liquidator for IBRC and when were the first and second drafts completed? Who drafted it? I am sure it was done externally. When did the Department have something on it in place. It sat for a while until it was deemed that the appropriate time had come to launch it.

Ms Ann Nolan

It would be useful to take it from March 2012 when we did the deal whereby we paid the promissory note with a bond and made a repurchase agreement, repo, with Bank of Ireland. It became clear to us that there was no political appetite to pay cash for any of the promissory notes. It was clear that the ECB was not going to accept a further repo similar to what we had done. There was a €3.6 billion payment on the promissory note which was to happen every March for ten years. It was paid that March by issuing a bond from NTMA, which was given to IBRC, which was not in a position to use the bond with the ECB. It swapped the bond for cash with Bank of Ireland, and Bank of Ireland was in a position to go to the ECB to get cash.

It was a temporary bridging loan from Bank of Ireland.

Ms Ann Nolan

Yes. It is known as a repo. It is a swap. I give you the bond and you give me the money but at a later date we will swap them back. This meant between that March and the next March we had to come up with an alternative treatment for the promissory note. We had been in discussions with the troika for some time about different options, none of which was attractive from the point of view of the Irish State because most of them were much more short term than the one we ended up with. The first mention I remember of a possible liquidation of IBRC was in the very beginning of September 2012, when there was an initial discussion involving the Department and the troika members, on a very small scale, about whether we could replace the promissory note with long-term bonds if IBRC were liquidated. If IBRC were liquidated, the promissory note would be left in the hands of the Irish Central Bank. The ECB was extremely unhappy with it having it, we would volunteer to swap it for long-term bonds and the bank would be liquidated. This was totally separate from the questions on Siteserv.

I have said that.

Ms Ann Nolan

The Deputy asked about the drafting of the legislation. Towards the end of September, after a number of discussions with various parties involved, it became clear that it might be a viable option. The first heads of Bill were done in our Department at the end of September. We were in negotiations with the Office of the Attorney General and the Bill was entirely drafted between our Department and the Attorney General's office. We had a first draft that was workable by the middle of October, which we revised a number of times to produce an improved final draft. We were very conscious that we had a drop-dead date of March and we did not know how long it would take to build some sort of consensus by which the ECB would be willing to note it - which it did in the end, although it did not agree it - and we did not want any fall-down on our part if that happened.

When was the special liquidator, Mr. Kieran Wallace of KPMG, brought into the discussion to be on standby?

Ms Ann Nolan

October.

Were fees discussed? I think it got €70 million so far.

Ms Ann Nolan

The fees were discussed. As we put on the record at the time, we could not put it out to tender.

I accept that and I agree with it.

Ms Ann Nolan

We decided to go to some State agencies that had tendered for this type of work.

The Department went to the big companies. That is fine.

Ms Ann Nolan

We went to NAMA and asked it to examine its liquidation panel, because it had tendered. We needed somebody sufficiently big. A number of people were ruled out due to conflicts of interest, and we were left with a choice between one or two. NAMA recommended this to us. We talked to Mr. Wallace and at the very first meeting we made it very clear that it had to be at NAMA rates, given that it was a sister organisation and this was on the back of its tender. In the initial period, very few people at KPMG knew about it. It was very secret.

From October 2012, it could have happened on any day in Dáil Éireann.

Ms Ann Nolan

Any Tuesday, in theory.

I apologise to any viewers for this technical discussion. Some people are lost. However, it is useful to put it on the public record that the liquidation issue was probably planned, discussed and thought out, and I have confidence in the process the Department followed.

I have less confidence in what happened last month. I will let others in but will want to come back to talk about other issues, including debt.

I propose to take a break after Deputy Perry’s contribution.

As with Deputy Fleming, I refer to impartiality, the appointment of the judge and to payment. I welcome Mr. Moran and his team. In referring to who is paying the appointee and to what his job will be, it would be wrong to make any inference about impartiality.

The success of the liquidation of the IBRC to date has far exceeded the expectations at the time of the promissory note transactions in 2013. In October 2014, the debt acquired by NAMA as part of the promissory note transaction was fully repaid. The success of the loan sales processes negated the need to transfer any assets to NAMA as part of this process and removed any residual risk of further calls on the Exchequer.

It is important to put on the record also that loans of par value of €21.7 billion have been prepared, brought to the market and sold. Among other assets, loans with a par value of €3.6 billion remain, which the special liquidator is to continue to manage. To 6 February 2015, the second anniversary of the IBRC liquidation, €16.5 billion in cash inflows have been generated. This has allowed for the repayment of €14.7 billion to the IBRC’s preferential creditors and to meet costs to date. This has resulted in a cash balance of €1.85 billion, which will ultimately be available for distribution to creditors.

It is important that we put this in the context of the questions I will ask. Perhaps Mr. Moran would like to comment on the great success on the part of the Department. It is important that the committee, as an accountability body, acknowledge the extraordinary achievement in two years. Maybe Mr. Moran will give an overview, after which I will have three questions to ask.

Mr. Derek Moran

I thank the Deputy. It was a remarkable deal. It was a remarkable resolution in the end, led by Ms Nolan and her team. As it has worked its way through, it has been very successful. At the end of the day, there will be a residual of just under €2 billion. ELG fees owed will probably be the biggest part of the outlay. One would hope the State will get some money back on behalf of the taxpayer. The timing of that will all depend on the resolution of something like 300 court cases which are pending. It will take time to work through but it has been a very positive thing. Notwithstanding that, we must always be cognisant of the fact that the liquidation of the bank means we are pretty much not getting back the money that went into Anglo Irish Bank. One has to recognise that on the other side of the balance sheet. Some €34 billion went in and it was liquidated. In terms of getting money back, the Department is working towards getting back the money it invested in the other banks, the living banks. It has been a successful project, however. There will be creditors for that €1.8 billion, with small amounts going back to local authorities, and larger amounts coming back to ourselves through the ELG and through the settlement of a range of issues. The Deputy is absolutely right that it turned out to be an extraordinarily well-run and effective liquidation, coming out with a very good result ultimately.

Is it not a fact that the majority of the companies taken over were defunct companies with no potential? It is easy to look back with the benefit of hindsight, based on things having changed, but at the time in question one was looking at a very dormant, bleak balance sheet.

Mr. Derek Moran

Yes. As conditions have improved and the wind-down has gone on, we have sort of derived the benefit from that.

Mr. Declan Reid

That is evidenced by the contingency plan of putting NAMA in as a backstop. This gives members some insight into what we thought might have happened at the time, but that has been removed now because of the success.

I thank Mr. Reid. On the €1.85 billion which will ultimately be available for distribution to creditors, the witnesses might give the Chairman a note at some stage on who they have in mind for it.

Ms Ann Nolan

That will be the creditors. They all had to apply before the end of March. Those who thought they were owed money by IBRC had to apply before the end of this March, or before the end of May in America. The order of the creditors is decided by liquidation law.

Ms Nolan referred to the end of March. Is the process over now?

Ms Ann Nolan

It is over now. We were in contact with all the local authorities, some of which had bonds from IBRC. My understanding is that the State bodies have put in their claims. The credit unions have put in their claims. They have a big claim.

Has that figure been exceeded?

Ms Ann Nolan

We do not have a final figure from KPMG but the biggest issue is the legal cases, the 300 or so legal cases, because the legal cases will have to go into the mix if there are findings against IBRC.

I am glad to get the opportunity to put on record the success over the two years. We can always pick out exceptions but it is important to put on the record where we are coming from.

Mr. Derek Moran

I must emphasise that the distribution surplus is contingent on the settlement of the cases.

Can the clerk be given a view on that when the cases are fully decided, or an observation?

Ms Ann Nolan

Yes. If we have any information we will certainly send it to the committee but I think the liquidator will be very cautious. We understand the State makes up about 70% of what is there, and we are owed about €1.2 billion.

I have just three brief questions, which I will ask with the lenience of the Chair. I am glad to put my remarks on the record because people often take just one issue, which can have an impact on the perception of the success of the Department to date. I congratulate the witnesses on their success to date.

Ms Ann Nolan

I thank the Deputy.

My first question relates to the formal legal establishment of the IBRC on 1 July 2011. Can Ms Nolan please clarify the reference in submissions to the IBRC as having been in existence before 1 July 2011? Correspondence I have received implies it was in existence prior to that date.

Ms Ann Nolan

I think it is probably referring to the Anglo Irish Bank part.

Clarification is important. IBRC was formed on 1 July 2011 to take over the bad bank parts of Anglo Irish Bank and Irish Nationwide Building Society. Is that correct?

Ms Ann Nolan

That is correct.

It was an essential part of a new policy initiative to wind down both banks. Is that correct?

Ms Ann Nolan

Yes.

Given that the core assignment for IBRC was to deal with the toxic loan portfolios of both of these banks, can the witnesses tell the committee what relationship framework measures were put in place to manage the Department of Finance and the new IBRC, which was quite different? One must remember the timeframe. On 1 January 2009, Anglo Irish Bank was put into State ownership. On 31 March, the larger provision for bad loans required was reported to the Department of Finance. On 1 August 2010, Irish Nationwide Building Society was effectively nationalised. On 15 September 2010, the Government decided the bank would be wound down over a ten-year period. In November 2010, Mr. Moran led the development of the bank deleveraging plans for the IMF-EU-ECB memorandum of understanding. The 31st Dáil met on 9 March 2011. Mr. Moran joined the Department of Finance on 11 March as second secretary in charge of the banking area. On 1 July 2011 there was the court-mandated merger of Anglo Irish Bank and Irish Nationwide Building Society. The core assignment of the IBRC was completely different then because it was dealing with the toxic loans. The framework measures were put in place to manage the new relationship between the Department of Finance and IBRC. Specifically, what new measures were introduced to reflect the more difficult and complex challenges being assigned to IBRC?

Mr. Derek Moran

The key here is determining the differences between the first framework and second framework.

There is a huge difference.

Mr. Derek Moran

There are significant differences. I can tick them off individually and if I miss any, my colleagues will fill them in. We did not observe board meetings under the first framework. Under the revised framework someone from the Department attended and observed board meetings. We received all of the board documents under the revised framework but not under the original one.

The information in the brief is adding to the storyline. I refer to the framework document, specifically regarding Irish Nationwide Building Society. These are all toxic debts in cases that were absolutely hopeless. Obviously, from 2009 up to that period, it was very much a loose arrangement, but from that date on, in the light of the scale of what was being taken over, was there much of a difference?

Mr. Derek Moran

At board level we receive the board packs and get to attend. In terms of material transactions, consent had to be provided. In the case of transactional reviews and the deleveraging committee, where previously the Department would not have been attending, it attended and observed and received the information at a current time. There was a significant set of changes within the arrangements. The Department was far more hands-on and had far more information available to it.

Was there a record of it?

Mr. Derek Moran

Yes.

That leads to my second question which relates to the information flow between IBRC and the Department. The document with responses to questions posed to the Minister for Finance in preparation for today's meeting of the committee states the shareholding management unit, SMU, within the Department was responsible for managing the day-to-day relationship with IBRC and that the SMU had daily instructions with the senior management team in the bank on a wide variety of issues, including the bank's performance, progress in deleveraging and various consent and consultation requests. The reply also states formal monthly meetings were held between the SMU and senior management of the bank. Did the SMU take notes on these interactions and is there any documentation on them in the Department? Given the scale of the loans outstanding and the cost implications for taxpayers, I would have expected the Department to have kept meticulous records of such transactions.

Did the Department have an internal reporting system to senior departmental management and the Minister on the monthly progress of IBRC operations? From what original source documents were such reports prepared and circulated? Again, given the scale of the loans outstanding and the cost implications for taxpayers, I would expect the Department to have had in place the means to ensure the Minister was fully and regularly briefed on the key operations and other decisions of IBRC. There is an amazing blank timeframe from August 2011 to 8 February 2012 when nothing appears to have happened.

Mr. Derek Moran

In the process of preparing for liquidation a huge amount was going on but not in the context of transactions. There is an important difference in that period. We had somebody in the bank. We had much higher visibility of what was going on; therefore, any issue that might have arisen was dealt with in time. It is quite different.

Regarding formal monthly meetings with the management team, notes would have been kept.

Mr. Declan Reid

Notes were being kept. As I believe some of them are subject to a current freedom of information request, some of them will probably be released in due course.

On the point about the importance of the Minister being fully and regularly briefed on key operations and other decisions, did that happen?

Mr. Declan Reid

To take a step back to the content of the monthly meetings, what was discussed at them would have been guided by the context of the relationship framework at the time.

On that point, we are talking about a different framework and toxic loans. The witness said the framework document was different from the one prior to 2011. How different was it?

Mr. Declan Reid

The original relationship framework remained in place until 29 March 2012. Therefore, the original relationship framework-----

That is a contradiction because the witness said there was a different framework document in 2011 from that in place in 2009 when the Department took over the two.

Mr. Declan Reid

No.

How is it that there was not a different framework document in the light of the fact that the Department was taking over Anglo Irish Bank and the other bad debts?

Ms Ann Nolan

We started negotiations immediately in August 2011 and it was put in place in March 2012.

When the Department took over the toxic loans of the two other banks after the establishment of IBRC, I understood there were different criteria for the framework document from day one. Is the witness saying it did not operate from day one?

Ms Ann Nolan

No, it did not operate from day one.

Ms Ann Nolan

It took six months to negotiate it. We had to negotiate it with the Directorate-General for Competition, DG Comp, the banks and the troika.

However, there were many transactions taking place in the meantime.

Ms Ann Nolan

In the meantime we had the independent board that was supposed to be running the bank as per its fiduciary duty.

The brief we received in reply to questions states the shareholding management unit in the Department was responsible for managing the day-to-day relationship with IBRC. The SMU had daily instructions with the senior management team in the bank on a wide variety of issues, including the bank's performance, progress in deleveraging and the various consent and consultation requests which arose. The reply also states formal monthly meetings were held between the SMU and senior management at the bank. Did the SMU take notes on these interactions and is there any documentation on them in the Department of Finance?

Ms Ann Nolan

I imagine there are notes-----

Ms Ann Nolan

There are notes. I do not have them with me.

With due respect, I am giving credit for the work the witnesses are doing, but we are trying to be very fair also.

Ms Ann Nolan

Yes, there are notes on those meetings.

Mr. Derek Moran

From the outset there would have been daily interactions and formal monthly meetings, on which there are notes, some of which are subject to freedom of information legislation. That was the case under both the original relationship framework and the revised relationship framework. The revised relationship framework added dimensions to it. That is at the end of the question about the primary changes. More formal consent and consultation procedures were put in place, with the receipt of the monthly board packs and the corporate institutional recovery reports which gives us the high level side of what was going on in terms of the transactions. There is also attendance at meetings of the board as an observer and at the transactions committee. They are the important distinctions.

I fully respect what Mr. Moran is saying. However, given the scale of the loans and the due diligence process that was ongoing, one can imagine the scale of concern about the indebtedness of the taxpayer regarding the outstanding loans and their cost implications and that one would be meticulous in this regard. One assumes that what is taking place today would have taken place then. In fairness, the Department is dealing with a bad case. I served as a Minister of State and civil servants take a note on everything. Did the Department have an internal reporting system?

Ms Ann Nolan

We certainly did. The financial services division would have reported to me on a weekly basis on what was happening.

What about the monthly management meetings which I used to attend with the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton?

Ms Ann Nolan

Yes, we have a management board meeting every week.

At the senior management meeting every head of section would have had his or her brief and a report would have been made. What happened at the monthly management meetings?

Ms Ann Nolan

We reported on what had happened during the month.

Would this issue have been discussed during management meetings?

Ms Ann Nolan

The issue of IBRC would certainly have been discussed at management meetings.

Is Ms Nolan saying the monthly operations of IRBC would have been discussed at the management meeting?

Ms Ann Nolan

They would have been discussed at the management meetings.

Would the reports have been circulated to the team?

Ms Ann Nolan

To the team but not the whole management team.

Does the management team only include the assistant secretaries in the Department?

Ms Ann Nolan

No, they would have been given to the team up the line.

Given the scale of the loans, I would have expected the Department to have in place a system to ensure the Minister was fully and regularly briefed. Was that the case?

Ms Ann Nolan

Absolutely, yes.

My final question relates to the possible impact of key personnel changes in the Department of Finance during the period when the Siteserv deal was being progressed. From various public commentaries, it is clear that the Siteserv sale process was initiated around August 2011 and that the process had reached IRBC approval stage by mid-March 2012. Is that correct?

Ms Ann Nolan

That is true.

During that period the Government nominated the then Department of Finance Secretary General to the European Court of Auditors in October 2011. There were delays and difficulties in finalising the nomination to the European Court of Auditors and the assistant secretary left his position in the Department of Finance in early February 2012. Is that correct?

Ms Ann Nolan

I am sorry, but I am not sure to whom the Deputy is referring as assistant secretary.

Ms Ann Nolan

The Secretary General.

Ms Ann Nolan

He left, yes.

In 2012. With regard to the appointment of a new person to the position of Secretary General, the closing date for the receipt of applications was 24 November 2011.

Ms Ann Nolan

That is true.

A novel procedure was followed in the appointment process involving both internal and external candidates. The new Secretary General was announced in March 2012. Did the movement and replacement of key personnel in the Department of Finance during a critical period in the development of the Siteserv sale have the potential to distract management's attention from IRBC's operations and decisions?

Ms Ann Nolan

I have absolutely no reason to believe that happened.

Who was in charge?

Ms Ann Nolan

Mr. Michael Torpey was in charge of the SMU.

However, there was considerable confusion at that time.

Ms Ann Nolan

There was never a moment when there was no Secretary General; there is always an Accounting Officer.

Was he appointed or filling a position?

Mr. Derek Moran

Mr. Jim O'Brien, then second Secretary General, acted as Accounting Officer. He received a warrant as Accounting Officer in the interregnum between the departure of Mr. Cardiff and the arrival of Mr. Moran.

This is very important. We are talking about the context of the sale in the appointment of a new person to the position of Secretary General. The closing date was in 2011 and there was a novel procedure in the appointment process involving internal and external candidates which took quite a period of time to complete.

Mr. Derek Moran

It did, but that would not have had an impact on the ongoing interrelationship between the shareholder management unit and the bank and the reporting process. It was unusual not to have a Secretary General in situ for a few months, but, as Ms Nolan says, I do not think it had any particular bearing on how we related with IBRC.

Were special arrangements or temporary staff put in place during the difficult and complex transactions to ensure the Department remained on top of the IBRC issue?

Ms Ann Nolan

There was no point at which the Department was short of staff in dealing with IBRC. The staff dealing with it did not move in that period.

I went through the timeframe. It is all about the timeframe and the key personnel in charge doing a job. Ultimately, it is down to who is manning the till.

Ms Ann Nolan

Mr. John Moran was there at the time. I was also there, as was Mr. Michael Torpey. The fact is the Department did not have records or knowledge of what was going on in Siteserv.

On 1 July IBRC formed a court-mandated merger of Anglo Irish Bank. In the autumn of 2011 Siteserv could not repay a debt of €150 million to IBRC. It went to the market and IBRC hired Walter Hobbs to supervise the sale. This is in the period all of these appointments were being made.

On 9 March 2011 the 31st Dáil met and new members of the Government were appointed. In March 2011 Mr. Moran joined the Department of Finance as second Secretary General in charge of banking. On 1 July there was the court-mandated merger of Anglo Irish Bank. On 6 October Mr. Cardiff became the Government's nominee to the European Court of Auditors to commence in February 2012. The closing date for the receipt of applications for the position of Secretary General was 24 November. On 21 December Siteserv's stock closed unchanged at 2 cent. On 31 December Siteserv's stock hit a 52-week low of 1.5 cent. On 31 January 2012 it closed unchanged at 1 cent. In January 2012 the first media reports surfaced that Siteserv could be sold for less than its €150 million debt. On 15 January the Sunday Independent reported that Davy and KPMG were seeking a new owner for Siteserv, that it would be sold at a significant discount on its bank debt of €150 million and that a bidding process was already under way. The shareholder stock was almost at zero and it was unlikely any payment would be received.

In early 2012 there were 12 bids for Siteserv. On 2 February Mr. Cardiff officially left his post and on 22 February Siteserv's stock increased by 0.9 cent or 45% for the second consecutive day. On 22 February Siteserv's stock crashed. On 28 February it soared to 0.5 cent. On 1 March the Secretary General left his post having been appointed to the European Court of Auditors. On 6 March The Irish Times carried a report on the new Secretary General, Mr. John Moran. It was stated Mr. Dukes had said he had had private conversations about a wish to join the IBRC board shortly before he became Secretary General. Is that correct?

Ms Ann Nolan

I cannot speak about whether Mr. John Moran had a private conversation with Mr. Dukes.

Mr. Dukes said there had been a private conversation and that he wanted to join before he became Secretary General. Is that included in the record?

Ms Ann Nolan

I think the only thing included in the record is that the Department was of the opinion that it might be useful if there was a member of the Department on the board. I cannot speak about a private conversation between-----

The point I am making is about the personnel changes and it is well worth mentioning again. Were there special arrangements or temporary staff assignments made during this difficult and complex transition period? When all of this was happening, who was in charge?

Ms Ann Nolan

To be absolutely clear, the team in the SMU dealing with IBRC did not change in all of that time. It was reporting to different people for different amounts of time. The Secretary General of the Department was Mr. Kevin Cardiff until he left. For a temporary period the acting Accounting Officer was Mr. Jim O'Brien. Mr. John Moran was then appointed.

Who was making the decisions?

Ms Ann Nolan

Each of the persons mentioned was making decisions when they were in charge.

Is there paperwork to that effect? I have no doubt that the Chairman will say with regard to all of the management meetings that were taking place that everybody seemed to have a job, but who was taking action? There is the phrase, "Straight talk, action and results." Was there straight talking? Was there action and what results were achieved?

Ms Ann Nolan

We have already said that until April 2012 there was no record of anyone in the Department having visibility of the Siteserv deal.

Is that not extraordinary in light of the chronology of events? The shares plummeted to zero and nothing happened.

Ms Ann Nolan

To be honest, we do not get involved in individual cases and were not aware of Siteserv. We certainly would not be monitoring shares of every company on the secondary market.

I will finish on this point. In light of 2009 up to 2011, with the new formation of the toxic banks, including Irish Nationwide, would Ms Nolan not agree that the framework document was a very bad one or that it was not acted on?

Ms Ann Nolan

The framework document was renegotiated between August 2011 and March 2012-----

Who was it negotiated with?

Ms Ann Nolan

It was negotiated with the bank, DG Competition, which is the competition directorate of the EU, and the troika.

I could not see them having any problem with that document. Was it not in their interest that the document would be of benefit to the resolution of getting cash in? What problem would they have with the document?

Ms Ann Nolan

To be perfectly honest, DG Competition wanted us to be less hands-on, not more hands-on. It did not think the Department of Finance should have a sufficient role in respect of transactions.

I come from the business world and a document of this nature is not rocket science. It was a framework document dealing with toxic loans which were going to be sold and a company that owed €150 million. One would think these were peace deal negotiations. This is only a simple document of how one does business. Is that not correct?

Ms Ann Nolan

It is a document. I wish it was simpler than it was and that it had taken a shorter amount of time.

I thank the witness.

As we agreed earlier, we are going to have a break now and will resume in half an hour.

Sitting suspended at 12.52 p.m. and resumed at 1.38 p.m.

I call Deputy McDonald.

Cuirim fáilte roimh uilig. To take up where we left off earlier, does Mr. Moran now have figures and daily or hourly rates in respect of KPMG?

Mr. Derek Moran

Yes.

Could he share them with the committee, please?

Mr. Derek Moran

The hourly rate for a junior accountant is €95. For a senior accountant it is €165; for a manager, €190; for an assistant director, €220; for a director, €260; and for a partner, €295.

On the basis of those figures, is Mr. Moran in a position to illuminate more fully the potential costs of this exercise?

Mr. Derek Moran

No. We are awaiting the scoping of the size of the exercise and we will be able to have a better handle on it as soon as that is done.

I thank Mr. Moran. When the Minister decided to go this particular route and ask the special liquidator to carry out what amounts to an internal review, whom did he seek advice from within the Department?

I am working on the assumption that there was a departmental discussion on options and approaches that might be taken on this matter.

Mr. Derek Moran

He would have spoken to both myself and Ms Nolan and the team. I was criticised earlier for what I said about what would be the most efficient or effective way of getting a report in the shortest amount of time possible, which could then be scrutinised. The person who holds all the records and all the documents in that instance is the liquidator. The discussion would then have been around how to manage the conflict of interest issues. That conversation would have been between ourselves and the Minister at the time.

Ms Ann Nolan

I can confirm that. I had a number of discussions with the Minister.

Did Mr. Moran or Ms Nolan suggest this approach to the Minister, or was it his initiative?

Mr. Derek Moran

I think we would have suggested it as the way to approach it.

So Mr. Moran suggested that KPMG be appointed and that the review be carried out in the manner that was subsequently announced by the Minister because he thought it the “most efficient and the most effective” approach. I hope I am quoting Mr. Moran correctly.

Mr. Derek Moran

The issue was how we could illuminate this issue more so in terms of the level of public interest around it in a quick manner. It was always intended that this would be step one, and that when the report was available it would be made available to the Oireachtas. That was set out from the very start.

Let us just take it step by step.

Mr. Derek Moran

Yes.

So what Mr. Moran is telling us is that not alone did he think it would be the most efficient and effective approach, but that it would also be the most illuminating approach?

Mr. Derek Moran

I am sorry. I am not sure what Deputy McDonald means.

Mr. Moran used the word "illuminate". Therefore I am extrapolating that the review was to be illuminating.

Mr. Derek Moran

The intention was to make available the information and to address public concerns.

To cut to the chase, I put it to Mr. Moran that the Department, albeit not under his leadership, has not exactly cloaked itself in glory in respect of illuminating very much, it seems, certainly in respect of Siteserv and potentially further transactions. Mr. Moran’s consistent theme this morning has been that all of these things happened and that he was unaware of them because he was not afforded the visibility required to ascertain exactly what was going on. I note from the documentation that has been released under FOI and the documents we have that Mr. Moran was conscious for a number of years that there was public disquiet specifically around Siteserv, and obviously that penetrated to the Department. Could I put it to Mr. Moran that, given the turn of events and his statement that he was essentially locked out from a lot of the information to which, in my view and that of the committee, the Department should have had access, it is astonishing that he would deem it appropriate in any way to suggest or recommend to the Minister that what amounts to an in-house, insider review by the special liquidator was the most effective or the most illuminating way to proceed. I am astonished by that.

Mr. Derek Moran

The liquidator was not IBRC.

I am aware of who the liquidator is.

Mr. Derek Moran

The liquidator has performed extraordinarily well in terms of the wind-down and liquidation of the company. He has access to the records. They are available and can be turned around quickly. As an option for addressing some of the concerns, and as a first step, because the Minister has already put on the record that he would make the report available to the-----

The Minister was at sixes and sevens, and he was not on his own because the Taoiseach and Tánaiste were also at sixes and sevens, in terms of how to deal with the issue and how to kick it to touch. What options did the Department suggest to the Minister other than this approach?

Ms Ann Nolan

I think there are a number of issues. I know the Taoiseach mentioned the possibility of the Comptroller and Auditor General doing a report. I spoke to the Comptroller and Auditor General himself about the legal framework in which that could or could not be done. It became very clear that it could not be done under the existing law. We looked at the option of having a commission of investigation under the DPER Act and we decided that it would take a great deal of time. We were in a position to get something done in a relatively short period of time with the special liquidator. Obviously, the option of having a commission of investigation afterwards is one the committee or the Dáil could consider, but we decided to recommend something that could be done quickly. There was a certain concern that we would just be seen to be kicking things away down the road and not looking for information quickly.

Do the officials accept, given the recommendation made to the Minister, that there is now a very deep concern and a strong perception that what was suggested and recommended to the Minister fell short of what was required? Do they also accept that, having been wrong-footed, sidelined or whatever term they wish to use, it is extraordinary that they would be happy to allow an arrangement in which there is a clear conflict of interest at play to be the chosen method of examining the matters in question?

There was some discussion earlier of Mr. Justice Iarfhlaith O'Neill, whose integrity is beyond approach. The very appointment of the judge acknowledges - game, set and match - that there is a clear and evident conflict of interest. Different things have been put to the officials in the course of this morning’s meeting, but what troubles me most is that, notwithstanding the fact that the officials said they had no visibility and that they were locked out, and due to the relationship framework, which I will come to in a moment, they now seem to have recommended to the Minister an approach that again raises questions around transparency and thoroughness, among other issues. I find it quite something that this was the recommendation of the officials to the Minister.

Mr. Derek Moran

I think I have already answered that. There were a number of options, and in terms of moving through a first phase-----

There is no guarantee of any second phase, so Mr. Moran should not presume that there will be. That will not be Mr. Moran’s decision to make. What the officials have done is to select an option for the purposes of citizens and taxpayers which is the least transparent method they might have adopted. That is what they have achieved.

Mr. Derek Moran

The purpose of the selection of the judge was for him to manage any real or perceived conflicts of interest to ensure that any doubts or concerns in that regard are removed.

How does one remove the real concern that from the very get-go, trusting the review to KPMG, in and of itself, represents a clear, immediate conflict of interest? What does the judge do about that?

Mr. Derek Moran

The judge, together with the liquidator, will between them work out the ways in which they will handle that. It may well involve bringing people that were not involved in any of the process in for certain elements of it. That is what the judge is there to help manage.

Mr. Declan Reid

I think that is correct. The fact that the special liquidator is distinct from KPMG legally does not necessarily mean that KPMG itself will in isolation review each of the individual transactions identified as being within the scope. In their loan sale process they have used outside help in the past, so the use of outside agencies is not ruled out.

We are clearly not going to have a meeting of minds on this issue. I think the officials have done the Department a disservice in recommending that approach to the Minister. More to the point, I think they have done a disservice to taxpayers and citizens who are concerned by this turn of events in all of its dimensions.

I want to put that on the record, as it was most unwise. It was, indeed, more unwise of the Minister to take such bad advice from the Department.

Let us get back to the issue of visibility and the original relationship framework to which the Department has alluded consistently in its account of events. What in the original relationship framework precluded the Department from having a presence on the board, receiving minutes and being more deeply involved or understanding what was happening in Anglo Irish Bank and, subsequently, IBRC?

Mr. Derek Moran

The original framework made no provision whatsoever for attendance at the board or for the availability of board papers. That was rectified in the subsequent agreement. The core point is that as Anglo-IBRC-----

In the original relationship framework, where does it say the Department was debarred from attendance at or membership of the board or from receipt of minutes? Where is that written down?

Mr. Declan Reid

The objectives of the framework itself, as opposed to its specific provisions, set that out in saying that one of the main objectives was to ensure that Anglo Irish Bank remained separate from the Minister and, subject to other objectives, its board retained responsibility for the day-to-day operations of the bank. It did not specifically preclude sharing, but it created an understanding that there was a direct separation there.

It also said that one of the objectives was the minimisation of costs and other risks to the public. Is that right?

Mr. Declan Reid

Yes.

As such, the Minister, through the Department and officials such as the witnesses, was centrally charged through the relationship framework with being a watchdog or guarantor to minimise costs and other risks to the public. Who interpreted the relationship framework? How was it interpreted?

Ms Ann Nolan

It was interpreted between the Department and IBRC. We had to agree it between ourselves and, on occasion, the Directorate General for Competition had an input.

We had the original framework and, of course, anything like this is open to a minimalist interpretation, which is essentially hands off, or a fuller interpretation, which is more interventionist. Between the Department, the bank and the Directorate General for Competition - the Commission, in plain English - there was an agreement to a minimalist approach. Am I on the right track?

Ms Ann Nolan

It would be fair to say that the Directorate General for Competition, in particular - the Commission - considered that we should take a minimalist approach.

We heard the previous Mr. Moran referred to as having expressed an interest, whether for him personally or otherwise, in membership of the board. Had a formal approach been made at any stage with respect to a departmental presence on the board? Was a formal approach made? Was there a request, for example, for board minutes at any stage?

Ms Ann Nolan

We did not ask for board minutes. I am trying to remember at what stage there were discussions about having a person on the board. I think it was towards the end of 2011 that there was that discussion with the former Secretary General, whether it was before or after he became Secretary General.

Without labouring the point too much, having listened to the witnesses and read the documentation, I have formed the view that the Department was very passive in this relationship. The witnesses tell us that there was daily contact between officials in Mr. Reid's unit, one presumes, and the bank itself. There were monthly meetings and so on. However, at the core of this, in terms of the Department's watchdog role, I have formed the view that the Department was passive. I put it to the witnesses that it is a convenient interpretation for the Department to say now that the relationship framework was restrictive and locked it out. The facts indicate that the Department did not test the framework in anything like the way it should have if it was honouring its core objective, which was to minimise cost and risk to the public.

Mr. Derek Moran

One thing that is evident from a lot of the material that has been provided through FOI is that there were tensions - I will put it no more strongly - with the bank in relation to access to information. My understanding is that it was a challenging relationship. It was at times a difficult relationship. However, the concerns the Department had and the tensions that arose and which were reflected in particular around the period of the inquiries on Siteserv had, it is fair to say, run for some time. How will I put it? The Department asked awkward questions, and the extent to which-----

Mr. Derek Moran

I ask the Deputy to bear with me. There was push-back from IBRC. It was mentioned in the minute of the meeting with the Minister that the Department kept asking all these questions and that a better structure was needed. There was that. At the end of the day, the whole purpose of the shareholder management unit was to shadow, follow and question the operations of the financial institutions it was looking after. I do not accept that it was passive. Could it have been better? "Yes" is the answer.

Ms Ann Nolan

At the beginning of the period when the original framework was implemented, we had to be very careful to avoid being shadow directors of the bank. The independence of the board was absolutely paramount, and they were very conscious of that. They brought it to our attention any time we seemed to step over in that direction. It is illegal to have shadow directors following everything the directors do.

I appreciate that.

Ms Ann Nolan

I appreciate that it changed later and we became more obtrusive. The tensions to which Mr. Moran has referred arose because of that change.

As conscious as we may be of the personal sensitivities of tense relationships and all of that, I am not really interested in them - no harm to anybody concerned. What interests me is that in the Department's explanation of the turn of events, it cites the original relationship framework and argues that it was restrictive. The Department says its hands were tied, there was nothing it could do, it did not see it and it did not know it. However, when one drills into the facts of this, it emerges that the Department did not, in my view, assert itself in the way taxpayers, citizens or anyone with an iota of sense would have expected. The Department tells me that relationships were tense and Mr. Moran says there was push-back. Is the Department saying it was bullied off the pitch? Who was this push-back coming from? Was it from the chairman and CEO, or did it manifest itself in the daily tic-tac-ing?

Mr. Derek Moran

To go to the heart of this, many of the problems were around the change of Anglo Irish Bank, or IBRC, from something envisaged as a bank to something that was winding down. The transactions we are talking about here are quintessential to a winding-down process, which became the normal course of business and started to fall outside the relationship framework in terms of access to information.

It started to fall outside the relationship framework in terms of accessing information on it. We will probably continue to disagree on the question of passivity.

We will not disagree that in the case of Siteserv and other transactions, the problems came to the Department's attention after the event. This has given rise to a number of dilemmas and questions in the public mind. The Department did not fulfil the role that reasonable people would have expected from it in terms of keeping its eye on the ball. Mr. Moran argues this is because the Department was kept out of the arrangement but it seems to me that it did not assert itself in the way that would be expected. I do not buy his line that the fault was with the original framework. I appreciate that the framework was subsequently changed but that argument does not convince me.

The issues arising in respect of Siteserv came to the Department's attention because of an e-mail sent by a member of the public. In regard to the other transactions that gave rise to concern after the fact - all of these concerns emerged after the fact - I ask Mr. Moran to briefly outline to the committee how these matters came to his attention.

Mr. Derek Moran

The other transactions were not all after the fact. Some of the transactions were not concluded until the company was liquidated. In regard to the other matters highlighted in the documentation, concerns arose about the Apthorp sale on foot of communication from somebody within the company to the Department about a conflict of interest. We brought these concerns to the attention of IBRC and they were dealt with appropriately at board level. To my recollection, that disposal did not happen until after the liquidation.

Ms Ann Nolan

That one happened but the concerns were brought to the attention of the board and dealt with prior to the sale.

Mr. Derek Moran

The concerns arising in respect of Blackstone were its appointment without undertaking a procurement process and the reputational issues that arose. In regard to Topaz, the company itself approached the Department to raise the issue of its relationship with IBRC and the issue was resolved subsequent to the liquidation. These concerns emerged through different channels.

Were all of those channels outside of the relationship framework?

Mr. Derek Moran

Certainly Topaz and Siteserv were outside but the others were within it.

Mr. Declan Reid

The Apthorp issue was addressed through the existing relationship with the management team at IBRC. The concerns were raised in the context of our regular interactions and they were then brought to board level.

What about Blackstone?

Ms Ann Nolan

Blackstone was after the event. It was appointed before we were aware of the matter.

It was done and dusted. Another issue that strikes me is the level of trust or acceptance demonstrated by the Minister in the word of the chairman of IBRC, in particular, and the CEO. I refer the witnesses to the review that was carried out in June. To complete the sequence of events, the Department received an e-mail from a member of the public, alarm bells rang and a meeting was held on 5 April 2012 with the Minister, the chairman of IBRC, Mr. Dukes, the then Secretary General of the Department, Mr. John Moran, and Mr. Michael Torpey. Various matters were discussed and, under the heading of other issues, Mr. Dukes mentioned transactions and relations that were subject to adverse press comment or innuendo and stressed that all such issues were handled on a commercial basis in the best interest of IBRC and the State, and without favour to any party. It is interesting that the chairman raised the issue of these transactions rather than the Minister or the departmental officials.

Ms Ann Nolan

This is a one-page minute of a meeting that probably lasted a considerable period. It would be difficult to say anything about it with absolute certainty.

The Department had-----

Ms Ann Nolan

I acknowledge that is the minute.

I accept that Ms Nolan is not disputing it but by that stage were the alarm bells not ringing in the Department in respect of Siteserv?

Ms Ann Nolan

I do not think we knew about Siteserv on 5 April.

Mr. Derek Moran

That is prior to it. There is no mention of Siteserv in that minute.

To whom was the chairman referring?

Ms Ann Nolan

I expect that Siteserv was one of them because we had answered the first parliamentary question at that point.

I will take it as read that it was Siteserv, although I will not ask whether he was alluding to others. Is it not interesting that, according to the minute, the chairman raised the issue? It was not the Minister, Mr. John Moran or Mr. Michael Torpey.

Ms Ann Nolan

It is interesting but one should not read too much into a single page minute of a meeting.

We can also establish patterns. Subsequent meetings were held in May. It appears that everyone was continuing to take the word of IBRC and its chairman but none the less a review was carried out on 11 June 2012. If this document is correct, it took one hour to complete. The review was carried out on foot of a previous meeting on 31 May, at which it was agreed that the Department would review the Siteserv transaction to better understand the decisions taken. The review document states that the Department was not in possession of documents on the transaction other than the timeline, which was received at the meeting, and that no file review was completed. What does that mean?

Mr. Derek Moran

I assume that the file was not made available or that there was a discussion between the two sides on the details of the transaction without recourse to the file of detailed documentation.

I am not proposing to read it all out but it goes through what is now broadly in the public domain in terms of the chronology of events. That was the sum total of it. The meeting happened and presumably those in attendance from IBRC were Tom Hunersen, Peter Fitzgerald, Karl Cleere and Pat Walsh and those in attendance from the Department of Finance were Danny Buckley, Tony Smith. Who were those people in the Department?

Ms Ann Nolan

They were dealing with the case in the shareholding management unit, SMU, at the time. Since then Mr. Tony Smith has retired and Mr. Danny Buckley has left.

They would be colleagues of Ms Nolan's.

Ms Ann Nolan

Yes.

They were in attendance. It seems they sat down for an hour and the IBRC side set out the scéal of what had happened. No files or documentary evidence were produced. That is what this suggests. In fact, it confirms it because no file or review was completed, and that was the review as such. We now have the picture - the Department gets word from the public, alarm bells sound, there are concerns, the issue is raised and raised again at the end of May, the review is agreed and this is the review. How would Mr. Moran characterise that? Would he consider that to be a thoroughgoing approach by his Department, the Department that had concerns about this transaction, an hour's discussion on it but in respect of which there were no files or documents?

Mr. Derek Moran

The Department came away from that still with concerns and those concerns were being expressed after that date and all the way through to the meeting between the Minister and the-----

On the occasion of this review, and bearing in mind that this had been agreed by the Minister - Mr. Moran's boss - and by the chairman, did the Department not insist at that review that it would be more than an hour-long conversation where IBRC would put across its narrative of events? Did it look for files or background information?

Mr. Derek Moran

I do not know but Mr. Declan Reid may know.

Mr. Declan Reid

Based on the records that are available, they did not receive a detailed file of all the documents associated with the transaction but that meeting seems to have been an exploration of some of the concerns they had heard by way of parliamentary questions and other concerns that were raised about the transaction generally, which they explored. If the Deputy reads the second page of that note, she will find that it shows how they started to try to evaluate some of the commercial decisions that were being made on that transaction and that is what led to the further meetings.

I have read this in its totality but I am referring to the review and the Minister, in recent weeks, has subsequently referred to this fairly consistently. This is the review that happened and by any standards, it was shoddy. It strikes me that a Department that was concerned about this transaction would have looked for complete information and the full file. That, to me, would constitute a review. Is that not reasonable Mr. Moran?

Mr. Derek Moran

It is certainly not unreasonable.

Therefore, it is reasonable, but it did not happen. Let us fast-forward. I understand the documents we have are not complete documents. Mr. Moran mentioned earlier that other material has been the subject of freedom of information, FOI, requests. I think that relates to the monthly meetings. Did I take him up correctly on that?

Mr. Declan Reid

We currently have 30 FOI requests on this topic.

It would be fantastic, for the purposes of this committee, if, in a co-operative relationship framework with the clerk to the committee, we could be given the information. I do not know if that is possible but we might return to that point.

Let us move on. The documentation we have suggests, as Mr. Moran said, that there were ongoing concerns and worries. I presume that coming away from the review, which was not really a review, on 11 June the Department still had worries and concerns. It is now May 2015. Can Mr. Moran tell me what happened in the intervening period from 2011 into 2012? This is the bit that concerns me. There was no proper review and the Department had not got any clarity, satisfaction or comfort on any of the issues. What was going on in the meantime in terms of the Department getting to the bottom of these matters prior to the freedom of information releases made to Deputy Catherine Murphy and others in the media? Will Mr. Moran give me an account of what his Department did in the meantime in the intervening two years?

Mr. Derek Moran

The critical point here is the meeting on 25 July 2011 when the Minister met the chairman and the chief executive officer, CEO. These concerns, all originating from a concern that the company rather than the bank was leading the transaction, were put to the chairman and he gave a reassurance that this had been executed correctly and appropriately. The IBRC board has fiduciary and legal responsibilities and the chairman could not have given that assurance without serious consideration and, at the end of the day, the Minister, and ultimately the officials, accepted the assurances.

We will come to them shortly and the board's fiduciary responsibilities. To complete the picture, in June the review, as such, happens and the matter is unresolved; then the July meeting happens, as Mr. Moran set it out; the reassurances are received from the chairman of the board; and, the Minister and, by extension, the Department clearly accepted those assurances. In so far as Mr. Moran and his Department were concerned that was the end of the matter. Is that right?

Mr. Derek Moran

The transaction had been completed.

I am aware of that.

Mr. Derek Moran

Just to be clear, the transaction had been completed on 15 March or on whatever date in March.

Mr. Derek Moran

This has gone through a process. We had got to July and had the assurance of the chairman that this had been conducted appropriately through the board and that the board had executed its proper functions, and the Minister and the Department had in a sense moved on. The next piece of it is that what we wanted was appropriate oversight for the future and we moved on to tightening up and making sure that we had better oversight of what was going on for the future.

The Department took the view that it was happy to settle for a sham review in June, which is the only way I can describe it, and, arising from that in July, and the word of the chairman - and, for the purposes of clarity, I am not impugning the chairman - the Department took that view. The Minister took that view, the transaction was completed, the Department moved along and there was a new relationship framework, "sin sin", story over. That is it, in summary, is it not?

Mr. Derek Moran

Yes.

Can Mr. Moran see how completely unsatisfactory that is?

Mr. Derek Moran

As I said, the chairman said the board, given its legal responsibilities, had transacted this and did everything correctly.

Who appointed the chairman?

Mr. Derek Moran

The Government, the Minister.

Mr. Derek Moran

The Minister accepted that. The legal responsibility for this ultimately rests with the board, and having been given the reassurances and the confirmation that things were done correctly-----

Did the Minister at any stage look to see any documents or any files? I presume the Minister was aware of the nature of the so-called review in June and what it had considered. I am sure he must have been seen the note, to which I referred to earlier, the minute of that.

Ms Ann Nolan

I do not know if the Minister had seen the minutes of the meeting. He was aware that we were not saying we had reviewed this in a satisfactory manner. It was a question of accepting the board's review of it.

So in the absence of a proper review, the word of the board and chairman was accepted?

Ms Ann Nolan

In fairness to the board, we had a very extensive banking board, all of whose members had been appointed after Anglo Irish Bank had been nationalised. I have no evidence that the review they did of this transaction was wrong.

It is not the place of this committee to assert anything of that nature. This is about the Department in the first instance.

Ms Ann Nolan

I understand that. We accepted the board's view.

Yes. The issue was then on the shelf and forgotten about until its recent emergence. I can explain how I have come to the conclusion that the Department was passive in its relationship with this institution, and it is that sequence of events that strongly suggests that to me. That was not good.

In terms of the dealings of Anglo Irish Bank and the IBRC with what we would call high net worth individuals - extremely rich people - would the Department have taken a particular interest in that issue?

Ms Ann Nolan

In the public interest, where we would have had particular information, we would have taken a particular interest. Of course, we were precluded from getting involved with individual deals because political interference would have been frowned on just as much by this committee.

I did not ask about that. Even in the original relationship framework, there is a piece outlining that certain matters are "deemed reserved" for the Minister, etc. There is reference to "keeping an eye" on the establishment of varying of any transaction or arrangement between Anglo Irish Bank and a director, a former director or any connected person of a director or former director on terms other than normal commercial arm's length terms agreed in the ordinary course of business. In the original framework, there was such knowledge. We live in a small country and people operate in small networks, and there was to be an eye given to the potential conflicts and relationships at play.

Ms Ann Nolan

Yes.

How did the Department do that in respect of Anglo Irish Bank and IBRC?

Ms Ann Nolan

In the monthly meetings, if there were any issues arising in that area, they were to be brought to our attention. I cannot now remember, and it is very hard to swear that nothing happened over six years. I cannot remember any instance of something coming up under that particular subsection of the relationship framework. As I said, it could have come up at a time when I was not involved.

Was it something the Department would have pursued in any way? Would it have been sensitive to the issue?

Ms Ann Nolan

Yes, certainly, if it came up. Absolutely.

If we were to get minutes of the monthly exchanges, would they demonstrate a consciousness of that issue?

Ms Ann Nolan

If nothing arose, there would be nothing in the minutes. It is certainly something of which we would be very conscious.

For example, would the Department have known if the institution was borrowing at a particular rate and lending at a very substantially lower rate, the spread of which would have raised a question mark? Would the witness have been privy to that sort of information?

Ms Ann Nolan

We certainly kept an eye on its spreads, although borrowing and lending are not exactly matched in that sense.

Ms Ann Nolan

We would have kept an eye on them. We were very aware of the legal cases with David Drumm in America, and we would have been updated on that, as it came under the piece referred to by the Deputy.

Ms Nolan and Mr. Moran do not recall hearing anything strange that would have troubled them with respect to those spreads?

Ms Ann Nolan

That is the spread between borrowing and-----

In particular, I am thinking about high net worth individuals.

Ms Ann Nolan

I certainly do not remember seeing anything suggesting that.

Am I correct in saying that in the course of a liquidation, once complete, all the documentation is held by the liquidator to be dispensed with after a period of three years?

Mr. Declan Reid

Yes, under the Companies Acts and the document retention obligations.

That is the standard practice. As we speak, the special liquidator holds all the files in respect of IBRC. What happens when the three years pass?

Ms Ann Nolan

Liquidation will likely take quite some time, as there are 300 or so court cases under way.

Yes, and if we bear that in mind-----

Ms Ann Nolan

They should be destroyed three years after that, unless the Minister decides to make an order under the IBRC Act.

Under what circumstances could that be done?

Ms Ann Nolan

It would be in the public interest.

What would that be defined as?

Ms Ann Nolan

The public interest would be if the Minister of the day decides the documents should not be destroyed.

So the Minister would look into his or her heart, de Valera-style, to read the public interest.

Ms Ann Nolan

He or she would measure the cost, particularly of what to do with the documents and where they could be kept, as well as commercial sensitivity about individuals. There would also be data protection questions and a list of other issues.

We can stick to Siteserv, just to be specific. All the concerns and public controversy could occur and the report might come back with a certain level of detail, but three years from the date of liquidation, documentation would be expunged from the record.

Ms Ann Nolan

Let us be absolutely clear: that will be a political decision for the politicians in power at the time.

I thank the witnesses.

With regard to the officials from the Department who were engaged at various stages through this, it would appear that Ms Nolan is the only one left standing.

Ms Ann Nolan

Yes, probably.

Some of them have gone to banks and others are no longer there for one reason or another.

Ms Ann Nolan

Some have retired.

Mr. Derek Moran

There has been an extraordinary level of turnover in the past five or six years within the Department generally.

I am not asking about that turnover. I am asking specifically about the names that appear here, those who are listed as attending meetings or briefing the Minister. They seem to be gone, and Ms Nolan is the one left.

Mr. Derek Moran

Yes.

I presume they would have left written documentation of one kind or another, including e-mails, minutes of meetings, their views, etc.

Ms Ann Nolan

Absolutely, and it comes under the freedom of information process.

If we consider some of what was released under that process, quite a bit is redacted. This committee is anxious to obtain the extensive documentation that should exist with regard to all the transactions that the Department was concerned about. We have some of it here, but, as I mentioned, it is redacted. In view of the fact that this committee is interested, could the information be made available to us without being redacted?

Ms Ann Nolan

Clearly, I was not the deciding officer in any of the redaction. Mr. Reid was on some of them.

I am talking about the situation with regard to the work of this committee.

Ms Ann Nolan

I appreciate that. We can commit to looking at them again and seeing if it would be appropriate. It depends entirely on the basis on which they were redacted. Some were redacted because of personal information about individuals or affairs. I am not sure it would be appropriate to release that.

With others, it may be impossible to release things. In the past, we have released more to this committee than we would have done to the public. We certainly would be willing to show the Comptroller and Auditor General any of the documents, if he were to come us.

Mr. Declan Reid

And also, some of the redactions-----

I am sorry; Ms Nolan should not misunderstand me. The members want the documents. The Comptroller and Auditor General can speak for himself.

Ms Ann Nolan

I understand that. I am just adding as an interim line.

That would not satisfy me. I am trying to join the dots here in a document in which there are blanks following the phrases, "at an annualised cost of", "in excess of" and "at a rate up to."

Ms Ann Nolan

Which paper is it?

These are briefing notes for the Minister marked "Private and Confidential". I am talking about document No. 8. Going on from there, under the sections entitled "Our Position" and "Business Conduct", there are blanks. It is difficult to believe, in the context of the work of this committee, that anyone could stand over the blanking out of that much information from documents that we are trying to examine. Will Ms Nolan look at the amount of paperwork in the Department related to the concerns that were expressed about transactions by officials within the Department? Consideration must be given to the fact that if a business is purchasing from IBRC it is up to the business to get the best deal possible, but it is up to IBRC and the Department's officials to ensure that taxpayers' interests are looked after. I want to see within those documents how well that interest was looked after, because it would seem to me that someone fell asleep at the wheel.

Earlier, Deputy Perry was trying to tease this out when he spoke about the various activities within the Department about the Secretary General and, perhaps, others. Listening to what he had to say, I suppose it is going too far to describe it as a shambles. However, it would seem to me that someone lost track of the course of things when officials were replaced, while on the other side - the commercial side - no one lost sight of what was going on. I am not talking specifically about one company.

Returning to my question, will the Department release the information on the concerns its officials had about the various transactions without redaction? I do not expect Ms Nolan to answer that now, but she can certainly follow it up.

Ms Ann Nolan

I will certainly look at the documents again for the Chairman.

The second part of the discussion here was about the interaction between the Department and IBRC. There was one of these agreements called a relationship framework, between the Department and Anglo Irish Bank. Was there a relationship framework between the Department and the follow-up to Anglo Irish Bank or IBRC?

Mr. Declan Reid

The first relationship framework was put in place in July 2009 with Anglo Irish Bank.

With Anglo Irish Bank. That is what I mean. That is the question.

Ms Ann Nolan

That was put in place. It was held over until the second one - in other words, even when IBRC was first set up.

What was the legal standing of the framework agreement with Anglo Irish Bank at the end of its lifespan and during the changeover to IBRC? Did it just roll over?

Ms Ann Nolan

It just rolled over.

Were there legal implications?

Ms Ann Nolan

No.

It rolled over.

Ms Ann Nolan

It rolled over.

Then there was a second agreement later on in that process.

Ms Ann Nolan

Yes.

Returning to the minutes, then, the one I am looking at is No. 8.

Mr. Declan Reid

Just to be clear, the FOI materials the Chairman is looking at are, I guess, in response to a specific question. As I mentioned previously, there are 30 more FOIs, which will naturally broaden the scope of the information that is received. This request specifically relates to a series of meetings.

Let me be clear. Is the Department dealing with new FOI requests?

Mr. Declan Reid

Yes, 30 of them.

I presume the committee's request for information will be taken as a priority.

Ms Ann Nolan

Yes, absolutely. We will just look through all the documents along the lines the committee has asked to see what we can give it.

In other words, it will not be delayed. That is my point.

Ms Ann Nolan

No. To be absolutely clear, some of the redactions were done on the grounds of relevance, that is, the information was not relevant to the request. I will assume that the committee is interested in everything when I am reviewing it.

Yes. In this document, the Department explains its position. It is a briefing note for a meeting with the CEO and the chairman of IBRC. It talks about "a clear example of IBRC's lack of regard for the Minister's wishes". This was in July 2012. The Department's briefing note is really outlining the total disregard that IBRC had at that time for the Department and for the Minister.

Ms Ann Nolan

It is clear from this briefing note that, in the relationship with IBRC, we did not feel it was co-operating or-----

No. This states, "We believe this exchange is a clear example of IBRC's lack of regard for the Minister's wishes." It goes on then to state, "There have been other instances where senior management in IBRC have shown similar disregard for the spirit of the Relationship ...". It is fairly strong language in the context of a briefing note. Indeed, in terms of the request to increase the payments to staff within IBRC, they have totally disregarded the Department. They were treating the Department as if it had no input into this. Is that correct? I presume that is why the Department provided the briefing note.

Ms Ann Nolan

Yes. The briefing note reflects the attitude of the Department of the time.

IBRC's attitude to the Department?

Ms Ann Nolan

That is how we saw its attitude, yes.

That is how Ms Nolan saw it. The briefing note then goes on to deal with the appointment of non-executive directors, which was suggested in November 2010, stating "and despite a letter issuing to you to progress the appointments in January it has taken until June for the Board to approve appointment". This was a bank that was clearly born out of trouble and was in trouble, showing absolute disregard for the Minister and for the officials in the Department, and the Department's response to it was to roll over.

Ms Ann Nolan

This briefing was for the meeting on the 26th. This meeting was one of two meetings. There was that meeting with the Minister and a follow-up meeting between John Moran and Mike Aynsley. Our response to this was to place a very senior member of staff with banking experience from the Department onto IBRC's executive board committee to ensure that we had better co-operation subsequently.

No, it was not. The Department's briefing, dated July 2012, centred around, for example, remuneration issues. It describes a request, "Approval sought for an appointment", and stated, "Proposed salary was almost 40% more than [the] equivalent" in other banks. For an interim head of internal audit, they sought approval, but "Appointment did not proceed". For an internal head of HR, "Appointment did not proceed". There was legal advice "on 60% time" at a rate beyond what was the norm. All of this was being discussed.

It appears that the Department was battling with IBRC over the direction it was taking. It appears that it was taking ownership and that it did not want the Department putting its nose into its business. It seems that the Department's strong advice to people in attending meetings stopped at that because not much was achieved.

Ms Ann Nolan

Some of the appointments did not go ahead.

I saw that.

Ms Ann Nolan

What was achieved was that we blocked the appointments at the price they were being put in.

There was not much else and IBRC was taking its own course of action. It seems that the Department had to fight with it all the way. It was comparing IBRC to NAMA and suggesting what should happen about salaries, but that did not happen. The Department then went on to raise issues about various sales. Its position was that a number of governance concerns had arisen from a particular incident and it was concerned about the fact that a matter about a member of the senior management team was not addressed or communicated to the board. There were concerns about the simple transaction of communication not taking place between management and the board. IBRC was ignoring everything to do with good governance, with no respect for taxpayers' money and the Department’s involvement in the process, and just proceeded at speed. All of this happened at a time when the Department had expressed concern about the manner in which certain transactions were being completed. In fact, in the note on other business conduct concerns, it was stated the Department was concerned about the number of transactions that had been poorly executed under the direction of the current CEO and that the performance of management in executing these transactions raised a question about the effectiveness of the CEO. Having made such a statement in the context of a private and confidential briefing document, I would have expected the Department to move decisively to correct the imbalance in the role being played by IBRC and the Department.

Ms Ann Nolan

We did do so.

It was too late.

Ms Ann Nolan

The meeting was held at the end of July and we had someone from the Department in IBRC by 1 October.

That was after the event. Ms Nolan outlines in the confidential note that despite the concerns of the Department, IBRC conducted a nine-month sale process and the Department believed significant value was lost in this transaction.

Ms Ann Nolan

In fact, the transaction did not happen. We blocked it.

Why did the Department state in the note that it believed significant value had been lost? If it had been blocked, how did the Department lose?

Ms Ann Nolan

We did not because at the time-----

The note states the Department did.

Ms Ann Nolan

May I please answer? At the time it was written we thought the deal was going to go through. Subsequent to the briefing note being written we blocked the transaction and it did not happen. The wealth management unit was subsequently sold by the special liquidator several years later.

Why then is it stated in the briefing document?

Ms Ann Nolan

Because at the time that was our concern. The briefing note was written at a point in time. We were concerned at the time about that deal.

Let me read it. Perhaps my English is not great. It states: “We believe significant value was lost in relation to this transaction.” I can only be briefed on the paperwork in front of me.

Ms Ann Nolan

I can only explain what actually happened.

Is Ms Nolan telling me that it is wrong?

Ms Ann Nolan

I am telling you that is what was written at the time, but it is not true because the transaction did not take place.

Ms Nolan goes on to refer to Blackstone. What is stated about Quinn has been completely redacted.

Ms Ann Nolan

As the Chairman knows, that is still under litigation.

Ms Nolan says it resulted in high level political scrutiny and public concern which might have been avoided if the matter had been managed. She suggests it was badly managed.

Ms Ann Nolan

I think the Blackstone appointment, even if it was the right firm, should have been made through the proper procurement process.

Ms Nolan says in relation to Siteserv that the Department had serious concerns. What I am trying to point out is that if the Department had serious concerns, the concerns referred to something that had happened, not something that was going to happen. Reference is made to Topaz and it stated the Department was approached by it. I do not know what that means. The advice was that concerns should be raised directly with the chairman.

Ms Ann Nolan

Yes, Topaz approached us and we advised that concerns should be raised with the chairman.

Why did Topaz approach the Department and what were its concerns?

Ms Ann Nolan

I am not sure exactly what the concerns were. It was concerned about the way it was being dealt with and security of fuel supply, which obviously is very important because it has the contract for Dublin Airport. We made sure it was talking to the right people in IBRC. In the event, I think it was a little concerned that its loan would be sold. It was not sold by the board of IBRC but was sold later by the liquidator.

The next reference is to Apthorp. The note states the sub-optimum communication between senior management and the board had led to misinformed decision making.

Ms Ann Nolan

Again, IBRC came back to us on that issue. The document was written at a point in time. IBRC showed us the information which had been given and we were satisfied that the correct information had been available to the board before the deal was finally finalised. We thought at the time the note was written that the deal had already been finalised, but it was not finalised until later.

Does that not show that the Department thought the deal had been done when the note was written? There was no communication between the Department and IBRC and a lot of concern was being expressed by departmental officials.

Mr. Declan Reid

On the Apthorp transaction, in particular, I suppose what is reflected in the document is the regular engagement by departmental officials with management and some of the junior management team in IBRC, which led to concerns that escalated to board level and which could be addressed appropriately.

What were the qualifications of the officials dealing directly with IBRC?

Ms Ann Nolan

They all had appropriate qualifications in banking and most, but not all, had commercial experience.

IBRC was still not treating them right. Did they or Ms Nolan have concerns?

Ms Ann Nolan

The briefing note was written by the unit at the time. Obviously, since they were working to me, I would have been aware of the issues at the time. I think the briefing note which was written in a strong form indicated a certain frustration. I agree with the Chairman, but I think a number of the issues were written down in a hurry and with a great deal of detail and when we looked into them, we were able to satisfy ourselves. The point the Chairman raised, the one about which I was most concerned, concerned the concept of finding out late about things and not necessarily being treated in the most open manner. We decided that we needed to address that issue by putting somebody directly into IBRC who would be on its management board.

How long did it take the Department to achieve this?

Ms Ann Nolan

Two months from the time we had thought about it, but we had to approach somebody to get them to agree it and the terms. I think it was fairly quick.

The Department is happy with the outcome of the public discussion that has taken place and the commentary that there were concerns within the Department about other transactions.

Ms Ann Nolan

I am happy that this is the definitive document.

Is Ms Nolan okay with it now? She said it was written in a moment in time. At this moment, reflecting on it, there was no need for concern. Is that what she is saying?

Ms Ann Nolan

What I am saying is there is not a single concern. Different aspects were reflected differently. In terms of Siteserv, for example, as has been said by Mr. Moran to Deputy Mary Lou McDonald, the Department was absolutely reassured by the board that it had reviewed the matter. They were the people with the fiduciary duty, which we accepted. I now accept that there is still public concern, notwithstanding the fact that the board reassured us. I am perfectly happy that there should be further inquiries.

Reading the document and even given the fact that it refers to what happened in a moment in time, it appears that the IBRC board did what it wanted to do and bullied the Department.

It certainly did not allow the Department the scope I would have expected in the context of the Department's remit to look after taxpayers' money and examine the governance issues in a bank such as IBRC, for which we were responsible. That is from where the concern comes.

Mr. Derek Moran

We read these documents and it does look like the low point of a relationship and exasperation with a series of issues. It is interesting, when we get to the meeting with the Minister, that he refers twice in the course of that meeting to wanting this relationship to work, questions more or less why these issues did not arise with the other banks with which we have a framework agreement and, equally, has to point out that officials represent him when they are looking for information. This is not a good place and is the culmination of a number of things. On the individual pieces, I listed them from one to six from the wealth management unit to Apthorp. They are point in time concerns and different. Some of them did not happen and some of them changed. However, putting someone into the bank, as happened subsequently, was a way of trying to repair the flow of information and have oversight.

I accept that, but to try to minimise it by describing it as a moment in time is a bit much. I am reading the documents to inform myself and taking out of them the view that the Department was not up to taking on IBRC and its determination to run on its own without departmental interference. I take out of the documents the view that it did as it pleased to a point. They tell us it had no regard for the Minister or the officials. Mr. Moran is saying this; someone in the Department is saying it. If the public are reading this, they will inform themselves about how the sales or transactions went. However, it is clear that for a long period of time the Department had no control and it appears from the documents that it had no confidence in the CEO. That is what appears in the documents and it is mentioned a few times. If that is not the case, when briefing the committee, Mr. Moran should please say so. We are asking for the documents to be informed. If they are informing us incorrectly or if at the time they were written wrongly or should not have been written, that should be said. Otherwise, those watching these proceedings will take a different view and we want to inform the public.

This issue has been back and forth with members and I think Mr. Moran understands how people feel about it, but, considering what happened in this country when it comes to non-regulation of the banking sector, there was an imperative to know what was going on within banks. It was imperative to know how a bank that was State-owned was operating and how it was dealing with what were effectively State assets. The excuse given was related to the very conservative viewpoint of the commission when it came to commercial independence. I do not accept this and the Department should not have accepted it. There should have been far greater ongoing scrutiny when it came to the operation of IBRC which, as the Chairman said, pretty much ignored the Department for a number of years. It took a member of the public to contact the Department. Only when that member of the public contacted it did it act. That is the problem. The Department then had to react and figured out that the decisions being made at senior levels within IBRC were questionable. That is where we are. Ultimately, what happened was that the Minister and the Department questioned and were given assurances by IBRC at a meeting that everything that had taken place was above board and carried out properly. There was no scrutiny from day one. The Department's attitude towards oversight within IBRC was coloured by an acceptance of the commission's very conservative viewpoint. That is where the mistake was made and there needs to be an acceptance of this.

When we look back on how the collapse happened - we all have a view on it and it is being worked out at another committee - there was a lack of information, a taking of things for granted, a bit of bullying here and there and pressing on by the banks. That culture of pushing the Department around was alive and well. We did not have enough strength from the taxpayers' and the Department's point of view to simply take them on and put a stop to what they were doing. There is still a lot of that culture in forcing any of the other banks to deal with the real issues in terms of mortgages, debt or support for businesses and so on. Until such time as we take the bull by the horns and deal with the issue, we will be dealing with this type of thing day in and day out. As part of the Department's restructuring - Mr. Moran mentioned this in his opening statement in terms of the quality and qualifications of the people involved and so on - it might be no harm if it got a few hard-nosed individuals from the private sector to attempt to deal with the banks because they are still out of control. They are almost back on their feet and as soon as that happens, God help the rest of us.

Mr. Moran gave the figures for KPMG hourly rates, which ranged from €95 to €295 an hour. Will he give us the numbers of people employed at these rates? Does the Department have ten people on €95 an hour or is it more at the upper end of the scale quoted? If Mr. Moran does not have the figures available, will he, please, make them available to us as soon as possible? How many hours have they clocked up to date? Surely the Department knows that figure. We clock in and out here every day. I am sure the Department gets KPMG staff to clock in and out on a regular basis and that it has someone keeping an eye on them. Can Mr. Moran give us a breakdown of the figures?

Ms Ann Nolan

To date, the liquidation has cost approximately €76 million, but I will get a breakdown for the committee.

The sum is €76 million.

Ms Ann Nolan

Yes.

Will Ms Nolan also give us a breakdown of the number of individuals and the various rates involved?

Ms Ann Nolan

I will supply whatever detail I can to the Chairman.

To finish this matter from my perspective, the reason I asked the question about the media reports when it came to a spike in share activity was to find out if there was an active level of consideration about all of the events that had affected Siteserv dating back to 2011 and 2012. This was an entity for which the Department was responsible. The response that the Department did not even lift the telephone to check to see if a preliminary investigation was ongoing in any respect when it came to the alleged share activity bothers me. It suggests a level of inertia when it comes to looking at this issue that continues, which worries me.

I thank the witnesses for coming and spending so long here in their presentation of the case. I wish to pick up on some of the issues surrounding Siteserv. How were the relationships with the other banks? It was indicated that the relationship with NAMA was quite positive. Was the relationship with IBRC totally out of kilter with the Department's relationship with the other financial institutions?

Mr. Derek Moran

Ms Nolan has far more experience of this, but the relationship with the other banks was probably - this is from reading the documents, as the Deputy has - easier and more constructive.

Ms Ann Nolan

It would be fair to say the relationship with the other banks was much more positive without necessarily saying we always agreed or that we did not have robust debates with them too occasionally.

Was the problem with senior management in IBRC?

Ms Ann Nolan

There was a culture at both board and senior management level and through the organisation.

They never really recognised the damage they had done to the country and they felt they were not answerable for that, although they had taken quite a lot of money from us. That is my view, but perhaps it would be better to ask them the reason for their views. Perhaps I am wrong.

We have seen the engagement the Department has had with them and the dissatisfaction it has expressed. Ms Nolan must have an opinion as to whether that was due to the culture, arrogance or a rejection of close scrutiny.

Ms Ann Nolan

I think a case could be made for all of those reasons.

Does Ms Nolan think there was any reason for the 14 or 15-month delay, from January to the end of March the following year, before the revised document was in place? Could she give us an idea of the number of transactions done in that period? Were the six transactions we have here all done during the period when there was no revised document in place?

Ms Ann Nolan

No. A number of those transactions were not done until after the IBRC was set up. After robust debate, some of those transactions never happened at the time. I mentioned the wealth management one, for example, which did not arise until afterwards, and was done on a completely different basis.

The wealth management one did not go through.

Ms Ann Nolan

It did not go through, and the Topaz one did not go through. Therefore, that list is not consistent with the time period the Deputy is talking about. A number of them did not go through, although the Siteserv one obviously did. The Apthorp one was after the time period.

My question is not so much based on the timeline, but about whether they had been initiated. Was there a key period of time in which the substantial number of transactions that were to take place were dealt with? Was the expectation that they would be done in the sort of limbo period between the old revised framework and the new one, which was delayed in its processing?

Ms Ann Nolan

The biggest single transaction that happened in that period was the American one, the US loan book sale, which was a very big transaction.

Did all of them progress to some extent in that period? They were not completed, but was there some progress?

Ms Ann Nolan

If they were not completed-----

In other words, they would have been initiated, but perhaps not completed.

Ms Ann Nolan

Some of them may have been, but if they were not completed, they would have had to come in under the new transactions. The fact they were initiated would not have got them out of the new relationship framework.

The biggest single transaction then, probably the biggest ever done, was the American sale. That was done with the involvement of the Department, notwithstanding the fact it was the old relationship framework. Mr. John Moran was involved with that and we would have had high visibility of all of the process, the bidding process and all of the decisions taken on that transaction, because it was such a big transaction. Therefore, it is not an absolute that we had no visibility of the transactions that were done before the new transaction relationship. The issue was that transactions could be done without their telling us about them. However, we did have visibility of some of the transactions that happened at that time.

Of the six that are mentioned here, was there any other, beside the wealth management unit disposal, that was stopped in its tracks after the Department intervened?

Ms Ann Nolan

The wealth management one was stopped in its tracks and nothing happened in regard to the Topaz one.

The Quinn family is still there.

Ms Ann Nolan

In regard to the Quinn family, that was a question of litigation rather than a transaction and, as the Deputy knows, that issue is ongoing. The Topaz one did not happen.

What about the Blackstone deal?

Ms Ann Nolan

The Blackstone one was not a transaction but a procurement on an exceptional basis. We were not happy with it, but it had happened by the time we found out about it.

What was the end result on that?

Ms Ann Nolan

The procurement was done and they discharged whatever business they were procured to do.

So it is over and done with.

Ms Ann Nolan

It was over and done with by the time we found out about it.

Again, therefore, it is in the same bracket as the Siteserv deal.

Ms Ann Nolan

Yes, I suppose it is.

In that context, how does the Department explain that the relevant documentation - the minutes of the meeting in which the transaction in regard to Siteserv took place on 15 March - was not forwarded to it despite the fact the documents from all the other weekly meetings in the month of March were forwarded to it?

Ms Ann Nolan

I think what happened was that the documents started from 20 March, and 15 March was not included.

No, the Department had all of the March documents and it had the documents from 1 April. They came in a package on 7 April. Therefore, the Department had four sets of minutes, but the set that was missing was the set for 15 March, the one in which the transaction for Siteserv was done.

Mr. Declan Reid

I think it was not a gap. It was not that we had received one before and one after and there was one missing in between. It preceded the batch we received.

No. You received a batch, but the set relating to Siteserv was missing.

Mr. Declan Reid

And all before that.

But the Department had the one before it and after it.

Mr. Declan Reid

No. We did not have the set before it.

Are you sure of that? The information supplied by the Minister the other day - I will have to check it again - indicated that the documents for the rest of March and 1 April, apart from 15 March, were provided in one batch.

Mr. Declan Reid

I need to double-check that.

The document for 15 March was the second document for March. The document before that was for 8 March. The Department got that one, and got two immediately after 15 March. It sticks out like a sore thumb that the relevant one - 15 March - was not provided to the Department.

Mr. Derek Moran

The information I have in front of me is that in April 2012 we received a pack containing minutes of meetings for 20 March, 21 March, 28 March and 13 April. Therefore, it was for a series of four board meetings after the transaction. There is no suggestion in my notes there was anything before that.

We can check that and see for sure. How does the Department explain the fact that they started on 20 March, rather than being provided for the whole of March?

Ms Ann Nolan

I do not think we can explain that. However, to be fair to them-----

Ms Nolan does not have to be fair. Tell it as it is.

Ms Ann Nolan

We must at least try to be fair. If I was to speculate as to why it happened that way, it may be that because they had board meetings frequently, the board meeting of 20 March had the minutes from 15 March and the first board pack we got in April had the ones from the other meetings. That can happen without any-----

Am I to take it that is the first set of minutes the Department received?

Ms Ann Nolan

The minutes for 20 March.

Is it not amazing that the first set of minutes the Department received from the IBRC was from 20 March, a week after the minutes dealing with the approval and signing off of the Siteserv deal? Did the Department ask why it started receiving minutes from 20 March rather than 15 March or 1 March?

Ms Ann Nolan

In fairness, we got the board pack for April and we got the same board pack as all the other board members.

That is not my memory of it. The Department got only one set of minutes for April in that pack, for 7 April, or whatever date.

Ms Ann Nolan

Yes, because it was for the first meeting after the new relationship framework. The minutes for 7 April were the first minutes for April. We got later April minutes at later board meetings. The pack we got had those particular ones. I would be shocked if IBRC had gone as far as removing a set of minutes or if a set of minutes did not go to the board. I can only assume that the minutes of 15 March went to the board at one of the meetings before our period on the board.

Can I speculate for a moment? The revised framework was put in place and the Department received the first set of minutes following that, for the week after the revised framework was put in place. Would the IBRC have breathed a sigh of relief that it had the deal done and it was okay to send the minutes from then on?

Ms Ann Nolan

We do not know.

We do not know, but this begs a question regarding the delay that took place. Then, a week after the deal was signed and sealed, the Department suddenly got its full set of minutes from then on.

Ms Ann Nolan

I do not know.

I will leave it at that. We have not had time to go into the substance of the work the Department has been doing.

Reading the report and listening to the presentation, I can see the Department has done fantastic work managing the various difficulties it experienced, in terms of the amount of money and debt involved, to reach a stage at which it was able to save 25% in 2013. That must be one of the highest ever savings in the running of a Department - €8.6 million achieved through a series of steps to modernise the Department.

We talked about visibility and the inadequacies of the initial framework. I am interested to hear Ms Nolan say the Department did not have those visibility issues on other deals and transactions.

Ms Ann Nolan

We did not have it on the American deal because it was such a big deal and we were under pressure when we went into the programme. There was enormous emergency liquidity assistance, ELA, and our banks owed a large sum to the central bank systems, our own Central Bank and the European Central Bank, ECB. We were under a lot of pressure.

Did the Department secure that visibility because it was more assertive in that case?

Ms Ann Nolan

We were extremely assertive in that case.

It was extremely assertive in that case.

Ms Ann Nolan

Yes.

It was not so in respect of other transactions. I am not asking Ms Nolan to say that. I am sharing that view with her.

Ms Ann Nolan

We were not in a position to be. I do not know how many hundred they had. We had three or four people.

All it takes is one good woman. I have every confidence in Ms Nolan.

Are we dealing with normal Department of Finance matters today? I have a few questions apart from the ones dealing with Siteserv.

We are, but because of the time I am going to suggest that maybe on another day we can go through them in more detail.

In respect of Siteserv, up to when did IBRC continue to be regulated by the Central Bank?

Ms Ann Nolan

It stopped being a regulated bank the day it was liquidated.

That was in March 2013.

Ms Ann Nolan

That was February 2013. It is still a regulated entity - IBRC in liquidation - for several of the other activities it carries out.

Other than banking.

Ms Ann Nolan

Other than banking.

Through all of this period, before the special liquidator came in, IBRC was a bank regulated by the Central Bank of Ireland, and the Department was the main shareholder.

Ms Ann Nolan

Yes.

During this period, what discussions took place with the regulator? All the previous problems arose out of a lack of regulation. What regulation was the Central Bank doing for IBRC during this period?

Ms Ann Nolan

My understanding is that there was significant regulation.

The Minister has made it clear he has met the Central Bank on various issues in recent weeks. Has this matter been discussed between the Department as shareholder and the Central Bank as regulator? These issues are in the public arena now. What discussions have taken place with the Central Bank about possible regulatory issues? Obviously the Department’s officials had some issues.

Ms Ann Nolan

To be honest, none of the suggestions around Siteserv suggest a regulatory failure. The issue is whether it did a bad deal - whether a better one could have been done. That said, we meet the regulator very regularly, fortnightly or monthly, once a month at the moment. Any issues it has with any of the banks could be brought up, and IBRC would always be mentioned at those meetings.

On that exact issue, I would interpret the situation slightly differently. Ms Nolan said the issues that arose were not regulatory issues, but the memo on the screen says the performance of management in executing these transactions raised the question of the effectiveness of the chief executive officer, CEO. A fundamental part of regulation by the Central Bank is to have confidence in the CEO and senior management. I do not know who wrote that memo, but if an official in the Department is able to write that memo about the effectiveness and the competence of the CEO - I am not saying I share those views - that is written down in front of me, that is an issue that should be brought to the regulator’s attention, because the regulator has to approve senior positions, and if the regulator is aware of issues around the competence or effectiveness of the CEO, that is a regulatory issue. Were these concerns passed on by the Department to the Central Bank, in view of the concerns the Department had about the management, which is a regulatory issue? We could all say most of what happened was because of the performance of people in key positions. That is a regulatory issue. What did the Department do on that? Ms Nolan said the Department meets the Central Bank every month.

Ms Ann Nolan

At that time, I think we met once a week. I have no doubt that any concerns are expressed more strongly in that document than they might have been if we were being more careful about what we said. Any concerns the Department had about personnel or transactions would have been shared with the regulator.

What contact has there been between the Department and the regulator with regard to any issues the Department had with the bank that the regulator was supposed to regulate? We need to contact the regulator, because everybody is talking about the shareholder and Siteserv and the special liquidator. We are so used to not having a good regulator in place that there is a missing piece of the jigsaw. I would like to know what the regulator was doing.

We have asked for correspondence. Presumably, if there is correspondence between the Department and the regulator or the Central Bank, that can be included.

Ms Ann Nolan

If there is correspondence I will certainly include it.

Or if there are notes of telephone calls, etc.

Ms Ann Nolan

We were meeting weekly, and if one is meeting someone weekly one tends not to correspond. I will read the minutes and see what there is on that.

If the minutes reflected the fact that the Department complained or raised the issue-----

It would be very remiss of this committee, given that we are talking about a regulated bank and issues relating to it, not to take it up with the regulator in some way. That is all I have to say on Siteserv. If we have a few minutes, I would like to deal with the other business.

There are many other issues we have not dealt with, and I would be open to setting another date for a meeting with the Department at which we could take them up.

There has been some media coverage about the low take-up of the strategic investment fund, which was formerly the National Pensions Reserve Fund. I made an inquiry to the Department of Transport, Tourism and Sport about using the fund to fund infrastructure in regional airports, specifically Waterford Regional Airport. The Department told me that the Department of Public Expenditure and Reform was drawing up a paper on the strategic investment fund and how best to operate it from now on, because there are concerns that it could be better utilised. There is a question of State aid when using State money or the strategic investment fund for particular infrastructure in regional airports, but the Department did not rule it out. It did not rule out projects that did not come within the scope of the 2015-19 regional airports programme. Beyond that, there was a possibility of its being used for that purpose. It is significant if the fund can be used for a regional airport. The only parameter is that there be a return to the State and that it generate regional economic development. It is something that the Department of Finance launched and advertised and that it conducts. I am hoping the Department of Finance might consider it with the Department of Transport, Tourism and Sport and come to some conclusion with the Department of Public Expenditure and Reform.

Mr. Derek Moran

The Irish Strategic Investment Fund, ISIF, is getting up on its feet. Its business plan and strategy are in place. There is a new board, the NTMA, which supervises it.

The investment committee is in place and the deals and projects are starting to flow. It has two mandates, to derive a commercial return and a long-term economic return. It must find a proper fit for regional development issues and projects so it is a question of getting the interaction right. The Department of Public Expenditure is well aware of its prospects. This is a new stream of potential development but it must show a commercial and long-term economic return. The initiative will take a much more long-term view rather than a short-term one for a purely commercial return.

On the specific issue I raised, is it okay if I ask Mr. Moran to liaise with his counterpart in the Department of Transport, Tourism and Sport?

Mr. Derek Moran

Yes.

Mr. Moran's counterpart contacted me and responded to my query on the scope for using the investment fund for that purpose.

Mr. Derek Moran

It would be more appropriate to liaise with the Secretary General of the Department of Public Expenditure and Reform but, yes, I will make the contact.

Recently there was a news report on the living city initiative. Along with the Minister, I worked on the initiative over recent years and I sought to extend it beyond Georgian buildings. It is not an initiative that affects my constituency much but a few buildings will probably be affected. Although the initiative took two years to develop with the European Commission, the Dublin Civic Trust has called it meaningless because it restricts grants being given to buildings larger than 200 sq. m. The normal size of a Georgian building in Dublin ranges between 300 sq. m and 400 sq. m. Does it defeat the purpose of the initiative, which has taken two years to develop, if there is a restriction? Is the Department surprised by the attitude displayed by the Dublin Civic Trust? Has the Department plans to extend the initiative? To preclude buildings of between 300 sq. m and 400 sq. m would defeat the purpose of a very good scheme. A lot of local authorities would agree with me that it is a good initiative and are using it to develop city centres. However, the Dublin Civic Trust has a point if a certain category of Georgian buildings will be excluded.

Mr. Derek Moran

I share the pain of this journey of getting an initiative up and running. The scheme started off as a pilot project for Georgian buildings in Limerick and Waterford and it has taken a very long time to get through the state aid process to here. Along the way the criteria were widened to take in all buildings pre-1915 which has made it a more effective instrument to redevelop city centres.

The limit is 210 sq. m which is significantly greater than the maximum of 125 sq. m that was approved for previous regeneration schemes. I am not clear in my mind whether the restriction was, ultimately, part of state aid approval. In Georgian buildings one can redevelop floors and break up the project to avail of the initiative. However, I take the point made by the Deputy.

It defeats the purpose if one has to subdivide a building to avail of a scheme.

Mr. Derek Moran

Potentially. As the Deputy will know, this has been a long and arduous journey.

Tortuous is the word I would use.

Mr. Derek Moran

It was like having teeth taken out without using an anaesthetic, but we have got there. I would be slow to go back into the state aid process looking for amendments when we are only just up and running. I will check out why the initiative has been restricted to 210 sq. m and will find out whether it is a domestic or state aid restriction.

If the Dublin Civic Trust is correct and the majority of the Georgian buildings, which is what this scheme and initiative was set up for in the first place, are excluded, then the initiative must be looked at again. Has someone in the Department not understood that in many cases Georgian buildings ranging in size between 300 sq. m and 400 sq. m are the ones that need the attention? The response by the Department and from the individual who was questioned by one of the national newspapers was that we do not want to get involved in that type of mansion or give grants to those types of mansions. That response was unfair and did not illuminate the issue. Many of the houses we are talking about are not located on the south side. They are on the north side of Dublin and deserve and need the work. They have not been subdivided and their only chance of being upgraded is if they are included in the initiative. The very least the matter deserves is an initial-----

Mr. Derek Moran

I am unaware of the comment that has been attributed to a departmental official. The matter is worth looking at. I do not know whether the size is a condition of state aid approval which, as the Deputy will know, took a long time to secure. The purpose of the scheme was also amended during the course of negotiations. Following a lot of consultation, the initiative was broadened to include anything built pre-1915. We will come back to the Deputy on the matter.

I am not sure it is correct to say that the initiative covers every pre-1915 building. I looked at the map drawn up by Dublin City Council on the buildings that are covered by the scheme. The map looks like a puzzle and streets have been cut across even though they are the same housing age. In other words, half a street is included while the remainder is omitted. While it is worthwhile that the initiative has been extended to include more than Georgian housing, nevertheless the attempt to include all pre-1915 buildings has been unsuccessful. I do not think any local authority has attempted to include all pre-1915 buildings.

Mr. Derek Moran

It does not. The local authorities did the designations. They designate the areas where they want the scheme to apply.

The local authorities may have done the designation but they did not provide the definition. Is it not up to the policy to define it? It is not up to a local authority to determine policy.

Mr. Derek Moran

No. The policy is for this scheme to apply to pre-1915.

It is not. It is pick and choose.

Mr. Derek Moran

A local authority has picked and designated the area.

There do not seem to be any criteria for picking and choosing. The initiative has two serious defects. The first one is what Deputy Deasy has indicated, that the initiative has a very low threshold of square footage in terms of what it applies to and, therefore, divides buildings. Anyone who lives in a large Georgian building will be unable to avail of the scheme.

Second, the initiative is supposed to apply to pre-1915 buildings but it does so in a random fashion. The local authorities have picked and chosen certain housing, streets and parts of streets that are pre-1915 but not other buildings. It has taken a long time to get the scheme going from what was originally planned. The initiative has existed for two or three years but its recommendations have not been well thought-out. Can the Department take a fresh look at the anomalies in the scheme and find out why they have not been ironed out?

Mr. Derek Moran

Yes. The local authorities are in the best position to know what areas have the greatest need.

Someone must keep an eye on what local authorities do because they have made unsatisfactory designations.

We can take the issue up again. Earlier I suggested that we would review it today and determine whether we have to ask the officials to come back in when discussing the general Vote. In the meantime we might take up the issue raised by the Deputies. We can also write to the Department of the Environment, Community and Local Government about the issue, if necessary.

I must leave to attend another meeting that is scheduled to begin at 3.30 p.m. so I will ask Deputy Deasy to take the Chair. Before leaving I have two questions for the Department of Finance which are not for answer today but it can forward its replies to me. Recently, I tabled a parliamentary question on Belfry investments to the Department but in its reply it referred me all over the place for figures. If I was interested enough in Belfry investments to table a parliamentary question then the Department might have considered its answer and given me the figures rather than signposts to go elsewhere.

My last comment is for Mr. Walsh from the Department of Public Expenditure and Reform. On 5 March, the Secretary General of that Department, Mr. Watt, said he would circulate a note to the Secretaries General of Departments informing them that they should be timely in the context of their responses to this committee. I wish, through Mr. Walsh, to bring to Mr. Watt's attention the fact the Department of Education and Skills has a number of reports on third level education, some of which came before us through whistleblowers, that we are anxious to have dealt with. We intend to discuss other third level issues with that Department and the Higher Education Authority.

Can Mr. Walsh please ask Mr. Watt to remind that particular Secretary General that we are awaiting the replies? If we do not receive them in a timely fashion, we will set a date for a meeting where we can include all the Government stakeholders and Departments and thrash it out publicly. I presume Mr. Moran will come back to me with the information requested in the parliamentary question I tabled.

Mr. Derek Moran

I will follow up with the Chairman on the exact detail of the question after this.

It concerns Belfry investments and AIB.

Deputy John Deasy took the Chair.

I will try and be as concise as possible. These are the notes I prepared last night for my questions before we went down a different road. I have brief questions on a number of specifics concerning the documents the officials gave us. In the finance accounts for 2013, on page 26, the Aer Lingus group was valued at €214 million. What value does the Department have for Aer Lingus today?

Mr. Derek Moran

Based on the current share price, I think it is about €320 million.

I will not get into the merits or demerits----

Mr. Derek Moran

Yes, I think we need to stay away from that.

Fine. If it is valued at €320 million, what is on offer in the public arena? I am not going to get into----

Mr. Derek Moran

That is with reference to the public share price.

So what is on offer for the share is just at the current market value.

Mr. Declan Reid

The current market value is slightly below but it has been moving towards the offer price----

That €320 million is the offer price?

Mr. Declan Reid

Yes.

Prior to the offer price, what value did the Department have? Was it a bit below that?

Mr. Declan Reid

I can come back to the Deputy with a history of the share price if-----

That would be useful because the last reference we have is from 14 months ago. My next question concerns the same document in page 45. The officials will know what I am talking about. Under the EU-IMF programme in 2013, €61 million was paid in fees and expenses, I presume for the European Commission, the ECB and the IMF. In 2012, €85 million was paid, making a total of €146 million. Could the officials send us a spreadsheet showing the total payments in respect of fees and expenses? Those are the figures for two years but there might be a total figure available.

Ms Cep Carty

Is the Deputy looking for figures for 2014?

No, I am looking for a total for the EU-IMF programme. I am sure there is something for 2011 as well, for 2011-2014.

Ms Cep Carty

We will have to come back to the Deputy with the details.

Are the payments finished? The officials might give the committee the breakdown of the figure. I suspect we are well over the €200 million; I do not know. The officials might give the breakdown of who got the payments between the IMF, the ECB and the Commission. They can send that on.

Another schedule the officials can send on is that of the loans we drew down from the three different groups and the repayment schedules as to who gets paid. I think some are being paid early. That information can come through the committee secretariat.

Now that we are talking about the national debt, Mr. Moran's document states that the average cost of funding was about 4%. We all hear how low it is to borrow, yet if the average is 4% there must be quite a lot much higher than that. The officials might send us a note on the ten most expensive loans we have. Are we still paying 7% or 8% on some debt? The obvious question is why we are not replacing those debts with cheaper ones.

I am trying to give the officials my questions and I am happy for the answers to come back after the meeting. I have only one question I would like answered here. As regards the banks' support by the taxpayer, the officials are saying the three banks that are still alive will hopefully cover themselves. The €34 billion or €35 billion that the taxpayer has put into the banking system, mainly into Anglo Irish Bank and Irish Nationwide, was in effect a write-down the taxpayers did to save the banks. The officials might give us a breakdown of that between what went to the corporate business sector and what went for write-downs of personal mortgages. I have a feeling it all went to business. How does Mr. Moran see the proportion? Very little of it seems to have gone for individual mortgage holders compared with the corporate end of things. Do the officials think it was a fair proportion?

Ms Ann Nolan

We never gave any money for write-downs. Banks wrote things down but we did not give money for write-downs.

They had a hole in the balance sheet and were given money to fill it.

Ms Ann Nolan

I can tell the Deputy how much they wrote off on mortgages and how much they wrote off on the corporate side. I can see what figures can I get on that although I am not sure how much detail I can get from each of the banks-----

The Department should know, though, as it put the money in on the basis of their projected write-offs and it had to fix a hole-----

Ms Ann Nolan

No, we put money in on the basis of the Central Bank's stress tests, not on the basis of their projected write-offs. I know the two are related but it is only one of the factors that goes into the stress test. Things like economic growth in the future and all that go into the stress tests as well. On the secondary issue of the €35 billion, that is going to be a long-term write-off. Let us assume the living banks do pay us back and we have to write off the €35 billion-----

Pay it back, Ms Nolan means.

Ms Ann Nolan

Yes, pay it back eventually - it is mostly with the Central Bank at the moment - the vast bulk of the money, certainly €30 billion of the €34 billion, was for Anglo Irish Bank and that would all be business loans as Anglo Irish Bank did not do mortgages. The €4 billion that was for Irish Nationwide Building Society would be all mortgages and not business, more or less.

I understand the information the officials are to come back to me with. They said that as part of the stress test done by the Central Bank or whoever, there was provision for some write-down of mortgages in some of the banks. What I am asking is, how much of the funding in respect of possible mortgage write-downs that went to the banks as a result of the stress test did the banks actually use to write off people's accounts? I suspect there is no relationship between the two. I think they got about €5 billion or €6 billion for mortgage write-downs and there is no evidence they have done any of that in the market.

Ms Ann Nolan

Yes, I do not think-----

Ms Nolan knows my question.

Ms Ann Nolan

I know exactly the question. I think we have addressed this in a number of parliamentary questions and I do not think we can identify what part of the stress test capital that went in was for mortgage write-downs. However, I will see what I can do. I certainly can find out what has been written back. It should also be said that on the mortgage side, in many cases and particularly in things like split mortgages, some of the banks have arranged that it will be written off eventually but not upfront. I will get the Deputy what figures I can.

The stress test must have included some estimate of the different categories of provision they were going to make.

That is your last question, Deputy Fleming. We have to be fair to the officials now.

I will put it in my parliamentary question.

Fair enough, thank you. To be fair to the officials they have been here now for six hours.

I have a very quick question about NAMA. My understanding was that NAMA had a 57% write-down on the debts that were transferred to it and on the impaired assets. When officials from NAMA came before the committee, their statement was that they expect to make a profit or at least to break even. NAMA has also said it intends to complete its transactions more quickly than the allocated time in the legislation. I think they expect to do it by 2018 instead of 2020. With the recovery in the market and comparing what the sale of certain assets was a couple of years ago to what is happening now, would it be better for NAMA to delay and go the full term that is allocated under legislation? What is the officials' advice to NAMA? The very recovery that is taking place is raising the value of the assets they have, which were previously impaired. Instead of shortening the time, perhaps we should be thinking of lengthening it. That might provide a better return.

Ms Ann Nolan

We have looked extensively at the question of what is optimal in our discussions with NAMA last year and this year. While there are competing factors within the system, it would be fair to say that the elimination of all those contingent liabilities has been one of the big successes for Ireland Inc. and the overall economy in the 18 months since we left the programme.

The issue concerns the elimination of all these contingent liabilities. We were having difficulty in borrowing, not just because of the level of our debt which was big but also because it was perceived by the market, regardless of whether we liked it, that the residual IBRC was a weight on the Irish taxpayer because of the guarantee. The guarantee in the case of NAMA was also perceived as a weight on the Irish taxpayer. The fact that NAMA has repaid the best part of 60% of its debt and IBRC has repaid all the Government-guaranteed part of its debt is a big factor in how the market has recovered. The question of a further overhang always has to be balanced with the benefit to be gained; there is a benefit to be gained in getting rid of it as well as in holding on to it.

We have looked at strategic areas where a long-term investment and State involvement would be particularly useful, the main one being the housing market in the big cities where NAMA has the capacity to build houses that the rest of the system does not seem to be able to deliver. It is providing 4,500 houses in the big cities. Another example is the strategic development zones, particularly in the Dublin docklands where it does not have complete ownership but an interest in a huge amount property.

Approximately 75%.

Ms Ann Nolan

It has huge capacity because of the cash it is generating to provide for investment. It is becoming involved in such projects which I do not expect to be completed by 2018. We have said: "Yes, continue to sell a lot of your stuff quickly, but there are a number of strategic things that you are not to sell and that you are to develop for the Irish economy." We will renew this and look at the issue every year between now and 2018.

I thank Ms Nolan.

I thank the witnesses for attending. Does the committee agree to review and adjourn the debate on the Vote? Agreed.

The witnesses withdrew.
The committee adjourned at 3.45 p.m. until 10 a.m. on Thursday, 28 May 2015.
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