The next item on the agenda is the scrutiny of EU document COM (2003) 371, which is a proposal for a declaration system for the movement of cash across the external borders of the EU. We have with us Mr. Phonsey Croke, principal officer and Mr. Joe Ryan, assistant principal officer, both from the customs division of the Revenue Commissioners, who will brief us on the implications of this proposal. I remind the visitors that while the comments of members are protected by parliamentary privilege, those of witnesses are not so protected. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I now invite Mr. Croke to address the committee.
Scrutiny of EU Proposals.
Mr. Phonsey Croke
Thank you, Chairman. I would like to outline a background to the proposal, which may be of assistance. What we have is a proposal for a declaration system for the movement of cash across the external borders of the European Union. I will just give a short background. The existing controls at EU level on the movement of money across the external border of the Community, provided for under the existing money laundering directive, only cover transactions made through financial institutions. They do not cover cash movements across this border. The Commission believes that this gap in EU level controls should be closed by means of a declaration system to be administered by customs at the EU's frontiers.
This issue has also received some attention at EU Ministerial Council level. In October 2000 the Council of Ministers, after considering a report on cross-border cash movements, 'Operation Moneypenny', carried out by the customs services of the member states, asked the Commission to submit a proposal "aimed at rendering existing national provisions more consistent and strengthening them, enabling the member states to institute such a system and providing for the exchange of information". This proposal responds to that request of the Council of Ministers.
Other events have provided fresh impetus. Controls on the movements of money internationally through financial institutions have been tightened considerably post September 11 and this poses a threat that there could be increasing recourse to cash movements as an alternative to using financial institutions.
Now to the proposal itself: the proposal, which is entitled 'Proposal for a regulation of the European Parliament and the Council on the prevention of money laundering by means of customs co-operation', provides for the following two principal measures:
1. It places an obligation on those entering or leaving the Community customs territory to provide a written declaration to customs if they are carrying cash in the amount of €15,000 or more. This threshold is similar to that which is applied to the financial institutions in respect of once-off transactions and it ought to be high enough to save private individuals and traders from any additional administrative burdens during the course of their travels.
2. Where customs have evidence that the cash is being carried for the purposes of money laundering operations they will transmit this information to the customs services and or money laundering authorities of the relevant member states. If the Community's financial interests are involved, they will notify the Commission.
The proposal also refers to powers of customs to question persons where cash has been found, to detain cash for up to three working days or longer in order to conduct investigations and to impose penalties for failure to make a declaration, as I have already referred to. It is anticipated that existing customs powers and penalties here in Ireland should be sufficient for the purposes of this proposal. As regards the penalties referred to for non-declaration, these are in addition and without prejudice to any proceedings that may be taken where evidence of money laundering is established. This is catered for in the Criminal Justice Act 1994.
Finally, if evidence exists that cash is being carried for the purposes of money laundering operations by or for terrorist groups, the information obtained may be provided to a non-EU country, subject to the consent of the authority providing it and in compliance with all the legal provisions that exist governing the transfer of personal data to these countries.
Now to the current state of play at Brussels: the proposal is currently being considered at working group level - by the Customs Union Group - and was last discussed in July 2003. However, progress has been slow, due in the main to a difference of opinion between the legal services of the Commission and the Council - about the legal basis for the proposal. The Council legal service advised that the original proposal to base the measure on Article 135 of the Treaty, which refers to customs co-operation, was unsafe. Although its own legal service disagrees, the Commission signalled its intention to present a modified proposal which will also include - in addition to Article 135 - Article 95 as a legal base, which caters for matters relating to the internal market. It remains to be seen if this and other related modifications to the text of the proposal will overcome the current impasse.
It seems unlikely that the current Italian Presidency will advance this proposal to any great degree, so it may fall to Ireland to consider how best to proceed, in early 2004. The European Parliament has proposed a number of amendments, which will be considered by the Council in due course.
As regards Ireland, the proposal, if accepted will have certain operational and monitoring implications for customs personnel, which are not considered to be significant. As the matter relates to money laundering, the Department of Justice, Equality and Law Reform, which has certain competencies in this area, will be consulted for its views once a revised draft regulation is available.
As already mentioned, the proposal, if accepted, should not place an undue burden on private individuals and traders during the course of their travels, as a result of setting the declaration threshold at €15,000 and above.
Thank you, Mr. Croke.
Thank you for the presentation. In principle it seems this is something we should strongly support. Obviously, we have our own border and problems in relation to smuggling and so on. We should make every effort to use trans-national vehicles to try to deal with such problems. I would like to hear a little bit more about the nature of the declaration to be made. Does it, for example, capture tax default? Money laundering strikes me as being very much involved with organised crime as opposed to individuals who might be taking money out of the jurisdiction to avoid tax liabilities. I wonder whether the declaration seeks to identify cases of that sort, which might also warrant some sort of declaration or means of alerting the relevant authorities. Where the customs have evidence that cash is being carried for money laundering purposes, certain things happen.
What tests of evidence are being applied before they can either detain the cash or notify other relevant agencies? It seems quite a high threshold to require them to have evidence. That suggests they need to know something about the activity involved, rather than simply the fact that the money has not been declared and that there is a doubt about its origin. Would that not be enough for them to exercise their powers to detain and to notify the relevant authorities? Maybe I missed it in Mr. Croke's presentation, but what is the Irish position on this - are we fully supportive or are we joining with others in finding legal quibbles about its basis in Treaty?
Finally, Senator O'Toole mentioned a slightly different point to me. He was making the point that for some of the ordinary financial institutions it is difficult to do business across boundaries. He cited the case of Visa cards where one cannot obtain a card even though lower interest rates obtain in other countries. We should be facilitating legitimate utilisation of other countries for financial transactions as well as seeking to penalise those that are unorthodox. I wonder whether there are efforts in train elsewhere to open up freer access in legitimate financial transactions across boundaries.
Mr. Croke
On the financial institutions, in the main that is in the money laundering area and the Department of Justice, Equality and Law Reform and the Garda are the relevant competent authorities. I cannot give the Deputy much on that. However, going back to his earlier question, the first thing is the information that would be gleaned as regards the movement of cash out of the country - the declaration system. This will happen - it is not happening now - so we are really in the development stage: if customs come across cash and it is suspected to be the proceeds of money laundering, I would foresee that information being relayed to the Garda and the competent areas within the Revenue Commissioners. It is not confined to any one area. It could relate to drugs cash, non-drugs cash or other criminal activity.
That cash is being transported out of the country is the important point. It would cover cash obtained from the proceeds of all forms of illegal activity. What is important is - and this covers the evidence issue the Deputy referred to - the intention is not to interfere or place undue burdens on legitimate movement of cash, for example people on their holidays or traders who genuinely have to move around a certain amount. It is not intended to interfere with that. What is intended is that suspicious movements of cash are targeted. Customs are well placed to do this because for many years they have been based at the European frontiers. They have experience in being able to identify suspicious movements. Circumstantial evidence is mentioned. I know this is something that will have to be developed at Brussels level, for example cash being transported where it is inconsistent with the carrier's known legitimate business or personal activities. Where there is counterfeit money involved in the cash, for example, that in itself would be suspicious.
Cash being taken to countries suspected of being involved in trafficking or drug production or to established tax havens could give rise to suspicion. The important thing is that it is a suspicion; it is not a blanket control on legitimate movement. Setting the threshold at €15,000 would hopefully not, in itself, interfere with normal day-to-day business or private travel. I think I have covered the type of crimes that may be involved. It is not confined to any one issue. Customs at present are confined by law to dealing with cash that has a drugs connotation - under the Criminal Justice Act 1994. If they come across movement of cash out of the country, they make take action. Other than that customs are not involved. There has to be a drugs connotation.
On the financial institutions, credit cards and so on, all I can talk about today is the movement of cash in and out of the European Union. I know that the 1991 directive, as amended in 2001, and the Criminal Justice Act 1994 cover the financial institution aspects. I cannot go into any depth currently in relation to that item.
I have a couple of questions in relation to it. Nothing in particular comes to mind to suggest that this is something that should not be proceeded with. However, given our current position in terms of the European Union, are there particular implications for those on the periphery of the EU now or in the future, in terms of the transference of cash? Perhaps some economies on the periphery of the new EU - after its expansion - might experience difficulty. I do not know how advanced their procedures are as regards the carrying out of business transactions. Deputy Bruton made the point earlier about the archaic systems that still strap us in, in this jurisdiction, but the fact is we cannot issue a euro cheque. An adequate currency has yet to exist within the eurozone - in the European Union - because of the failure of the processing arrangements. Our cheques do not have an adequate currency within the European Union at the moment because of the failure of the processing arrangements. These do not give immediate effect to cheque clearance. Is it possible that countries at the extremities may find other difficulties?
On declaration systems to be administered by Customs at the EU's frontiers, it seems to me that if anyone presented himself or herself with money of that order it would immediately create an alert, and whatever legitimate purpose they had in mind would be immediately thwarted. The witnesses do not indicate in their briefing whether the declaration office is open for a period. I presume that it is and that one can get prior clearance, that it is not only at EU frontiers, as the text suggests, that advance clearance can be sought in each state of the EU for the transference of cash outside the Union within a reasonable timeframe.
Those are just a couple of points. Maybe in terms of promoting, as Deputy Bruton said, a more positive economic climate, the whole absence of a cross-frontier cheque clearance system might be addressed with IPSO, as we have done here. You might also encourage them further. It would be a positive development that would be welcome for us all.
Mr. Croke
On the first issue, the enlargement of the EU, I have no easy answers. I presume that at Council level in Brussels it will be considered. I do not see this proposal coming into law in advance of the enlargement. It will be subsequent to that, according to the way things are going at present in Brussels. If there are issues like this, and there may be, they will be dealt with in an implementing regulation. This regulation is the base regulation. Issues where difficulties arise will, I hope, be catered for in an implementing regulation, which will follow afterwards. After enlargement if difficulties are identified that is probably how it will be dealt with. At present, it has not surfaced in Brussels. That does not mean there are not problems there. Post-enlargement, if problems like that occur, they will show up and will probably be dealt with in an implementing regulation.
On the second issue, the advance declaration. Without passing the buck, I assume that some system like that would be put in place, rather than having to find a customs post to declare something. Again, it would be by means of an implementing regulation. I do not see a difficulty with that. It is something that would be dealt with at Brussels level, but it seems reasonable, as opposed to requiring people to make declarations, particularly where there are large sums of money involved. It is better than making declarations like that in public places, especially at the point of exit.
I wish to raise a couple of points. What is the position regarding the EU directive on transactions to the financial institutions? What evidence is there on the attempts at money laundering and what statistics are available on that? From the perspective of European borders, what evidence is there on that illegal activity?
Where does this fit in to the new convention on Europe? I understood that matters like this would become part of a greater co-operation in all of the pillars that are in the EU convention. One, such as this, and the trafficking in human beings, and the area of drugs. All of these are supposed to be part and parcel of a greater understanding and co-operation between member states. This is part of the debate that is going on, both here and at European level.
It is well known that there is reluctance in certain member states to impose controls in a whole range of areas, and they, therefore, have not and will not accept qualified majority voting because they want to retain the veto. That is why there is no action being taken in a range of areas in Europe to date.
It is strange and inappropriate that people have to wait until the day they arrive at the boarding gate of a plane, or other means of transport, to make a declaration on the transaction of funds. That is an inappropriate way of dealing with this matter. There has to be some type of system in place that could give advance clearance to people.
On the question of holding up people's money for three or four days, there have to be safeguards for travellers that this would not be applied inappropriately. Is it not a fact that most of the problems that are being experienced at present are en route to the Russian republics, and outside Europe in places like Switzerland? Is that not where most of our problems are at this time? Even if we deal with it, we may have some here who have a lot of dollars coming into this country. I do not know, I am not a recipient of them——
Well, I did not say you were, actually. We all have to make declarations now.
We need to get co-operation above and beyond the Union as well, which is not happening in eastern Europe as far as I can gather from my dealings with the convention.
I know what I have said is very broad, but it is admitted in the document that this is unlikely to be done in the Italian Presidency and is likely to be left to the Irish Presidency. I have no doubt that we will have difficulty getting agreement on it as well.
Reference was made to penalties where a declaration has not been made. I am not clear from the briefing note what precise penalties are envisaged where money is discovered and no declaration has been made. I am anxious to know what level of penalty should apply in that case.
Is it the European Commission's intention that warning of this system would be made along with visa requirements, as happens with carriers. On airplanes passengers are warned on their way to the destination that this is an obligation that they should meet. Frankly, it may seem a lot of money to some people but I could see people being inadvertently in the position of not making a declaration because they simply carry that amount of cash, be it on holidays or having a good weekend in New York or whatever. There would need to be plenty of warning for individual passengers who may be carrying amounts of that kind. They are not people in politics, needless to say; they are generally high-rollers in business or whatever.
The other thing that interests me is the issue of exchange controls. I presume there are exchange controls on money coming into the EU, but I am not clear at what level that is set and how it interacts with existing exchange controls for the transit of cash in the European Union area. I am interested to hear how that works.
On the sharing of information with third parties or countries, what exactly is envisaged there? Obviously, if somebody has failed to make a declaration it is a criminal matter at that stage. I presume it would be a criminal penalty rather than a civil fine. That criminal matter would then be shared with other intelligence or crime-fighting organisations around the world. I would be interested to hear what is the thinking behind that or what level of sharing is going on.
The other issue is about the three working days. What kind of prima facie rule is applied in that case? It is a serious thing. For instance, if we were lucky enough to be on a visit to New York, or wherever, and we happened to have €15,000 because we were planning a long holiday or a significant purchase when we arrived there, it would be a significant inhibition. For instance, take the example of an antique dealer who intended to go to an auction outside EU territory. If the auction was on a particular date he or she would be prevented from making a bid at it because the cash was being held by the customs service. I am interested to know what kind of prima facie rule would apply in a case where there appears to be a question mark over the transaction, and what length of time are proceedings to go on for. I am interested in what is required to freeze a transaction as being suspicious.
Mr. Croke
Generally, many of the questions are quite detailed and technical. Many of these will be dealt with at Brussels level, not just here in Ireland. The issues may change from time to time. Quite a lot of them will be dealt with in an implementing directive afterwards. I will try to cover some of the issues.
On Deputy Finneran's question on money laundering and statistics, Revenue and Customs competency in this area relates to the seizure of cash, which is drugs-related cash. The seizure of assets under the Criminal Justice Act 1994, is primarily a matter for the gardaí. I do not have any figures for that. On the matters Customs are involved in, we do seize cash but it must be related to drugs. It is confined to that. In the first nine months of this year we seized just over €500,000 in cash that was drugs-related. Those are the statistics so far.
On those transactions, was that within the EU or arriving from outside its borders?
Mr. Croke
In the main it would be cash leaving this country.
The Customs Service only has the power to seize drugs-related cash. It does not have a wider remit for general cash. Is that it?
Mr. Croke
No, just drugs-related.
So this widens it out to all cash?
Mr. Croke
It would widen it out.
On the second issue, co-operation in general, what I can talk about is customs co-operation and the various pillars at European level. This regulation is under the first pillar, where the European Commission has competence. That is what we are talking about here.
On the issue of the declaration, as I said, the mechanics of how the declaration will work and when and where, will be dealt with in an implementing regulation, as I know from experience. I agree that it would not be reasonable to have to make a declaration at the point of exit, for various reasons that have been outlined by the members of the committee. I presume that the method of making the declaration will take account of various situations. This is something we will be pressing ourselves.
On the movement of cash to Russia, Switzerland and so on, the reason the Council of Ministers looked at this proposal and asked the Commission to do something was as a result of Operation Moneypenny, which was carried out by the customs services of the European Union. That was over four to five months. In that period a total of €1.6 billion in cash was detected moving. Some of it may have been legitimate, some may not, but such a sum, of which a total of €1.3 billion was cash - the balance may have been cheques or bonds - prompted this initiative from the Council to the Commission.
Looking at the penalties issue, what we are talking about is the level of penalty. Again, this is something we are going to have to look at in detail once the proposal has been fine-tuned. At present, looking at current penalties, it would be the Taxes Consolidation Act that would be used. What that means is a penalty on summary conviction of €3,000 which may be mitigated by a judge to not less than one-fourth part. On conviction on indictment the penalty is €126,970. There are periods of imprisonment as well. However, this is at a very early stage. If one looks at the regulation, what it envisages are monetary penalties, not imprisonment. I do not envisage that as being the case.
Are there criminal sanctions?
Mr. Croke
Criminal sanctions? Yes, but we are talking about monetary penalties. The offence we are talking about here is failure to make a declaration. What the regulation provides for is that the penalty will be a monetary penalty, possibly no more than a quarter of the total sum seized. At present, the possible penalty that could be used in Irish law is the Taxes Consolidation Act, which on summary conviction allows for a penalty of €3,000 which can be mitigated by a judge, and on conviction on indictment it is a maximum of €130,000. A judge can decide to impose a penalty in the range of €1 to €130,000.
Is that Irish law?
Mr. Croke
Yes, under the Taxes Consolidation Act.
For amounts over what sum?
Mr. Croke
On summary conviction we are talking about an amount of €3,000. If it goes to indictment we are talking about larger amounts.
Money laundering?
Mr. Croke
No. May I explain the situation? As I said at the outset, what we are talking about is a penalty for failure to make a declaration. There are separate penalties and separate offences on money laundering which are contained in the Criminal Justice Act 1994. All I am talking about is a failure to make a declaration. That penalty in no way affects or impedes or crosses over any existing legislation that is in various member states. Here in Ireland the directive on money laundering has been transposed by the Criminal Justice Act 1994. That stands separate.
Regarding the publicity, this issue of exchange control was with us long ago. The intention here, which is included in the documentation on the proposal, is that if this comes to law there will be extensive publicity attached to it. It will be at the various entry and exit points and on-board aircraft. The intention is to ensure that the information is widely circulated. I agree with you, if people do not know about the law, there is a problem. It will be widely circulated.
The Deputy questioned how the sharing of information was to be done. It will be done under existing customs co-operation agreements. There are two such agreements and one is mentioned here. It is a customs co-operation agreement under Regulation 515, which allows customs services to share information with each other throughout Europe on first pillar issues. That would be community competence issues: for example, customs duty evasion, smuggling, issues such as this. There is also another agreement, the Naples convention, which allows customs services to share information on third pillar issues, such as drugs. Those are the two principal agreements.
The intention is that if information is to be shared it has to be shared under existing agreements that preserve the personal data protection provisions and apply them before sharing. It is done through a structured system. It is not just sharing without some legal basis. We are not talking about introducing any new co-operation agreements. The existing ones are more than adequate to deal with this.
On safeguards, maybe you did not get my point because you have not responded to it, if somebody declares that they are carrying €50,000 or €60,000 into a Russian republic, or somewhere else, if that information is not absolutely protected and guarded, not alone is that man's property endangered, but his personal safety could be compromised. This is a new situation that arises with transactions of cash. Up to now it was dealt with through financial institutions, which avoided any danger to the individuals, but if they are carrying a large amount of cash and they have to sign a declaration in advance, the person who has access to that information is of vital importance to the person involved. What safeguards are there for somebody in those circumstances?
Mr. Croke
If I can reply on this basis. What we are talking about are suspicious movements of cash. The situation that you refer to, where someone legitimately makes a declaration bringing amounts of cash to a certain country will not have that information shared with that country. That would only happen if there were sound suspicions that there was something wrong with that money. The legitimate person bringing cash over the threshold to another country makes a declaration and no suspicion will attach to him whatsoever.
It can be shared.
Mr. Croke
It can, but it will not be, because what we are talking about here is sharing of information on suspicious movements of cash. We are not referring to——
Will the transporter be informed that he is under suspicion? Could he not be a legitimate traveller——
Mr. Croke
Just one moment. In a situation like that, where there are suspicious movements of cash, you can be assured that the cash will be detained.
Even with a declaration it could be suspicious. This is where I am not with you. Let us say I am a drug dealer moving across countries. What if I just declare the €15,000? Will that let me off the hook of suspicion?
Mr. Croke
No, it does not. If you make a declaration and we believe it is suspicious, why would you make a declaration? Possibly you would. If it is over the €15,000 and you make a declaration, the evidence, whether it be material or circumstantial, will lead to the likelihood that the cash will be detained while investigations are being carried out. We are not talking about being allowed to move on to another country with the money.
That is often the practice, is it not?
Mr. Croke
In relation to?
On tracking a drug dealer. They allow them to travel on to meet the person at the other end. At what point do you become suspicious and, instead of just having one's money seized, at what level is co-operation achieved? If I make a declaration of €15,000 and am actually doing something illicit, do you say it cannot be shared? Do you say it automatically cannot be shared once a declaration is made?
Mr. Croke
The intention is that not all information on declarations will be shared. We will not have thousands of pieces of information flowing around the European Union and outwards. What we are talking about is sharing information on suspicious movements of cash, not sharing information on every single declaration, legitimate or otherwise. It is where we have circumstantial evidence or where we have fixed or good evidence that the cash is suspicious. In that type of situation the likelihood is that the cash will be detained and investigations will be carried out. It may lead to subsequent money laundering or revenue offences being detected. In those situations the information will be shared. We are only referring to the sharing of information between EU member states. The type of information Deputy Finneran is referring to is where we are sharing information with Russia and other states. We only share information with those countries if terrorism is suspected, if the money is to be used for terrorist purposes.
That was, to some extent, my question, but there was a further part to it. What I meant was that this is obviously highly sensitive information and if somebody is going about their legitimate business and they have more than €15,000, they must declare it. The identity of the people who have access to that information is of vital importance to the safety of the person who is carrying the money. They could be the victim of a kidnap or robbery, or even be killed. This might happen if the information that they give in that declaration is not top-secret. This could happen if it leaked out to a criminal element. That is why I asked what safeguards there are for the bona fide traveller.
Mr. Croke
The information will be given to customs and they are bound by secrecy and data protection rules. It will be the Irish customs service, in the Irish context that will receive that information. They are bound by confidentiality rules, in particular, the data protection rules. In that situation if information gets out, it is quite serious. It has not happened in the past. We have been dealing in the Irish customs service for many years with highly confidential issues. I have not encountered any situation where that has happened, but it is serious, I agree.
You have not come across it before because there are no regulations for it here, for a declaration on cash.
Mr. Croke
Yes, just cash, but there are other items and so on. There are safeguards in place. I mentioned data protection and confidentiality where there are clear safeguards. I agree, information of that nature should not get out. Again, what we are talking about is where information is shared. It is shared where we form a suspicion. We are not going to share information on the legitimate person going about their business. Why should we share information with other countries if that person is doing legitimate business? In those situations we will not be transmitting that information to other countries, it will remain here, in the form of the declaration. It is only in suspicious movements of cash that we will not allow the cash to go through. We are talking about detaining the cash and carrying out investigations. If we have information that is of relevance to another country, we will pass it on. The individual would not go to that country with the suspicious cash. We would detain it.
At this stage we will conclude our question and answer session on this. I thank Mr. Croke and Mr. Ryan for attending today's meeting and for their assistance on the presentation and for answering the questions put by the various members of the committee.
At this stage we will suspend for a moment to allow the guests to withdraw. The other officials from the Department of Finance are coming in to talk about the decentralisation programme. We will suspend for a moment.