I welcome the opportunity to address Senators on the Commission of Investigation (Irish Bank Resolution Corporation) Order, 2015. Following consultation with Members of the Oireachtas on Monday evening and the debate in the Dáil in the past two days, the majority of concerns raised have been addressed. I look forward to hearing the views of Senators on this significant matter of public concern and hope that in my opening statement and throughout the course of the evening I will be in a position to address the concerns of this House.
In response to significant public concern about certain transactions in IBRC, on 3 June the Government decided to establish a commission of investigation. The investigation is into certain decisions, transactions and activities entered into by Irish Banking Resolution Corporation, known as IBRC, between 21 January 2009, the date the bank was nationalised, and 7 February 2013, the date IBRC was liquidated. At yesterday's Cabinet meeting the terms of reference for the review were agreed and retired High Court judge Daniel O'Keeffe has agreed to serve as chairperson of the commission of investigation. He has a strong commercial background as a chartered accountant and former chairman of the Irish Takeover Panel. I again express my appreciation to him for agreeing to serve in this important role.
The commission of investigation will bring an end to the review of certain transactions by the special liquidators who will be directed to cease their review. While I maintain the view that the review would have been concluded competently in a prompt and efficient manner and produced a report by 30 August, the significant public concerns and the change in circumstances led to the Government's decision to establish a commission of investigation. The terms of reference for the investigation provide for the performance of a review of certain activities of IBRC and the production of a report by 31 December, in line with the Commissions of Investigation Act 2004. They also set out the scope, purpose and form of the review and report. The commission will also have the authority to report on any other matter arising from the investigation and make further recommendations as it sees fit.
The scope of the review is broad. It will consider all transactions, activities and management decisions, other than those related solely to the acquisition of assets by the National Asset Management Agency, which occurred between 21 January 2009, the date of nationalisation of IBRC, and 7 February 2013, the date of appointment of the special liquidators to IBRC, and which either resulted in, first, a capital loss to IBRC of at least €10 million during the relevant period, whether by consequence of a single transaction or a series of transactions relating to the same borrower or entities controlled by the same borrower or, second, are specifically identified by the commission as giving rise or likely to give rise to potential public concern about the ultimate returns to the taxpayer. The purpose of the two provisions is to ensure the judge is mandated to review all transactions, activities or management decisions that resulted in a capital loss of €10 million, but he will also have the power to investigate other transactions, activities or management decisions that resulted in a smaller loss but which are identified as giving rise or likely to give rise to potential public concern. This scope strikes the appropriate balance between ensuring the 30 to 40 largest transactions are reviewed while the work of the commission is not taken up examining every decision related to all small and medium enterprises, SMEs, or mortgage loans where there may not be a public concern. If Senators are aware of potential public concerns about specific transactions, they should bring them to the attention of the commission at the earliest opportunity.
Following consultation with the Opposition on Monday evening, the scope of the review was broadened and the following section was included:
In these terms of reference:
(a) "IBRC" means Irish Bank Resolution Corporation Limited;
(b) where a contractual obligation was agreed during the Relevant Period but not executed until after the Relevant Period then the contract and any resulting loss shall be regarded as having been made during the Relevant Period;
(c) references to IBRC shall be construed as including references to Anglo Irish Bank or Irish Nationwide Building Society and any subsidiaries of IBRC, Anglo Irish Bank or Irish Nationwide Building Society;
(d) for the avoidance of doubt, references to transactions, activities and management decisions shall be construed as including references to amendments made to the terms and conditions of loans.
I draw attention to point (b) in particular - where a contractual obligation, either written or verbal, was entered into prior to liquidation of IBRC but not executed until after the liquidation. The intention of this provision is to ensure no potential line of investigation into transactions, activities and managerial decisions of IBRC that, in the view of the judge, has given rise or is likely to give rise to potential public concerns will be cut off. There has been much debate in the past 24 hours about whether this provision covers verbal agreements entered into by the management of IBRC prior to the liquidation. I stated last night in the Dáil that it did and the Attorney General has confirmed that the circumstances raised in the Dáil last night by Deputy Pearse Doherty are within the scope of the terms of reference. The relevant period is focused on the areas of greatest public concern. It remains the case that the conclusion of the scope of the review at the date of liquidation is deemed necessary to focus the review on the transactions that have led to significant public concern. The commission shall investigate all transactions, activities and management decisions during the relevant period which are identified by the commission as giving rise or are likely to give rise to potential public concern. For the avoidance of doubt, amendments made to the terms and conditions of loans are included within the scope.
Questions have also been raised about the examination of unusual share trading activity in respect of any transaction under investigation. The judge is explicitly empowered to investigate such activity with its broad powers, activity which cannot be adequately investigated based on a review of files held by IBRC.
It is worth recalling that the IBRC Act 2013 contained a number of safeguards to protect the interests of the taxpayer, including independent valuation of the loan book, transparent auction processes and the prohibition on selling loan books for amounts lower than valuation. In addition, the special liquidators must meet significant legal obligations, both pursuant to the Companies Act and the IBRC Act, towards creditors generally and the State. The review shall investigate, in relation to each such decision, transaction and activity within the scope of the review: the processes, procedures and controls which were operated by IBRC in relation to the relevant write-offs to ascertain whether the appropriate internal IBRC governance procedures and controls were adhered to in respect of the transactions under review and whether the said procedures and controls were fit for purpose; whether there is prima facie evidence of material deficiencies in the performance of their functions by those acting on behalf of IBRC, including the IBRC board, directors, management, the staff of the wealth management unit and agents, in respect of transactions, activities and management decisions identified in the scope of the review; whether it can be concluded from the information available within the bank and relevant evidence and witness testimony, as appropriate, that the transactions were not commercially sound in respect of the manner in which they were conducted, the decisions made and the outcomes achieved having regard to the purposes of the Irish Bank Resolution Corporation Act 2013 set out in section 3 thereof; examine whether the interest rates or any extension to interest rates or any period for repayments were given by IBRC on preferential terms that were unduly favourable to any borrower, where those interest rates resulted in a differential of more than €4 million in interest due over the standard applicable interest rates for loans of that nature or where the amendments give rise to or are likely to give rise to potential public concerns; investigate whether, in respect of any transaction under investigation, any unusual share trading occurred which would give rise to an inference that inside information was improperly provided for or used by any person and, in the event that such an inference does arise, whether any such information was actually improperly provided or used; and, in relation to each transaction under investigation, whether the Minister for Finance or his Department was kept informed, where appropriate, in respect of the transactions concerned and whether he, or officials on his behalf, took appropriate steps in respect of the information provided for them.
While it is essential that the focus of the investigation remains on the individual transactions, it is from a review of the individual transactions that trends and potential concerns may be identified. Section 4 of the terms of reference provides the judge with the power to go further with the investigation in the public interest "on any other matters of concern arising from its investigation" and report and make recommendations on those matters.
The governance role of the Department and political oversight by both my predecessor, the late Brian Lenihan and I, as the respective Ministers for Finance during the period under investigation, was discussed during the consultation and again during the Dáil debate. I assured the Deputies who raised concerns earlier, and I wish to assure Seanad Éireann now, that under paragraph 2(f) of the terms of reference Mr. Justice O'Keeffe will be in a position to exercise judgment as to whether the Department took appropriate steps with the information provided to it on the transactions which fall under the scope.
Following consultation and engagement with the Dáil through the debate, concerns were raised regarding the wealth management unit and its specific inclusion in the terms of reference. I wish to confirm that the wealth management unit will be treated in the same manner as IBRC under the investigation. The specific inclusion of the wealth management unit in the terms of reference enables investigation into both general and specific concerns around transactions and decisions made by the wealth management unit. In addition, any reference to IBRC throughout the terms of reference shall be construed as including references to Anglo Irish Bank, Irish Nationwide and any subsidiary of IBRC, Anglo Irish Bank or Irish Nationwide. Similarly, the terms of reference have explicitly included the performance of agents of IBRC on the matters under investigation in order to enable the investigation of concerns raised regarding the role played by IBRC's advisers.
For clarity, on the issue of the threshold for the examination of whether any preferential interest rates and terms were given, the investigation is obliged to examine any situation which resulted in a differential of more than €4 million in interest due over the standard applicable interest rates, however, as outlined earlier, under the general scoping provision, the commission will also have the power to investigate any amendments made to the terms and conditions of loans transactions that give rise to potential public concern.
A final report to the Government not later than 31 December 2015, subject to section 6(6) of the Act, is envisaged. A report is to be produced in regard to the review, the purpose of which is to set out the scope and findings of the review in fulfilment of the purposes; to respect obligations of confidentiality and to respect commercial sensitivity where those are not incompatible with the public interest; and to set out such recommendations as the commission sees fit.
While the date for the final report is four months later than the date by which I had directed the special liquidators to produce their review, it is deemed appropriate bearing in mind the different nature of the review and its extended scope. A commission of investigation pursuant to the Commissions of Investigation Act 2004 will have certain enhanced powers beyond those which would be available to the special liquidators of IBRC. The most significant of these powers include the power to compel witnesses or evidence and to enter and inspect premises. The establishment of a commission of investigation will also facilitate a broader scope of inquiry and will enable the interview of witnesses and the investigation of matters such as the trading of shares, which cannot adequately be investigated based only on a review of files held by IBRC. In addition, certain criminal offences apply in respect of the making of false statements to the commission or the destruction of evidence, which would not apply in respect of the review proposed to be conducted by the special liquidators of IBRC.
During the engagement with the Dáil which commenced yesterday and was concluded this afternoon, the issue of an interim report was raised. That is now a matter for the commission, which is independent of Government in its functions. It will be a matter for the judge to determine the nature, timing or sequencing of any part of the investigation and I believe that it is essential to give the judge full flexibility in this regard. The issue of an earlier deadline was also raised by various Deputies during the debate. However, I maintain the view that a deadline of 31 December 2015 is appropriate bearing in mind the different nature of the review and its extended scope from that which was given to the special liquidators in April of this year.
The staffing requirements of the commission will reflect the scope of the terms of reference and the ambitious timescale involved. The exact requirements of the commission will become clearer once it is established and begins to scope out its work in more detail. The appointment of staff and their terms and conditions will be subject to approval by An Taoiseach, with the consent of the Minister for Public Expenditure and Reform. In addition to direct staffing costs, set-up and ongoing costs will arise from the establishment of the commission's office, ICT and administration, travel and subsistence, among other costs.
I wish to inform the Seanad, as I did the Deputies to whom I spoke during the consultation on Monday and in the Dáil last night, that this commission of investigation will be able to obtain any necessary expert advice or assistance and that the commission will be well resourced. Based on an initial assessment, a cost of €4 million is deemed a reasonable estimate for 2015 and it is proposed to provide for this from the Vote of the Department of the Taoiseach. This estimate is based on the assumption that the commission completes its work by the end of 2015, as specified in the terms of reference. If it were deemed necessary to extend the commission's work beyond that date, then further staffing and other costs will of course arise. In addition to salary and administration costs, third party costs are also likely to arise. In accordance with the provisions of the Act, following consultation with the commission and with the consent of the Minister for Public Expenditure and Reform, I will have guidelines prepared concerning this area. The extent and timing of any such costs are difficult to estimate at this stage.
Given the scale of the banking crisis and the amount of taxpayers' money involved, it is essential that the public concerns in regard to certain transactions in, and issues raised relating to, IBRC are addressed in a comprehensive manner. There is no evidence of any wrongdoing in regard to the various transactions but I recognise that there are genuine public concerns and these concerns have grown significantly in recent weeks. Therefore, I repeat what I said earlier in this statement and encourage any Senator who has information that may be a cause of public concern to bring those concerns to the attention of Mr. Justice O'Keeffe.
A well resourced commission of investigation with targeted terms of reference and an ambitious timeline is the best way now to address the public concerns. Let me be clear. The investigation must be focused on the areas of greatest public concern, and it is, but it is not my intention nor is it the intention of the Government to cut off a potential line of investigation into transactions, activities and managerial decisions of IBRC that have given rise or are likely to give rise to potential public concerns.
I thank the Senators for their attention.