Committee Reports::Interim report - Glackin report::01 October, 1993::Appendix

I refer to your letter of September 21 concerning the Glackin report. We have already responded to the Minister for Enterprise & Employment on this matter. We received legal advice that Mr Glackin’s report does not constitute legally dependable proof of his findings. As the Minister had also referred the report to the DPP we felt that we must await the outcome of any judicial process that the DPP might instigate. Any action by us in advance of this superior judicial process would, in our view, be inappropriate.

You asked if there were any legislative or other measures which might require to be put in place. We don’t believe that the Report highlights the need for any such measures. The central problem is that if information is not forthcoming from another jurisdiction, our law cannot do anything about this. Even if the Government was able to negotiate an agreement about exchanging information with the authorities in the Channel Islands and the Isle of Man (and we believe this is highly unlikely), we feel that this would simply cause people to move their business to another country where their anonymity is guaranteed.

I am not in a position to say at this stage exactly what measures may be required following publication of this Report. Insofar as matters of fraud or dishonesty are concerned, the position, as you know, is that the Programme for a Partnership Government contains a commitment to ‘revise and strengthen the law on serious fraud and on offences of dishonesty generally, in line with the recommendations of the Advisory Committee on Fraud and the Law Reform Commission’. Legislation will be prepared in this Department to give effect to that commitment. If it appears, after due consideration of the Glackin Report, that changes in the criminal law are needed in the light of that report, suitable provision will be made in the legisation proposed on fraud and dishonesty.

I refer to your letter of 21 September regarding the above report and I wish to take this opportunity to inform you about the nature of the Bank’s involvement with Mr. Glackin’s investigations from the outset.

Until 31 December, 1992, when the Exchange Control Acts lapsed, the Bank was responsible for the administration of Exchange Control regulations under delegated authority from the Minister for Finance. During the course of Mr. Glackin’s investigations, the Bank was requested by the Department of Finance to examine its Exchange Control records for information on certain transactions. The Bank conducted a full examination and conveyed the results to the Department of Finance. Following publication of the final Glackin report, the Department of Finance requested the Bank to examine further its records and comment on the Exchange Control aspects of the transactions described by the Inspector. The Bank has already forwarded its response to the latest request from the Department.

I would like to point out that the Bank is bound by stringent legal constraints on divulging information about transactions involving individual persons or companies. Other than where required by court proceedings, or where we were responding in confidence to the Department of Finance as our principal, we are not at liberty to release or discuss the information contained in our Exchange Control records.

In these circumstances, the Bank has no option but to decline to respond directly to the request in your letter. Furthermore, with regard to any legislative or other measures that might arise in this context, the Bank would also see this as an issue for the Department of Finance especially since at this stage the Exchange Controls have all been phased out.

I trust that you will appreciate the nature of my reply, which does not in any way suggest that the Bank does not wish to be helpful to the work of your Committee. Rather its desire is to be as helpful as possible. We have been doing this since the start of the investigations through the Department of Finance as this has been and continues to be the only legal route open to us.

I refer to your letter of 21 September in which you request a memorandum from this Office on the outcome of Revenue’s investigations in relation to the ’Glackin Report’.

You will be aware that this Office conducted an investigation into the transactions in question on the instructions of the Minister for Finance. In the circumstances, I consider that any comments by this Office should be made to the Minister. Accordingly, I propose to channel my reply to your request through the Department of Finance.

Please find attached a note for the information of the Committee, as requested in the Chairman’s letter of 21 September 1993 to the Secretary.

Department of Enterprise and Employment

Information Note to the Select Committee on Enterprise and Economic Strategy regarding the “Glackin Report”

Commencement of company law inquiry

1.The then Minister for Industry and Commerce referred in the Dail to the circumstances leading to the commencement of the “Glackin Inquiry” in October 1991. In his reply to Question number 25 on 14 November 1991 (copy attached), the Minister adverted to the difficulties experienced by the inquiry under the aegis of the then Minister for Tourism, Transport and Communications (the “McDonagh inquiry”). The report of that inquiry recommended that an inquiry under company law be instituted and this recommendation was accepted and advanced in the appointment of John A. Glackin, Solicitor.

Report of Inquiry

2.Mr Glackin’s inquiry also experienced considerable difficulties. These have been well documented. However, his final report has now been published and has been urgently made available by the Minister to various authorities with relevant responsibilities - the Director of Public Prosecutions, the Revenue Commissioners, the Minister for Transport, Energy and Communications, the Irish Stock Exchange and the Minister for Finance. The Minister has officially recorded his gratitude to the UK Secretary of State for Trade and Industry for the helpful co-operation extended through the capabilities of the UK code of company law. The inspector adverts to the usefulness of this official assistance in his final report. The Department of Enterprise & Employment has been giving careful consideration to the report and the experience gleaned from the inquiry as to whether changes or improvements are necessary in the regulatory and legislative regime relating to the conduct of such inquiries and the code of company law.

Section 16 Direction

3.On foot of the inspector’s interim report in July 1992, the then Minister for Industry and Commerce issued a direction to United Property Holdings Ltd, under section 16 of the Companies Act, 1990, in relation to certain shares held by Aurum Nominees Ltd. The effect of the direction is to freeze all rights in relation to the shares, including any transfer rights, voting rights and the receipt of any dividend from them. The inspector had not received the necessary co-operation from Mr Joe Lewis, a resident of the Bahamas and the claimed beneficial owner of the shares in question. It emerges from the final report that Mr Lewis held his shares in UPH Ltd as a nominee in trust for Mr J P McManus. This statutory restriction continues in force and will be reviewed, in the light of the provisions of the Companies Acts, 1963 to 1990, as the need arises.

Legislative Aspects

4.During the course of the investigation undertaken by Mr Glackin, a number of issues relating to the provisions of Part II of the Companies Act, 1990 (under which Mr Glackin’s inquiry was undertaken) were the subject of court proceedings. In general, the powers and procedures in the Act were upheld and proved satisfactory. While part of section 10(5) was deemed to be unconstitutional, the courts held that the impugned part was capable of severance from the subsection and that the remainder was operable, in conjunction with subsection 10(6).

Conduct of Investigations

5.The courts were fully supportive of the inspector in the face of much legal challenge. The Minister has publicly expressed his belief that this inquiry was justified by the public interest which was well served for the public expenditure involved. The Secretary of the former Department of Industry and Commerce, in his capacity as Accounting Officer, also dealt with questions at the Public Accounts Committee on costs aspects and the appointment of the inspector, on 1 July 1993. Consideration is being given, with regard to the conduct of future company law inquiries, as to how best to further minimise the costs of such investigations. The merits of using certain other provisions of the Companies Act, 1990, continue to be explored. For example, section 19 of the Act empowers the Minister or an officer authorised by him to require the production by a company of books or documents, in various specified circumstances, including the suspicion of fraud or unlawful purpose. However, the use of such provisions might be limited by the availability of relevant resources within the Department and the question of the perceived impartiality of any investigation carried out by an officer of the Department.

Garda Investigation instituted by the DPP

6.Every co-operation has been provided to facilitate the criminal investigations being carried out by the Gardai at the request of the DPP. The Minister would assure the Deputies that this co-operation will continue to be provided as the need arises.

25. Mr. Rabbitte asked the Minister for Industry and Commerce if he will outline, in relation to his appointment of an inspector to investigate the companies involved in the Telecom Éireann Ballsbridge site deal, the reason the appointment was made under section 14 rather than section 8 of the Companies Act, 1990 which would have allowed the inspector to have access to the bank accounts of the companies involved; if he intends to seek any additional powers for the inspector; his views on whether it may be necessary to amend the Companies Act, 1990; and if he will make a statement on the matter.

Minister for Industry and Commerce (Mr. O’ Malley): The Minister for Tourism, Transport and Communications at Question Time on 5 November 1991 informed the House of certain difficulties faced by the inquiry he had established on 14 September 1991, and the consequent recommendation in the report of that inquiry that an inspector be appointed under the Companies Act, 1990. Arising from consultations I had with the Minister for Tourism, Transport and Communications I proceeded to appoint an inspector under section 14 of the Companies Act, 1990 to investigate and report on the membership of Chestvale Properties Ltd. and Hoddle Investments Ltd. and otherwise with respect to these companies for the purposes of determining the true persons who are or have been financially interested in the success or failure, real or apparent, of these companies or able to control or materially to influence their policy.

Section 8 of the Companies Act, 1990, provides that the High Court may appoint inspectors, on my application, to investigate the affairs of a company if it is satisfied that any one of a number of events have arisen as specified in the section. In this regard, I was satisfied that the known facts pertaining to this case did not extend to the circumstances set out in section 8.

It was in the light of the foregoing and the fact that the main concern was to establish, in the public interest, the true ownership of these companies that I decided to proceed with an investigation under section 14. The inspector has substantial powers under the 1990 Act. He is in regular communications with my Department. His work is proceeding well. Should any difficulties arise for the inspector, these can be addressed. On receipt of his report I will consider what further action might be required.

I would like to assure the Deputy that company law is kept under review, and if I feel it needs to be changed, I will not hesitate to propose this.

I refer to your letter of 21 September 1993 requesting this Department to furnish for the information of the Select Committee a memorandum on matters arising out of the Glackin report.

The matters arising out of the report of direct relevance to this Department and to bodies under the aegis of the Minister for Finance relate to exchange control and tax aspects.

Mr Glackin’s report was referred to the Central Bank for its comments on the exchange control aspects of the transactions described in it. The Bank has recently forwarded its response and this is being considered by the Department.

The reply of the Chairman of the Revenue Commissioners to your request is enclosed herewith.

In March 1992 the Minister for Finance announced guidelines indicating the principles which should govern relationships between Departments of State and State bodies under their aegis. I enclose a copy for the information of the Select Committee together with the Minister’s press release.

The guidelines are based on recommendations in a report which I prepared at the request of the Taoiseach, Mr Albert Reynolds TD, when he was Minister for Finance. A copy of this report is also attached.

Glackin Enquiry into the Telecom Affair

Request to Revenue Commissioners for a Report on the Taxation Aspects

GENERAL POINTS

1.A Revenue enquiry into the taxation aspects commenced in May 1990 following the contract for disposal of the site in question to Telecom. The nature of this enquiry changed in September 1991 on the establishment (by the then Minister for Tourism, Transport and Communications) of a formal enquiry into the relevant transactions. The report of that enquiry and the subsequent interim and final reports of Mr. Glackin have been of considerable assistance to the Revenue enquiry.

Substantial progress has been made in the Revenue enquiry but it is not yet complete. Because of its scope and the number of complex issues to be resolved, it may not be possible to reach finality on all Revenue aspects for some time. The absence of agreement as to some basic facts may be expected to lead to delay in the resolution of related taxation points.

2.The Revenue response to the Select Committee’s request is necessarily in general terms. There is the consideration that release of information could undermine the further progress of Revenue enquiries. It could also of course lead to public debate as to the merits of particular arguments and to speculation as to the tax position of all persons mentioned as being involved in any way in the affair.

For these reasons, and also because of normal confidentiality obligations, it is not considered appropriate to comment in detail on the possible tax implications for the individuals and companies known to be involved.

3.The extent, if any, to which the recent Amnesty legislation - the Waiver of Certain Tax, Interest and Penalties Act, 1993 - may be applicable to the persons involved in the Telecom affair is unclear.

This legislation provides, subject to various conditions, two kinds of Amnesty in relation to pre-April 1991 liabilities -

-a 15% Incentive Amnesty covering certain Income Tax and Capital Gains Tax liabilities of individuals, and

-a General Amnesty providing for all taxpayers (including companies) a waiver of interest and penalties.

-companies as distinct from individuals are not within the scope of the special 15% amnesty

-individuals who had been notified before 25 May, 1993 that they were under investigation or that the inspector intended to make any enquiries are excluded from the scope of the special 15% amnesty and

-any sum which was not paid on or before 25 May, 1993 by virtue of a tax avoidance scheme is also excluded from the 15% amnesty.

The General Amnesty is not subject to the same range of restrictions but the full tax must be paid under it.

4.All taxation aspects of the Telecom affair have been monitored by the Anti-Avoidance Unit of the Chief Inspector of Taxes’ Branch of the Revenue. This Unit was strengthened in 1991 in accordance with that Branch’s Corporate Plan (the FORWARD PLAN) of December 1990. It has been effective in countering attempted avoidance and all information (including the GLACKIN reports) which has come to hand regarding the Telecom affair has been processed by the Unit.

As part of the FORWARD PLAN, specific Audit Districts have also been set up; these operate in conjunction with the Anti-Avoidance Unit with a view to early detection of apparent avoidance schemes and the taking of appropriate counter-measures.

5.While one cannot, of course, be certain as to the motives behind particular transactions, their structures and methodology, one may presume that minimisation of tax was a primary objective. However, while all necessary information is not yet available, Revenue, in the light of the information which has emerged, are now confident of a satisfactory outcome to the taxation enquiries. A significant sum of tax has already been paid to Revenue in the course of enquiries to date.

6.Notes on specific legal points which may be relevant to Revenue’s enquiries are attached.

7.The question of whether any new legislative measures may be required will of course be considered in the light of the outcome of the enquiries.

1)The Revenue enquiry involves a detailed examination of the accounts and tax returns of all possible relevant companies and individuals with a view to establishing the tax liabilities, including Corporation Tax, Income Tax, Capital Gains Tax and Stamp Duty.

i)In general, a person wherever resident is liable to Capital Gains Tax on the gain accruing on the disposal of land in the State (other than trading stock). [Sections 3 and 4, Capital Gains Tax Act 1975].

ii)Under the provisions of paragraph 4, Schedule 2, Capital Gains Tax Act 1975, where a person is issued with shares or debentures by a company in exchange for shares or debentures in another company, no disposal of those latter securities is deemed to have taken place. Essentially, the legislation views the exchange as a “paper for paper” transaction. Liability to Capital Gains Tax is deferred until actual money is received.

It should be noted, however, that under the provisions of Section 63, Finance Act 1982, such an exchange of paper does not give rise to a deferral of liability unless it is shown that the exchange was effected for bona fide commercial reasons and does not form part of any arrangement or scheme of which the main purpose, or one of the main purposes, was avoidance of liability to tax.

iii)Under the provisions of Section 36, Capital Gains Tax Act 1975, Irish resident beneficial owners of shares in a non-resident company may be liable to Capital Gains Tax on gains accruing to that non-resident company. In other words, the section can treat the gains of the non-resident company as if they arose to the Irish-resident shareholders of the company.

iv)Under the provisions of Section 37, Capital Gains Tax Act 1975, gains arising to the trustees of a non-resident settlement (including a trust) may in certain circumstances be treated as arising to persons who have an interest in the property of the settlement. In other words, tax cannot be avoided by arranging matters so that a gain arises to a trust whose trustees are not Irish resident but the settlor and the beneficiaries of the trust are resident in Ireland.

v)Under the provisions of Paragraph 11, Schedule 4, Capital Gains Tax Act 1975, a purchaser of certain property in the State (including development land) must deduct 15% of the consideration and pay it over to Revenue unless the vendor produces a certificate which allows payment in full. This certificate is obtainable only if the Revenue position regarding the disposal is protected.

vi)Under the provisions of Section 57, Finance Act 1974, an Irish resident individual is liable to tax on certain income arising abroad which arises from or is associated with a transfer of assets abroad. An individual cannot avoid tax simply by transferring funds “offshore”.

vii)The Ireland/Cyprus Double Taxation Agreement of 1970 governs the taxation of property situated in either State and income originating in either State to the benefit of residents of the other State.

3)For the purposes of its enquiries, Revenue has recourse to the various powers contained in the relevant tax legislation. However, it must be borne in mind that, in the case of non-resident taxpayers, there are territorial constraints on the use of its powers.

I refer to your letter of 21 September, 1993 in which you requested that I provide a memorandum for the information of the Select Committee on the outcome of this Department’s investigation into the report by Mr. John Glackin on the events leading to the purchase, by Telecom Eireann, of the Johnston, Mooney and O’Brien site in Ballsbridge.

I am pleased to enclose a memorandum as requested, which has been seen by my Minister.

SELECT COMMITTEE ON ENTERPRISE AND ECONOMIC STRATEGY

GLACKIN REPORT ON TELECOM EIREANN SITE AT BALLSBRIDGE

Memorandum on the outcome of the investigation of the Department of Transport, Energy and Communications into the Glackin Report.

The Committee will be aware that the then Minister for Tourism, Transport and Communications established, on 19 September, 1991, a formal enquiry into the events leading to the purchase, on 29 June, 1990 by Telecom Eireann of the Johnston, Mooney and O’Brien site in Ballsbridge.

Arising from a lack of co-operation from certain individuals the report of this investigation recommended that an alternative course of action be taken under the Companies Acts. This led to John A. Glackin being appointed as Inspector by the then Minister for Industry and Commerce to investigate the matter under the Companies Acts.

Mr. Glackin’s reports exonerated Telecom Eireann directors and staff from any wrongdoing in the transaction.

It would be wrong, of course to take from that that there were not lessons to be learned both by Telecom Eireann, the Minister and the Department from the events.

On 30 September, 1991 the then Minister wrote to the Acting Chairman of Telecom Eireann on the need to ensure that the highest standards of personal integrity throughout the Public Sector were maintained. The Minister, in reviewing existing procedures, sought details of procedures in place to ensure that Telecom Eireann Board Members and senior executives are obliged to make clear declarations of any possible conflict of interest that might arise in any situation. The Minister also sought details of any benefits in cash or in kind received by Board Members and or senior executives arising from their positions with the Company. The Minister also wrote in similar vein to the Chairmen of all State bodies under his responsibility.

In its response Telecom Eireann submitted a draft “Note on ethical standards for Guidance of Telecom Eireann Board Members and Senior Executives” which was being examined by the Company’s legal advisors.

The Committee will be aware that the Department of Finance published “Guidelines for State Bodies” in March, 1992. These were amended and strengthened by the then Department of Tourism, Transport and Communications and issued by the Minister on 27 March, 1992 to the Chairman of Telecom Eireann. He acknowledged receipt on 28 April, 1992 and advised that the Company was currently reviewing what changes would be necessary to ensure compliance with the guidelines. The Chairman of Telecom Eireann is required to submit a special report, when formally submitting the annual reports and accounts of the Company, confirming that the guidelines are being complied with.

In June, 1992 Telecom Eireann commissioned independent consultants, inter alia, to review the arrangements within Telecom Eireann and its subsidiaries for complying with and implementing the guidelines. The consultants reported to the Company on 25 June, 1992 and again on 24 March, 1993. In their first report the consultants indicated that long standing practices and recent innovations (in Telecom Eireann) have anticipated many of the requirements of the Guidelines. The two reports, are confidential to the Company.

In summation the Department believes that both Telecom Eireann and the Department have shown by their actions since September, 1991, that the lessons to be learned from the purchase of the Johnston, Mooney and O’Brien premises in Ballsbridge have been taken on board. The Department considers that for it to involve itself to a greater degree in what are essentially day to day matters for the Company would restrict Telecom Eireann’s freedom to operate in a commercial manner as required under statute.

APPENDIX 3

COPIES OF CORRESPONDENCE RECEIVED FROM GOVERNMENT DEPARTMENTS/AGENCIES