Committee Reports > List of Committees > Dáil > 1998 > Committee of Public Accounts > Second Interim Report - Appropriation Accounts 1996

APPENDIX 1

RELEVANT CORRESPONDENCE

12 December, 1997.

Secretary,

Public Accounts Committee.

I refer to the Chairman’s request, at the meeting of the Committee held on 20 November, 1997, for clarification of the Department of Finance’s view on the question of an upgrading of a post of Second Assistant Solicitor to First Assistant Solicitor in the Revenue Solicitor’s Office which was being sought by the Revenue Commissioners in connection with their pursuit of indictments for tax evasion.

I am pleased to inform the Committee that agreement has been reached with the Revenue Commissioners on a basis for meeting their requirements which will not result in any overall increase in either the authorised staff numbers or staff costs of their Office. Sanction has accordingly been issued for the upgrading. Revenue themselves will provide an additional recruitment level post in the Revenue Solicitor’s Office through internal redeployment of a post from elsewhere.

Yours sincerely,

Noel Kerins,

Principal Officer,

Vote Control Section,

Mr. Patrick Timmons,

Clerk to the Committee,

Committee of Public Accounts,

Leinster House,

Dublin 2.

Dear Mr. Timmons,

I refer to the meeting of the Committee of Public Accounts on 20 November, 1997 during which the Committee requested clarification of the relationship between the Revenue Commissioners and the Central Bank and a note on the revised tax prosecutions process.

Enclosed for the information of the Committee are two notes setting out the information requested.

C.C. Mac Domhnaill,

Accounting Officer.

18, December, 1997.

Relationship between the Central Bank and the Revenue Commissioners.

The Taxes Acts do not have any provisions which oblige the Central Bank to report any matters in relation to its supervisory or regulatory functions to the Revenue Commissioners nor do they contain any provisions under which the Revenue Commissioners may oblige the Central Bank to report on any such matter.

A Statement furnished by the Central Bank for the information of the Committee is attached.

THE CENTRAL BANK, CONFIDENTIALITY AND THE REVENUE COMMISSIONERS

In exercising its supervisory duties, the primary responsibility of the Central Bank is to ensure that financial institutions observe prudential standards and to secure, as far as possible, the stability of the financial system.

In discharging its functions the Central Bank has access to the books and records of banks and other regulated financial institutions. It exercises these powers only for the discharge of its regulatory responsibilities. This usually involves an examination of an institution’s own accounts. The Bank is concerned with customers of institutions only insofar as prudential issues relating to the regulated entity arise (e.g. bad debt provisioning, large loan exposures, etc).

The Bank is subject to strict confidentiality requirements. These are laid down in Section 16 of the Central Bank Act, 1989, (as amended by a number of statutes, inter alia dealing with investment intermediaries and the Stock Exchange and its members). Under pain of severe penalties, no current or former director or officer of the Bank may disclose information about individual persons or entities to third parties other than in exceptional circumstances which are individually specified in legislation. These exceptional circumstances include the provision of information:-

(i)as required by a court in connection with any criminal proceedings;

(ii)to the Garda Siochána in relation to money laundering and other criminal activity; and

(iii)to other regulatory authorities which are subject to similar confidentiality requirements.

The high standard of secrecy reflects the concern that the release publicly of information obtained for prudential supervisory purposes might damage public confidence or inhibit exchanges of information between regulatory authorities. This standard is applied generally throughout the European Union and the Irish position is in no sense exceptional.

Disclosure of information to the tax authorities is prohibited under Section 16 as the tax authorities are not excepted from the general prohibition.

The Bank is obliged to report to the Garda Siochána a suspicion that an entity it supervises has committed or is committing the offence of money laundering (Section 57(2) of Criminal Justice Act, 1994). Money laundering embraces tax evasion. Furthermore, the Bank, under Section 49(2) of the Investment Intermediaries Act, 1995, may disclose to the Garda Siochána, where it has reasonable cause to believe that a criminal offence has been committed, any information to enable further investigation of the alleged offence. The Bank may give evidence in criminal proceedings as required by a court. Thus, if the Bank had evidence of tax evasion it would disclose it to the Garda authorities, and could give evidence as required by a court in the event of criminal proceedings. In the two and a half years since the Criminal Justice Act came into effect, the Bank has not found evidence of money laundering or criminality relating to tax matters.

It is important to stress that Irish law on confidentiality in financial regulation implements European Union law which requires a common standard of professional secrecy for financial regulation. If such a standard did not exist, financial regulation, which inevitably involves cross-border issues and frequently intensive regulatory cooperation, would fail. No regulator is permitted to transfer information to another regulator unless its use is confined to prudential regulation within a strict confidentiality regime.

December 1997

Revised Tax Prosecution Process

1.PREVIOUS POSITION

Prior to 1996 Revenue referred cases of serious tax fraud to the Gardai for investigation with a view to the referral of a file to the DPP. Where cases were sent by Revenue to the DPP he would pass them to the Gardai for further investigation. A total of 29 such cases were referred to the Gardai in the period 1989 to 1996. In general the Office of the Revenue Solicitor was not directly involved in this referral process and any prosecution work which resulted from directions by the DPP in those cases fell to either the Chief State Solicitor or the Local State Solicitor to handle.

2.CURRENT POSITION

Since 1996 the Revenue have, with the agreement of and assistance from the DPP, embarked on a new initiative in the area of prosecution and have involved their own officers more directly in this area of work. The position now is that cases of serious tax fraud, apart from a small number which will continue to be referred to the Gardai, are fully investigated by specially trained Revenue officers in the Investigation Branch and passed to the Revenue Solicitor’s Office for examination as to their suitability for prosecution. These cases are not referred to the Gardai.

The Revenue Solicitor’s Office examines and evaluates the submissions made to it and either refers the papers back to the investigating officer if there are deficiencies in the case, or alternatively, refers the file to the Director of Public Prosecutions if a case is considered suitable for prosecution. If the Director of Public Prosecutions directs that a prosecution is to follow the papers, in cases that would previously have been dealt with by the Chief State Solicitor, are passed to the Revenue Solicitor’s Office to co-ordinate the prosecution activity. This, among other things, involves the preparation of charges and a Book of Evidence, briefing Counsel and attending on the case through the Courts. These are areas of work not previously dealt with by that Office in relation to tax evasion offences.

In addition, where in the course of an investigation, investigators, as is frequently the case, identify potential legal problems which may prejudice the fullest investigation and subsequent prosecution, the advice of the Revenue Solicitor’s Office is sought. This necessitates that the best quality legal advice on evidential and allied matters be available to investigators on an ongoing and often urgent basis. Whilst an officer of the DPP is available to Revenue to assist in its initiative in the area of prosecution, this does not lessen the new workload of the Revenue Solicitor especially as regards the preparation of Books of Evidence and the carriage of the cases through the Courts.

3.STAFFING POSITION IN THE REVENUE SOLICITOR’S OFFICE.

At the time of the introduction of the new prosecution initiative, the Office of the Revenue Solicitor had a serving professional staffing complement of 8 Solicitors, composed of 1 Revenue Solicitor, I Deputy Revenue Solicitor, 2 First Assistant Solicitors, 2 Second Assistant Solicitors and 2 Third Assistant Solicitors. In order to provide for proper management and coordination of the new prosecution process at the right professional level, and deal with the level of complexity inherent in tax prosecution cases, the Revenue Commissioners considered that an additional solicitor at principal level (i.e. First Assistant Solicitor) was required and that the Office be structured on the following lines:-

Since the Committee meeting of 20 November, 1997, the Minister for Finance has given the necessary sanction to enable the above structure to be implemented. Arrangements are being made to fill the first and consequential second assistant solicitor posts (through internal promotion) at the earliest possible date, while the resulting consequential vacancy at third assistant solicitor will also be filled as quickly as possible.

Mr. Patrick Timmons,

Clerk to the Committee,

Committee of Public Accounts,

Leinster House,

Dublin 2.

Dear Patrick,

Please find herewith a revised version of the Note circulated to the members of the Committee on 20 November 1997 concerning “Breakdown of revenue yield in 1996 by county”.

The revised material is more comprehensive in that it now includes, inter alia, the breakdown of Corporation tax, Income Tax (non-PAYE) and Capital Gains Tax, which were not previously available.

Dennis Power

Principal

18 December, 1997.

16/12/97

Breakdown of revenue yield in 1996 by county

Net receipts for 1996 amounted to £12,095.5 million.

An estimated breakdown of the tax yield by county for PAYE, VAT (Internal), Corporation Tax, Income Tax (non-PAYE), Capital Gains Tax and RPT amounting to £8,842.3m is as follows:

Because of the manner in which records are kept a breakdown by county is not possible in respect of Stamp Duties and Capital Acquisitions Tax (amounting to £ 414.0m).

A separate table is attached showing the estimated breakdown of the Customs and Excise (including VAT at import) yield of £2,839.2m.

Notes on the compilation of the figures

1. The figures are based on an analysis of PAYE (employers), VAT Internal, Corporation Tax, Income Tax (non-PAYE), Capital Gains Tax and RPT. The data is based on a breakdown of the collection figures by “bailiwick”, which equates geographically with “county”. Dublin and Cork each have 2 bailiwicks and the figures for these bailiwicks have been amalgamated to produce the results for each county.

2. The % collection attributed to each county may not necessarily be an indication of economic activity in that county because:

a) The liability of a company to VAT is generally dealt with by reference to the location of the company’s registered office even though the company’s economic activity may be carried on elsewhere.

b) An employer’s liability for PAYE is normally attributed to the county in which wages and salaries are paid, even though the employees may work in different counties.

Customs and Excise (including VAT at Import) yield 1996.

An estimated breakdown of yield by collection area is contained in the following table.

Figures are not available on the basis of county of payment. The figures shown represent the total of all Customs & Excise payments by reference to the collection areas in which payments are made. A relatively large % of payments in Dublin area are made by traders and agents who have their principal place of business in Dublin but have clients and operations throughout the State.

Mr. Tim Dalton,

Secretary General,

Department of Justice, Equality and Law Reform,

72/76 St. Stephen’s Green,

Dublin 2.

5 January 1998

Dear Mr. Dalton,

At its meeting of 18 December 1997, the Committee agreed that I should write to you on the following matters arising out of its examination of the 1996 Report of the Comptroller and Auditor General and Appropriation Accounts:-

(a)Examination of Vote 9: Office of the Revenue Commissioners:-

At its request, the Committee was provided with a note by the Office of the Revenue Commissioners on the relationship between that officer and the Central Bank on the question of information exchange related to detecting for avoidance. A copy of this note is enclosed and I am to request that you examine it and indicate whether you consider that the balance of the law, as it currently stands regarding this issue, is adequate, or if any revisions would be justified;

and

(b)Examination of Vote 19: Office of the Minister for Justice:-

The Committee was concerned at the delay in dealing with the issue of tax clearance procedures in relation to members of the legal profession operating under the Criminal Legal Aid Scheme and has asked that its desire that the matter be resolved speedily be expressed.

Your early response would be appreciated on the above and other matters raised at the aforementioned meeting, I have also written to the Department of Finance on (a) and (b) and the Office of the Attroney General on (b).

Yours sincerely

______________

Jim Mitchell T.D.

Chairman

1 April, 1998.

Dear Chairman,

I refer to your letter which reached me on 10th March concerning a note by the Office of the Revenue Commissioners on the relationship between that Office and the Central Bank, on the question of information exchange in relation to the detection of tax avoidance.

I’m not sure that it would be appropriate for this Department to express a view as to what the policy should be as regards information exchange between the Central Bank and the Revenue Commissioners. Insofar as this Department is concerned, the law on disclosure of information by the Revenue Commissioners, concerning the detection and prosecution of tax evasion, is relevant insofar as it touches on the operations of the Criminal Assets Bureau. The relevant legislation on disclosure, namely the Disclosure of Certain Information for Taxation and Other Purposes Act and related provisions in the Criminal Assets Bureau Act, is only in place since 1997. We are keeping its effectiveness under continuing review as the Bureau gains operational experience of it and would be in a better position to make a comprehensive assessment of its effectiveness when a little more experience has been gained.

As regards the law on disclosure of information to the Gardai by the Central Bank, we are not aware of any difficulties arising.

I hope that this information will be useful for your purposes.

Yours sincerely,

_____________

Tim Dalton

Accounting Officer

Mr. Jim Mitchell, T.D.,

Chairman,

Committee of Public Accounts,

Leinster House,

Dublin 2.

Mr. Patrick Mullarkey,

Secretary General,

Department of Finance,

Upper Merrion Street,

Dublin 2.

5 January 1998

Dear Mr. Mullarkey,

At its meeting of 18 December 1997, the Committee agreed that I should write to you on the following matters arising out of its examination of the 1996 Report of the Comptroller and Auditor General and Appropriation Accounts:-

(a)Examination of Vote 9: Office of the Revenue Commissioners:-

At its request, the Committee was provided with a note by the Office of the Revenue Commissioners on the relationship between that officer and the Central Bank on the question of information exchange related to detecting for avoidance. A copy of this note is enclosed and I am to request that you examine it and indicate whether you consider that the balance of the law, as it currently stands regarding this issue, is adequate, or if any revisions would be justified;

and

(b)Examination of Vote 19: Office of the Minister for Justice:-

The Committee was concerned at the delay in dealing with the issue of tax clearance procedures in relation to members of the legal profession operating under the Criminal Legal Aid Scheme and has asked that its desire that the matter be resolved speedily be expressed.

Your early response would be appreciated on the above and other matters raised at the aforementioned meeting, I have also written to the Department of Justice, Equality and Law Reform on (a) and (b) and the Office of the Attorney General on (b).

Yours sincerely

_______________

Jim Mitchell T.D.

Chairman

22 April 1998

Mr Jim Mitchell TD

Chairman

Committee of Public Accounts

Dáil Éireann

Dublin 2.

Dear Deputy,

I refer to your letter of 5 January 1998, a copy of which was received in the Department in March 1998, regarding the issues of the Revenue Commissioners’ relationship with the Central Bank and the application of tax clearance to members of the legal profession operating under the Criminal Legal Aid Scheme.

The first issue essentially relates to Revenue powers, and in particular the question of Revenue access to information on bank accounts. The whole issue of Revenue powers is currently being reviewed by the Revenue Commissioners and the Department of Finance following the McCracken Tribunal Report. The Minister is on record as saying that he will bring forward new legislation in this is shown to be desirable and likely to be effective. However, before taking such an initiative, the Minister feels that it will be necessary to have all the relevant information from the series of inquiries currently under way. Indeed the Moriarity Tribunal is specifically charged with making recommendations in the areas of banking supervision, the protection of the revenues of the State and offshore accounts.

As regards the second issue relating to tax clearance, you will no doubt have received our letter of 24 February 1998 from Mr Ó Murchadha (copy attached) informing the Committee that a provision has been included in the Finance Act, 1998 which will facilitate the application of tax clearance to the legal profession operating under the Criminal Legal Aid Scheme.

Yours sincerely,

P.H. Mullarkey

Secretary General

Mr. Michael Ahern,

Chairman,

Joint Committee on Finance and Public Service.

Our Ref: F:\PUBLIC.PAC\02CORE\12CORISS\FIN & PUBI.LET

12 May 1998

Dear Michael,

This Committee in examining the 1996 Annual Report of the Comptroller and Auditor General and General and Appropriation Accounts, and specifically Vote 9, Office of the Revenue Commissioners paid particular attention to the record of that Office in instituting criminal prosecutions for tax evasion.

During the examination, the question of alleged complicity by financial institutions in assisting tax evasion was raised. Evidence of such would of course be a matter of very serious concern. The Committee is, therefore, most anxious to examine this further in the context of whether the Office of the Revenue Commissioners exercised their full powers in detecting any such alleged complicity and what action they propose to take where detected.

To assist it in it’s examination, the Committee is considering calling senior bank officials to give evidence before it. The Committee of Public Accounts is anxious to avoid a duplication of efforts and, in order to assist in this, I would appreciate if you would let me know whether the Joint Committee of Finance and Public Service is pursuing or intends to pursue a similar form of enquiry.

Yours sincerely

Jim Mitchell T.D.

Chairman

Chairman: Jim Mitchell T.D.

14 May 1998

Mr. Jim Mitchell TD

Chairman

Committee of Public Accounts

Leinster House

Dear Jim,

I refer to your letter of 12 May about a proposal that the Committee of Public Accounts is considering calling senior bank officials to give evidence in relations to allegations of tax evasion.

While I am reluctant to comment on your Committee’s proposed work programme, I would point out that my Committee is currently reviewing bank policy, with particular reference to the supervisory and regulatory role of the Department of Finance and the Central Bank. In that connection the Committee also heard evidence from the Chairman of the Revenue Commissioners. The Committee’s review arose directly from concerns about the recent revelations relating to certain commercial banks.

As part of the Committee’s deliberations we are shortly sending two delegations to meet with senior representatives of Ministries of Finance and Central Banks in six EU Member States. The Committee also decided in principle to invite bank representatives as well as the Garda authorities to meet with the Committee for clarification of aspects of our review.

You will appreciate that my Committee’s review is pointing towards a significant report on the issues to which you refer and, in the circumstances, the Committee would be of the view that any proposal by the PAC to enquire into tax aspects of the financial institutions as set out in your letter would undoubtedly duplicate the current review.

Yours sincerely,

Michael Ahern TD

Chairman

Mr. Patrick H. Mullarkey,

Secretary General,

Department of Finance,

Upper Merrion Street,

Dublin 2.

Our Ref: F:\PUBLIC.PAC\02CORE\12CORISS\DEPTS\08-05-98.FIN

12 May 1998

Dear Mr. Mullarkey,

This Committee in examining the 1996 Annual Report of the Comptroller and Auditor General and General and Appropriation Accounts, and specifically Vote 9, Office of the Revenue Commissioners paid particular attention to the record of that Office in instituting criminal prosecutions for tax evasion.

During the examination, the question of alleged complicity by financial institutions in assisting tax evasion was raised. Evidence of such would of course be a matter of very serious concern. The Committee is, therefore, most anxious to examine this further.

The Committee is aware that other State institutions may also be examining such matters and is most anxious that its own deliberations should not conflict or jeopardise these proceedings where they are taking place. In order to assist it in this, the Committee would appreciate if it could be briefed on any tribunals or court cases which may be ongoing or pending and which you would perceive as having a bearing on the path the Committee proposes to take.

An early reply would be appreciated.

Yours sincerely

Jim Mitchell T.D.

Chairman

Chairman: Jim Mitchell T.D.

22 May 1998

Mr Jim Mitchell TD

Chairman

Public Accounts Committee

Leinster House

Dublin 2

Dear Chairman

I refer to your letter of 12 May 1998 in which you indicate that the Public Accounts Committee is anxious to examine further the question of alleged complicity by financial institutions in assisting tax evasion. You asked if the Committee could be briefed on any tribunals or court cases which may be ongoing or pending and which might have a bearing on the path the Committee proposes to take.

As you know there are a number of tribunals and investigations proceeding under various enactments. For the sake of completeness I have set these out as attached, although not all are relevant to the examination proposed by the Committee.

Within the Department’s particular remit, the Minister has asked the Revenue Commissions and the Department to review the adequacy of Revenue Powers following the report of the McCracken Tribunal. The review is ongoing. In addition, in order to gain information on the position in other countries, officials from the Department and Revenue are visiting a number of other jurisdictions (UK, Germany, Sweden, Holland and France) to learn how these countries deal with access to bank accounts and financial information generally. The Minister has already stated in the Dáil that if additional powers are shown to be desirable and likely to be effective, proposals to enhance Revenue’s powers will be brought forward. An indication of what these powers could cover was given in reply to a PQ on 3 March, 1998 (attached). However, before taking such an initiative, it will be necessary to have information from the relevant inquiries currently underway. Indeed the Moriarty Tribunal is specifically charged with making recommendations in this area.

Although not specifically related to the alleged complicity of financial institutions in assisting tax evasion, the Committee may wish to take note of the fact that a Working Group of representatives from the Department of Finance, the Department of the Taoiseach, the Department of Enterprise, Trade and Employment, the Central Bank, the Office of the Director of Consumer Affairs and the Office of the Attorney General has been established to examine the law and practice governing the provision of financial services in Ireland and the impact this has on consumers. The Group is undertaking an assessment of the laws relating to both the role of the Director of Consumer Affairs and the role of the Central Bank, including the procedures used to give effect to these roles, with a view to identifying the impact of these on consumers and, in particular, to identify if there are gaps in consumer protection that need to be filled. The Group has also been asked to consider what steps may be required to increase the public understanding of the regulatory systems, including the manner of their implementation.

From the information available to the Department, I am not aware of specific court cases involving tax evasion and financial institutions. However, as you know, the prosecution of such cases is not a matter for this Department.

Yours sincerely

P H Mullarkey

Secretary General

Ongoing Statutory Tribunals and Investigations

IThe Moriarty Tribunal established under the Tribunal of Inquiry (Evidence) Act, 1921.

IIInspectors/Authorised Officers appointed under Part II of the Companies Act, 1990

* These appointees are inspectors - the others are authorised officers.

IIIAuthorised Officer appointed under The Insurance Act, 1989

DAIL QUESTION

NO 62 & 72

To ask the Minister for Finance if he has received a report or an interim report from the Central Bank or the Revenue Commissioners on the inquiry into the sale of certain financial products by or on behalf of National Irish Bank; and if he proposes to publish part or all of this report or interim report.

- Breeda Moynihan-Cronin. (Nominated by: Derek McDowell)

For ORAL answer on Tuesday 3 March 1998

Ref No: 5564/98

To ask the Minister for Finance the preliminary report, if any, he has received from the Revenue Commissioners or the Central Bank on their investigations into allegations of tax evasion in connection with the sale of insurance products through National Irish Bank; the results of these investigations; the action, if any, he intends to take arising from them; and if he will make a statement on the matter.

- Pat Rabbitte

For ORAL answer on Tuesday 3 March 1998

Ref No: 5531/98

I propose to take questions numbers 62 and 72 together.

As I have already indicated in reply to an earlier question from Deputy Deenihan, information on the marketing of particular financial products would reside, if at all, with the Central Bank, and, in the case of tax evasion, with the Revenue Commissioners, insofar as such data comes to their attention in the course of their operations. On 26 January 1998, I wrote to the Governor of the Central Bank requesting that he clarify the position insofar as it might relate to exchange controls. I also asked him to report to me separately on the implications, if any, for all aspects of banking supervision. The Governor responded to me on 28 January to the effect that he is having these issues investigated and will report to me as soon as possible. To date, I have not received an interim or preliminary report. As the Deputies are well aware, the examination and pursuit of particular tax cases is a matter for the Revenue Commissioners. This is the position which has applied, and has been accepted in the House, since the foundation of the State. The Minister for Finance does not get involved in individual cases. I understand, however, that the investigations are proceeding as a matter of priority and I can assure the House on that point. The question of publishing a report does not arise therefore at this time.

As I have made clear on a number of occasions, I have asked the Revenue Commissioners and my Department to review the adequacy of Revenue powers following the report of the McCracken Tribunal. I have also said that if additional powers are shown to be desirable and likely to be effective, then proposals to enhance Revenue’s powers will be brought forward. However, before taking such an initiative, it will be necessary to have all the relevant information from the series of inquiries currently under way. Indeed the Moriarty Tribunal is specifically charged with making recommendations in the areas of banking supervision, the protection of the revenues of the State and offshore accounts.

Nonetheless, for the benefit of the House, I would not, if they were shown to be necessary, rule out new provisions, for example, to require financial institutions to report to Revenue where they become aware that financial products sold by them may facilitate tax evasion; or to notify Revenue where funds have been transferred in certain circumstances to or from particular offshore locations. There might also be new powers for Revenue to access bank accounts where there are reasonable grounds to believe that certain accounts are, or may be used, in a tax evasion scheme.

Any such proposals would need to be very carefully gone into to ensure that they would be effective; could not be easily circumvented; would not needlessly disrupt the affairs of law-abiding taxpayers; and would be proportionate in their effect on the financial sector when measured against the problem to be tackled.

Any responsible Government would need to have as much information as possible by way of answer to these issues before it acted. That is why I have taken the approach I have. Caution and care should not be confused with indifference or indolence in these matters. The Opposition seems to want to rush in with unspecified and unlimited powers. I have to take a more responsible approach - one which in the end of the day will better secure the welfare of the ordinary citizen of this State and its revenues.

There should be no doubt about the Government’s determination to combat tax evasion and avoidance. The 1998 Finance Bill contains a number of new provisions for this purpose and I have made further announcements at the weekend to clamp down on new avoidance schemes. I will not hesitate to take further action as the need arises whether as regards increasing the powers of the Revenue Commissioners or implementing other measures that are likely to be effective.