IRELAND 24 February 2018
Chapter 6 : Central Bank of Ireland
The Central Bank of Ireland is responsible by statute for the regulation of most financial institutions in Ireland.
Prior to Economic Monetary Union (EMU), a primary function of the Central Bank was safeguarding the integrity of the currency. In this regard the Bank would have been particularly interested in the impact of government decisions on capital flows. The Bank was consulted on the possible implications for capital flows of tax measures related to Irish pound deposits of residents and non-residents.
Regulation of Financial Institutions
The Bank's regulatory role and responsibilities in relation to banking supervision were first established in the Central Bank Act 1971. Since then there has been considerable development of the legal framework and expansion of the Bank's role to cover non-bank entities and financial activities other than banking.
The Bank organises its regulatory responsibilities within two separate departments, which comprise the Supervision Division of the Bank
Banking Supervision This department covers all institutions whose business is to receive deposits and to grant credit (credit institutions) i.e. banks, building societies and other deposit-taking institutions such as the Agricultural Credit Corporation, the Industrial Credit Corporation and the Trustee Savings Bank. In December 1998 the department had full regulatory responsibility for 57 such institutions and had limited responsibility for a further 21 financial institutions and 7 Bureaux de Change.
Securities and Exchanges Supervision This department supervises a broad range of non-bank institutions, exchanges and investment intermediaries including International Financial Services Centre (IFSC) companies. In December 1998 the department was responsible for 1,644 such institutions of diverse size and nature.
The supervisory function is effected through a combination of both off-site surveillance and on-site inspections.
Returns by Institutions
Off-site surveillance involves the examination of detailed returns received from credit institutions on a monthly and quarterly basis. The system of returns is the main method of ensuring that institutions are complying with their statutory requirements, particularly in the key areas of solvency, liquidity and exposure ratios and limits. All returns are scrutinised for numerical accuracy and internal consistency and any suspected errors or breaches of Bank requirements are pursued with the institution concerned.
In addition to these checks, extensive Notes on Compilation have always been provided with each return. These instructions incorporate the definition of residency used in statistical returns which does not correspond to that of tax residency. The former definition corresponds with international standards in that the country of residence will be determined by the account holders centre of economic interest. This means that a company will be considered resident in a territory when it has engaged for a year or more in economic activity in that territory, or when it has registered or indicated an intention to operate permanently in that territory. Similar rules apply to individuals.
When reporting institutions are classifying customers they prepare a number of tags to identify each account. These identify residency, currency of account, type of account, sector of account holder etc. Banks also have separate tags for tax classification residency purposes (referred to as tax liability indicators) and for statistical residency purposes.
On Site Inspection
On site inspections consist of an examination by the Bank's supervisory staff of the books and records of credit institutions and focus, inter alia, on asset quality, large exposures, capital liquidity, corporate governance and internal controls. Inspections are complemented by regular review meetings with senior management of the credit institutions. There are also ad hoc meetings, correspondence and contact between the Central Bank and the financial institutions as the need arises.
The principal output of the Banks off-site surveillance is reflected in its quarterly reports which among other things set out the extent of non-resident funds held by the financial institutions. In regard to DIRT, the Central Bank has stated it had no supervisory role and had no contact with the Revenue Commissioners on this issue. It was and is the Bank's position that it would be entirely improper to intervene in a matter appropriate to the Revenue Commissioners.
The Central Bank have informed me that they have records of only one instance of any contact with any financial institution in relation to DIRT and bogus non-resident accounts. This related to the discussions between AIB and the Revenue Commissioners in 1991 and is dealt with in Chapter 25.
Since 1995, the Central Bank as part of its supervisory function has been reviewing internal audit reports in financial institutions. The Governor stated in evidence to me that this procedure would have been introduced as part of the ongoing upgrading of the supervisory role in step with developments across Europe generally. He stated that, with hindsight, it should have always been there.
The Exchange Control Act, 1954, as amended was the basic legislation underpinning Ireland's system of exchange control. These controls, which were administered by the Central Bank, were designed to safeguard the national external reserves and to regulate the effects of capital movements on the exchange rate of the Irish pound.
The relevant exchange control rules and authorities were clearly set out in the Bank's Exchange Control manual. This contained a series of Notices delegating certain powers in relation to routine financial transactions (current trade payments, certain capital movements or transactions in securities etc.) to the Authorised Dealers and facilitated Approved Agents in their activities. In this regard, the determination of whether an individual, a company or other form of entity was regarded as resident or non-resident for exchange control purposes was set out in Exchange Control Notice Ex 7.
The correct designation of bank accounts as either "Resident" or "External" was of fundamental importance in operating Exchange Controls. External Accounts were Irish pound accounts held in the State for non-residents and lodgments to such accounts by, or on behalf of, residents of the State required Exchange Control approval. Funds held in External Accounts were freely convertible into foreign currencies. It was the residential status of the beneficial owner of the deposit which was relevant in the Exchange Control context. Authorised Dealers and Specified Financial Institutions had to verify, when an account was being opened, that the address given for the account was the permanent place of residence of the account holder.
These notices were updated when any significant changes in delegated authorities or administrative requirements were introduced. Such changes were always referred to the Department of Finance for approval prior to introduction.
The relaxation of exchange controls from 1988 onwards included a general easement of the administrative requirements in relation to current payments and the phased dismantling of the controls on capital movements. This process did not, however, extend to the opening and operation of foreign currency accounts outside the State. The exchange control requirements relating to these matters remained in place until 31 December 1992.
Under delegated authority, Authorised Dealers held wide ranging permissions to deal in foreign exchange and to effect certain categories of transactions within terms specified from time to time by the Central Bank. The notices in this regard also conveyed directions to the banks regarding their own responsibilities and obligations under the controls. Particular emphasis was placed on their obligation to sight supporting documentary evidence for transactions. Approved Agents, in view of their professional responsibilities and requirements in acting on behalf of residents and non-residents of the State, had certain delegated authorities and obligations in relation to their activities. Transactions for which authority had not been delegated in a Notice or on foot of a specific Central Bank permission, were prohibited.
Results of Monitoring
The Central Bank had no powers of investigation under the Act nor was it involved in matters relating to the Revenue Commissioners. The Bank has no individual details of breaches of exchange control regulations through the use of bogus non-resident accounts. Statistical returns were checked for compliance with specific and/or delegated authorities and discrepancies were followed up. There was also a process of cross-checking returns submitted by Authorised Dealers in respect of foreign currency dealings.
Enquiries into possible causes of the unidentified capital outflows in the mid 1980s were undertaken by the Exchange Control Department.
The Bank informed me that only specific complaints could be looked into and that exchange controls were never seen as a serious option to curb the use of bogus non-resident accounts.
Central Bank Involvement in Policy Review and Advice
The following table, based on information provided by the Central Bank, summarises specific cases and instances where the Central Bank was involved in or advised on policy formulation which impinged on non-resident depositors.
|1982||Implications of non-resident accounts for Exchange Controls|
|1983||Inter-Departmental Group on Interest Withholding Tax|
|1984||Working Group on Evasion of Tax on Deposit Interest|
|1985||Complaint made by Midland and Western Building Society|
|1985-86||Introduction of DIRT|
|1986-87||Effect of DIRT on Level of Non-Resident Deposits|
|1986||Review of Exchange Controls|
Chapter 5 dealing with the Department of Finance also contains references to the Central Bank.
Implications of non-resident accounts for Exchange Controls
The Exchange Control Act, 1954 had a life of four years and was extended for successive four year periods by means of the Exchange Control (Continuance) Acts. As part of this process the Central Bank was consulted by the Department of Finance in February 1982 in relation to the extension of exchange control legislation from 1 January 1983. An extract from the response dated 26 July 1982 by the Bank stated
"We have had reports that some financial institutions are accepting deposits in Irish pounds from residents over non-resident addresses. We assume that tax avoidance would be the purpose of this practice. It is alleged that it is quite a widespread practice. It seems that the amounts almost invariably stay in Irish pounds and, therefore, there is no loss to the reserves. Again it has proved difficult to obtain precise information. We are proceeding with our own investigation but suggest that you might wish to arrange a meeting with yourselves and the Revenue Commissioners on the matter. If the reports we have received are correct it may be easier to take effective action against offenders under the taxation legislation than under the Exchange Control legislation. This would avoid the potential problems referred to above and yet have a desirable public effect."
The response also stated "the Bank was unable to obtain from the two complainants names and address of those involved".
The Governor of the Central Bank stated in evidence to me that the word "investigation" was an exaggeration in that there was no scientific or formal investigation at the time. He believed that the "investigation" referred to follow up of individual complaints which invariably ran into the ground for lack of hard evidence.
The Central Bank and the Department of Finance held a series of meetings in relation to the possible tightening of exchange controls. The record of a meeting on 13 December 1983 to discuss measures to restrict demand for foreign currency states
"The Department of Finance officials again expressed their concern at reported abuses of the external account procedures. While no firm evidence exists, they believe that a significant proportion of these accounts are bogus. They are concerned about these accounts on two fronts
(a) the level of tax evasion
(b) the possibility that balances might be transferred overseas for unapproved purposes.
The first concern is a matter for Revenue Commissioners. The second one is of course a matter for Exchange Control.
It was acknowledged that any investigation of external accounts would have to be handled carefully as there is a danger of precipitating withdrawals from these accounts. Since funds in external accounts are freely convertible to foreign currency, substantial withdrawals would have reserves and foreign exchange market implications. It was suggested that the Bank should hold discussions at a senior level with the commercial banks with a view to ensuring that compliance with External Controls is included in the brief of the commercial banks' internal audit inspectors."
There were no follow up discussions with the commercial banks in relation to internal audit.
Inter-Departmental Group on Interest Withholding Tax
In a letter dated 12 January 1983 the Department of Finance requested the views of the Central Bank on the possibility of introducing a withholding tax on deposit interest. The Central Bank replied on 25 January 1983 stating that they were in favour of such a tax as a matter of principle. The Bank was opposed to imposing a withholding tax on non-resident deposits both in foreign currencies and in Irish Pounds lest this should lead to a transfer abroad of these funds although the Bank felt that this was perhaps less likely with Irish pound deposits, a considerable portion of which may have been locked in.
It was the Banks opinion that on a more general level, in the then uncertain conditions in international financial markets, the levying of a withholding tax on non-resident balances (both foreign-currency and Irish-pound) in Ireland could cause concern internationally and provoke an erosion of the confidence of international investors in Irish financial institutions, including the foreign branches of our major banks, as a location for funds.
At a meeting held on 31 January 1983 and 1 February 1983 the Government decided to establish an Inter-Departmental Group comprising representatives nominated by the Minister for Finance, the Taoiseach, the Tánaiste and the Central Bank to consider the question of a withholding tax, including reference to yield, effects on liquidity, capital flows and savings.
The scope for evading the tax was briefly discussed at a meeting of the Group on 30 March 1983. The Central Bank record of this meeting stated
"A major loophole which could arise would be for a depositor to give a non-resident address to a bank. There must be a doubt about the genuineness of the ?1,100 million Irish-pound liabilities to non-residents at end-December 1982. In this context, it is of interest that non-residents account for only ?30 million of total building society shares and deposits of ?1,600 million."
Exchange control aspects were discussed at a meeting of the Group on 5 August 1983. The Group agreed that detailed papers would be supplied by both the Central Bank and the Department of Finance. The group felt that while there was some difference of emphasis, both papers raised serious questions about the adequacy of the existing exchange control regulations to prevent significant outflows of capital in the event of a withholding tax being introduced. Neither party believed that exchange controls could prevent outflows. The relevant extract from the Central Bank paper is set out in Appendix G.6.
The Group's Report concluded not to implement an interest withholding tax.
Working Group on Evasion of Tax on Deposit Interest
In a letter dated 16 April 1984 to the Governor of the Central Bank, the Department of Finance stated
"The Minister is becoming increasingly concerned at the numbers of non-resident deposit accounts being operated in order to evade tax. While by definition the precise extent of evasion cannot be quantified, the indications are that it is on a very large scale and is growing. You may recall that in the Finance Bill, as published, last year there were proposals to counter this practice by requiring for the future, the submission of an affidavit as evidence of residence abroad where a non-resident account was being opened. In the event, these proposals were effectively set aside before the Bill was enacted.
In view of the fears expressed in relation to last year's proposal that a substantial outflow of funds would occur, there is obviously very little possibility now of finding an adequate solution to the problem of evasion solely through tax legislation. It may be that the best means of tackling the problem of possible outflows is through the exchange control procedures."
The terms of reference of the proposed working group were to consider and make recommendations on action which might be taken to eliminate evasion of tax on deposit interest arising through the use of bogus non-resident bank accounts (including resident bank accounts where the beneficial owner is claimed to be non-resident) and building society accounts, having regard especially to
- the extent to which changes in exchange control procedures might be adopted to prevent possible evasion of tax and out-flows of funds
- the adequacy of the present rate of composite tax paid on deposits by the building societies
- the possible extension to banks of a composite rate of tax
- consequential effects of any changes on the distribution of funds between financial institutions and on the financing of the housing programme.
The Central Bank requested that these terms of reference be widened to take account of the desirability of ensuring equality of treatment of all financial institutions in areas concerning the application of both existing and any proposed disclosure and taxation measures.
Nominations from the Central Bank were W. Casey, Deputy Manager, Exchange Control Department and Mr N. McEvoy, Senior Economist, Banking Department.
External and Non-Resident Accounts were discussed at the fifth meeting of the Group on 20 June 1984. The minutes of the meeting stated
"The rules set out in Exchange Control Notice Ex 7 are fairly tightly drawn. There is a general requirement on banks to operate in accordance with those rules but information is not available on the operational procedures employed. There is some evidence that banks have been lax in their approach but little direct evidence is available. The point was made that being made an authorised dealer is very much a privilege for banks and a dilution or withdrawal of that designation would be very serious for a bank. It appears that accounts once classified as non-resident/external remain so indefinitely without review....Paragraph 11 of the Notice provides that where there is doubt as to a person's correct residential status, the case must be referred to the Central Bank for decision. In practice, however, very few cases are referred to the Bank.....
Mr McEvoy said that he hoped the statistics he was working on to indicate the spread of external accounts between the various institutions might help to show whether particular institutions were being lax in their operation of the rules laid down."
As far as can be established, the Bank confirmed that the Group never reported any findings.
Midland and Western Building Society
In June 1985 the Central Bank received a letter, which was passed to the Department of Finance, from the General Manager of the Midland and Western Building Society alleging breaches of exchange control regulations by the clearing banks. In particular, the letter alleged that the basis on which Form F was used bordered on the irresponsible. The letter alleged that substantial sums of money were being transferred into External Irish Pound accounts and that English addresses were literally being supplied to order.
The Governor stated in evidence to me that the Central Bank had no record of the letter or of any follow up to it despite thorough searches.
Introduction of DIRT
The Central Bank and the Department of Finance correspond annually in relation to the Budget. In a letter dated 18 December 1985 to the Minister for Finance the Central Bank stated
"An essential element of any equitable tax system is equal and comprehensive disclosure requirements on all financial institutions. In the Bank's view extension of disclosure requirements to building societies must be tackled. Moreover, the information that becomes available from full disclosure must be effectively integrated into the tax records by the Revenue Commissioners."
The letter also stated:
"Clearly, reform along these lines could result in an incentive for an increase in capital outflows. However, the positive aspects of the package for bona fide depositors should not be underestimated. In the interest of minimising any possible outflow, consideration might tentatively be given to an amnesty for those with bogus non-resident accounts. Such a move is, of course, undesirable in principle and, in practice, if perceived as a precedent, though it could be beneficial if seen as a once-off prelude to the introduction of stricter enforcement procedures."
The Central Bank informed me that other than in the context of this letter it does not appear to have addressed the issue of an amnesty for those with bogus non-resident accounts.
Effect of DIRT on Level of Non-Resident Deposits
Over the twelve months to 30 September 1986, the Central Bank supplied ?2,200 million equivalent of foreign currency to the foreign exchange market in order to meet market demand during that period. This demand was approximately ?1.5 billion more than might have been expected in normal circumstances (The Irish pound was devalued on 4 August 1986). Only ?300 million of this excess demand could be identified (this included a reduction in deposits held by non-residents at domestic banks of ?204 million).
At this time the Exchange Control Department of the Central Bank assisted in an investigation into the possible causes of the ?1.2 billion unidentified capital outflow. The results of their investigation concluded that the outflows could largely be accounted for by leading and lagging of foreign payments and receipts and, to a lesser extent by the foreign currency earnings by residents outside the State where they were largely beyond the reach of exchange controls.
The results of this work and the implications of DIRT were referred to in a number of papers that were submitted to the Board of the Central Bank.
Review of Monetary Policy - October 1986
A paper "Review of Monetary Policy, October 1986" which was considered by the Board on 16 October 1986 stated
"There has also been a considerable fall in non-resident balances held at domestic banks. From the beginning of the year to mid-August, the latest data available, Irish-pound balances of non-residents fell by ?204 million, with the outflow concentrated in the period between mid-January and mid-April bank-return dates. The major element of the exceptional outflow, however, comprises private capital and residual flows, which amounted to an estimated ?1,280 million over the first three quarters of 1986.
It is difficult to separate the influences on such outflows of the two major factors which have been at work this year, namely, exchange-rate expectations and the imposition of DIRT. Each would have had the most effect in the first quarter, when the outflows were concentrated. Expectations of a devaluation of the Irish-pound within the EMS undoubtedly played a major part, as evidenced by the reflow in the second quarter following the April realignment......The change in tax regime - without being able to quantify the effect precisely - is likely to have played some part in the outflow from domestic banks and the build-up of balances abroad."
In connection with this review the Exchange Control Department of the Bank requested the four Associated Banks to arrange for all of their branches to complete a special report detailing the number and amount of all accounts which were reclassified as non-resident, including those from which transfers abroad were made in lieu of reclassification, for each quarter during the period 31 December 1984 to 30 September 1986. The term reclassification referred to accounts being redesignated external due to residents emigrating.
The result of this review showed that 2,224 accounts with balances totalling ?21 million were effectively reclassified during this period compared with 551 accounts totalling ?7.8m during the previous nine months. The increase in the reclassifications between the two periods occurred largely in the June and September quarters of 1986 and appears to be due to the greater importance of correct classification of accounts following the introduction of DIRT.
Monetary Policy 1987
A paper "Monetary Policy 1987" which was discussed by the Board at its meeting on 26 February 1987 stated
"The level of negative interventions by the Bank during 1986 was reflected in the size of the unexplained residual in the balance of payments in Table 1, estimated at ?1,654 million. Speculation through leading and lagging of trade payments - since it is impossible to measure independently on the basis of available data - shows up as an increase in the unexplained residual and was undoubtedly a major factor.
Other factors may also have contributed to the size of the residual. First, the improvement in the trade balance of ?462 million would have tended to increase the residual by a proportion of the improvement. However, this is unlikely to account for more than ?50 million of the residual. A second factor may have been an outflow of funds attributable to the introduction of the Deposit Interest Retention Tax. The difficulty with arriving at any estimate of this effect is that, to the extent that an outflow has taken place, it has been into foreign currency assets rather than Irish pounds held abroad. In the conditions prevailing on foreign exchange markets in 1986, it is difficult to conclude that Irish residents taking foreign-currency positions would have been motivated solely by tax, rather than speculative, considerations. The most that can be said is that the retention tax may have reinforced speculative flows, but to an extent which is very difficult to quantify. The "pure" tax effect - the level of outflow which would have taken place in the absence of speculation - is probably small, say, no more than ?200 million."
In discussing the outlook for 1987 the paper stated
"One of the major uncertainties surrounding the change in the net external position of the banks in 1987 is the effect of the proposed introduction of new reporting requirements in respect of holders of non-resident accounts. There is a concern among the banks that this may lead to a loss of funds from these accounts. An assumption of no change in non-resident balances at domestic banks is implicit in the projection for net inflows through banks."
A review of this paper in May 1987 stated that non-resident balances at Irish banks had fallen sharply. Between end-December and mid-April, non-bank non-resident Irish pound balances fell by ?132 million. The paper discussed a number of possible explanations for this decline. It stated that stricter requirements in relation to evidence of non-residency status almost certainly led to an outflow from both genuine and bogus non-resident accounts. In the case of genuine non-residents, these funds may have moved into Irish pound or foreign currency accounts abroad or may to some extent have moved into Irish Government paper and formed part of the sizeable non-resident purchases of gilts in the first quarter. Bogus non-residents may also have shifted funds abroad or simply switched into resident balances at banks. The decision by the two major Associated Banks to reduce the gross return they pay on non-resident balances, bringing it closer in line with the after tax return on resident accounts, would have increased the incentive for both genuine and bogus non-residents to shift funds out of these accounts. The paper also noted that in the period to mid-April, resident Irish pound balances increased by ?288 million, which was consistent with the projected increase for the year. The point was made that at least part of the increase in the first three and a half months may not represent a genuine increase in resident money holding but simply a switching from bogus non-resident accounts. While there may have been some element of switching, the major part of the fall in non-resident balances took place over the first three months, while the sharp increase in resident money holdings was concentrated in the period end-March to mid-April.
Review of Exchange Controls
In 1986 the Central Bank undertook a review of exchange controls in the context of the EU proposals towards liberalising exchange controls. The results of this review were communicated to the Department of Finance on 29 July 1986. The review contained the following extract
"Controls on capital transactions can be divided into those on direct investment, those on portfolio investment and those on personal capital. The first two are considered to be reasonably effective. There is evidence that controls on personal capital are less effective. It is suggested that transfers to other member countries of the EEC, which are already liberalised, may be used as a conduit for transfers to countries outside the EEC. There is also ample evidence of unapproved holdings of external assets by residents."
A recommendation of the review was "that there should be increased monitoring of non-resident transactions in Irish pounds generally. In addition to the prohibition on non-resident purchases of short term instruments, a number of contingent measures of a restrictive nature are available for consideration - for example, Irish pound balances of non-resident banks to attract zero or low interest rates - should the situation warrant further restriction."
In October 1986 the Central Bank was approached by the Department of Finance in relation to information received by the Minister for Finance alleging misdemeanours of exchange controls and enquiring as to the extent to which the Central Bank monitors trade and other payments effected by authorised dealers. The Department of Finance believed that staff in financial institutions were briefing and facilitating customers with regard to opening non-resident accounts as a staging post to transfer the money out of the jurisdiction. In considering these issues an internal memo concluded that the Central Bank should not undertake inspection of bank branches to investigate possible breaches of the relevant exchange controls because
(1) it appeared that their powers of inspection under Section 17 of the 1971 Act, which were "for the purpose of the performance by the Bank of its statutory functions", could not have been used appropriately for exchange control purposes.
(2) inspectors of taxes were empowered under Section 37 Finance Act 1986 to obtain copies of and inspect all declarations of non-residence made by depositors.
(3) the very limited extent of the inspections which the Bank could undertake would, on receiving inevitable publicity, be viewed as a belated and pathetic attempt by the authorities to "bolt the stable door" when it was too late.
(4) it would also have the effect of identifying the Bank publicly and unwarrantedly with responsibility for the outflows.
(5) any inspections, whether carried out by the Revenue or by the Bank at this stage, might only increase the prevailing sense of uncertainty and undermine confidence further.
General Views of Governor
Bearing in mind that prior to his appointment as Governor of the Central Bank, Mr OConnell had served in a senior capacity in the Department of Finance in the tax and exchange control area, I asked him for his opinion on whether the proper balance had been achieved between the competing demands of guarding against the potential flight of capital out of the country and at the same time creating an effective tax regime as far as DIRT was concerned.
Rather than attempting to paraphrase his response, I feel it would be more instructive to quote verbatim from his evidence.
"There were a lot of things at the time that may be forgotten today. Number one, the Revenue machine was not nearly as efficient as it is today for one very good reason. It wasnt computerised and establishing the computerisation is a pretty slow business. In the early 1980s you had a situation where the Revenue were constantly exercising pressure, pointing out that they really werent fulfilling their duty in this area. They were very up-front and very open about that. Various proposals were put forward including the possibility of an affidavit which came up again and again. It came up first in 1983. Then there was the other side of the coin. You had the composite rate for the building societies and you had the banks not having a composite rate but being obliged to make returns. These returns were being made to the Revenue Commissioners ........ They were huge; they were paper. We are thinking in 1999 that this was all computerised. It wasnt. These returns were made, and literally I honestly believe that you would have needed an army to go through them at the time. This was a real problem.
Side by side with that we had a very deteriorating situation. The Department of Finance and the Central Bank were rightly and totally preoccupied with the exchange rate. The exchange rate was under constant threat and the exchange rate meant the movement of funds out of the country. While all this was going on as well we were holding up the exchange rate through foreign borrowing. This had to be the great preoccupation of any Minister for Finance or any Central Bank at the time. This was the central issue. This was the plank which kept us floating. Whatever happened, this had to take precedence over everything else............... we did our best. We were not as efficient as we might be in terms of collecting tax. We were broadly aware of the fact that people were avoiding tax. And all this had to be corrected, this was wrong. Everybody agreed it was wrong. For Gods sake, whatever you do, dont rock the boat. The boat being the exchange rate. That was the culture; that was the necessity that drove us all forward and drove us into a situation where you can see from year to year that we were trying to do something. We were proposing affidavits, we were talking about the DIRT tax, we were afraid of the DIRT tax. It went on and on. At the same time the level of tax was very, very high.
It is a very different situation to where we find ourselves today. I am trying to put the thing in context and give you an explanation as to why everything wasnt corrected immediately and properly and so on. Anything sudden or anything drastic would probably have produced some very unwelcome consequences for the nation. In the event the DIRT tax was a brave event. I think over the years slowly but surely it has established itself and it is accepted and it is working. I would say to you that it is working very well today. I would say we have a very compliant culture today. We have come a long way. I am not offering excuses, I am simply trying to put it in context."
He also stated
"There was a genuine concern about what was happening and that it had to be corrected. But there were so many difficulties at the time that you could say we were slow in doing it. You could say that we didnt do it properly. You could say that years passed before it was finally established. But we came through very difficult times in the 1980s. It was a time when you could say that economically speaking the State was under very serious pressure. This was all accompanied by double digit inflation which is disastrous in its own way anyhow."
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