We ignored warnings about lax regulation
We are paying the price for State policy that created a globalised brand of cute hoorism, writes FINTAN O'TOOLE
LAST WEEK, the Guardiannewspaper of London reported on its attempts to track down various British companies which had supposedly relocated their headquarters to Dublin. At the listed HQ of Henderson Global Investments in Pembroke Street, the receptionist said: “They are not here a lot of the time.” The address in Spencer Dock given as the HQ of Tarsus, a business media group, turned out to be simply that of its tax advisers. “I have,” the receptionist said, “never heard of them.” The Dublin head office of WPP, one of the world’s largest advertising companies, has about eight employees. United British Media has a prestigious address in Merrion Square, but just five or six people work there. And so on.
Why is Dublin the Potemkin Village of contemporary capitalism, full of fronts with very little behind them? Because we have deliberately constructed an environment in which the description of our capital city by the Liberal Democrat spokesman Lord Oakeshott as “Liechtenstein on the Liffey” is not unjust. A globalised brand of cute hoorism has been created by State policy.
If you asked most Irish people about the proliferation of UK companies moving their corporate HQs to Ireland, the response would probably be pleasure at the fact that we’re getting one over on the Brits. But the perception is actually wrong. Most of these companies continue to pay taxes in the UK. What actually attracts them here is the way Dublin acts as a gateway to offshore tax havens. A firm can move its headquarters to Dublin and then, because of the extreme laxity of regulation here, re-incorporate itself in, say, Jersey or Liechtenstein. They thus escape, not just from UK company law and taxes, but from Irish law and taxes as well.
Thus, for the sake of a handful of jobs, we facilitate the avoidance of taxes by British corporations. And we do this as part of a mentality that has grown with the International Financial Services Centre (IFSC) – the notion that lax regulation is part of the competitive advantage we have to offer. The IFSC has been a great cash cow for the Irish exchequer, and has provided up to 20,000 jobs. But its very success has also encouraged a deep reluctance to ask too many questions about the flow of money in and through Dublin.
To listen to Government Ministers waxing indignant about Anglo Irish Bank in the last week, you would think that the idiocy of “light-touch regulation” was a shocking new discovery. Yet we’ve had ample warning that Dublin was being seen as the wild frontier of dodgy transactions, cooked books and thin veneers.
The IFSC was at the epicentre of two huge international financial scandals in recent years. When the Italian food giant Parmalat collapsed in 2003, it turned out that it had been involved in massive faking of its accounts – through its IFSC-based subsidiary Eurofood. Then, in 2005, the chief executive of the IFSC-based arm of the global finance group CologneRe pleaded guilty in the US to charges of creating sham deals in order to cook the books of the giant AIG insurance corporation.
According to the US Securities and Exchange Commission, the purpose of the scam was to “allow AIG to add a total of $500 million in phoney loss reserves to its balance sheet”.
So how did Irish authorities react to evidence that Dublin was being used as a base for major scams? With renewed commitments to “light regulation”. At the IFSC annual lunch in December 2005, Micheál Martin noted the “unhappiness in the business sector at the degree and extent of obligations imposed by directors’ compliance statement obligations” and boasted that he was changing these regulations to ensure the law would be “less prescriptive about the methods a company uses to review its compliance procedures, and in not requiring review of the compliance statement by an external auditor”.
There was a concerted campaign to silence calls for tighter regulation. Charlie McCreevy urged the Financial Regulator: “Don’t try to protect everyone from every possible accident . . . And leave industry with the space to breathe and investors with the freedom to learn from their mistakes.” He actually boasted of how “Many of us in this room are from the generations that had the luck to grow up before governments got working and lawyers got rich on regulating our lives. We were part of the ‘unregulated generation’ – the generation that has produced some of the best risk-takers, problem-solvers and inventors.”
Three years ago, at the time of the CologneRe scandal, Justin O’Brien wrote in The Irish Timesthat the “disturbing picture of regulatory incapacity in Ireland . . . has the potential to be catastrophic to its reputation for probity”. He also quoted from off-the-record briefings from international regulators expressing “shock and dismay that Ireland had abdicated its responsibilities for short-term advantage”. The “wider regulatory community”, he warned, “now perceives Dublin as a rogue market”.
Why did we have to wait for a catastrophe before we recognised the truth of that perception?