Examination of Witnesses (Questions 420-439)
DEPARTMENT FOR
SOCIAL DEVELOPMENT
3 MAY 2006
Q420 Chairman: So your answer is
yes?
Ms MacHugh: As sure as one can
be in these situations. If you bring in any laws, it does not
really say there are not going to be people out there breaking
them.
Q421 Chairman: No, but what has really
changed for the better, you are confident that the changes you
are advocating will be for the better?
Ms MacHugh: Certainly, PSNI feel
that this is a system—
Q422 Chairman: We are not asking
that at the moment. We are asking you if you are confident that
what is being proposed will be for the better conduct of these
establishments and therefore more conducive to a harmonious community
than what exists at the moment?
Mr McGrath: Chairman, as I said
at the start, I think in the round Ministers believe that these
proposals are addressing the six overall objectives, but specifically
are not going to increase the scope for organised crime to gain
access to the licensed trade, in the round; as Linda says, indeed
there are additional requirements for clubs as they come to the
overall system and netting off then the relaxation of their specific
Accounts Regulations.
Q423 Mr Fraser: With regard to the
proposed monitoring scheme, I am slightly confused about how you
are going to check the people complying with the scheme and what
happens and what the consequences will be if they do not actually
comply with the scheme?
Mr McGrath: If local authorities
do not; obviously, that is an issue that we are looking at, in
terms of the roll-out. We will be placing a duty and a responsibility
on local authorities, one of a number which they will inherit
under the Review of Public Administration. This will not be the
only area where they will be taking on duties and responsibilities.
In the detail of the legislative proposals, the Minister will
want to strike a balance between showing proper oversight and
not actually having a heavy hand of Government coming second-guessing.
Q424 Mr Fraser: With regard to the
repeal of the financial controls and regulation, will not that
encourage more activity of the kind described just now by Dr McDonnell,
in terms of the counterfeit smuggling of alcohol and cigarettes?
Mr McGrath: I think the difficulty
is our interest in the Department is in liquor licensing and the
control of alcohol. If the premises had been used for storing[1]
counterfeit goods, it is not an area that we were cognisant of
and it is for the PSNI in general, and other issues within the
Organised Crime Task Force, to deal with, as a general issue about
counterfeit goods. I am sure it is an issue which would be touched
upon by PSNI in general terms. In a sense, we are unsighted on
that issue.
Q425 Mr Campbell: Just on this issue,
is it possible or do you have any evidence from the police or
within your Department to give us an indication of the scale of
these types of problems, whether it is problems with Accounts
Regulations on irregularities, or this issue about counterfeit
goods? Is there any concept of the scale of the problem; has it
started, is it getting worse, is it confined to the 1% or 2% of
clubs, or is it much more widespread? We are talking in a rather
nebulous forum. We have heard discussions on the grapevine for
years but I do not think anyone has ever said "This is the
scale of the problem and it is getting worse," or it is getting
better, or it is largely negligible, and has not changed. Is there
any way of establishing that?
Mr McGrath: I am sure we would
have information about breaches of the Accounts Regulations and
that could be provided. In a sense, we do not have any information
about the sale of counterfeit goods in general; that would be
an issue pursued by the PSNI. I am sure there will be elements
within the Organised Crime Task Force architecture interested
in that.
Q426 Chairman: Do you think you ought
to be rather better informed before you make these proposed changes?
Mr McGrath: I think, Chairman,
our view would be whether or not somebody is selling counterfeit
goods beneath the table or on a table in a pub or club, in a sense,
is disconnected from the issues we are dealing with about licensing
the clubs to sell alcohol. In the same way, a shop could be selling
counterfeit goods.
Q427 Chairman: If you are drafting
laws, the object of which is to make things better, ought you
not to have a better grasp of how bad they are before you decide
to make them better?
Mr McGrath: The laws we have a
remit for are about liquor licensing. What I am saying is that
the other elements of the corpus of public legislation should
deal with the issue of counterfeit goods; it is just not within
our remit to be dealing with that. That is the only issue I am
trying to clarify.
Chairman: We may wish to come
back to this, but thank you very much indeed. We have had a good
run around on the booze; let us get to the charities.
Lady Hermon: A fascinating area
of the unregulated business of charities.
Chairman: Never has this Committee
been so interested in booze.
Q428 Lady Hermon: Charities in Northern
Ireland. I am not going to speak about booze. I am going to speak
about charities. Let me just quote, and this is to Mr Wall particularly,
and I may say Dave instead, if you do not mind. You will be familiar,
I am sure, with the IMC Report, which highlighted, and let me
just quote from their Report, obviously this is the IMC speaking:
"We have been struck by the limited controls over charities
in Northern Ireland. We have heard frequent allegations that this
has facilitated the activities of paramilitary groups by making
possible the illicit use of money and the diversion of funds obtained
from crime." I am quoting from paragraph 5.20 of the Report,
published I believe in November 2004. Why, in heaven's name, has
the Government been so desperately, desperately slow to do anything
to block this loophole? Why has it been tolerated for such an
awfully long time? We are now in May 2006. Would you like to brief
us on the changes since the IMC Report?
Mr Wall: You will be aware, I
think, that there was a review of charities legislation in 1996.
I was not involved at that stage but, from reading the documentation,
it was clear that the issues that we are all now very aware of
were not issues for that review, and there was no established,
clear way forward in 1996. There were no stakeholders who were
arguing for the very obvious changes that are now required.
Q429 Lady Hermon: Were other changes
made after that review?
Mr Wall: No; certainly not in
terms of the regulation of charities. You are quite right and
the IMC Report is quite right that, even compared with the rest
of the United Kingdom, the regulation of charities in Northern
Ireland is extremely light and does need change, particularly
in the light of the concerns which IMC have raised and particularly
in the light of the concerns of the Organised Crime Task Force.
Q430 Lady Hermon: That is the sum
total of what you are going to tell the Committee?
Mr McGrath: No. I think that is
an answer to what is going on in Northern Ireland.
Q431 Lady Hermon: I am sure that
you will know that, in fact, the Committee did take recent evidence
from a member of the IMC, who indicated that this was still a
serious problem. Could you just explain to us how it has been
that, in fact, we have an Independent Monitoring Commission which
made it quite clear that both the Irish Government and the British
Government should have undertaken reform in this area? I am repeating
myself here; that was a recommendation made in November 2004,
we are now sitting in May of 2006. What, in heaven's name, has
the British Government done since then? Why is it trying to skate
over this issue?
Mr McGrath: To be clear, we have
monitored over recent years the need to change legislation but
also actually to get some clarity about how to change it, and
taking account of developments in England and Wales. We have also
had to take account of developments in terms of regulation of
charities in the Republic to ensure that the border was not used
as a sort of mechanism to help some of the difficulties we have
talked about. We published proposals last year for consultation.
Again, those proposals were developed with PSNI and the Revenue
and Customs and the Northern Ireland Office, and the point of
that was to establish a strong and visible regulatory framework
to increase public confidence in charities and to reduce opportunities
for abuse by criminal elements, for clearer control. Central to
these proposals is the establishment of a Charity Commission with
more comprehensive regulatory powers than the existing Commission
for England and Wales. The advantages Northern Ireland has are
that not only can it see how things are operating in terms of
Great Britain but can tweak and perhaps enhance some of the mechanism
chosen or address some of the weaknesses there might be. Again,
the Minister's intention is to publish shortly draft legislation
to take forward putting in place a stronger regulatory framework,
which I think is generally accepted is needed and would be in
response to the concerns of the IMC, among others.
Q432 Chairman: Can you again define
"shortly"?
Mr McGrath: Hopefully, again,
before July.
Q433 Chairman: Does "hopefully"
make it stronger than "shortly"?
Mr McGrath: The intention is to
publish a draft proposal for legislation before July, Chairman.
Q434 Lady Hermon: Does the Department
make any effort, or has it made any effort, in this review, to
quantify the problem in terms of the amount of money that could
be siphoned off by charities, or the bogus charities, by paramilitary
organisations, of whatever description, whether it is more
prominently done by Loyalist paramilitaries or indeed by Republican
paramilitaries? Is any effort being made to capture that sort
of evidence?
Mr Wall: As part of our review,
we had detailed discussions with both the PSNI and Inland Revenue
and we asked the questions that you asked. The evidence that we
got back was anecdotal. The police and the Inland Revenue were
both of the view that there was a clearer significant risk in
terms of the current legislation. PSNI do not keep records on
cases or on the value of fraud.
Q435 Lady Hermon: Would it help if
they did?
Mr Wall: Yes, it would, and we
think that the new mechanisms that we will put in place will enable
that to happen. The Revenue did identify, again anecdotally, some
specific cases. They identified that they had some cases where
charities had been set up as vehicles for tax avoidance and that
sham charities had been established to avoid stamp duties, and
that one charity had been set up to receive large gift shares,
which attracted 40% tax relief. They estimate that has a cost
of £14 million and that case is currently under investigation.
There is currently no formal record-keeping across agencies, in
terms of the risk that is posed by the lack of regulation. We
hope to correct that under the new requirements and under the
new systems that we will establish.
Q436 Lady Hermon: Do you think the
Department has been rather negligent, when this problem has been
highlighted years and years ago, that in fact it is only now that
legislation is being passed actually to tackle this negligence?
Mr Wall: No. As Mr McGrath indicated,
we began to look at the review of legislation again in the year
2000. You have to look at this in the context of changing regulation
across the whole of the UK and it is important that the Northern
Ireland regulatory system does tie in with the other parts of
the UK, particularly in terms of sharing information across different
regulators, because that will be an element in successful regulation
and control of crime. That was a factor. It is only in the last
three years that there has been strong evidence, the IMC Report
is one of them, about the need to implement changes in terms
of controlling organised crime and paramilitary involvement in
charities. Mr McGrath again outlined the timetable as regards
that. I think we have pursued that matter as robustly and quickly
as we can, in the context of those competing demands, effective
co-ordination of regulation across the UK and dealing with the
specific issues in Northern Ireland.
Q437 Chairman: Six years is dealing
with it urgently?
Mr Wall: The issues as regards
control of crime and organised crime have only emerged, certainly
were only presented to the Department when we set up the advisory
group to look at the review of legislation, which was two and
a half years ago.
Chairman: Even so, during that time,
an awful lot of money could have been misappropriated by an awful
lot of charities, or bogus charities.
Q438 Lady Hermon: If I can just follow
on from that point, Mr Chairman. I am sure our witnesses will
be aware of the Report of Professor Ronald Goldstock, who was
a Government appointment, came very highly recommended and had
a very high profile indeed, who did report in January of 2004,
over two years ago. He recommended the use of an Independent
Private Sector Inspector General within both the construction
industry and for the regulation of charities. Why was no consideration
given, or has any consideration been given by the Department?
Mr Wall: Yes, we are aware of
that and we have given consideration to those recommendations.
The examples cited all relate to private sector situations where
the victims are in fact in the private sector. In the charities
field there are a number of differences. One is that the organisational
victims, of course individual members of the public are victims
in terms of the money they may donate to a charity which is
behaving criminally, but organisationally the victims that we
have identified would be the Inland Revenue and tax collection.
Also, the charity sector in Northern Ireland is very fragmented
and by its very nature is really not conducive to that private
sector model. We think that the proposed Charity Commission will
provide the required regulation, it will have independence and
it is a model which is the result of widespread consultation,
we had more than 100 responses to our consultation, and there
was widespread support for that model.
Q439 Rosie Cooper: I think Lady Hermon
has covered a lot of this area, but there are some questions I
would like to ask. How many organisations do you know of for taxable
purposes have charitable status?
Mr Wall: As you may be aware,
the current regulation for charities, effectively, is through
the Inland Revenue, and the Revenue indicate that they have 3,000
organisations on their database. In the last year, we have established
a funding database, in the Department, for organisations, voluntary
and community organisations that are funded through Government.
We have now 6,000 organisations on that database. We are operating
on the assumption that there are likely to be somewhere between
7,000 and 9,000 organisations which will be registered as charities
once we establish the Charity Commission, because there is a range
of other bodies at the present time which would not appear on
the Inland Revenue database and do not appear on the Government
funders database. For example, churches would run a wide range
of youth provision which would not receive Government funding,
nor would they have charitable status, at the present time. We
are operating on the assumption that we would need a register
of 7,000 to 9,000.
Rosie Cooper: I think most Members
would agree that we were quite astounded to find that Northern
Ireland did not have a Charity Commission. I have had to do quite
a bit of work with the Charity Commission over time and even I
would want them to have stronger powers here in England. I have
to say that I hope that whatever the Minister brings forward is
a lot stronger, because nothing that I have heard today would
make me feel there is any great hope that this will really be
wrung out and sorted out. I suppose my natural questions will
be operational, in the sense of how do you propose to set it up,
how many people will there be, how much money will be put into
it, how strong will it be, what will be the regulatory force behind
it? How will we know that what you propose, the strategies that
you have got, will deal with identifying money that is going through
paramilitary activities in these charities? If you have taken
nine years, almost 10 years, and we have not got very far, how
are you going to swing into action now with any force and real
relevance, and are you going to put enough money and enough strength
behind it, because I fear, unless you do that, then this is a
waste of time?
1 Correction from witness: selling. Back
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