07 March 2018 by Niall Kavanagh
The Irish government’s joint framework report adds bite to enforcement against white collar crime
Last November, in a cross-departmental initiative between the minister for business, enterprise and innovation, the minister for finance and the minister for justice and equality, the Irish government published a joint framework report.
‘Measures to enhance Ireland’s corporate, economic and regulatory framework’ contains 26 actions, including the publication of a number of new bills, designed to make it easier to investigate and prosecute white collar crime in Ireland, and aims to enhance Ireland’s reputation as a safe place to conduct business.
For these, the government has assigned a lead department to oversee each action point and set a challenging timetable for implementation.
It is clear that the framework report has the potential to affect not only corporate law but also several state agencies and criminal prosecutions generally.
Although company secretaries should review the full set of recommendations, there are a few that make the required reading list, including the changes proposed for the Office of the Director of Corporate Enforcement (ODCE), changes to courtroom procedures for juries, and new fraud offences.
As part of this, the Companies (Statutory Audits) Bill 2017 started the second stage of the Irish legislative process on 23 January. The bill significantly enhances powers for the Irish Auditing and Accounting Supervisory Authority and is also carries measures designed to bolster Ireland’s corporate, economic and regulatory environment.
“These measures as these will shape the enforcement of Irish corporate law for decades to come”
Company secretaries and governance professionals need to be aware of these measures as these will shape the enforcement of Irish corporate law for decades to come.
Alongside this, in January the Central Bank of Ireland issued its long-awaited response to the Law Reform Commission’s 2016 issues paper ‘Regulatory Enforcement and Corporate Offences’.
It is important to note that Ireland is already seen as a secure place to do business, and the framework report is designed to boost this good reputation.
Global competitiveness surveys, such as Forbes’ Best Countries for Business and business school IMD’s world competitiveness rankings, put Ireland in the top tier of countries to operate in and Ireland’s regulatory and enforcement regime is active and successful.
In 2016 alone, €555 million was yielded by the Irish Revenue Commissioners from over half a million interventions. Tax offences identified by the Revenue Commissioners resulted in over a thousand criminal convictions, while 90 company directors were restricted and a further 11 disqualified on the back of action taken by the ODCE.
To appreciate where ODCE is being taken, it is useful to understand how it got to where it is. The ODCE was established on recommendation of the Working Group on Company Law Compliance and Enforcement in 1998.
At that time Irish company law was characterised by non-compliance: only 13% of companies filed annual returns on time. This figure is now close to 90%. But despite this improvement, the ODCE has been continuously labelled as toothless.
In order to address this negative press, the first five actions points of the framework report are aimed at taking the Department of Business, Enterprise and Innovation through a stakeholder consultations process to eventually establish a new independent company law enforcement agency that is better equipped to investigate complex breaches of company law.
The framework states that the Department of Business, Enterprise and Innovation will develop the legislative framework underpinning this new agency before the end of 2018, and will aim to have this enacted before the end of 2019.
There is no doubt that the serious investigative failings that came to light during the collapse of the trial of the former Anglo Irish Bank chairman Sean Fitzpatrick in May 2017 greatly influenced these action points.
However, it is also important to note that this was only one of five investigations related to the bank initiated by the ODCE, two of which resulted in convictions, while a third trial is currently pending.
The government’s proposals to reform the ODCE are an important step towards restoring public confidence in the state’s capacity to tackle this type of wrongdoing and should be watched closely by company secretaries – especially the size of enforcement powers and willingness to use them.
The second aspect of the framework that draws attention is the changes proposed to the conduct of white collar criminal trials via the Criminal Procedure Bill. These hearings, by their nature, tend to be protracted, complex and buried in volumes of confusing documents, but the actions in the framework report aim to improve this.
The Courts and Civil Law (Miscellaneous Provisions) Act 2013 has already helped things – by allowing for three reserve jurors, in case the length of proceedings causes the loss of one or more jurors – but the framework report states that more can be done to assist such trials.
Presently, jurors must make themselves available after being empanelled. However there are often lengthy periods where pre-trial legal issues are heard in their absence.
“The work product of many company secretaries, especially minutes, is likely to be part of tackling white collar crime”
The Criminal Procedure Bill aims to address this by ensuring jurors are not empanelled until all pre-trial issues have been resolved. In theory, this should reduce the time jurors are required in court and the risk of jurors dropping out and trials collapsing as a result.
The framework report also highlights the need to increase the use of technology and states that measures such as electronic transmission of warrants and use of video-link hearings could reduce the time needed compared to manual and face-to-face processes.
Provisions for these are included in the Criminal Procedure Bill and the framework report provides that the Minister for Justice and Equality will publish and enact this by the end of 2018.
Unless attending for jury service themselves many company secretaries may ask why this is important.
However, when combined with the other aspects of the framework, it is clear that the Irish government is committed to tackling white collar crime on all fronts, from prevention to prosecution, so the work product of many secretaries, especially minutes, is likely to form part of this, even if they themselves are not in the dock.
The framework report also states that the minister for justice and equality will publish the Criminal Justice (Corruption Offences) Bill.
This bill consolidates the law on white collar crime and repeals and replaces the seven previous Prevention of Corruption Acts, as well as introducing new offences and making renewed provisions on a number of international anti-corruption instruments.
These new provisions should worry any would-be fraudster, with penalties of up to 10 years imprisonment, unlimited fines and new powers to remove Irish officials, including elected officials, from office.
The bill also creates the new offences of making payments to people who intend to use them as bribes and using confidential information to obtain advantage corruptly.
One of the most frightening aspects of the bill is the new ‘presumption of corruption’ in the case of bribing of public officials. This has the effect of reversing the burden of proof and will require in certain circumstances the accused to show proof of their innocence.
Again, it is reasonable to expect that the work product of company secretaries will form part of both prosecution and defence papers, once more highlighting the importance of the role. The framework sets a deadline of Q4 2018 for enactment.
The Criminal Justice (Corruption Offences) and the Criminal Procedure bills, if enacted in their current form, will significantly change the landscape for detecting and prosecuting corporate, economic and regulatory crimes.
Another notable event occurred in January 2018, the Central Bank of Ireland published its response to the Law Reform Commission’s 2016 issues paper on ‘Regulatory Enforcement and Corporate Offences’.
The response to the 150-page issue paper contains many observations on the central bank’s enforcement powers, recent legislative reform, and some specific remarks on reckless decision making.
Among these recommendations are measures to strengthen accountability of senior personnel in regulated entities by importing a regime similar to the UK Senior Managers and Certification Regime.
The rationale for this is to decrease the ability of individuals to claim that the culpability for wrongdoing lay outside their sphere of responsibility.
“It is clear that the Central Bank supports criminalising recklessness by senior managers”
Other aspects of the response included calls to extend the period of suspension on fitness and probity grounds.
The Central Bank also calls for the creation of a new criminal offence of ‘egregious recklessness’ – based on section 36 of the UK’s Financial Services (Banking Reform) Act 2013 – for those in charge of failed banks and the creation of a dedicated division within existing criminal law agencies to investigate white collar crime.
Although there will always be debate on whether specific conduct by individuals is so egregious as to merit criminal sanction, it is clear that the Central Bank supports criminalising recklessness by senior managers, particularly where such decisions have wide-ranging negative effects.
In support of the response, the Central Bank’s director general of financial conduct Derville Rowland said that a ‘well-stocked enforcement toolbox is vital to ensuring the Central Bank can safeguard stability and protect consumers.’
The Central Bank’s response and Rowland’s remarks make it clear that it is going to be an interesting time to be a company secretary of an Irish financial institution. They also make equally clear that it is going to be a uncomfortable time to be a director.
There is no disputing that corporate law has to be dynamic, but the pace of change is increasing. Indeed, the great consolidation, the Companies Acts 2014, has since been amended several times.
In particular, the Companies (Accounting) Act 2017 changed much of Part 6 on Financial Statements, and the Companies (Amendment) Act 2017 changed how Irish companies can utilise US accounting standards.
The framework will further amend the 2014 Act and bring about changes in related areas, especially for regulated institutions. If you close your eyes for a moment you risk being left behind.
Countries also face reputational challenge and the status as a safe, transparent place to do business can be lost almost overnight. You do not have to look hard to see evidence of this: the Lux, Panama and Paradise Papers provide plenty.
Likewise, the increasing tensions among supposed united neighbours, clearly on display at the World Economic Forum in Davos, mean that countries that do not attempt to address even small shortcomings risk not only being left behind, but also losing the ability to attract and retain international investment.
The fact that the global community will not tolerate even the suggestion that a government is soft on corporate crime means that the framework report and the actions mandated by it are only the start of an increasingly complex corporate law environment.