- PAPER SEEKS VIEWS ON 12 ISSUES CONCERNING POWERS OF FINANCIAL AND ECONOMIC REGULATORS AND ON CORPORATE OFFENCES
- PAPER ASKS WHETHER REGULATORY POWERS NEED TO BE SUPPLEMENTED
- FOR EXAMPLE BY POWER TO IMPOSE CIVIL FINANCIAL SANCTIONS AND MORE EFFECTIVE CO-ORDINATION BETWEEN REGULATORS
- PAPER ALSO ASKS WHETHER EXISTING CRIMINAL LAW, INCLUDING FRAUD LAW, IS SUFFICIENT TO DEAL WITH SERIOUS CORPORATE WRONGDOING AND WHETHER OFFENCE OF RECKLESS TRADING SHOULD BE INTRODUCED
Wednesday 27 January 2016: The Law Reform Commission has today published an Issues Paper on Regulatory Enforcement and Corporate Offences, which forms part of the Commission's Fourth Programme of Law Reform. It seeks the views of interested members of the public on 12 issues concerning two related areas. The first is whether the supervisory and enforcement powers of the State's main financial and economic regulators (such as the Central Bank, ComReg, the Competition and Consumer Protection Commission and the Director of Corporate Enforcement) are adequate or need to be supplemented by, for example, civil financial sanctions and more effective co-ordination between such regulators. The second is whether there are gaps in the criminal law, particularly in relation to fraud, that need to be filled in order to respond more effectively to serious wrongdoing by corporate bodies, and whether there is a case for introducing an offence of reckless trading. The full text of the Issues Paper is available from 9:30am this morning on the Commission's website, http://www.lawreform.ie.
Background to questions raised in Issues Paper
The broad background for this Issues Paper can be traced to the financial and economic collapse of recent years. A number of reports (including the Regling & Watson, Honohan and Nyberg Reports) identified failings in regulatory supervision and enforcement in the years leading up to the collapse. The close relationship between regulatory law and criminal law also brings into focus the effectiveness of existing criminal offences and the ways in which they might affect how companies behave and are regulated. Significant reforms to both the regulatory framework and criminal law have been enacted since 2008 but important issues remain to be addressed and the Issues Paper has identified 12 issues on which the Commission now seeks views. Many of these can be linked to the financial and economic collapse of 2008, but a number potentially have a wider application beyond financial regulation, including those concerning fraud offences and the attribution of criminal liability to corporate bodies. To that extent, this Issues Paper addresses future risks as well as risks already identified as arising from the financial and economic collapse of recent years.
Questions on Regulatory Powers: Issues 1 to 6 in the Issues Paper concern the supervisory and enforcement powers of financial and economic regulators.
Issue 1 considers the supervisory and enforcement powers of financial and economic regulators, and asks whether a standard set of powers should be created for some or all such regulators. Such legislation has been introduced in Australia and the UK. Standard inspection and investigation powers might include: powers of entry to premises; powers of access to computers and storage devices; and powers to interview staff and other persons associated with regulated entities. Other enforcement powers might include standardised civil financial sanctions and negotiated compliance agreements, discussed below.
Issue 2 examines the power that some financial and economic regulators (such as the Central Bank and the Revenue Commissioners) possess to impose civil financial sanctions as a response to non-compliance with the law and as an alternative to criminal prosecution. The Issues Paper seeks views as to whether civil financial sanctions should be more widely available to regulators as an enforcement tool.
Example of Civil Financial Sanctions under Central Bank Acts
In 2014, the Central Bank used its powers under the Central Bank Acts to impose a civil financial sanction of €3.5 million on Ulster Bank in respect of significant IT and governance failings by the bank that had resulted in approximately 600,000 customers being deprived of essential and basic banking services over a 28 day period in June and July 2012. The Central Bank found that Ulster Bank was in breach of its duties in the Licensing and Supervision of Credit Institutions Regulations 1992 which require every bank to have effective processes to identify, manage, monitor and report the risks it was or might have been exposed to and to have adequate internal control mechanisms. These findings were accepted by Ulster Bank as part of a published settlement agreement with the Central Bank. In addition to the civil financial sanction, the Central Bank required Ulster Bank to establish a statutory redress scheme under the Central Bank Acts, overseen by the Central Bank, under which affected customers were paid approximately €59 million in total.
Issue 3 examines the use of negotiated compliance agreements, which are also available to some regulators (such as the Competition and Consumer Protection Commission and the Director of Corporate Enforcement) to avoid civil litigation by the regulator (or a criminal prosecution involving a minor infringement) if a corporate body agrees to specific terms, including preventative measures to ensure future compliance. The Commission asks whether such agreements should be more widely available.
Issue 4 examines deferred prosecution agreements (DPAs), which are widely used in the United States, and a judicially-supervised DPA was introduced in the UK in 2013. In Ireland, the Cartel Immunity Programme operated jointly under competition law by the Competition and Consumer Protection Commission and the Director of Public Prosecutions has some of the features of DPAs. The Commission asks whether DPAs should be available in other contexts, and if so what oversight protections, such as the judicial supervision in the UK, should be put in place.
First UK DPA approved by English High Court in 2015
The first UK DPA under the UK Crime and Courts Act 2013 was approved by the English High Court in November 2015. The case involved a South African bank that was indicted under the UK’s Bribery Act 2010 for failure to prevent bribery in the course of dealings with a non-UK government body. In return for suspension of the indictment, the bank agreed in the DPA to pay financial penalties, compensation and costs, as well as cooperating with the UK’s Serious Fraud Office and undergoing a review of its anti-corruption practices. In approving the terms of the DPA, the English High Court recognised that the bank had engaged early and cooperated fully with the UK authorities.
Issue 5 examines matters concerning co-ordination and co-operation between regulators, notably where their statutory functions overlap. The Commission asks what improvements can be put in place to ensure the efficiency and effectiveness of concurrent or overlapping jurisdictions between financial and economic regulators, including the following: the form that co-operation agreements take; whether there should be a lead agency in such cases; the extent to which information should be shared between regulators; and how inspectors from different regulators might co-ordinate their enforcement activities.
Issue 6 considers possible reforms to improve the efficiency and effectiveness of the appeals process from financial and economic regulators, focusing on adjudicative decisions of regulators that have the potential to have a high market impact. This includes decisions to grant or remove a licence or authorisation of a regulated entity to operate in a regulated sector, or to impose civil financial sanctions. The Commission seeks views on whether a single appeals process, such as to the Commercial Court in the High Court, would be suitable for this purpose, or whether specialised appeals bodies should continue to have a role.
Questions on Corporate Criminal Offences: Issues 7 to 12 in the Issues Paper concern corporate criminal offences.
Issue 7 considers whether there should be a general test for determining or attributing the criminal liability of corporate bodies. For example, in fraud cases where it must be proved that the offence was caused intentionally and with knowledge that a loss would be caused, the question is: how can intention by a corporate body be established? The Commission asks whether it would be appropriate to have a test that corporate intention or knowledge could be established by reference to both the acts of its senior managers and decision makers and also to how the organisation's policies and procedures are implemented.
Issue 8 considers the related question of the two main models for determining the personal criminal liability of senior corporate decision makers – the more widely-applicable model based on a test of the “consent, connivance or neglect” of the decision maker, and the second test found in the Companies Act 2014 of the “officer in default”. The Commission asks whether either or both of these models should be adjusted (for example, how the “consent, connivance or neglect” formula should relate to the substantive offence to which it refers) and whether there is a case for a single test.
Issue 9 examines whether there should be a general defence of due diligence or "reasonable precautions" available to corporate criminal offences, or whether some offences should, on public policy grounds, remain absolute in nature, that is, with no due diligence or reasonable precautions defence. The Commission seeks views on this, including whether obtaining professional advice, including legal advice, should be taken into account in determining whether a corporate body or its decision-makers have exercised due diligence.
Issue 10 examines whether there is a gap in the existing law on fraud offences. The Paper discusses whether the common law offence of conspiracy to defraud and the fraud-related offences in the Criminal Justice (Theft and Fraud Offences) Act 2001 and the Companies Act 2014 are sufficient to deal with all fraud-related activity. The Commission then asks whether there is a need to enact offences along the lines of US mail fraud and wire fraud offences.
Issue 11 examines whether an offence of reckless trading should be enacted. Such an offence would criminalise corporate activity that involves a reckless disregard by the corporate body that its activities would cause a loss to another person. This involves a significantly lower threshold than applies to fraud-related offences, which require actual knowledge that the activity will cause loss and also an intention to defraud. The Paper notes that very few countries have enacted an offence of reckless trading, though in 2013 the UK enacted a narrower offence of recklessly causing a financial institution to fail.
Issue 12 examines the legislation on the allocation of the court of trial for corporate offences. Where a corporate criminal offence requires a jury trial, it must be held in the Circuit Criminal Court, though some competition law jury trials are reserved for the Central Criminal Court (the High Court). The Commission seeks views as to whether there should be more flexibility for the transfer of these trials between the Circuit Criminal Court and the Central Criminal Court (as was the case until 1981), for example where a case is complex or concerns alleged systemic economic damage.
For further information/interview with Commission President Mr Justice John Quirke or other Commission representative contact:
Winifred McCourt, McCourt CFL T: 087-2446004
Background Notes for Editors
The Law Reform Commission is an independent statutory body whose main role is to keep the law under review and to make proposals for reform. To date, the Commission has published over 190 documents (Consultation Papers, Issues Papers and Reports) containing reform proposals. The majority of these proposals have influenced the drafting and content of reforming legislation. The Issues Paper will be available on the Commission’s website, lawreform.ie, on Wednesday 27 January 2016.