REPORT ON REGULATORY POWERS AND CORPORATE OFFENCES
Report recommends that a properly resourced statutory Corporate Crime Agency be established
Report also recommends that economic regulators should have the power to impose significant financial sanctions and to make regulatory enforcement agreements, to include redress schemes
Report also recommends reform of fraud offences to address egregiously reckless risk taking
Tuesday 23rd October 2018: the Law Reform Commission’s Report on Regulatory Powers and Corporate Offences [Volume 1: Regulatory Powers and Volume 2: Corporate Offences] will be launched by the Attorney General, Mr Seamus Woulfe SC, in the Commission’s offices at 6pm this evening.
Important reforms have resulted from the banking crisis, and existing law has led to significant convictions
The banking and financial crisis that emerged in 2008 brought home the need for certain fundamental legal reforms. In particular, it pointed to the importance of ensuring that financial and economic regulators have at their disposal sufficiently robust and comprehensive powers to discharge their functions effectively. It also illustrated the need to ensure that the law governing corporate criminal liability should reflect the reality of modern-day corporate decision-making; and that this body of law should be adequate to respond to what the former Governor of the Central Bank, Patrick Honohan, described in 2015 as "egregiously reckless risk-taking.”
This Report acknowledges that significant policy changes and legislative reforms at national and EU level have already been made in response to the banking crisis. The Report also notes that our existing law has resulted in a number of significant convictions that related to the actions of senior bank executives in the lead up to the banking crash.
Report recommends further reforms
Against that background the Report makes over 200 recommendations for further reform on regulatory powers and corporate offences, including:
- A statutory Corporate Crime Agency and a dedicated unit in the Office of the Director of Public Prosecutions should be established, and properly resourced.
- Economic regulators should have the power to impose significant financial sanctions and to make regulatory enforcement agreements, which should include consumer redress schemes.
- The recommendations on regulatory powers would apply not only to regulation of financial services but also to the wider economic context, such as in competition law, communications regulation and health products regulation.
- The recommendations on corporate offences would clarify the circumstances in which a corporate body could be held criminally liable for systemic failures by its senior executives.
- The Report recommends that, in order to address egregiously reckless risk-taking, our existing fraud offences should be amended so that conscious (subjective) recklessness by a person would amount to fraud under, for example, the offence of false accounting in the Criminal Justice (Theft and Fraud Offences) Act 2001.
Further detail on the main recommendations in the Report
Corporate Crime Agency and dedicated Unit in DPP’s Office
The Report commends the decision, in the Government’s 2017 paper Measures to Enhance Ireland’s Corporate, Economic and Regulatory Framework, to establish on a pilot basis a multi-agency task force to address corporate offences. The Commission’s Report recommends that a Corporate Crime Agency with power to investigate corporate offences should be established on a statutory basis, and should be a multidisciplinary agency similar to the Criminal Assets Bureau. The Report also recommends that there should be a dedicated Unit in the Office of the Director of Public Prosecutions, which would liaise closely with the proposed Corporate Crime Agency. The Report recommends that both the Agency and Unit should be properly resourced, but that the details of this are matters for Government and the Oireachtas to determine.
A “core” set of Regulatory Powers should include: (a) Administrative Financial Sanctions and (b) Regulatory Compliance Agreements (compliance settlements)
The Report recommends that, to be fully effective, financial and economic Regulators should have a “core regulatory toolkit”. This core set of powers should include:
(a) the power to impose Administrative Financial Sanctions (subject to court oversight, to ensure compliance with constitutional requirements), similar to the Central Bank’s current power, with a maximum sanction for companies of €10 million and/or 10% of turnover, and maximum sanction for individuals of €1 million; and
(b) the power to enter into Regulatory Compliance Agreements (regulatory settlements), which should include financial sanctions, consumer redress schemes, and agreement to put in place compliance policies;
Note: the Central Bank already has both these powers (and has used them in, for example, the tracker mortgage case), but other regulators such as the Competition and Consumer Protection Commission do not.
Reforms to address egregiously reckless risk-taking
In 2015, the former Governor of the Central Bank, Patrick Honohan, used the phrase “egregiously reckless risk-taking” to describe the extreme behaviour that contributed, in part, to the financial and economic crisis that emerged in 2008. The Commission’s Report notes that existing fraud offences, including those in the Criminal Justice (Theft and Fraud Offences) Act 2001, were used in the prosecutions and convictions of senior bank executives that were dealt with in the courts between 2014 and 2018. The Report recommends that, to address egregiously reckless risk taking, the 2001 Act should be amended to include an explicit reference to recklessness. This would mean, for example, that the offence of false accounting in the 2001 Act would occur not only where the accounts were fabricated “knowingly and intentionally” (the current law) but also where this was done with subjective recklessness, that is, where the defendant consciously disregarded a risk that the victim would be deceived. Because of these recommendations on the 2001 Act, the Report recommends against the enactment of an offence of “reckless trading”, on the basis that such an offence would run the risk of having a chilling effect on legitimate, entrepreneurial, risk taking.
Deferred Prosecution Agreements (DPAs)
DPAs, which involve suspending a corporate prosecution subject to a company complying with strict conditions, should be introduced on a statutory basis, the Report recommends, under the control of the DPP. The Report also recommends that the DPA system should be modelled on the UK DPA system introduced in 2013, which requires court approval for any proposed DPA. The Commission’s Report rejects the US DPA system for the following reasons: it has no statutory basis, it is offered at the discretion of the relevant prosecutor, and it does not need court approval.
Due diligence defence for corporate body and senior managers
The Report recommends that, for most corporate offences of a regulatory type, the corporate body and its senior managers should only be convicted if they have not exercised “due diligence”, that is, where they have not set up suitable risk management policies and procedures. This is designed to encourage companies to put in place suitable risk prevention policies and procedures, and is consistent with statutory Corporate Governance Codes from regulators, and the approach in the Central Bank’s recent Behaviour and Culture Report published in July 2018.
Legal effect of legal advice and regulatory advice
The Report recommends that, in general, where a corporate body, in advance of taking a certain action, obtains legal advice that the action complies with the law, this should not in itself be a defence to a subsequent criminal prosecution, but that it could be taken into account as a mitigating factor in sentencing. The Report also recommends that, where a regulator clearly indicates that an act complies with the relevant law, this should either have the effect of prohibiting a prosecution or act as a defence, but that this approach should be applied only on a case-by-case setting, such as under competition law, and only where the regulatory advice appears authoritative and reasonable. These recommendations would not involve any change to how the law on these points is currently applied.
Regulatory Guidance Office
The Report recommends that a Regulatory Guidance Office should be established, with membership drawn from Government Departments and Regulators, to provide guidance and information on regulatory matters, including national and international best practice in economic regulation, the content of Regulatory Impact Assessments (or comparable documents) and lessons learned from the relevant case law. The functions of the Regulatory Guidance Office would be broadly comparable to the former Better Regulation Unit (BRU) in the Office of the Taoiseach.
Trials on indictment for most corporate offences should remain in Circuit Criminal Court.
The Report recommends retaining the current system where most corporate trials on indictment are dealt with in the Circuit Criminal Court (some competition offences are dealt with in the Central Criminal Court/High Court). The Report notes that recent experience is that the Circuit Criminal Court has been fully capable of dealing with complex corporate criminal trials.
For further information/interview with a 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 200 documents (Working Papers, Consultation Papers, Issues Papers and Reports) containing reform proposals, available at www.lawreform.ie. The Report will be available from 9.30am on 23rd October on the Commission’s website, www.lawreform.ie.