The Law Reform Commission has said its report on regulatory powers and corporate offences is not the “last word” on dealing with criminal and unscrupulous behaviour in financial institutions but would go a long way to address the gaps in the laws that emerged after the 2008 banking crisis.
The chairwoman of the commission, Ms Justice Mary Laffoy, appeared before the Oireachtas Committee on Finance, Public Expenditure and Reform, along with two of its four Commissioners, Raymond Byrne and Tom O’Malley.
Mr Byrne outlined the main recommendations of the Commission’s recent report which made over 200 recommendations for reforms in laws dealing with regulation of financial institution, and also in the criminal law.
However, while the proposed changes were welcomed by Committee members, Sinn Féin’s finance spokesman Pearse Doherty said he still felt they were “quite weak” and wondered if, had they been in place a decade ago, they would have led to the successful prosecution of more senior figures in failed banks.
One of the major changes suggested is the establishment of a stand-alone Corporate Crime Agency, which Mr Byrne said would be an umbrella agency for dealing with this specific area of activity. He likened its role for criminal offences in banking to that of the Criminal Assets Bureau.
The Government, in 2017, proposed the setting up of a Corporate Enforcement Authority as a separate entity, to replace the Office of the Director of Corporate Enforcement. The Commission says its powers are limited to enforcement of the Companies Act 2014.
The remit of the Corporate Crime Agency would be wider and it would be able to engage in prosecutions that did not fall within the responsibility of regulators such as the Central Bank or Comreg.
Mr Byrne said the Commission advanced the view that the corporate crime unit in the office of the Director of Public Prosecutions continue in operation and work closely with the Corporate Crime Agency.
The Commission also recommended more powers for regulators, especially the powers to make significant financial sanctions against banks and finance companies which have been found to have breached regulations or rules. Mr Byrne pointed to suggestions for changes in laws that would compel institutions to put in place regulatory compliance policies.
Another complex issue examined in detail by the Commission was what former Central Bank governor Patrick Honohan had described as “egregious reckless risk-taking” and whether or not such practices could be subject to a specific criminal offence.
Mr Byrne told the Committee, chaired by John McGuinness (Fianna Fáil) that the Criminal Justice (Theft and Fraud Offences) Act, 2001 had been an effective tool for prosecutions. The question, he said, was if it needed to be amended to include a reference to recklessness, or if a new offence of reckless trading should be created (in a separate law)?
“We reached a conclusion to amend the 2001 act to provide that there should be an explicit reference to recklessness,” he said.
Recklessness
He said in addition to false accounting and deception, that was done knowingly and with intention, the proposed change in the law would capture recklessness. The test would be a subjective one.
He explained why the Commission had not opted for a separate offence of reckless trading ultimately. He said it would not have been appropriate as it could have a “chilling effect on legitimate risk-taking”.
Another novel reform advanced was the idea of suspending a prosecution against a company, a so called deferred prosecution agreement. This would allow a deferral if a company agrees to comply with strict conditions. That agreement would be a public document.
Questioned by Mr Doherty, Mr Byrne said a separate offence of reckless lending would place “a very high burden on the prosecution to establish how an act or series of acts by senior managers actually caused that bank to fail”.
Mr Doherty asked if there was a repeat of the 2008 crash whether those individuals be prosecuted. He said that was his test.
“They should have been jailed for what they did. I have said it to them. That’s not our fault, that is the fault of the establishment which did not pass laws,” he said.
Mr Byrne and Mr O’Malley responded it was difficult to fix responsibility on individuals within a large organisation.
Mr O’Malley said: “There is no magic solution. The best way is including recklessness as a sufficient mental element to the crime.
“The (2001 Act) now requires the prosecution to say the person acted intentionally or knowingly. If it is brought on to include recklessness, it does impose a higher standard of care and responsibility to ensure they don’t take unjustified risks,” he said.
Mr Byrne said the proposed changes to the 2001 Act in addition to new Central Bank rules which require all senior management to “map” out their responsibilities would complement each other.
