Governance & Compliance Update: Modernising Ireland’s Approach to Tackling ‘White Collar’ Crime
24 January 2019
The trigger for change
On 23 May 2017, the trial in the case of the DPP v Sean FitzPatrick, one of the largest and most complex investigations in the history of the Irish State, ended when Judge John Aylmer directed the acquittal of the defendant on all charges. In that case, Judge Aylmer advised that his decision to direct the jury to acquit the defendant arose out of concerns for the investigative process undertaken by the Office of the Director of Corporate Enforcement (ODCE).
When the ODCE was established in late 2001, the principal matter of non-compliance with company law that was required to be addressed was a culture of failures by companies and their officers to meet their obligations relating to filing of annual returns. The fact that 90% of companies are now compliant with filing their annual returns on time is clear evidence of the fact that the ODCE has succeeded in addressing the defaults that it was originally established to police.
However, and as was clearly demonstrated by the outcome of the Sean FitzPatrick case, we now live in a time when, not only is there a greater awareness of the need to prosecute serious company law breaches for reasons that include protecting a company’s economy, but the nature of those breaches is becoming more complex. Therefore, our corporate watchdog needs to be equipped to deal with the challenges it now faces in encouraging greater compliance with company law and to thoroughly investigate suspected breaches of that law.
The start of a new era
These changes, to a great extent, have already been introduced. Following the FitzPatrick verdict, the Director of Corporate Enforcement made a number of changes to the ODCE to address the issues highlighted by Judge Aylmer. These changes focused on ensuring that personnel and processes were in place to allow potential breaches of company law to be properly investigated. The result is that the ODCE now has a team of forensic accountants, a digital forensics specialist and a digital forensics laboratory. In addition, specialised training in the national police force training college is now provided to the staff of the ODCE. This specialist training is deployed to assist them with statement taking and preparing files for the Director of Public Prosecution. To round off this approach, members of the Irish police force, An Gárda Siochána are now assigned to the ODCE to lead all criminal prosecutions.
Notwithstanding the introduction of these positive changes and the Government’s commitment to further strengthen Ireland’s regulatory framework for the conduct of business and combatting white collar crime, further deliberation was given by Government on whether the ODCE could be provided with even greater State support to assist it in carrying out its statutory functions.
One area that was considered by Government was the status of the Director of Corporate Enforcement and their independence. While the Director is expressed to be independent in the performance of their functions, they are politically accountable. This is evidenced by the fact that they are a civil servant, they can be removed by the Minister for Business, Enterprise and Innovation at any time (albeit for stated reasons) and they are required to submit annual reports to the Minister.
Corporate Enforcement Authority established
Against this backdrop, in November 2017, the Government published a package of measures to enhance Ireland’s corporate, economic and regulatory framework. One of these measures was to establish the ODCE as an independent agency better equipped to investigate and prosecute increasingly complex breaches of company law.
On 4 December 2018, Heather Humphreys T.D., announced that Cabinet had approved the establishment of this agency and further announced that the agency would be called the Corporate Enforcement Authority. On that day, Minister Humphreys confirmed that she had allocated an additional €1 million to the ODCE in her 2019 budget to support the establishment of the Authority.
Legislation is needed to effect this change and Government proposes to achieve this through enactment of the Companies (Corporate Enforcement Authority) Bill 2018.
The General Scheme of this Bill has been published. It proposes to give the Corporate Enforcement Authority the same functions and powers that the Director of Corporate Enforcement has. In addition, however, the Authority will be afforded added flexibility to structure itself to meet the demands of its extensive remit and so that it can appoint its own staff in order to preserve its independence. The Scheme also proposes to give the Corporate Enforcement Authority new investigative tools, most notably new search and entry powers, to enhance the Authority’s ability to gather evidence that is held electronically.
What to expect
Time will tell if there will be a change in approach as to how the Authority investigates and seeks to enforce breaches of company law. It will also be interesting to observe whether there will be an increase in the number of prosecutions.
An area worthy, in my view, of observation will be the number and nature of prosecutions arising out of the statutory obligation for auditors to make a report to the Director of Corporate Enforcement and in due course the Corporate Enforcement Authority. These relate to instances where, in the course of carrying out an audit of the financial statements of a company, the auditors are of the opinion that there are reasonable grounds for believing that a category 1 or category 2 offence under the Companies Act 2014 has been committed.
This obligation to notify is not a new requirement introduced by the Companies Act 2014, nor does it appear that the Bill will seek to make any changes to it. However, what the 2014 Act did look to do was to resolve a difficulty that had arisen under the prior Companies Acts relating to similar reporting requirements imposed on auditors under that legislation. Under the prior Companies Acts, the obligation was to report suspected “indictable” offences. However, the determination as to what actually constituted an “indictable” offence was unclear given that offences could be tried either summarily or upon indictment at the election of the prosecuting authorities.
A cautionary note
Every director of a company has a duty to ensure that the 2014 Act is complied with by the company. Where this is not done and an offence is committed, a director and the company for which it has responsibility could face possible criminal prosecution. In certain circumstances, a statutory auditor may have an obligation to report these offences to the ODCE and, in time, the Corporate Enforcement Authority or themselves commit an offence.
This regime has always existed. However, can we expect that, arising out of the greater certainty on what suspected offences must be reported by statutory auditors that the number of reports made will increase and the range of offences reported will broaden?
Can we also expect that the proposed structure of the Corporate Enforcement Authority, modernised to operate in line with international best practice, will assist in bringing breaches of company law to prosecution?
The content of this article is provided for information purposes only and does not constitute legal or other advice