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Investigating corporate crime is just as much about stamina as it is about justice


White collar crime deposit photo

White collar crime deposit photo

White collar crime deposit photo

Investigating white collar crime is a long, tortuous and expensive exercise. The stamina required to stay the course is reflected in the small details of the 2014 annual report of the Office of the Director of Corporate Enforcement (ODCE), which was published last week.

Remember the financial scandal that rocked National Irish Bank in 1997? Perhaps not, because if you are age 35 now, you were only 18 when RTE reporters George Lee and Charlie Bird did their television news expose that later prompted a High Court Inspectors investigation.

The inspector's report wasn't finished until 2004, even though some of the events it covered related back to the late 1980s and early 1990s.

After a number of former executives of the bank were disqualified in the courts from acting as directors, they appealed to the Supreme Court. By the end of 2014 one of those cases was still being played out as a Supreme Court date for hearing was still to be given, nearly 18 years after the first TV expose.

Remember Bovale Developments. The ODCE initiated disqualification proceedings against its owners Tom and Mick Bailey in 2006.

A judge found that they had engaged in systematic falsification of company books of account and understated their remuneration between 1996 and 1998 by €6m.

They challenged the admissibility of certain evidence and the duration disqualification orders and noting that they had made a record voluntary tax settlement with the revenue in the early 2000s of €22m.

Eventually, in December 2013, Justice Finlay Geoghegan made disqualification orders preventing them from acting as directors for seven years, but with a stay on it until May 1 2014. The brothers then sought permission from the courts to act as consultants to their companies in Nama as they were barred from being directors.

So, they were disqualified from acting as directors 16 years after the offences had occurred and they now work as consultants for those companies, which are co-operating fully with Nama in working through the money they now owe the state.

These are the long tails of corporate enforcement. Going after big cases chews up resources, money and time. The enforcers have to be smarter than those who break the law, often individuals backed up by very well-paid professional advisers.

So how many full-time accountants are working in the ODCE today to get to the bottom of these complex corporate frauds? The answer is none - as in zero.

Its budget allowed for two which it had. One left and was not replaced and the last one is now no longer there. The ODCE highlighted the need to hire six accountants over a year ago.

The Department of Justice eventually agreed to the funding but delays in the system meant that ads advertising the jobs are only now set to be put in train. It is a wonder the ODCE has been able to function properly at all.

When the jobs are advertised they will be based on civil service pay grades and will carry salaries in the €60,000 per annum range. This is less than they might earn in the private sector. It is a real problem for state agencies. Why do they need to be civil servants at all?

Why not give them five-year contracts, without the public service frills, but pay them more money and get better qualified people? The regulatory authority for accounting, the Irish Auditing and Accounting Supervisory Authority (IAASA), advertised for senior accountants but didn't manage to fill any posts at all first time round because it failed to attract the right level of candidate.

Public sector pay grades also applied there and it is difficult to compete with the big accountancy firms. Despite the limited resources 19 criminal convictions for breaches of the Companies Act were secured in the District Court last year following ODCE investigations.

Some 16 directors were disqualified on foot of liquidators' applications to the High Court.

The ODCE is focusing more on serious indictable offences rather than tying up its limited resources on multiple smaller cases. This is a tricky call to make. If it doesn't really pile into large high profile investigations which may take years, there is a public outcry that very prominent cases of possible illegal activity are not resulting in prosecutions. If it goes for "points over the bar" by pursuing every small case it can, then multiple insignificant cases will result.

Focus on high profile and there may not be a sufficient deterrent for smaller breaches because people might feel they can get away with it. Focus too heavily on the small guys and the justifiable public outcry will be audible.

When you look at the outcomes of smaller cases listed in the ODCE appendices, the legal system does not punish corporate wrongdoing very severely at all.

Lots of cases involve breaches of the Companies Act and result in fines of between €250 and €1,500. Some involve higher sums but not that many.

The ODCE is applying a more pragmatic approach to minor issues. For example it issued formal warnings last year to 14 individuals where there were concerns that they might have been purporting to be auditors whilst not qualified to act in that capacity. A further 13 companies received warnings about keeping proper books of account.

It ensured the repayment or reduction of €66m in company loans. It held meetings with some directors rather than just building a case and going after them.

If it achieves the desired outcome, then why not take this less adversarial and pragmatic approach. The problem however is lack of deterrent.

Perhaps being hauled into the District Court and fined €250 is deterrent enough for some people, but I doubt it. Perhaps being rapped on the knuckles and told you really should pay that company loan back, is a deterrent enough. But I doubt it.

The ODCE is doing an incredibly tough job with very limited resources. The fact that it is operating for the last two years with somewhere between none and two full-time accountants is itself a political offence by successive governments.

It is a real indictment of our attitude towards white collar crime.

Indo Business