Analysis: Enforcement most aggressive in State’s history

Three former officers at Anglo Irish Bank have been convicted and jailed for concealing and altering bank accounts connected to the bank's former chairman, Seán FitzPatrick.

On Thursday night they were held in custody, for the first time in their lives, pending sentencing for their crimes. Yesterday, Tiernan O'Mahoney, Bernard Daly, and Aoife Maguire were sentenced to periods of imprisonment of three years, two years and 18 months respectively.

This is the outcome of the most aggressive approach to corporate enforcement that has ever been seen in the history of the State.

Counsel on behalf of these three former bank officials, who were aged in their 50s and 60s and had no previous criminal convictions, pleaded in mitigation that their clients had all fully co-operated with the investigation. They also emphasised that these offenders had not personally profited from their actions and that the beneficiary of the offences, Seán FitzPatrick, had not been prosecuted in connection to the matter.

Meanwhile, FitzPatrick was in a nearby courtroom in the same building, applying to adjourn an unrelated prosecution against him, on the ground that the adverse publicity from the current case was prejudicing his defence.

In reality, it is the overwhelming interest in FitzPatrick and the toxic Anglo brand that has focused the public eye on these previously unknown individuals. Indeed, their case had nothing to do with the financial irregularities leading to the collapse of Anglo and is coincidental to the financial crisis.

The hiding and alteration of the accounts back as far as 2003 relate to the evasion of deposit interest retention tax (Dirt) in the 1990s, though they would not have been prosecuted or even discovered had the investigation into Anglo not commenced.

Contrast to deference

The sentences stand in marked contrast to the deferential approach adopted by regulators to companies and company officers during the Celtic Tiger.

In 1998, the chairman of the working group on company law compliance and enforcement, Michael McDowell, said: “Those who are tempted to make serious breaches of company law have little reason to fear detection or prosecution. As far as enforcement is concerned, the sound of the enforcers’ footsteps on the beat is simply never heard.”

Though the working group did not engage in any visible compilation or breakdown of crime statistics, it concluded that “the great majority of the hundreds of summary offences provided for in the Acts have never been the subject of any criminal proceedings, and there has only been a handful of occasions on which the indictable offences have been prosecuted”.

Notwithstanding the high- profile nature of the Anglo cases, and despite the creation of the Office of the Director of Corporate Enforcement (ODCE) in 2001, that statement remains largely true today.

The reality is that criminal prosecutions and convictions for white-collar offences remain remarkably rare because the vast majority of the hundreds of offences in the Companies Acts have never been prosecuted.

Prosecutions on indictment, before a jury, such as those concluded against the three former Anglo officers, are extremely unusual.

The first effective custodial sentence for an offence in the Companies Acts during the lifetime of the ODCE did not come until 2011 and the most high-profile white-collar crime prosecution last year, again against former Anglo officers, yielded non-custodial sentences involving community service.

Summary convictions

Summary prosecutions, in the District Court before a judge, are somewhat more common but they usually result in small financial penalties. The ODCE has recorded a higher number of annual summary prosecutions since its establishment, though this has fallen in recent years as the office dedicates its scarce resources to Anglo investigations.

In 2002, it secured 15 summary convictions, rising to just 19 convictions in 2014.

Meanwhile, most corporate enforcement seems to have been channelled into the civil jurisdiction of law. The number of people on the register of disqualified persons, recording civil orders banning them from further involvement in corporate management, has risen from four in 2002 to 3,798 in 2014.

The number on the register of restricted persons, recording civil orders which allows further involvement in corporate life only when the company is sufficiently capitalised, has risen from 54 in 2002 to 850 in 2014.

Nevertheless, even though convictions on indictment for white-collar offences remain exceptional, the courts have emphasised, as happened yesterday, that frauds by persons in responsibility warrant recourse to lengthy periods of imprisonment, in appropriate cases.

The perception of a two- tier system of criminal justice, whereby the rich get richer and only the poor get prison, is increasingly being challenged by this new architecture of corporate enforcement.

Joe McGrath is a law lecturer at UCD and author of Corporate and White-Collar Crime in Ireland: a New Architecture of Corporate Enforcement.