High Court ruling takes bite out of corporate watchdog

Business Opinion:The High Court has once again reined in the Office of the Director of Corporate Enforcement (ODCE) as it carries out its mission to improve the culture of compliance in Irish business.

In this case, it is the attempt by the ODCE to have former National Irish Bank (NIB) manager Kevin Curran disqualified from involvement in the management of any company as a result of breaches of company law during the overcharging and other scandals that took place at the bank in the 1990s.

Curran's involvement in the various activities was not in question and was documented by the High Court inspectors appointed to investigate the goings-on at NIB. They concluded that he was among the senior managers who were aware of various improper practices and failed to act to stop them.

Indeed, Mr Justice Roderick Murphy said in his judgment last week that there was "dilatory and ultimately ineffectual intervention" by Curran when it came to tackling various practices such as the improper charging of fees.

Mr Justice Murphy said it should also have been clear to Curran from late 1993 that the lack of compliance with the legislation regarding non-resident deposit accounts was not merely technical. And as a regional or middle manager, Curran could not avoid responsibility for ensuring the bank had the proper procedures in place to ensure that tax was paid, he said.

But despite this, the judge did not grant the ODCE's application to have Curran disqualified. In doing so, the court appears to have drawn a very clear distinction between the responsibilities of directors or shadow directors and those of senior management when it comes to ensuring compliance.

He did not accept the ODCE's claim, based on the High Court inspector's report, that Curran was high enough up in the hierarchy to be held responsible for ensuring that the law was not broken by the bank.

Despite being a regional manager for much of the time that the various scandals took place, and the head of retail banking between 1996 and 1997, the court took the view that Curran did not have the authority to put a stop to the various improper practices.

Amongst other points, the judge noted that Curran had no line of communication to either the audit committee or the board of directors.

The judge also said that Curran's actions, or lack of action, had to be seen in the context of the climate that prevailed at the time.

He cited evidence from the Revenue Commissioners that banks generally took a lax view of the need to ensure tax compliance and, indeed, there seemed to be something of a blind eye turned to the issue at the level of the Department of Finance.

"Mr Curran on his own could not have eliminated the problem," concluded Mr Justice Murphy before ruling that it would be inappropriate to disqualify Curran.

Many will no doubt welcome the judgment for its common sense and also for the recognition that the culture that pervaded Irish business in the 1980s and 1990s was different from today. Indeed, disqualifying Curran would to a certain extent just make him a scapegoat for the failure of a whole swathe of middle managers in practically every bank in the State to deal with the Dirt issue in the 1980s.

The difficulty created by the judgment is the signal that it sends to any middle manager currently working in the banking industry who may be confronted with something that he or she is not entirely comfortable with. There is a danger that the judgment could be interpreted as a charter for sitting on your hands.

Any senior bank official confronted with such a dilemma could reasonably infer that the courts will take the view that if they are not in a position to correct the problem - as Curran was - then they can expect leniency if they fail to address it and it comes to light subsequently through another route.

There is of course one factor that any such bank manager should take into account before turning a blind eye, and that is the extent to which the court seems to have taken account of the climate in which Curran worked.

Thankfully, the culture of compliance, both in banking and the wider business sector, is much improved and as a result the expectations on a senior manager, when it comes to compliance, are greater.

Paradoxically, one of the factors that contributed to this improvement was the creation - in the wake of the scandals at NCB and elsewhere - of the ODCE, and the granting to that office the very powers that the courts are now seeking to limit.