Legal review considering changes to financial crime laws

Criminalising reckless trading and allowing for deferred prosecutions for corporations suspected of criminal behaviour, are among the topics being canvassed by the Law Reform Commission in a response to the 2008 banking collapse.

The commission is seeking submissions from interested parties on a range of possible reforms that would affect how the Financial Regulator and other regulatory bodies conduct their work, as well as about possible gaps in the criminal law as they concern corporate wrongdoing.

A lengthy issues paper published on the commission's website is seeking views on 12 topics in what it says are two related areas.

The broad background to the paper “can be traced to the financial and economic collapse of recent years” and the identification in a number of subsequent reports of the “close relationship between regulatory law and criminal law”. While there have been significant reforms since 2008, it says, important issues remain to be addressed.

One of the ideas being canvassed is the introduction of deferred prosecution agreements (DPAs), which are widely used in US financial regulation and were introduced in the UK in 2013. DPAs involve the suspension of criminal prosecutions in return for cooperation in the investigation of the offence, a financial penalty and signing up to a compliance programme.

Rehabilitation of companies

Failure to co-operate can lead to the resumption of the prosecution, which will otherwise be dropped.

The idea is that rehabilitation and sanction can be achieved without the risks and costs involved in a trial, while the corporation is saved from reputational damage and other consequences.

The commission paper says it is necessary that a “credible threat” of successful criminal prosecution exists if there is a failure of compliance.

It notes that the US justice department has warned that it is important to hold individual office-holders to account rather than just seeking general settlements with their corporations.

Reckless trading

The commission has invited submissions as to whether reckless trading should be made a criminal offence.

“Excessive risk-taking and other errant behaviour in business can have wide-reaching and detrimental effects on commercial activity, the national economy, and society in general,” the paper notes.

“However, not all risk-taking is, or indeed ought to be, a criminal offence and a delicate balance between the types of behaviour that are permitted and those that are criminally prohibited needs to be struck if new offences are to be created.”

The paper notes that civil liability may be imposed on company directors for reckless trading. It also notes that in the UK, in the wake of the banking crisis, a criminal offence was introduced in 2013 of recklessness relating to a decision causing a financial institution to fail, and that the former governor of the Central Bank, Patrick Honohan, has suggested that the measure might “be usefully mirrored in Ireland”.

However, the difficulty of enforcing the law has been commented upon in the UK, with concerns voiced that it might have a negative effect on the work of banking directors, and involve burden-of-proof difficulties in a situation where multiple factors would lead to the collapse of an institution.

Fraud regime

The commission is also seeking submissions on the introduction of a US-style mail and wire fraud regime but suggests that what already exists here may come very close to covering the offences that exist in the US.

Such fraud covers any scheme designed to deprive another person of their property using false pretences by mail or phone communications.

The commission also asks for views on changing the law so that a standard set of powers might be created for all financial and economic regulators, as has been done elsewhere.