Law Reform Commission Report on Regulatory Powers and Corporate Offences: Engagement

I welcome Ms Justice Mary Laffoy and her colleagues to the committee. The meeting will deal with the issue of accountability in banking. Before we go into the meeting proper, I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. However, if directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or an entity, by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, by name or in such a way as to make him or her identifiable.

I invite Ms Justice Laffoy to make her opening remarks.

Ms Justice Mary Laffoy

I thank the Chairman and members of the committee. On behalf of the Law Reform Commission, I thank the Chairman for inviting us here today to discuss our recent Report on Regulatory Powers and Corporate Offences, which was published last October. As I was appointed as president of the commission last October, I have had no hand, act or part in this particular work. I am joined today by my two colleagues on the commission, Mr. Raymond Byrne and Mr. Tom O'Malley who will take questions from the committee when we have completed the opening statement.

Also accompanying me today are Professor Ciarán Burke, director of research, Mr. Robert Noonan, deputy director of research, and Ms Leanne Caulfield and Ms Morgane Hervé, two of the principal legal researchers on the project. Mr. Raymond Byrne will present the opening statement.

Mr. Raymond Byrne

I thank the Chairman and members of the committee. The Law Reform Commission is a statutory research and advisory body. While our title says "law reform", we cannot actually do law reform as this is a matter for the committee members as legislators. We are delighted that the committee has taken an interest in this particular report in the context of the committee's discussion on accountability in banking. We are highly conscious that the committee has previously taken a great interest in the work of the commission, most recently in the detailed scrutiny it carried out on the Consumer Insurance Contracts Bill 2017 that was related to the previous work of the commission. We thank the committee for the great interest it has already shown in our work. We try to include draft Bills or schemes of Bills in our reports, which we hope the Government and the Oireachtas will find helpful.

We place great emphasis in our written opening statement - I will not go through all of it given the time constraints today - and take very seriously the consultative process of how we put together programmes of law reform, under which we carry out most of our work, and in the consultative process on the fourth programme of law reform, considering both the issue of the powers of financial and economic regulators and the related issue of corporate criminal liability. Many of our consultees indicated that it was important to examine both of these areas. We recognise that the committee is particularly focused on financial services and on the role of the Central Bank.

In the consultations that we held on the fourth programme, other regulators were also mentioned as being important as to the systemic risks to the State that might arise in the future. Our report includes not just issues relating to the Central Bank and its powers, but also other sectoral regulators on which we note there have been a number of policy documents, including the 2013 document Regulating for a Better Future and the 2017 document on measures to improve Ireland's accountability on the issue of financial and economic regulation and white collar crime, as it is sometimes described.

We take consultation as a very important part of our work and receive a tremendous amount of input in that respect from Government offices, relevant interested parties and NGOs, in the analysis that we carry out. That was certainly the case with this particular report, to include the context of the 2016 annual conference where we focused on this particular area. We heard from a number of national and international speakers with expertise in both regulatory powers and in corporate criminal liability.

We recognise that in the choices we make in a report there are number of possible options in looking at many of the complex issues. We are very conscious that this is a matter that must be moved on to the Government and the Oireachtas for final decision on whether to implement the recommendations of the commission.

The banking crisis that emerged in 2008 and the activities of banks that led up to that was certainly a context and background to this report. We are very conscious also that a number of studies have been done, notably by the banking inquiry that was carried out in the Houses of the Oireachtas. We looked at that in how we analysed the issues that needed to be addressed.

We are also very conscious of some of what the former Governor of the Central Bank, Patrick Honohan described as "egregiously reckless risk-taking". We recognise that there were issues that needed to be identified in order to examine what further reforms might be needed.

We acknowledge that there have been quite a number of significant changes enacted since 2008 both at national level here in the Oireachtas and at EU level with the Single Supervisory Mechanism. We also note in our report a number of reforms that had previously been made, for example in the Criminal Justice (Theft and Fraud Offences) Act 2001, had been used effectively in criminal prosecutions. We do not propose or comment on particular cases or their outcomes but we note that in the report.

There are more than 200 recommendations. I am informed by our maths experts in the research team that there are, in fact, 202 recommendations but I will not go through all of them. I will focus on a number of the key recommendations here.

On the proposal for a corporate crime agency, we have looked at the extent to which financial and economic regulators have sufficient powers in their regulatory toolkit in order to make sufficient financial sanctions and make regulatory enforcement agreements or settlements. We also looked at the issue of egregiously reckless risk-taking and what reforms might be done in the criminal law in that area. We also looked at the role that deferred prosecution agreements, DPAs, or in effect the suspension of criminal prosecutions, play and the extent to which these DPAs might have a role to play in the overall context of ensuring accountability.

In considering the first of those proposals, that being, on a corporate crime agency, we are conscious that the Government's 2017 paper, entitled "Measures to Enhance Ireland's Corporate, Economic and Regulatory Framework", made a number of important recommendations, some of which are being acted on now. One recommendation was on the establishment of a corporate enforcement authority as a replacement for the Office of the Director of Corporate Enforcement, ODCE, as a separate entity rather than as a unit within the parent Department. The LRC's proposal on a corporate crime agency is separate from that. Our proposal would see a corporate crime agency with power to engage in prosecutions that did not fall within the remit of any of the regulators, be it the Central Bank, the Competition and Consumer Protection Commission, CCPC, ComReg or the proposed corporate enforcement authority. Under the relevant Bill, which is under pre-legislative scrutiny at the moment, the corporate enforcement authority would be limited to enforcement of the Companies Act 2014. The LRC's proposal is that the corporate crime agency would have a wider remit.

We understand from the detailed pre-legislative scrutiny of the corporate enforcement authority Bill conducted this month by another committee that the review group on anti-fraud and anti-corruption structures is engaged in a review of our recommendation. We also understand that the group is to make its own recommendations later this year.

The associated proposal in the LRC's report was that there ought to be a continuation of the dedicated unit on corporate crime that is already established in the Office of the Director of Public Prosecutions. It has dealt with prosecutions post 2008. The LRC recommends that the unit work closely with the proposed corporate crime agency. It is important that the committee be aware that the LRC recommended strongly in its report that, based on experience of poorly resourced agencies, the corporate crime agency and the dedicated unit in the DPP's office should be properly and fully resourced. This matter is outside the remit of the LRC and we cannot carry out that kind of economic analysis of what sort of resources would be required, but we emphasised this recommendation in our report.

I will not go through all of the powers that would be found in a full toolkit of regulatory powers for financial and economic regulators, but of the six core ones mentioned in our submission, we speak in particular about the power to impose administrative financial sanctions and emphasise that, in order to ensure that it would meet constitutional requirements, it must be subject to court oversight and approval. This would be similar to the Central Bank's current powers in terms of what can be imposed as a maximum sanction of €10 million and-or 10% of turnover for companies and a maximum sanction of €1 million for individuals. In addition, all financial and economic regulators should have the power to enter into regulatory compliance agreements or settlements. This would include the power to impose financial sanctions, put in place consumer redress schemes and agree to put in place corporate compliance policies. The committee will be aware that the Central Bank already has these powers. We make some recommendations on how we believe they could be improved, particularly in terms of the investigative process, but we also recommend that other regulators, such as the competition commission and ComReg, be given those powers as well. We have made recommendations on the process by which inquiries are conducted by the Central Bank. Their efficiency could be improved comparable to what has been put in place in the Medical Council's fitness to practise process.

Regarding the use of criminal law in this context, the former Governor of the Central Bank referred to the need to have in place appropriate criminal law enforcement mechanisms to deal with egregiously reckless risk taking. The LRC examined two related aspects of this, namely, the extent to which the Criminal Justice (Theft and Fraud Offences) Act 2001 should be amended and whether there was a case to be made for the introduction of an offence specifically called "reckless trading". The LRC came to the conclusion that it would be appropriate to amend the Act in order to provide that there should be an explicit reference to recklessness in that context.

That would mean, for example, in the context of the offence of false accounting under the 2001 Act, that it would occur not only where the accounts were fabricated knowingly and intentionally - the current law - but also where it was done with subjective recklessness, namely, where the defendant consciously disregarded a risk that the victim would be deceived by the false accounting. On the 2001 Act, the commission concluded in its chapter dealing with reckless trading that it would not be appropriate to put in place an offence of reckless trading on the basis that it would either be an offence that would not be enforceable in practice or that it would have a potentially chilling effect on legitimate risk-taking.

On the other aspect of powers to take a criminal prosecution, the commission examined whether a statutory deferred prosecution agreement, DPA, should be introduced. This is a procedure whereby a prosecution can be suspended or put in abeyance by the prosecution, pending compliance and subject to compliance with strict conditions set out in the deferred prosecution agreement which would be a published document, rather than a private agreement. The commission recommended that there was a case to be made for introducing deferred prosecution agreements, subject to the control of the Director of Public Prosecutions who would work closely with financial and economic regulators in determining whether a DPA was suitable in a particular case. We recommended that the model that had been in place in the United Kingdom since 2013 under legislation which required court approval for any proposed DPA was the preferred model. There is a DPA model in the United States, with which members will probably be familiar, but it is not on a statutory basis. It is not subject to court approval and is at the discretion of a relevant prosecutor. Therefore, the commission concluded that it would not be an appropriate model to use.

Another issue that arises in the context of criminal law in respect of corporate liability is due diligence. The committee might be glad to know that this is the last of the main issues on which I will address it today. The commission recommended that for most corporate offences of a regulatory type, it would be appropriate to have in place a due diligence defence. For example, where an organisation has put in place suitable risk management procedures, this would be a defence. If an organisation does not have in place suitable risk management policies and procedures, it would mean that there would be a conviction. The purpose is for this approach to fit with the approach taken by a lot of the regulators to encourage organisations to put in place the resources required to have a sufficient risk management appetite, whether in the context of financial services or any other aspect of economic activity in which the corporate entity would be engaged. The commission considered, taking account of all of the literature in this area, that it would be appropriate to have the defence in place for most of the regulatory type offences for which regulators had responsibility. It would not be appropriate as a defence in the case of a fraud offence because it would involve either intentional or knowing behaviour or, if the commission's recommendations were to be implemented, reckless behaviour. It would be illogical and inconsistent to say that if an organisation had policies and procedures in place to prevent it from doing something intentionally, it could be a defence. We also recommend, in the context of organisations taking legal advice, that it could be taken into account but only in sentencing. In other words, it would not be a defence in a prosecution.

In the context of a related issue, sometimes referred to as officially induced error, the question is whether, if a regulator in the financial and economic area gave advice which seemed to indicate that everything was in compliance with the legislation, it would be a defence. The commission was of the view that the matter would have to be dealt with on a case-by-case or factual basis. If the facts of the case established that there was so-called officially induced error, in which instance it was reasonable to rely on the advice of a regulator, and that the advice had been authoritative and applied, it would either be a defence or prevent a prosecution from proceeding. We note that the Supreme Court, in a decision last Thursday, appeared to indicate that such a defence would be available in an appropriate case, but in the particular circumstances of the case before it, it did not apply.

What we tried to do was insofar as we could take account of international best practice in the review of literature carried out by the research team on behalf of the commission in developing the report which was published last October.

The international literature from the OECD, the EU and those with expertise in this area indicates that administrative financial sanctions and the power to enter into regulatory settlements are key parts of a good regulatory toolkit. While the commission suggests that the criminal law reforms which are proposed in the report do not in any sense guarantee that the issues which have arisen in the past can be prevented in the future, it recommends that they could provide an element of deterrence in terms of the risk-taking that has been referred to by the former Governor, Professor Honohan, in the past. We recognise that it is up to the Government and the Oireachtas, including this committee, to determine whether all of these recommendations ought to be implemented. On behalf of the commission, I welcome the committee's interest in this area. My colleagues and I will be very happy to take any questions that members might have.

I welcome the witnesses and thank them for their publication on this issue and their numerous other pieces of work. Mr. Byrne mentioned the Consumer Insurance Contracts Bill 2017, which I have sponsored. This simple Bill, which was drafted by the Law Reform Commission, only requires a number of tweaks so that it can be updated on foot of relevant legislation that has been passed since it was published. I hope it will progress through the committee at a future point.

I would like to ask Mr. Byrne about the commission's approach to some of the matters he has raised. I have brought legislation on reckless lending before the Houses of the Oireachtas. The commission considers that an amendment to the Criminal Justice (Theft and Fraud Offences) Act 2001, as opposed to the introduction of a stand-alone offence of reckless lending, would be sufficient. Although I have listened to what Mr. Byrne has said, I do not understand the approach that is being taken. I ask him to explain to me whether there needs to be a victim. If the offence the commission is suggesting were to be introduced by means of an amendment to the theft and fraud Act, would there need to be a victim? Can Mr. Byrne explain why the commission is not in favour of what has been done in Britain and Australia and what has been suggested by the former Governor of the Central Bank? I refer to the proposal to make reckless lending in itself an offence, as opposed to making an amendment to the Criminal Justice (Theft and Fraud Offences) Act 2001. That is my first question.

Mr. Raymond Byrne

I can certainly start to answer the Deputy's question. I am sure Mr. O'Malley will have something to say about this issue as well. An amendment to the 2001 Act would not be necessary. I referred in my opening statement to a victim. The way in which the current offence is defined means it does not necessarily have to be the case that an actual loss needs to have occurred. Deception does not necessarily have to involve a loss. The potential for a loss is the relevant factor. In particular, that might arise in the context of activities where it could not be established that there was a loss. I was indicating in the context of the amendments that in cases of what might be defined as deception for these purposes, it would be sufficient to establish that there was a conscious disregard of the risk of causing a loss or creating a profit. This would be sufficient to establish a defence.

The commission examined the provisions in the UK and Australia in detail. We recognise that the former Governor, Professor Honohan, made a suggestion with regard to the UK offence of engaging in reckless activity that might cause a bank to fail. It focuses specifically on a banking failure. The commission examined that suggestion in detail. I would like to comment on the detail of that offence. It appears that there would be a very high burden on the prosecution to establish how it could be that a particular act or series of acts by senior managers within a bank actually caused that bank to fail. The commission felt that this was a particularly high burden in the context of this particular offence.

It may very well be that that offence would be suitable, but in the analysis that the commission carried out, it felt that the burden on the prosecution would be quite a high one. In relation to the Australian example, there certainly is an offence that describes itself as reckless trading but it would appear that in practice in Australia, insofar as that provision is used, it really is related to circumstances where there is intentional or knowing fraud. Therefore, while it appears to address the question of reckless trading, in practice it appeared to the commission, insofar as we could see what was happening in Australia, to be related to intentional or knowing behaviour. That is the reason, in a sense, that we came back to looking at the 2001 Act, which is quite wide in scope and, therefore, would address many issues, obviously in the banking context but also in wider contexts where one might not necessarily be talking about a banking failure. That was the analysis.

I will put it in the context of our past experience although we are dealing with future law which cannot be applied to the past, lest anyone think I am suggesting anything else. The majority of the public believe that what happened in Anglo Irish Bank was reckless and there was reckless lending. The layperson believes that and I certainly believe that. I also understand that we do not have any law against reckless lending in itself so one cannot suggest it was a crime because there was no law against it.

Would the definition proposed by the Law Reform Commission in terms of conscious, objective recklessness be sufficient to ensure that individuals could be prosecuted if another institution engaged in a repeat of the activities evident in Anglo Irish Bank, for example? That is the test I would put to any insertion of reckless lending into primary legislation. Could we prosecute? Could we jail the bankers in the future if they continue to do what they did in the past? In my view, as I said to some of them, they should have been jailed for what they did, but it was not a crime and that is our fault. That is the fault of the establishment, the people who did not pass laws to make those actions a crime. We are now proposing to make such actions a crime. In Mr. Byrne's view, would that allow for the prosecution of individuals if a scenario such as that which occurred in the past were to unfold in the future?

Mr. Raymond Byrne

I will ask Mr. O'Malley to comment on this also. The commission does not generally comment on individual cases but we have noted in the report that a number of situations did arise where prosecutions under the existing law, which requires intention or knowledge, led to convictions. What we suggest, although it is very difficult to always predict exactly how a law will work out, is that it would be useful to include in the definition of what amounts to fraudulent activity the concept of subjective recklessness in the criminal law, namely, the mental element or mens rea of offences. Therefore, while it is impossible to predict what exactly might happen in the future, the commission felt that it would be appropriate to include that concept of subjective recklessness. The word "reckless" would by definition then be included in the mental element of the offence. Mr. O'Malley will be better able to talk about the detail of that.

Mr. Tom O'Malley

I agree with that, but one comment I would make is that when one analyses a lot of the cases that have come before the courts here and elsewhere - there have been a number of prosecutions over the years arising from the matter mentioned by Deputy Pearse Doherty - one of the problems is that it can be quite difficult to affix responsibility to individuals within organisations. If responsibility is diffused, as by necessity it is in a very large organisation, whether it is a commercial or public one, it can be quite difficult to affix blame to anybody.

It is difficult even to affix sufficient suspicion to a person to justify a prosecution to begin with. While there is no magic solution to this, the best way forward, as Mr. Byrne said, is to include recklessness as a sufficient mental element for the crime. In other words, the law as it stands requires the prosecution to prove that a person acted intentionally, which means it was his or her specific purpose to bring about a specific result, or knowingly acted in the sense that he or she knew exactly what was being done and still intended to bring about the result. If that were broadened out to include recklessness, a higher standard of care or level of responsibility would be imposed on people to ensure they did not take unjustified risks. That is what recklessness is about. It is about the taking of unjustified risks. The word "unjustified" is very important in that context. As Mr. Byrne pointed out in his opening statement, a major challenge we have to meet and which everyone must address in the context of corporate regulation is to strike an appropriate balance between encouraging enterprise and legitimate risk taking on the one hand and ensuring wrongdoing is outlawed on the other. Hopefully, the concept of recklessness we recommend will strike an appropriate balance. Certainly, it is well worth consideration on the part of the Legislature.

Why make provision under the Criminal Justice (Theft and Fraud Offences) Act which provides for offences with victims on the other side? Where there is recklessness within banking, there may not be a victim at that point. The victim is down the road. This is about preventing the type of activity we had in the past where bankers were lending billions of euro to individuals who were already overstretched. There was a high concentration in certain portfolios. Bankers did that because share value was increasing as were their bonuses. There was an incentive to do that but there was no victim at that point in time.

Mr. Tom O'Malley

That is true.

Therefore, one could not prosecute them. I have a concern about recklessness being added to our toolbox in the context of theft and fraud. It narrows the scope to have to identify a victim of the activity as opposed to focusing on the conduct of the individual and his or her recklessness, whether there is a victim at that point or not. The intention here should be to ensure there is no victim at any point. It is about the conduct of the individual.

Mr. Tom O'Malley

It could probably still function. The Deputy is right to say there does not need to be a victim because deception offences are often so defined that a person commits an offence if he or she engages in certain conduct to make a gain for himself or herself or another or to cause loss to somebody. Wrongfully seeking to make a gain for oneself, even if there is no identifiable victim, still comes within the definition of these particular offences. The recklessness would be as to the nature of the conduct in which the person is engaging. As to why it is not there already and the adequacy of the Criminal Justice (Theft and Fraud Offences) Act, the legislation dates from 2001 when it was based, as it happens, on a report of the Law Reform Commission from the 1990s. It is unlikely that a collapse of the system of the kind which occurred in 2007 and 2008 was remotely contemplated at that time. Therefore, the question is whether the offences in the Act are adequate to deal with this purpose. We have made other proposals which must be taken into account also. Very often, there is a question as to who can actually be prosecuted in a given scenario. Particularly relevant in this context are the ways in which companies can be found criminally liable.

The recommendations we are making in that regard are equally important to ensure that there are for the first time ever, if these recommendations are adopted, fairly clear rules as to the circumstances in which a company as well as an individual can be held guilty of criminal offence.

Moving on to accountability under the liability of corporate management agents, Mr. O'Malley said a managerial agent shall be liable and be prosecuted on the same basis as if he or she were guilty of corporate offence. If one is guilty of a corporate offence, this generally results in administrative sanctions. Is the commission suggesting criminal sanctions, which is not necessarily the same as a corporate offence because one cannot send a bank to jail? Is there a difference, or is there a limitation, as to how similarly they can be prosecuted?

Mr. Tom O'Malley

I am sorry. I did not catch that.

Mr. O'Malley said an individual, a managerial agent, shall be liable to be prosecuted on the same basis as if he or she was guilty of a corporate offence. Is Mr. O'Malley proposing that individuals could be sent to jail as a result of prosecution, or is it just sanctions that can be applied to them?

Mr. Tom O'Malley

One is talking about a situation where both an officer, broadly construed, could be prosecuted as well as the company itself. One does not exclude the other. We have a situation in many statutes where individuals can be prosecuted in addition to the companies to which they belong. Our recommendations would essentially clarify that by putting into law quite clearly that it is quite possible for agents, for senior managers of a company, to be held personally liable in addition to the company itself.

What the Law Reform Commission is proposing is a lot weaker than what the Central Bank is proposing. Would that not be the case? The Central Bank made a submission to the Law Reform Commission. The Central Bank then through the scandal with the tracker mortgages outlined in terms of its senior management how individuals could be brought to account, basically mirroring what is already in place and in law in Britain for the last two to three years, where they would have to map out the areas of responsibilities they have. They would no longer be allowed to rely on the defence that they were not aware of conduct that happened under their chain of command. The Law Reform Commission appears to be going for a much weaker version of individual accountability. Would I be correct or incorrect in saying that?

Mr. Raymond Byrne

I will answer that question. The two proposals complement each other in that the senior management-type proposal the Central Bank made in the report last July is about the extent to which in a specific situation where responsibility would be attached to a particular officeholder that would also involve personal criminal liability. What the commission would be proposing is something that would complement that, in that where an offence is being committed by the corporate entity - this will certainly be in the context of criminal liability - if it is the case that it can be identified, as Mr. O'Malley said, that a senior person within the organisation was also involved, for example, by failing to take the kinds of precautions that ought to have been put in place and that that contributed to the offence by the corporate entity, then one could also prosecute the senior person. These are complementary proposals.

Would that proposal also include the fact that if that person - let us suppose it was the CEO of the corporate entity who had responsibility - relied on the fact that it was somebody down the chain who carried out or missed something he or she should not have done or missed that allowed for the activity which is now being prosecuted criminally at a corporate level? Could the CEO rely on that defence or is Mr. Byrne suggesting what the Central Bank has said, which is that it maps out areas of responsibility and, therefore, there is not that defence any more because it is the individual's responsibility to be aware of what is happening below him or her?

Mr. Raymond Byrne

The short answer is "Yes", if I can give a very short answer. The other aspect of this is that the commission's proposal would also be something that would clarify, as Mr. O'Malley has said, the potential for somebody at a very senior level to say that he or she did not know what was going on further down - the so-called defence that if something goes wrong, deputy heads must roll. In this particular instance, the proposal the commission makes is that at all different levels of responsibility, there is a requirement that there be communication up and down. The Central Bank's senior management proposal, for example, would identify particular roles and responsibilities. The commission's proposal, which is related to so-called derivative liability or parasitic liability, provides that, regardless of whether one has an identified role and regardless of whether the Central Bank would impose a particular line of duty, if it can be shown that someone in a senior policy-making function in the organisation - whether he or she is called the chief executive officer, senior financial officer or corporate financial officer - has failed in his or her duties, he or she can be held personally accountable, as well as the corporate entity. The two of them are complementary. The commission's proposal on derivative liability would ensure that in a particular instance where everybody except the chief executive officer has taken a particular role and responsibility, the CEO of the organisation would still be held accountable under the derivative liability proposals of the commission, even if for some reason he or she had persuaded everybody else to take on particular roles and the CEO had not taken on a particular role. That responsibility of derivative liability would still apply in those circumstances.

I will finish on this point. I appreciate that the recommendations that are being put forward by the Law Reform Commission add to our toolkit and strengthen our hand in relation to ensuring that criminal activity in institutions or at an individual level can be prosecuted, which will hopefully act as a deterrent. That being said, I still believe the measures are quite weak. I accept the witnesses have spoken about individual accountability but we are currently able to prosecute individuals who should have acted or taken notice or for whom alarm bells should have rung in relation to their specific functions within a financial institution. I am only a layperson but the problem as I see it is that their activities are not illegal. This goes back to the fact that if we had a banker before us, we could say he or she should not have done this or that but there is no sanction in the law for doing it. There was nothing wrong with a banker going to a hotel down the road and giving a cheque to a developer for €230 million without any proper scrutiny as to whether that was appropriate or if it would make the bank go bust. We are told that despite €1 billion having to be returned to individuals in the tracker scandal, there was really nothing wrong in it. The problem with holding individuals to account is that if we continue to say that the practices that are happening or could potentially happen in the future are okay, what is the point? If an individual accepts responsibility for something and says that it was his or her call, so what? It can be described as an administrative error and every bank made the same administrative error but that is just coincidence. I appreciate that this is a step forward but I am not convinced. When I look at two of the major financial scandals we have had to endure in the past decade, namely, the collapse of some of the banks and the way in which lending operated, I am not convinced that the introduction of the measures outlined would result in more bankers being jailed as a result of their conduct. Likewise, I do not know whether anybody would go to prison or would even be sacked. Nobody has been sacked and a number of people have even been promoted within the banks following the tracker scandal. I am not sure that this cuts it, but I appreciate that it gives extra teeth. We are ten years on from the scandal. While we have changed laws and increased regulation, that fact that we have still not dealt with individual accountability in financial institutions screams loudly about the establishment and how it is protecting institutions.

I will leave it at that, but I would like to hear the witnesses' response to see if they can convince me that I am wrong and that this report is the bee's knees. If, God help us, we ever have to go through what we went through in the last decade at least there would be accountability because that is what this is about.

Ms Justice Mary Laffoy

Mr. O'Malley would like to say a few words.

Mr. Tom O'Malley

The Deputy has made a very eloquent point. I am not saying this is the last word; perhaps other criminal offences could be thought of. We must remember this gets down to a very basic policy question about the reach we wish to have in the criminal law, as opposed to other aspects of law. One of the constraints under which the Oireachtas operates when it comes to defining new criminal offences is that under the Constitution and under the European Convention on Human Rights, every criminal offence must be clearly and specifically defined. There is a right to fair labelling and fair warning so that a person can know in advance precisely what is permitted by law and precisely what is prohibited by law. Therefore any criminal offence that is created must be sufficiently clearly defined so that a person can look it at advance and say, "If I do this I am within the law; if I do that I am outside the law." I am not suggesting that the kinds of issues the Deputy is raising could not be accommodated within a properly defined criminal offence; I am just saying that is one of the challenges that will always have to be addressed. It is purely a matter of fairness as much as anything else.

Going back to the previous point, as opposed to the one the Deputy just mentioned, as a general policy for deterring criminal conduct on the part of people working in the financial sector, which is really what we want to do, the combination of the corporate offence and the personal liability that might attach to individual officers and so on should be quite effective. I say should be quite effective in the sense that obviously the only penalty that can be imposed on a corporate entity, in effect, is a financial penalty, a fine, whereas of course if dealing with human defendants who are convicted of offences, clearly the penalties can be much more onerous through imprisonment and so forth. One would hope that the combination of these two - that a company may be very severely punished with a financial penalty and that individuals within the company may find themselves suffering deprivation of liberty as well as deprivation of property - should be fairly effective.

I thank Ms Justice Laffoy for her opening statement and for the work the Law Reform Commission is doing on the matter. We all want to get to the same place. The overriding question for me is as follows. Do the witnesses believe what is outlined in the report fills the gap, for example, between this State and Iceland where I believe 27 bankers were jailed? Are they satisfied that it would enable the same thing to happen here? Has the Law Reform Commission looked at what Iceland had, which we did not have, that facilitated that?

Mr. Raymond Byrne

In different countries the issue of individual accountability is being dealt with differently. One could say there are different proportions when Ireland and Iceland are compared. On the other hand, there have been a number of significant prosecutions and convictions. In looking at this very wide-ranging issue, the commission recognised that there was the issue around corporate liability and personal liability of senior managers, and then also the kinds of tools that regulators in the financial and economic sector need in order to have effective preventive measures in place.

We also recognise that this is very much a complex jigsaw and that, as has been said before, since 2008 there have been quite a significant number of reforms in the financial services area and additional powers given to the Central Bank in order to monitor the extent to which activities now being carried out by banks are prohibited by law. Going back to something like the situation that arose before 2008, it was quite clear from the analysis the commission carried out that there were two issues there. One was that the regulator was operating under what was called a principles approach to regulation, which was in effect light-touch regulation. Furthermore, the resources the Central Bank had were very limited in terms of being able even to use the powers it did have. Those are certain matters regarding whether the system is effective, the resourcing of that system and the capacity to implement those powers in practice.

From that point of view, regarding the effectiveness of the reforms that have already been enacted and the proposals being made to fill the gaps in regulators' powers, I appreciate that many people were very unhappy about the length of time it has taken to address the tracker mortgage scandal, for example. Equally, however, the Central Bank could not have put in place the examination it did put in place or the requirement to enter into a tracker mortgage redress scheme for consumers and to pay them back the money that had been taken from them if the Central Bank was just going into banks and telling them that morally, they should pay the money back. The Central Bank had to be able to tell them that breaches of the legislation had occurred, that offences had potentially been committed and that if they did not pay the money back, other powers could be used. In this context, those regulatory powers have been applied and put into place. The question is the extent to which there should be individual accountability in terms of criminal prosecutions. This is of course very important but we now have examples, which we never had in the past, of situations in which very senior people, including chief executive officers, have been prosecuted and convicted. The cost of these prosecutions is very high. By comparison, I think the international literature points to the role of the regulatory powers and the presence of a very clearly well-resourced financial regulator now in the Central Bank, including the proposals the Central Bank itself has made regarding the senior manager accountability offence that it proposed in its report last year. Again, we do not address that in our report because the Central Bank had already made that proposal. All those different elements of that jigsaw, including what we would see as the need to tidy up the issue of corporate and senior manager liability as a general principle, are very important from a preventative point of view. They might not guarantee that the kind of collapse that occurred previously would not happen. Regarding resourcing and the granting of effective powers, however, the literature the commission has looked at internationally shows that those kinds of powers, such as financial sanctions and the ability to require regulatory settlements to be entered into, are extremely important and quite effective and, from a citizen's point of view, possibly the most efficient methods of ensuring-----

Mr. Raymond Byrne

-----that redress is actually given.

Mr. Byrne thinks financial sanctions are adequate to prevent this from happening again.

Mr. Raymond Byrne

We are also saying that that is one part of the puzzle. The second part of the puzzle is tidying up the rules on corporate and senior management responsibility. As the commission's analysis shows, one of the present problems with corporate criminal liability is that the rules that appear to apply would make it almost impossible to convict a big corporate entity of any serious crime, whereas the proposals the commission is making concern a system in which there is a so-called paradox of size, whereby small corporate entities have been prosecuted and convicted in the past but, ironically, we have not prosecuted large corporate entities. The individuals have been prosecuted.

I know what Mr. Byrne is saying. I am still not convinced, until there is individual and real accountability other than financial sanctions put in place, that we will get the results we need. How many of the convictions have resulted in jail terms?

Mr. Raymond Byrne

A number of jail terms were imposed from the trials that took place between 2014 and 2018. Some community service sanctions were imposed but the jail terms ranged from two years to six years.

How many individuals were there?

Mr. Raymond Byrne

I believe the number was five or six, from recollection. From the perspective of our history of prosecutions there is no doubt that this number of prosecutions is five or six more than would have been the case in the past. The report looks at the history of that.

I know what Mr. Byrne is saying. We need to look to the future, to the present and to our attitude to white collar crime. I know where Mr. Byrne is going with this point but I do not share his confidence that we are where we need to be at this time.

I have further questions around the multi-party actions. In the report I do not see any proposals around class actions or multi-party actions such as those taken in the United States of America. Reference was made to the tracker mortgage and overcharging scandals. There would seem to be an overwhelming logic to put in place a facility for class actions where ordinary victims can work together to have the strength in numbers that is necessary to face an institution. Why is this? Did the commission look at this aspect and why is it not in the report?

Mr. Raymond Byrne

The commission published a report on this in 2005. We are very pleased to see that a Private Members' Bill has proposed that the report be implemented. I understand this Bill has passed Second Stage. The commission certainly recommended that there ought to be a version of the collective or class action put in place. This is why we did not deal with it in this current report. In its 2005 report the commission certainly recommended that this could be used. To complement that, one would look at the kind of approach that was taken in the tracker mortgage instance where, in effect, one had the regulator imposing results for a very large group of people. That might very well have been done through a class action. I do not want to denigrate in any way a class action but these are very complex pieces of litigation to put together. I would not say that class actions are not part of that overall measure but it was dealt with by the commission in a separate report. It is a matter for the Oireachtas to decide whether or not to implement that. I am conscious there is a Private Members' Bill proposing that. Ireland is one of the few countries in Europe that does not have that kind of collective redress mechanism. It can complement the kind of redress that has been achieved for a very large group of people in the tracker mortgage examination.

Mr. Byrne would think it is important to have that.

Many people might think of a corporate crime agency as just another quango. We have the Central Bank, the Competition and Consumer Protection Commission, the Office of the Director of Corporate Enforcement, ODCE, and the heads of Bill from Government to establish a corporate enforcement authority. Some would see this as rebranding of the ODCE by the Government. What consideration has the commission given to beefing up the existing bodies rather than creating a new one?

Mr. Raymond Byrne

We looked at that and there is no doubt that in many of the areas that previously led to prosecutions all the agencies - the Central Bank, the ODCE and An Garda Síochána when looking at very serious issues - have been involved in all those activities. One of the aspects looked at by the commission was to what extent we could have an umbrella organisation that would bring together under one roof the expertise necessary to investigate serious corporate crime, particularly that which falls outside the scope of the important powers of regulators such as the Central Bank and the Competition and Consumer Protection Commission.

Having consulted them, we know that they recognise that their powers are focused on particular areas, that perhaps there is a need for an entity to bring together all investigative powers and forensic analysis under the one roof and to complement the activities in which the various organisations are engaged. In a similar way, before the Criminal Assets Bureau was established, different entities examined issues related to the proceeds of crime. However, the establishment of a single entity, with a multi-disciplinary group with one focus, has made an enormous difference. It is certainly much better than the sum of its parts. That was the analysis the commission applied when making the recommendation.

I welcome the delegates and thank them for their presentation. Where does the commission draw the line between reckless lending and reckless borrowing? Is reckless borrowing a recognised concept?

Mr. Raymond Byrne

There is no doubt that there are people who borrow and then regret it. The focus of the commission is on those who create the context within which the activity takes place. Therefore, our report focuses on the corporate entities which engage in activities through lending or the accounts they publish for people to examine and make decisions on whether to invest in these entities. We focused on the fact that a corporate entity would have much more control over what was taking place than the person who might receive the money. I appreciate that there is an ongoing debate about the extent to which those who borrowed engaged in activity that would be regarded as careless or reckless. In the analysis of reckless borrowing matters are better left to civil law disputes about whether the contract is enforceable. Our focus was certainly on those who were engaged in lending activities-----

The commission put more weight on the lender than the borrower.

Mr. Raymond Byrne


If a small restaurant or hotel, for example, is in breach of the guidelines on food safety, it will be closed down until everything is rectified. Would it not be better if it was recommended that a corporate entity, a bank or a banking institution be closed for one week, two weeks or one month, rather than receiving a fine of up to €10 million, which is very little to some of the banks? Would it not be more appropriate to indicate that the entity was going to be closed down in order that everyone would know that a crime or a breach had been committed? When there is a large fine - even if it is €10 million, although I do not think there has yet been such a fine - nobody in the street knows about it, but one would certainly know if one's bank was closed for one or two weeks.

Mr. Tom O'Malley

There was such a provision in the Intoxicating Liquor Act which I think is still in place. When a pub was found to be serving alcohol to under-age persons, there was a requirement that it be closed for a certain number of days and a notice had to be placed on the door to that effect. The Senator referred to the penalty when a company or other enterprise was found guilty of a specific offence and asked whether it would be more effective if the entity had to close. Although we did not focus on penalties in the report, given that we were more concerned with large-scale corporate crime, I would not for one moment diminish the significance of hotels, guest houses and restaurants which are usually incorporated engaging in crime that might harm individuals through not abiding by health and safety or hygiene rules, for example, which are important and the breaching of which could cause considerable harm.

It is the kind of matter that could be considered in a broader context of how to penalise certain kinds of regulatory breaches.

Would the commission include it in the report?

Mr. Tom O'Malley

No, I did not include it in the report because we were more concerned with the structure of corporate regulation and the definitions of offences. In any event, the courts already have considerable general powers in that regard but they would require specific statutory powers to make closure orders. Given that they already have that power in certain circumstances, it might be a question of extending their powers to other kinds of violations.

Mr. Raymond Byrne

One of the issues that we emphasised was that we do not have a role in determining the policy of a regulator in respect of, for example, the licensing of a bank and whether that license should be revoked. That is included in the Central Bank legislation and, therefore, it is possible for the Central Bank to revoke a banker's licence, which is at the top of the pyramid of the enforcement sanctions, as it is described in the report. It is an option open to the Central Bank and we did not examine it because it was outside of our remit as it is the policy of the Central Bank.

The Central Bank has revoked some of the licences. For us as legislators, however, the commission could make a recommendation in the report to indicate that it could be provided for in the legislation that an institution should be closed for a period if it is in breach of the law. Is the commission in favour of that?

Mr. Raymond Byrne

We did not consider it-----

I accept that I am putting Mr. Byrne on the spot.

Mr. Raymond Byrne

It is entirely a matter for the committee and the Oireachtas to decide how to improve the report. From all the analysis and detailed scrutiny of our reports, including most recently the report on consumer insurance, we have seen that improvements can be made to any of the recommendations the commission makes. Bearing in mind that it was probably one of the most wide-ranging reports and examinations we have carried out and we were conscious we did not have the capacity to decide what ought to be regulatory policy, we examined whether there were gaps in some of the powers that the regulators have. The Central Bank already has the power to revoke a licence. The policy of the bank in a particular situation and the factors that would be taken into account when deciding whether to shut a bank for a short period or to revoke its licence completely are regulatory policy issues which we would not have the capacity to analyse.

Mr. Tom O'Malley

I might return to a point I was making in response to Deputy Pearse Doherty. Perhaps there is a need, in another context, to consider the penalties that can be imposed on companies generally. Currently, there are financial penalties but they may or may not be effective and, sometimes, there is probably a case for considering more generally the appropriate range of penalties to impose on companies. Imposing the "death penalty" might well be appropriate in some cases.

In the case of the death penalty, if somebody, rather than the four walls of the bank, committed a crime, I would have problems with penalties for the corporate entity. One wonders how a bank or institution could commit a crime. It is obvious that someone who works within the institution is the one who commits the crime, which leads me to the point that procedures should be put in place. If the body corporate had structures in place, it would help to alleviate the problems where crimes are committed or where reckless trading or lending takes place.

If these structures are in place and somebody breaches them, is there a crime against the individual or the corporate entity?

Mr. Raymond Byrne

In both those instances, as Mr. O'Malley said, there are different approaches. The corporate entity, or the four walls, as the Senator says, cannot be jailed. The penalties that might be imposed can, at the top of the range, include a licence revocation in a licensing system. In the proposals that we make for regulatory enforcement agreements and settlements, we have said that the range of penalties and approaches that can be taken can be quite wide-ranging for the regulator. They can include the consumer redress schemes that we saw with the tracker mortgage scandal. They can also include situations where a requirement would be imposed on the entity, including the senior managers, to engage in reformed procedures to ensure what has been identified as a problem is, as far as possible, not repeated in the future. The regulators have that capacity. We recommend that the full range of that capacity should be explored by a regulator in deciding if an entity is capable of being rescued in the sense of being able to comply. The regulator should be able to oversee various steps and ensure that they are implemented in the future to fix the problem. That can sometimes involve either retraining people or giving people the competence to show that they are able to comply, and that the risk management is appropriate with regard to the corporate governance requirements that might be in place from the regulator.

A certain amount of risk management is in place. One of the best contributions made at this committee was by a man called Jonathan Sugarman. I asked him what his job was. He likened his job to being in charge of the cash register. Every evening, he had to have enough money in the cash register to pay everybody. If he did not, he had to go to the Central Bank or the parent body to get the money to put into the cash register to pay everybody. He left his job one evening with a letter for the Central Bank and handed it in to say that he was having problems. Nothing happened except that he lost his job. He has since been unemployable. There were certain regulations and structures to enable something to happen, but nothing happened. Can we take it that all these new proposals will be put in place such that we will not have a Jonathan Sugarman in the future?

Mr. Raymond Byrne

I do not think that anybody can guarantee that but we are also conscious that that is certainly a challenge for those who raise issues. We have seen that in many different contexts where somebody makes a protected disclosure. That creates challenges but insofar as the legislation can provide protection, that protection is there. I do not think any of us can guarantee that that would be a solution to all the problems but at least a structure is in place. Perhaps that needs to be improved but the issue with protected disclosures is a separate issue on which the Oireachtas has put in place very clear legislation for many different contexts.

Mr. Byrne said that for there to be an offence of recklessness, there has to be a potential gain. Does a trade have to be carried out or can there just be talk about giving or getting a loan? Does there have to be more than intent and is it described as recklessness at the bottom if it has to go higher up the ladder to the board or some other place for approval?

Mr. Raymond Byrne

That offence is about the potential for a person to make a gain or creating the potential for a loss to the person to whom it might be a loss.

If it has to go to the board for approval and the board can refuse or agree, is it still described as recklessness?

Mr. Raymond Byrne

That is a slightly different area of law relating to how far somebody has to go to conspire to commit an offence, attempt an offence or incite an offence. There are separate rules on that, on which the commission has made recommendations in the past. How far one has to go to commit an incomplete or inchoate offence is a different matter.

Mr. Tom O'Malley

The answer is that a person usually has to take a definite step towards doing so. Just forming the intention to do so is not sufficient. A person has to take a positive step towards achieving the completed offence. It is a fact-specific situation and it is difficult to say in advance exactly what would be sufficient to constitute an attempt and what would not. One has to look at the total set of facts involved.

It is fair to say that most people in this House turn to professionals about the law because it is intricate, complex and relies on all sorts of older law to define the newer laws and vice versa. In our work on this committee, we often come face to face with the failure of that law and we wonder why and how we can improve the law that we have. The work of the commission is very important because it informs us and so on. This exchange is the opportunity for us to test the layman's view of this against the commission and its view of the law.

Senator Paddy Burke raised a point regarding Jonathan Sugarman. We can mention his name because it has been publicly aired here. He abided by the law and said that he was obliged to tell the Central Bank, which he did. Had he been listened to, we might have had a different outcome. We cannot say that we would have, but we might have. The biggest law that was broken was that approximately €65 billion of taxpayers' money had to be put in to rescue the banks. Arising from that, many people of the country were forced into poverty and legal exchanges with the banks to save their properties, which they thought they would never have to do. We will not get specifically into Jonathan Sugarman's case but when we pursued the Central Bank about it, it said that, by law, it could not tell us what actually happened, if anything, to the complaint made by Jonathan Sugarman. I would say one measure should be to take that law and change it. The Central Bank should be allowed to name and shame in the context of the outcome of a complaint process against the bank. That is the first thing and I think it is simple. It is perhaps will not be so simple when the witnesses get at it but it is simple enough from a layman's perspective and gives transparency.

The law states that once the Garda has an investigation, this House cannot discuss the particulars of that investigation. It may be an investigation about how public money was spent.

All an agency, a Government Department, the HSE or whatever has to do if it has been accused, and an investigation is undertaken here, is inform the Garda. Once that is done, game over, we cannot pursue our work. The law has to be changed in respect of giving the public information about issues relative to investigations or the investigations themselves. There is a need to give some sort of comfort to the people involved that the investigations are ongoing, we know about them, we are conducting them and there will be an outcome. One issue that was being dealt with by the Committee of Public Accounts has gone on for 15 years. We are told it is being investigated but I have no idea whether it is. That is unfair. They say it is because the law prevents them from telling people anything. This all feeds into the public perception of the mainstays of the State such as the Dáil, the Seanad and the Garda. It is creating a difficulty and respect is being damaged. I am suggesting that these minor things might change it.

I refer also to accountants and their profession. Their titles are displayed after their names and we can see if they are members of certain organisations. This information is displayed to give them some standing and show they are okay. It is the same with solicitors and barristers. They are members of groups that give them a particular standing and give comfort to the client. However, it sometimes happens that the legal representative and the accountant come together with a client, who relies solely on them, and go to the bank manager to ask for a loan, whereby they misrepresent the figures in order to attain the biggest loan possible. The customer then complains to these organisations for barristers, solicitors or accountants and nothing ever happens. A great number of farmers are now saying to us they wanted to get €500,000 for a milking parlour or whatever and put forward the cost of a litre of milk at 29 cent, say. The accountant told them that would not work and suggested that using a figure of 35 cent or 40 cent per litre might get them their €500,000. That is not a victimless crime; the victim is the client applying for the money. I cannot understand why no one is held to account when that is exposed. There must be a law somewhere that needs to be tightened or updated.

It is the same as what Deputy Pearse Doherty said about the tracker mortgages. The banks must think we are all really naive to believe that on the same day in every bank, the decision was made about trackers and that it was just coincidence. Whatever laws are controlling all of this have to be modernised in recognition of the fact that people are given an incentive to give out money, ignore real figures and be dishonest, knowing full well they will all get paid while the customer, who is the victim at the end of it, will have to carry the can. Is there not a way of looking at all of these laws, not in isolation, in respect of how they impact on the perception of the general public? We should examine how they can be tightened and modernised for our times. A lot of what happened in the banking crisis is beginning to happen again and no one seems to mind.

Mr. Raymond Byrne

The Chairman has asked us to address some very big questions there. In terms of its statutory remit, the commission is limited in some respects to programmes of reform that we prepare from time to time and that therefore direct the focus of our examinations. Those programmes are presented to the Oireachtas Joint Committee on Justice and Equality. The justice committee has examined and approved our next programme of law reform, for example. To some extent we are limited by those programmes in terms of what we can examine.

Does Mr. Byrne think that is, in itself, an outdated method of doing business whereby the commission is given a remit which it may feel is not wide enough to allow it to do what is necessary in the face of all of this carry-on? Can the commission suggest to the Minister, committee or whoever is proposing a body of work that another issue should be included as well?

Mr. Raymond Byrne

We certainly do that. We consult on what it is possible to do within the limits of our resources and also in terms of what people who have made submissions to us suggest. Turning to some of the Chairman's points, for instance on naming and shaming, in all of the recommendations we have made on things like the financial sanctions imposed by regulators, we are very clear in saying sanctions must involve a public statement of the detail, including naming the entity. We are very conscious of the issue of transparency and publicity. The range of powers we are proposing here need the oxygen of publicity. We are absolutely committed to that in our recommendations.

We do not exclude from any of our work the possibility that we would identify work that needs to be done in addition to the recommendations we make. Often, in consultations following publication of our initial consultative document, if an issue is raised that we have not identified in our initial document, we make those proposals. On the regulation of those who are giving advice on debt and where people have fallen into debt, our report that was implemented in the Personal Insolvency Act of 2012 recommended that those who are giving advice on debt need to be regulated. We are very clear. There may well be deficiencies in regulation. We are very conscious that in the lead-up to the banking crash there were issues around poor regulation and poor internal governance in banks. They have already been identified, including in the banking inquiry. We would not in any way be complacent about regulation. I refer also to the proposal on deferred prosecution agreements. In the United States, these can be done privately; in effect, a deal is done privately with a district attorney there. We think that is unacceptable. The only proposal we would make would be for such an agreement to be made openly in court, where all the terms and conditions have to be approved by a judge. We certainly would fully approve of any provision that would involve the publication of whatever arrangements might be put in place.

In terms of issues around what can or cannot be said about pending investigations, as it happens, under the presidency of Ms Justice Laffoy, the commission is examining the issue of contempt of court and the scope of that law. We certainly would understand a need for reform and recommendations in that area. That is something on which the commission is currently conducting an inquiry. The Chairman's comments are aspects that we would certainly incorporate into our discussion of that area of law.

I wish to make a further point about how the law works in the work of Parliament and public representatives. We should not be afraid to go there. I accept the separation of powers, but if we cannot exchange views between one another on how powers might be operated better for the people whom we represent, how can we make the law better? I do not mean exchanging views in an open public forum where we challenge each other, but perhaps the Law Reform Commission is the body to consider how we should do our work or what laws need to be changed. I would welcome it doing so.

My final point concerns those who regulate their own profession such as solicitors, barristers, accountants, the regulator of banks or any other regulator. Regardless of what happened in 2008 and the resources and legal framework with which they had to work, it would not have cost the regulators one cent to put up their hands and say, "Stop, there is something wrong here," but they did not do so. As I have seen, nobody is penalised. That is what is sad about the laws of the country. Our constituents tell us that the law applies to them but that it does not apply to those on high, the elite, as they might describe them. I would like to see a lot more done in that regard.

Protected disclosures were mentioned. The protected disclosure legislation is great, but is it not amazing that in most cases an individual whistleblower will tell us that he or she is sorry that he or she came forward? The law has to be strengthened. If we cannot learn from our mistakes, we will learn nothing. I think all of that, to a degree, rests on the shoulders of the delegates.

Financial fines were mentioned. If a bank has to pay a fine having done something wrong, it is the customers who will have to pay, probably those who were sinned against in the first place.

I thank the delegates for their attendance and the invaluable proposals they presented to us. I would like to hear their views on two issues. There was an interesting discussion on the banks and banking licences. We know that a licence can be revoked, but the reality is that some banks are too big to fail. Therefore, the consequences of revoking a bank's licence in the morning would be calamitous for customers and everyone else. I was interested in what Mr. Tom O'Malley had to say about penalties other than financial penalties. In the United States there is a special prosecutor who investigates large-scale cases. Is there a need to have here a special prosecutor or for a regime of that nature to deal with potential future financial scandals or white collar crime? Should we focus on that issue?

The Chairman spoke about whistleblowers and referred to Jonathan Sugarman. We have raised this issue on numerous occasions at this committee. On the tracker mortgage scandal, it is a source of frustration that cases will probably end up in court. Whatever about the procedures of the Central Bank of Ireland and the number of people who have received redress under its direction, I received figures yesterday which showed the cases of 1,200 people who had gone through the system were with the Ombudsman as they felt they had been failed by the regime the Central Bank had put together with individual banks. I have no doubt that when the Ombudsman has completed the investigations, a number of the people mentioned will go to court. We are familiar with cases in which Bank of Ireland employees were completely shafted by the bank which employed them and left high and dry by the regulator and the Central Bank. A class action is important.

In terms of accountability, I have always been of the view that unless one gets whistleblowers from the financial institution, where somebody speaks up, it is very difficult to prosecute. Has the Law Reform Commission considered, as part of the body of work it has done on whistleblowing, the whistleblower reward scheme that has been considered by Britain and is in place in America? There have been some quite interesting results, particularly the high awards for whistleblowers who get paid a portion of the amount that is recovered by the financial institution. Recently, a US whistleblower was awarded $30 million, which gives an idea of the amount recovered on that information. Quite recently another whistleblower refused the $8.5 million that was awarded to that individual from the Securities and Exchange Commission, SEC, and asked instead that the money would be given to the shareholders of the financial institutions. It is not always the case that the incentive is the reason to do it, but in that case, the individual stated that while the incentive was one reasons for coming forward, that person believed the sanction was still too light. I am sorry for going off on a tangent. In the witnesses' view, is there a role for such a whistleblower reward scheme to be introduced in respect of financial criminality and inappropriate financial conduct?

Mr. Tom O'Malley

Deputy Pearse Doherty's first question was about the special prosecutor. We certainly discussed the question of the allocation of prosecution functions when we were drawing up the report. In America, for example, they have the concept of the special prosecutor, usually however in a more political context, such as when a senior politician, including perhaps the President, is under investigation. When it comes to white-collar and corporate crime, generally speaking they would not necessarily have special prosecutors but they do have prosecutors who are specialised in the field. Let me give an example, a great deal of white-collar and corporate crime is prosecuted in the southern district of New York, because that is where many of the major financial districts are located and therefore, both the prosecutors and the judges who operate in that particular area have tremendous expertise in areas such as insider trading and areas that are very complicated and so forth.

One of the things we have to realise when considering translating that into this country, is that the real problem is not so much a question of prosecution; it is very often the question of investigation, in that the investigation of these offences takes time, as we saw with the banking cases, for example. The enormous amount of documentation that will be assembled as a result of those investigations could run to millions of pages of documents and will take time either way. Therefore what I would suggest - I think this is accepted fully by all the law enforcement agencies in this country - is that one needs specialisation in the field. I think under the Constitution it is possible to have a prosecutor other than the Director of Public Prosecutions and Article 30 of the Constitution would provide for that. Given the scale with which we are operating and given that the number of large-scale offences of this nature that must be prosecuted probably will be rather small - I hope I am not being too optimistic - I think it is far better to stay with the Director of Public Prosecutions because that office has an enormous amount of expertise right across the board. What experience has shown is that while it is all very well sometimes to talk about appointing special prosecutors, it is a very specialised area in itself and one does need experienced people. Therefore the better idea at present is to leave the prosecution of serious offences within the Office of the Director of Public Prosecutions. There is a specialised section within that office to deal with this area but it may need further resources as time goes by in order to deal with more of those offences.

In respect of the Deputy's second question, the idea of rewarding people for being whistleblowers, is not one we had thought about in the course of our deliberations. It is obviously something, as members can appreciate, that must be treated with great care to ensure it does not give rise to other issues.

When one starts to give people big money for doing that kind of thing, the temptation to do wrong and to make false allegations and so on can be very strong. I am talking off the top of my head in a personal capacity and certainly am not speaking on behalf of the commission but were there to be some reward, I would not have any moral objection to it. I would, however, be anxious that the rewards would be kept modest and should not be at a level at which they would provide the temptation to engage in what might be false allegations.

Perhaps the better step would be to protect the whistleblower to a far greater extent.

Mr. Tom O'Malley


I thank the witnesses for their attendance.

The joint committee adjourned at 4.11 p.m. until 2.30 p.m. on Thursday, 7 March 2019.