Enhancing Compliance and Enforcement in Corporate Governance

2. Presentation to MBS in Accounting Students,Dublin City University 23 October 2012

3. Outline of Presentation • Introduction to the ODCE • Our Goals and associated work • Our initial impact • Concluding Comments

4. What is the ODCE? • Business scandals of the late 1990s (Tribunals of Inquiry – McCracken/Flood, High Court Inquiries – Ansbacher/NIB) and the PAC’s DIRT Inquiry) • Working Group on Company Law Compliance and Enforcement finding of “a culture of non-compliance” with respect to company law duties

5. What is the ODCE? • Remit focused on the Companies Acts 1963-2009 • Multi-disciplinary agency comprising c.49 administrative, legal, accounting and Garda staff • Expenditure of €3.4 million in 2011 • Director must act on an independent basis • Director obliged to respect commercial confidentiality

6. ODCE Goals • Encouraging Improved Compliance • Uncovering Suspected Breaches • Prosecuting Detected Offences/Breaches of Duty • Sanctioning Improper Conduct affecting Insolvent Companies • Providing Quality Customer Services

7. Enforcement Pyramid DPP referrals Disqualifications Summary Prosecutions Civil Enforcement Actions (Compliance Orders, Restrictions) Administrative and Legal Actions (Investigations, cautions, rectification and remediation on a non-statutory basis) Encouraging Compliance (Advocacy & guidance)

8. ODCE’s Compliance Work • Publications • Information on the ODCE’s Remit - Auditor Reporting • General Guidance on Directors’ Duties, etc. • Guidance on new legal requirements, e.g., New Companies Acts • Topical Guidance, e.g., Management companies, Audit Committees, Transactions involving directors • Presentations, Conferences, etc. (c.70 per year) • Press Statements, syndicated news articles

9. ODCE’s Compliance Work • Policy Contributions • New Companies Bill • Company Law Review Group • Irish Auditing and Accounting Supervisory Authority • International Dimension • Responses to EU Company Law consultations • International Association of Insolvency Regulators • Future of audit

10. ODCE’s Detection Work • Public Complaints about companies, directors, etc. • Auditor Reports of suspected indictable offences • Regulatory Bodies like Revenue, the Garda, etc. • Matters in the public domain, e.g., Inquiry Reports • ODCE’s own inquiries, e.g., the CRO Register

11. ODCE’s Detection Work • Identify if a prima facie breach has occurred • Consider if administrative rectification will suffice • Assess if ODCE intervention is called for • Consider if legal action is necessary or desirable • Evaluate if other actions are warranted, e.g., referral of case to another regulator for evaluation • Vast majority of issues dealt with administratively

12. ODCE’s Detection Work • Directors’ Transactions – One Area of Work • General Ban on use of Company Assets for personal purposes • Auditors have been reporting on average 300 cases a year since 2003 • Publication/issue of ODCE Guidance in November 2003 • ODCE Article issued to all Directors in 2004 • Directors’ voluntary or prompted remedial action often accepted • A handful of cases of ‘wilful default’ have been prosecuted • Law amended to allow easier prosecution • 2011, 143 cases, €44million (2009, 185 cases, €162million)

13. ODCE’s Enforcement Work • Criminal Enforcement Options • Summary Prosecution in the District Court • Referral to the DPP for Prosecution on Indictment • Typical Criminal Enforcement Offences • Persons acting as Directors/Auditors while prohibited • Accounting issues, e.g., failing to keep proper books • Falsification of company documents

14. ODCE’s Enforcement Work • Corran Building Services Ltd. Case • Liquidator submitted a criminal conduct report • Gardaí obtained/executed a search warrant • Gardaí seized two company cars bought with company funds which had not been handed over to the liquidator • One director convicted of fraudulent trading, failing to keep proper books and failing to file annual returns • Two directors afterwards restricted by the High Court

15. ODCE’s Enforcement Work • Civil Enforcement Options • Remedial Orders • Restriction • Disqualification • Related Civil Enforcement Responses • Failure to discharge an obligation of law • Failure to act honestly and responsibly in insolvency • Serious misconduct, e.g., fraud

16. ODCE’s Enforcement Work • Anglo investigation • Information disclosed by FR • Further disclosures by bank • Warrant obtained, paper and electronic documents seized • Amendments to law to deal with scale of seizure • Documents being interrogated • Individuals making statements, some under arrest • Individuals have been arrested and charged, more may follow • Largest and most complex financial investigation in State

17. ODCE’s Insolvency Work • Formerly only court appointed liquidators sought the restriction of certain directors. • Every liquidator of an insolvent company must report to the ODCE and apply to the Court for directors’ ‘restriction’, unless relieved by the ODCE • About four out of five directors avoid restriction

18. ODCE’s Insolvency Work • Initial reports received within 6 months of appointment • Formerly 250/300 reports a year • 1,287 reports in 2011 • Same or more in 2012

19. ODCE’s Insolvency Work • ODCE may also seek disqualification of directors in unliquidated insolvent/struck-off company cases • Our role is to ensure that persons who abuse their position are brought to account in Court • ODCE has successfully piloted actions in this area

20. ODCE’s Insolvency Work • Phoenix Activity • One acted as director of eight struck-off companies, all of which had debts outstanding • Another acted as director of four of these companies • Came to attention due to employee, creditor and Pensions Ombudsman complaints in a failed company • First director disqualified for 12 years • Second director disqualified for 8 years

21. ODCE Impact since 2002 • Over 80 new or revised ODCE Publications issued • 178,000 visits to the ODCE website in 2011 • 12,000 complaints/reports dealt with • More than 100 companies/directors/others convicted by ODCE on over 300 charges • 1200 directors restricted • Over 100 directors disqualified

22. ODCE Impact • Future Direction • Reach out to company stakeholders and SME directors • Deal with minor offences administratively • Target and aggressively prosecute serious misbehaviour • Concentrate more enforcement resources on complex cases or areas of major non-compliance

23. Concluding Comments • ‘Culture of non-compliance’ which was said to prevail is being turned around: • State had failed to regulate effectively • Professional Conduct was not supported • Little Prospect of Sanction for Misconduct • Deficient Accountability Framework in Practice

24. Concluding Comments • New Situation • Directors, etc. now more accountable • Auditor’s independent role reinforced • Errant and unscrupulous Directors face ODCE Inquiry/Court action • Creditors’ Situation has improved • Better Information Disclosures to Market • Reinforcing Good Practice in other areas

25. Concluding Comments • Effective and Balanced Regulation protects: • The public from fraud • Employees, traders and suppliers from irresponsible conduct • State revenue and the taxpayer’s interest • Investors and credit institutions from bad debts • Legitimate business from fraud-based competition • Personal and Corporate Reputation

26. Thank You Further Information is available from www. odce. ie