Enhancing Corporate Governance Through the Criminal Justice Process

Enhancing Corporate GovernanceThrough the Criminal Justice Process Ian McWalters, SC Senior Assistant Director of Public Prosecutions

“Wrongdoing can only be avoided if those who are not wronged feel the same indignation at it as those who are.” Solon 638-558 BC

The Purposes of the Criminal Law (a) to forbid and prevent conduct that unjustifiably and inexcusably inflicts or threatens substantial harm to individuals or public interests;

The Purposes of the Criminal Law (c) to safeguard conduct that is without fault from condemnation as criminal; (d) to give fair warning of the nature of the conduct declared to be an offence; American Law Institute’sModel Penal Code

“Our criminal law is also a system of values ... in addition to attaching negative consequences to undesirable behaviour, a judicial sentence should also be imposed in a manner which positively instils the basic set of communal values ...” Lamer CJC in R v M (1996) 105 CCC (3d) 327 at 369e-f

Options for addressingCorporate Governance Issues: • the creation of civil rights and imposition of civil liabilities • subjecting corporations to regulatory regimes; • applying corporate governance codes of best practices; and • criminalizing specific conduct

The Objects of Punishment (1) to exact retribution by society on the offender; (2) to denounce the conduct being punished; (3) to protect society from the offender; (4) to deter others from committing the same conduct; and (5) to rehabilitate the offender

The Essence ofCorporate Governance “Corporate governance is the system by which companies are directed and controlled.” Sir Adrian Cadbury Report on Financial Aspects of Corporate Governance in the United Kingdom

The Broad View ofCorporate Governance “In its broadest sense, corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of individuals, of corporations and of society.” Sir Adrian Cadbury

“Corporate governance is essentially about leadership: • leadership for efficiency; • leadership for probity • leadership with responsibility; • leadership which is transparent and accountable. ” Commonwealth Association for Corporate Governance

Corporate Governance “It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of the company.” Report of the Committee on Corporate Governance of the Securities and Exchange Board of India

What is Stewardship? Stewardship is about providing a value and ethic based leadership of a company within a corporate culture of transparency and accountability.

Standards andCorporate Governance • setting standards • encouraging adherence to these standards • reviewing the adequacy of these standards • enhancing these standards

Standards and theCriminal Justice Process • the creation of offences - a standard setting mechanism • the enforcement of offences - motivating adherence to the standards • the prosecution of offences - publicizing the standards, motivating adherence to them and providing an opportunity to review their sufficiency • the punishment of offenders - retribution, deterrence and denunciation

Setting Standards:Having an Effective Range of Offences • Review the effectiveness of the offences • Ensure the offences cover the field • Consider a continuing course of conduct offence • Enact a private sector corruption offence

UNCACPreamble Concerned also about the links between corruption and other crime, including money laundering.

UNCACArticle 21 An offence that: • is committed intentionally in the course of economic financial or commercial activities; • which covers the promise, offering or giving solicitation or acceptance of an undue advantage: (i) to or by a person working for a private sector entity; (ii) for that person in order that he, in breach of his duties, act or refrain from acting.

Prevention of Bribery OrdinanceSection 9 The offer, solicitation or acceptance: • without lawful authority or reasonable excuse • of an advantage • to or by an agent • for doing an act in relation to his principal’s affairs or business

“... we cannot for a moment accept the suggestion that bribery in the private sector is to be regarded as any less culpable than bribery in the public sector” Hong Kong Court of Appeal R v Wong Tat-sang Cr App 529/84

“It is the duty of the court to make it plain to the business community that when situations such as this arise there is only one course open to the person to whom the offer is made – report the matter to the authorities”. Hong Kong Court of Appeal Attorney General v Bow Ki-lun & anor [1995] 2 HKCLR 168

Misconduct in Public Office • a public official; • in the course of or in relation to his public office; • wilfully misconducts himself by act or omission for example, by wilfully neglecting or failing to perform his duty;

Misconduct in Public Office • without reasonable excuse or justification; and • where such misconduct is serious, not trivial, having regard to the responsibilities of the office and the officeholder, the importance of the public objects which they serve and the nature and extent of the departure from those responsibilities

Misconduct in Private Office? • applicable only to senior management • using a criminal offence to raise standards of senior management conduct rather than to prompt adherence to a minimum standard

Enforcement of the Law • a specialist law enforcement agency separate from and independent of the rest of government • special powers for the investigation of serious fraud and corruption

Powers of Investigation • powers against suspects • powers against witnesses • powers against confidential record holders

The Prosecution of Offenders • accomplice evidence • banking records • business records • computer records • expert evidence of forensic accountants and bankers and admissibility of reports and use of presentational aids • use of depositions of witnesses who are unavailable to attend court

The Punishment of Offenders • retribution • deterrence • denunciation

Deterrence “Law cannot persuade where it cannot punish” Thomas Fuller

Denunciation A denunciatory sentence represents: “a symbolic, collective, statement that the offender’s conduct should be punished for encroaching on our society’s basic code of values as enshrined within our substantive criminal law” Lamer CJC in R v M

The punishmentmust be dissuasive “Sentences cannot be brought below a level which will afford some deterrent against crime and, where substantial fraud or corruption is concerned, preserve the integrity of Hong Kong’s commercial reputation.” Attorney General v Shamsuddin [1987] HKLR 826 at page 833G

Reviewing and Enhancing Standards • the fact that the misconduct took place acts as a catalyst to review the standards • the fact misconduct can’t be punished because it is not a crime prompts criminalization • the existence of flaws in the criminal justice process that prevent a just response motivates change • the public nature of the trial process provides an opportunity to review standards and laws

Thank You

Enhancing Corporate Governance Through the Criminal Justice Process