Presentation to Seminar of the Association of Compliance Officers in Ireland

1. Presentation to Seminar of the Association of Compliance Officers in Ireland 29 April 2009

2. The ODCE –Relevance to Financial Service Companies Paul Appleby Director of Corporate Enforcement

3. Outline of Presentation • What is the Office of the Director of Corporate Enforcement? • Our goals and work • Our approach • Our 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 in 1998 of “a culture of non-compliance” with company law duties

5. What is the ODCE? • Remit focused on the Companies Acts 1963-2006 • Multi-disciplinary agency comprising 45 administrative, legal, accounting and Garda staff • Expenditure of €4.34 million in 2008 • Director must act on an independent basis • Director obliged to respect commercial confidentiality

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

7. ODCE’s Compliance Work • Publications • General Guidance on Duties of Directors, etc. • Specific Information on Auditor Reporting Duties • Guidance on Specific Issues, e.g., Directors’ Loans • Consultation Papers, e.g., Whistle-blowing • Occasional Articles, e.g., Practical Debt Management • Seminars/Events/Press Statements (86 in 2008)

8. ODCE’s Compliance Work • Policy Contributions • Company Law Review • Below Cost Selling • DPP Discussion Paper on the Giving of Reasons • International Dimension • Research on ‘Phoenix Companies’ • Assisting EU Accession and other States • Participating in OECD Peer Reviews of Bribery, etc.

9. ODCE’s Detection Work • ODCE legal model is primarily reactive • Public complaints about companies, directors, etc. • Auditor reports of suspected indictable offences • Information from the Financial Regulator, IAASA, etc. • Matters in the public domain, e.g., Press Releases • ODCE’s own inquiries, e.g., the CRO Register

10. ODCE’s Detection Work • Assess if ODCE intervention is called for • Identify if a prima facie breach has occurred • Consider if administrative rectification will suffice • 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

11. ODCE’s Detection Work • Prominent Company Case in 2008 • Claimed gross dereliction of duty by past directors • Legal action taken by company and more contemplated • ODCE was asked to consider disqualifying them • We sought evidence of misconduct but also asked why it was not taking the disqualification action • We have heard nothing further

12. ODCE’s Insolvency Work • A liquidator of an insolvent company must report to the ODCE and apply to the Court for directors’ ‘restriction’, unless relieved by the ODCE • ODCE role resolves Court criticisms of “apparent injustice” in corporate insolvencies where only a few directors had to explain their conduct • About five out of six directors avoid restriction • Two directors of Irish plc were restricted in 2006

13. ODCE’s Insolvency Work • ODCE may also seek restriction/disqualification 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

14. ODCE’s Insolvency Work • Prominent Phoenix-Type Case • One person 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

15. 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

16. ODCE’s Enforcement Work • Civil Enforcement Options • Remedial order to secure compliance with law • Formal company investigation, e.g., DCC plc et al • Restriction of a director after a failure to act honestly and responsibly in the insolvent company • Disqualification of a person for serious misconduct, e.g., fraud or prejudice

17. ODCE’s Enforcement Work • Ansbacher (Cayman) Ltd. Case Evidence • High Court Inspectors’ Report • Unlicensed banking business carried on for 20 years • Business conducted with intent to defraud Revenue • Knowingly aided clients to file incorrect tax returns • Three persons disqualified for 9, 5 and 3 years due to their being found to be unfit for company management

18. ODCE’s Enforcement Work • Selection of Other Financial Service Company Cases • Conviction of Merrion Reinsurance Co. Ltd. in 2003 • Directors of financial intermediary convicted in 2004 • Investigation powers used against various financial firms • Disqualification of National Irish Bank manager in 2005 – rest ongoing • Investigations of Anglo Irish Bank events ongoing

19. ODCE Approach to its Remit DPP Referrals Disqualifications Summary Prosecutions Civil Enforcement Actions (Compliance Orders, Restrictions) Administrative and Legal Actions (Investigations, Cautions, Corrective Measures) Encouraging Compliance (Guidance, Presentations, Promotions)

20. ODCE Approach to its Remit • Directors’ Transactions – One Area of Work • General ban on personal use of company assets • Publication/issue of ODCE Guidance in late 2003 • All directors circularised in 2004 • Revenue informed of detected large loans in 2006 • Voluntary or prompted remedial action often accepted • Handful of ‘wilful default’ cases prosecuted • Secured first convictions in 2008 in case taken by DPP

21. ODCE Approach to its Remit • Directors’ Transactions – One Area of Work • Doubt arose in late 2008 that banks were maintaining registers of directors’ loans (S. 44, 1990 Act) • We circularised banks seeking compliance with S. 44 and with register of directors’ interests (S. 194, 1963 Act) • We recommended legal changes to the law including reducing the burden of proof for criminal prosecutions • New Companies Bill plans to amend these provisions • New Financial Regulator requirements

22. ODCE Impact • Quantitive ODCE Results • Over 50 publications, etc. issued • 4,000 complaints/reports dealt with administratively • 280 convictions of companies, directors and others • 70 disqualifications • 800 restrictions (by liquidators primarily) • 20 remedial or costs orders by the ODCE

23. ODCE Impact • Qualitative ODCE Results • 85% of 299 directors opined that compliance was better • All 141 accountants/liquidators believed so! • 75% of directors rated the ODCE as effective • 91% of accountants/95% of liquidators agreed (TNS/MRBI Market Research 2007/2008)

24. Concluding Comments • Future Direction • Reach out to company stakeholders and SME directors • Deal with minor offences administratively or by fine • Concentrate more enforcement resources on complex cases or areas of major non-compliance • Some extra staffing resources in place to extend impact

25. Concluding Comments • ‘Culture of compliance’ prevails more now • Directors, etc. now more accountable • Auditor’s independent role reinforced • Errant directors face ODCE inquiry/Court action • Creditors’ situation has improved • Better information disclosures to market • Reinforcing good practice in other areas

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