Analysis of Office of the Director of Corporate Enforcement, Ireland

Introduction The following report sets out to critically assess the role and function of the ODCE with regards to the reasons it was set up, the primary functions of the office, it successes if any to date and any appropriate suggestions for future reform. We have critically assessed by giving a detailed account under each section and by analysing these we have come up with recommendations that we believe are necessary and within the offices capabilities. We have found throughout the report that the ODCE is efficient and effective in what it does yet like everything else there is room for improvement.

Within the conclusion we have given an assessment on each of the listed sections. Setting up the ODCE “The Office of the Director of Corporate Enforcement (ODCE) was established in November 2001 to ensure compliance with company law. This part of the paper will examine what events occurred for the creation of the ODCE and what developments by the government led to its creation. ” (Entemp, 2001) McDowell Report On the 15 of March 1999 Minister Mary Harney welcomed a report from Mr Michael McDowell and his working group on Company Law Compliance and Enforcement.

The report found that “Irish Company Law has been characterised by a culture of non-compliance and the enforcement of the law in relation to non-registration type offences is very rare and wholly unpredictable”, he continued to say that “Those who are tempted to make serious breaches of company law have little reason to fear detection or prosecution. ” (Entemp, 2001) The McDowell Report was influenced from investigations such as the Ansbacher scam. This was brought to light when an inquiry into the affairs of businessman Ben Dunne discovered payments of more than ? 1 million to Mr Haughey.

Ansbacher The Ansbacher (Caymen) was the biggest financial and political scandal to hit Ireland. It started in the early 1970s when Des Traynor, the late financial advisor to former Irish PM Carles Haughey, used his position on the board of Guinness and Mahon to set about establishing offshore subsidiaries in the Channel Islands and the Caymen Islands. The Caymen subsidiary was eventually bought by the Henry Ansbacher group and renamed Ansbacher(Cayman). Clients deposited tens of millions of pounds with Ansbacher which was treated, for tax purposes, as if it were lodged offshore. But Mr.

Traynor was holding the cash in Ireland and ran the business from his central head Dublin headquaters. the scam also involved offshore trusts, foreign- registered companies and complicated financial manoeuvring. (BBC News, 2002) Findings of the McDowell Report The Government considered carefully the systemic failures identified by McDowell’s report and the actions needed by the Government to strengthen legislation, regulation and enforcement to prevent the recurrence of such practices and to maximise the ability to discover them quickly and bring the participants speedily to justice.

This identified further strengthening of the legislative and regulatory framework that must be required in the light of the inspector’s findings. The Ansbacher, Elan, NIB and other tax evasion schemes that came to light clearly indicated significant regulatory failures on the part of a number of statutory authorities. There was failure by the Revenue Commissioners to fully and aggressively investigate and target tax evasion in certain sectors. There was failure by the Central Bank to fully and effectively oversee and regulate the banking sector.

Statutory auditors and their professional associations failed to ensure companies properly accounted for their activities and complied with the letter and spirit of the law. The Department of Enterprise, Trade and Employment failed to recognise that the code of company law created a regime that needed to be actively enforced and to devote adequate resources to the task. (Oireachtas – historical debates) Results and recommendations of McDowell Report The events laid out above show that there was definitely a need for review and change of Irish company law.

The government decided to take action based on the above findings. The recommendations that came from the report that the government accepted were •establish a new Office of Director of Corporate Enforcement with primary responsibility for the enforcement of company law, and •to establish a statutory Company Law Review Group. •Consolidate the Companies Acts into one comprehensible and comprehensive company law code The Companies Acts were consolidated into one in the ‘Company Law Enforcement Bill, 2000.

It provides for the establishment of the Office of Director of Corporate Enforcement and the assignment to the Director of the functions of enforcing and ensuring compliance with the provisions of the Companies Acts. ’ (CLRG Report) Enron At the same time as the companies act was coming into practice and the ODCE was being established events across the pond began to unfold. In America in the 1990s an elaborate scam unfolded in Enron a major energy company in America; it had grown over 15years to the 7th largest company in the states, employing 21,000 staff in more than 40 countries, but the firm’s success was due to an elaborate scam.

Enron had lied about its profits and was accused of a range of shady dealings including concealing debts so they didn’t turn up on companies’ accounts as investigations unravelled the investors and creditors retreated forcing the firm into bankruptcy in December 2001. The scandal had numerous implications globally, George W Bush passed a tough new bill aimed at cracking down on corporate fraud and enforced tighter regulations on financial trading. (BBC News 2002) In Britain, Enron’s collapse had repercussions which questioned whether the labours sponsorship from the country had led to a change in government energy policy.

The Enron scandal led to investors to question the large off-balance sheet liabilities of Ireland’s biggest company Elan, which in turn caused the Irish drug maker to the brink of bankruptcy when it had to payout over $1,000,000 to settle claims that it had misled investors. () This event although after the designs of the ODCE had been set up they reinforced the issue of non compliance of companies not just in Ireland but around the world. This showed that if one of the largest companies in the world could do this then what could the others do? This was a stern reminder to anyone who disagreed with the McDowell report and its findings.

. The primary functions of the ODCE Overview of Staff Primary functions of the ODCE are to ‘encourage and support compliance with Company Law Acts’and ‘to take appropriate investigative or enforcement action where suspected breaches or breaches of the Companies Act takes place’. These are the two immediate functions of the ODCE and whilst carrying out these functions the office expresses many powers and supports these functions with other roles. (Appleby 2001). Compliance ‘The Compliance Unit is charged with fulfilling the Director’s mandate to encourage compliance with company law’(ODCE, n.

d). They do this by consulting and ‘making presentations throughout the country’(Business Plus, 2005) with professional bodies in order to make company directors and management aware of what the ODCE is about and to ensure they carry out their business in compliance with the Companies Act. This is done on a continuous basis due to the dynamic business world and international regulations. They also make ‘shareholders and creditors aware of their rights’(ODCE, n. d) it makes these aware by communicating either through their website or printed copies of booklets available to the public.

In trying to ensure compliance the ODCE also has a customer service function which in relation to compliance offers compliance information, general information, consultation and a way of making a complaint about non-compliance. Form examining the compliance function of the ODCE it seems that communication is a key element to get companies to comply. By taking this proactive approach they will be limiting the need for investigative procedures. Rather than waiting for a chance to punish someone they instead try prevent them from offending.

Company Investigation, Fact Finding and Enforcement Within this function there are many roles that the Office carry out to investigate companies enforce the law where necessary. Detection is the process of further examining complaints made to the office in relation to non compliant companies. This is done by the office by expressing its powers such as launching investigations into a company based on a complaint. In doing this investigation the office can acquire books for ‘private examination’ and compel ‘directors or other persons to explain’ (Appleby, 2001) any transaction.

Enforcement is the investigation stage where they decide which cases to take further, compile appropriate files for DPP for criminal proceeding or invite them to pay a fine for each breach of the law. They also have the power to disqualify and restrict directors. These are precautionary measures taken to prevent future offending while a case is pending. (Appleby, 2001) Successes of the ODCE Since the ODCE was set up in 2001 it has been making huge progress in the area of company law enforcement.

Its successes to date can be measured by examining the previous annual reports. Another way of measuring the successes of the ODCE is to identify the successful actions it has taken against large scale mal practicing companies such as Ansbacher, NIB and Elan. These actions have ensured that Irish economy will not suffer the devastating effects similar to those Enron caused to the United States. Success is defined as the accomplishment of an aim (oxford dictionary) the overall aim of the ODCE is to enforce company law where necessary and to encourage compliance.

The office has been successful in doing this for proof one just has to look at the following figures. Before the office was their were only a mere 30 restrictions per year (Kehoe, 2006) this may seem people were complying with the law however we have established from the reasons that the ODCE was set up that there was major mal practice occurring. Compare this to the year 2005 were 581 restrictions occurred and in 2004 there were 217 restrictions. (ODCE, 2005 2006) This does not indicate compliance however it does indicate efficient investigation and enforcement of the law in place.

This gives a small scope or example of how successful the ODCE is in relation to restrictions but in other areas of enforcement and investigation is the office as successful. To measure this success on a wider scope and yearly basis we have taken the Director, Paul Appleby’s aims’ that accompany each annual report and see if he achieves what he aims to do in the following year. This will give a clear indication of the office success whilst also unearthing individual successes as well. 2003-2004 In this statement Mr. Appleby laid out aims for the following year 2004.

They were to increase enforcement activity, prosecute in areas of co. law that haven’t been secured in the past and also to take action by disqualification and restriction proceedings against directors of dissolved companies. (ODCE, 2004) Was the office successful in accomplishing its aim? The 2004 annual report indicates yes. The Office secured prosecutions in two offences for the first time these were fraudulent trading offences and acting as a director whilst restricted. It increased its disqualifications to 3 and also secured a successful prosecution for first time in striking off a director for failing to produce annual returns.

They also managed to restrict a director of an unliquidated insolvent company. They increased their successful court decisions from 109 to 122. (ODCE, 2005) The above demonstrate that the office managed to acquire an all round success on the previous year but also shows its success as a whole by enforcing and prosecuting within new grounds this sends out a message and paves the way for future success in prosecuting in this area. Probably the most significant success of this year is the ODCE began high court proceedings against NIB which would result in future prosecutions against directors of NIB. 2006-2007.

In 2006 report the Director set his sights on significant misconduct. He also aimed to tackle unlawful or irresponsible misconduct. Such as cases that take up resources and staff. These would be seen as the big offenders. (ODCE, 2007) The office managed to tackle these offenders. This is obvious from the report. They imposed the longest ever disqualification, a sum of 12 years. To merit this term they must have been a serious offender. The area of time consuming cases that have an affect on staff and resources were also dealt with. They managed a 100% success against three directors of the Ansbacher scandal.

This is a major success in a company that had been under investigation for many years. It was time consuming, staff consuming and resource consuming. The length of the illegal goings on dated back to the seventies. This should give an idea of how much investigatory work would have been carried out in order to secure a positive outcome for the ODCE. Another disqualification achieved was in another high-profile case that was endowed with media attention that they managed to secure a disqualification in was that of NIB saga this was due to the work of one of their inspectors.

In the year of 2007 the office hoped to improve compliance performance this is one of the primary roles that the ODCE takes action in. However it seemed to pay dividends this year with a 43% decrease in reported misappropriation of funds by directors. This is due to the success of the compliance function in my mind because they had made means available for complaints to be made so therefore directors must be getting the message that non-compliance will be punished. (ODCE, 2008) 2001 report The ODCE in its first annual report showed potential that it would be a success in future.

After less than a year of existence it had concluded 40 cases got in touch with the public by receiving 60 complaints this shows that people are aware of what the ODCE does and how to make complaints. This would have been achieved by communication to pro bodies in relation to compliance. This communication would make the companies aware of the existence of the Office and its roles and how to make complaints. This report shows how far the ODCE has come in such a short period. (ODCE, 2002) Customer Service.

The ODCE owes a lot of its success to its customer service function. This function allows people to make complaints, receive general information, compliance information and consultation. To show what a great success this has been all we have to do is examine the number of complaints made to the office, without these complaints it would reduce the possibility of investigation and ultimately it prosecution rates. Within its first year it had 60 complaints by 2005 it had over five hundred complaints. This helps the office in its enforcement role. (ODCE, n. d).

The customer service aspect also plays an important role in compliance issues. Its websites offers available information to anyone who accesses it to make them aware of their rights and obligations as directors, customers, creditors, shareholders etc. In 2004 the office made available a booklet to help people comply with their obligations. To show demand for this consider the following fact, 10,000 people downloaded the booklet from the website alone (lk Sheilds, n. d. ). To make over ten thousand people aware of compliance issues in one year is a major success.

These two factors alone are a large contributor to the primary functions of the ODCE without the customer service the office would have a lot tougher workload to deal with. Most highlighted successes The most highlighted successes that the ODCE have to date have to be that of Ansbacher and NIB. The Ansbacher scandal has been described as ‘one of the murkiest financial scandals in the history of the state’, (business post, 2007) this case involved 3 decades of tax evasion masterminded by 5 people.

The ODCE successfully managed to disqualify three directors whilst the other two died. The saga was ended by the disqualification of Stakelum a main part of the tax evasion scandal, this proceeded the other two disqualifications of Collery for 9yr who was deemed ‘unfit to be concerned with the management of a company’(RTE, 2006) and Field Corbett for 3 yr. This is the biggest success in the history of the ODCE it brought to justice one of the largest mal practicing operations of the past three decades, and is one of the reasons behind the setting up of the ODCE.

NIB bank was encouraging its customers to partake in tax evasion by putting their money in offshore accounts. They were doing this for 10 years. When a report was launched it named 19 people who were suspected of major mal practices. (TCM, 2004) The ODCE went after 9 of these directors (RTE, 2006). They successfully managed to disqualify Nigel D’Arcy for 10 yr, Mr Seymour former chief executive was disqualified for 9 yr for ‘lack of proper standard of conduct’, (Carole, 2007) however one set back was the failure to secure a disqualification against Mr Curran.

To this day the rest of the NIB directors are disputing attempts to disqualify them. These two cases are the biggest successes in for the ODCE the reasons being they were two of the biggest cases Ireland has ever seen in relation to company law. They both went on for an unprecedented amount of time. Success against them was looking unlikely. This caused the govt to take action and they did so by setting up the ODCE this resulted in two of the biggest successes to date. Assessment and Suggestions for Reform.

What stands out in the analysis of what led to the setting up of the ODCE is that perhaps it was too little too late. The sizes of the cases that the office has to address are huge not to mention the possibility of a huge back log for many years. A prime example of this is the Ansbacher account which took three years to produce the report alone. This is before action is even taken against the offenders. Measures have been taken to ensure company law does not suffer from this again. Due to the size of cases and the back log of cases the office finds itself understaffed and stretched in resources.

They have repeatedly requested more staff on a regular basis. Also within the staff they need more people with expertise in certain areas this will increase the amount of cases that they can take on and solve quicker. The functions that the ODCE carry out in relation to compliance are they working? If so why are an increasing number of reports made each year to the office? From the report above it seems that the ODCE has been nothing but a success since it started. If this is the case why are so many people still committing offences?

We found from the primary functions of the ODCE that compliance is a big part of their action but their high success rate in enforcement may indicate that this is not being to successful. They spend vast amount of time and money on conferences throughout the country this is also a huge drain on resources. From this it seems that compliance is only going to be achieved by enforcement and scare tactics. Although the above is one point of view this can also be taken that because the ODCE is relatively new it may be that a frenzy of non compliance existed.

2007 shows a decrease in the number of reports made in relation to directors misusing company funds. Could this be an indication of what is to come in the future? Based on the above assessment we offer the following suggestions for reform. Staff From our assessment of the amount of case law and size of it we believe the Office needs to hire more staff. We are aware that the office has been seeking an extra influx of staff. We are also aware that the ‘lack of staff is hitting company probes’(RTE, 2008) We are also aware that the office has been seeking these for a number of years, therefore this suggestion maybe in vain.

When seeking these staff the office should be looking towards more guards to help with investigation, more experts such as barristers and solicitors to get through more legal work. Clerical officers will also speed up the process from report to investigation to conviction. This will make the Office more efficient and effective. Communication The events that occurred prior to the ODCE being set up should be a lesson to what can happen. The corporate environment is always changing. Communication can be a key to ensure compliance is kept.

The ODCE should keep in proper constant contact with the CRO for the purpose of checking on restricted and disqualified directors. This will ensure compliance. They should keep in contact with the CLRG for the purpose of the ever changing environment. To encourage communication we suggest that a database be set up to integrate the ODCE with Gardai, CRO, CLRG and even the DPP. This will benefit all parties involved. The ODCE website is its major source of material for investigation. This provides the Office with information on which to take action. The website is efficient at the moment.

Regular upgrades and maintenance should be done on a continuous basis to ensure success from it in the future. Review One of the issues that we found with the ODCE that its compliance function may not be achieving its goals. Their primary function is to ensure compliance. We feel that they are spending a lot of money on conferences and meetings throughout the company. The only affective method of compliance that they have is to achieve it by enforcement. Based on this we feel a review of their compliance needs to be made as they are not only an enforcement agency.

Conclusion The above report set out to critically assess the ODCE in relation to its setting up, functions, success and future reform. The report did this giving an in dept analysis of the areas discussed. Following this analysis we critically assessed each section and provided the above suggestions for future reform. From this the report found that the ODCE has accomplished its primary goals to a certain extent. In saying this there is also room for improvement in the future as it is relatively young in comparison to other governmental bodies.