State’s corporate watchdog prepares to strike out on its own

Company law watchdog the Office of the Director of Corporate Enforcement (ODCE) was this week lined up by Ministers for a reboot. The Government will relaunch it in the new year as the Corporate Enforcement Authority, with more resources. Yet it wasn't always so in vogue with politicians.

Therapists often say that those who are troubled first must hit rock bottom before making real change. In May 2017, the ODCE appeared to hit rock bottom. That month the case against former Anglo Irish Bank chairman Seán Fitzpatrick, for allegedly misleading bank auditors, collapsed. Judge John Aylmer ordered him acquitted and laid the blame at the ODCE's door for its botched handling of the investigation.

In the eyes of an angry public still simmering in rage at the State’s financial crisis, the watchdog had swung and missed badly. A summer of no love followed for the ODCE. Politicians of all hues were reticent about publicly backing it and its future seemed uncertain.

The truth was that many of the politicians who rode that wave of public anger against the ODCE were part of the political system that had for years starved it of resources and ignored its desperate pleas for more, making a disaster such as the Fitzpatrick case more likely.

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For example, the incumbent director of corporate enforcement, Ian Drennan, found just two accountants among its staff when he took over the ODCE in 2012, and one of those was about to retire. It was a farcical situation for a State watchdog responsible for punishing breaches of company law, which make up a large slice of the legal infractions that are loosely termed white collar crime.

The ODCE is also responsible for the overall legal supervision of insolvencies such as liquidations and supervising company directors.

Its climb back up to its current soon-to-be-enhanced status was precipitous. Drennan had already secured some extra resources by the time the Fitzpatrick case blew up. Its summer of 2017 may have started under a dark cloud but by that August, things were brightening. Robert Pitt, former chief executive of Ireland's largest newspaper publisher, then known as Independent News and Media (INM), walked into Drennan's office and alleged a range of shocking corporate governance breaches at the company whose key backer was then Denis O'Brien, one of the State's most powerful businessmen.

The ODCE had a shot at public redemption and threw all it could into the investigation, homing in on the role of O'Brien's closest associate, former INM chairman Leslie Buckley, who continues to deny any wrongdoing. By the following March in the case, Drennan's office was in the High Court making some of the most explosive allegations of wrongdoing in Irish corporate history.

O’Brien then sent an extraordinary letter to the Office of the Director of Corporate Enforcement that referenced its failures in that case. O’Brien was angry about the public frenzy over INM, for which he blamed the ODCE. Startlingly, he threatened to hold Drennan “personally responsible” for any leaks, which Drennan denied causing. The lurid INM case reinvigorated the Office of the Director of Corporate Enforcement and helped it recapture public and political imagination.

Soon, the then taoiseach Leo Varadkar, who is now Tánaiste and Minister for Enterprise overseeing the ODCE’s proposed revamp, was promising to “beef it up” with resources to turn it into an “Irish FBI for white collar crime”. He promised to give it independence from the department, where it has sat as an office under the thumb of apparatchiks since it was set up 20 years ago.

The Office of the Director of Corporate Enforcement's public profile has kept growing, with cases such as the ongoing corporate governance investigation of the Football Association of Ireland and its former chief executive John Delaney. In 2019, the ODCE had €1 million tacked on to its annual budget, now about €6 million, which paid for forensic experts and a shiny new lab for them to operate in.

On Tuesday, Varadkar’s promise to spin it out and beef it up moved a step closer to fruition. Cabinet has approved proposed laws championed by the Tánaiste and Minister of State in his department Robert Troy to transform the Office of the Director of Corporate Enforcement into a free-standing commission, the Corporate Enforcement Authority. The new body’s staff will grow by about 50 per cent with 14 new civil servants and nine seconded members of the Garda, up from seven.

In a nod to its old travails, Varadkar noted how “intricate and complex” the watchdog’s investigations can be and “how hard it is to secure prosecutions”. Troy, meanwhile, promised that the new Corporate Enforcement Authority would, in overseeing company law, help to tackle the “menace to society” that is white collar crime.

The Cabinet has approved proposed new laws, the Companies (Corporate Enforcement Authority) Bill 2021, to give birth to the the new entity. It will be set up under a commission of up to three members, much like its white collar crime-fighting sibling, the Competition & Consumer Protection Commission.

Speaking to The Irish Times, Troy suggested the legislation should pass through the Oireachtas by Christmas, "with a view to having the CEA [Corporate Enforcement Authority] up and running by January 1st".

“It’s all about moving it away from the department, giving it the power to recruit the necessary expertise itself and making sure it is adequately resourced,” he says.

In pre-legislative scrutiny of the Bill, there were calls to give the Corporate Enforcement Authority greater powers. At present its expert civilian staff such as forensic accountants must sit outside the room when gardaí are interviewing suspects who have been arrested on suspicion of criminal breaches. The ODCE has had about 18 people arrested in the past three years.

Yet Garda members with technical questions must physically leave the interview room, consult with the ODCE technical expert outside, before going back in to resume questioning. Troy suggested that extra powers, such as allowing ODCE/CEA staff to be physically present, will not be granted in the new Bill.

“There are things that won’t be added into the legislation, that doesn’t mean they will not be added in future. The key is to get the CEA established first so there are no delays,” he said.

A number of similar recommendations for additional powers for Corporate Enforcement Authority staff and expert members of other white collar crime agencies were contained in an official review of the State’s armoury for fighting economic crime, which was published late last year by a group led by former director of public prosecutions James Hamilton.

Consideration was given to other powers such as allowing Corporate Enforcement Authority staff to access data held ‘in the cloud’ when seizing material for investigations. It was suggested these issues be addressed in a new, separate police powers Bill, for which there is no timetable. Troy said only that new investigative powers would be added “in a timely fashion”. So even if there is a new sheriff – the Corporate Enforcement Authority – in town, it will be ride the same horse, at least initially.

John Devitt, chief executive of anti-corruption lobby group Transparency International Ireland, said it is important that the Corporate Enforcement Authority is "fit for purpose" from the beginning. "Once State agencies are created, there is generally a reluctance to grant them new powers in the future," he says, citing delays in conferring extra powers on State regulators of political lobbying as an example.

The issue of continuing to keep ODCE/CEA investigators outside the room during questioning of suspects also cropped up repeatedly during pre-legislative scrutiny of the Bill by the Oireachtas joint committee on enterprise, chaired by Sinn Féin TD Maurice Quinlivan. He said it was important that the Corporate Enforcement Authority gets extra powers, as well as fresh resources.

“I welcome this week’s announcement and if it is up and running by January, that will be progressive,” he says. “But there is no point in just changing the name of the ODCE, otherwise we are on a hiding to nothing. There is a sense the State doesn’t prosecute white collar crime properly.”

He said the committee would be “disappointed” if new investigative powers sought by Drennan are not quickly transferred onto the Corporate Enforcement Authority, such as the ability to sit in on interviews: “That issue is crucial.”

Troy, meanwhile, suggests Drennan seems “happy” with the approach being taken by Government.

One of the most important aspects of this week’s announcement is that the Corporate Enforcement Authority’s complement of seconded guards to help with its pile of cases will rise from seven to 16. It is expected that it will get an extra detective sergeant and eight new detectives.

Yet as recently as April this year, Drennan was highlighting the length of time it takes for the ODCE to get extra Garda resources. In its annual report, he said he had asked last July for six extra gardaí to help out on temporary six-month contracts, and while they were sanctioned by Garda Commissioner Drew Harris, he was still waiting on them to join.

Drennan has told the Oireachtas committee he wants a “memorandum of understanding” between the new Corporate Enforcement Authority and Harris over the allocation of Garda resources to the agency. Troy denies that there is any friction between the corporate watchdog and the Garda that could hinder or delay the plan to boost its number of seconded officers.

“There is no reason to doubt it will happen. The decisions we have taken were arrived at with ourselves and the ODCE working alongside the Department of Justice and the Garda Commissioner.”

At the Oireachtas committee hearings, Varadkar made much of the proposed increases in its budget, which is set to rise again next year to at least €6.3 million. But there is no point increasing the cash available to Drennan if he isn’t allowed to spend it all. The Tánaiste mentioned the fact that the ODCE underspends its annual allocation by up to €1.8 million, but he didn’t explain why this happens.

Perhaps as an independent Corporate Enforcement Authority, Drennan will finally have the autonomy to use up all of its resources and not be hampered by senior civil servants higher up the ranks in the department. Varadkar said he wants to see it attract more experts from the private sector who may be “motivated by public service and lifestyle issues”.

The Hamilton review recommended dispensing with the idea, once purveyed by Varadkar, to draw together all white collar crime-fighting agencies under one umbrella in an FBI-like structure for economic offences. Other bodies active in this area include the Revenue Commissioners, the Competition & Consumer Protection Commission and the Central Bank, which can be an enforcer as well as a prudential regulator.

There is a recognition among many observers that the current Government seems serious about tackling white collar crime. A new cross-sectoral advisory group bringing together academics, administrators and regulators, and also experts from industry, is expected to be announced soon. It was among the recommendations from Hamilton.

"There is definitely a focus in this administration for Ireland to be seen as having watchdogs with teeth," said Pat Moran, a cybersecurity partner at PwC, who helps to compile its biannual economic crime survey. "If we get the reputation internationally that Ireland is a sleepy country run on nudges and winks, global organisations may not be comfortable setting up here."

There is also an opposing view that, for some organisations seeking to shelter from regulatory scrutiny, particularly in our sprawling financial services sector, perceptions of permissive oversight may be precisely why they might want to set up here.

PwC’s latest economic crime survey, for 2020, said 51 per cent of Irish respondents reported being victims in the previous two years, above the global average of 47 per cent. Two-thirds of these were cybersecurity breaches.

“Ireland, unfortunately, suffers more financial and economic crime per capita than other countries. Most frauds use technology in some shape or form. Undoubtedly, organisations such as the new CEA will need greater technical resources and powers,” Moran says.

Devitt, meanwhile, recalls the old attitudes of previous Governments, such as when former taoiseach Bertie Ahern in 2007 waspishly told Drennan’s predecessor, Paul Appleby, to “wait your turn” on fresh resources.

“We still spend significantly less in this country fighting white collar crime than our counterparts in places like Singapore, Hong Kong, Australia and also in northern Europe, such as Denmark.

“It is not just about allocating powers and resources to agencies. The Government also needs to close loopholes that incentivise corruption, such as the sale of dormant shell companies and the way we run immigrant investor schemes.”

Drennan, meanwhile, is often at pains to point out that the ODCE’s work is not just about the headline-grabbing fighting of white collar crime. Much of its resources are spent on administrative drudgery – overseeing liquidations, making sure company directors follow rules, and other activities.

Still, the career accountant at the centre of some of the State’s biggest governance investigations, such as at INM and the FAI, will inevitably find himself facing an even greater media spotlight after the ODCE gets its independence next year. That’s the thing about going out on your own in business: once you break free from your superiors, the responsibility for your performance all falls on you.