US fraudsters shown no mercy

BUSINESS activities which in Ireland are entirely legal would in the US lead to criminal conviction and jail, according to a US expert on business fraud.

Mr Charles Carberry, a New York lawyer who was involved in the famous prosecutions of Dennis Levine and Ivan Boesky in the US, and began the investigation into Michael Milken and the investment bank Drexel, Burnham, was in Dublin recently to address a conference on fraud.

He believes that one of the major differences between US and Irish law is the way in which fraud is defined. Here precise and narrow definitions are used whereas in the US the definitions are much wider and therefore the laws are less easy to evade.

A whole wave of new laws and regulations was introduced in the US over the past decade to counter the perception that in terms of risk and returns, fraud was an attractive and almost irresistible option.

Mr Carberry believes that it is all but pointless for lawyers or society to point out to people that what they are up to is against the law, if the persons concerned believe there is a possibility of making huge profits and the chances of being caught or severely punished are slim. "Companies are essentially going to work for economic reasons".

A huge change in the tone of the approach towards business fraud occurred when Levine, Boesky and Milken were sent to jail. There was a level in business which felt it was essentially above the law.

"People would say to me, you'll never get him he's too powerful, or he's too powerful he'll never go to jail. When people did get jailed then all of that ended."

The junk bond scandals and insider trader deals which Mr Carberry investigated, the collapse of savings and loans institutions, and scandals about defence contracts provided the spur for action against fraud in the US. There is even some debate now that it might have gone too far.

Methods of investigation and prosecution learned in the war against the drugs trade were brought into action against business fraud. A proactive approach and a determination to make those involved in fraud suffer financially at a scale equal or greater to the amounts being made from the fraud, were adopted. "We changed from focusing on the individual to concentrating on hurting the business," he said. "It was decided let's hurt them in the pockets and then they'll start policing themselves".

US law is particularly strong in relation to public funds and sectors such as banking and pensions. Offences can be punished by imprisonment fines or restrictions on business activity.

Businesses are now spending considerable amounts on patrolling themselves. A company which benefits from an employee's illegal activities is guilty of fraud even if there is no proof that the company knew or authorised the employee's actions. The existence or otherwise of structures within the company designed to detect illegal activity is taken into account when such cases are being ruled on.

There are regulators in the sectors most central to the public interest. These people are trained to spot fraudulent activity. The multiplicity of agencies and layers of regulatory activity means it is difficult or impossible for the activity of the anti fraud structures to be suppressed.

Ireland and Europe have a long way to travel to be equal to the level of fraud investigation and punishment for fraud which exists in the US. The existence of 15 different jurisdictions in the European Union makes the battle against fraudsters all the more difficult again, says Mr Carberry.

And even with the level of regulation and investigation which exists in the US, there is still a huge amount of fraud in US business.

Mr Carberry, who was chief of the Securities and Commodities Unit in the US Attorney's Office in New York when he prosecuted Levine and Boesky, is now a member of Jones, Day, Reavis & Pogue, based in New York.

Levine, Boesky and Milken were given sentences of one, two and three years respectively. Levine now lives near Mr Carberry in Manhatten. "I see him on the street quite often."