Pursuing the pinstriped pickpockets

State agencies are working hard to prosecute white-collar crimes, but don’t get your hopes up: a lack of expertise, the limitations of the jury system and the complexity of financial law make convictions a tall order

WHEN JAMES HAMILTON, the director of public prosecutions, made remarks this week about the difficulty for an ordinary jury of dealing with long and complex white-collar prosecutions, he seemed to be implying that nobody might be charged with any crime to do with our recent banking scandals. Noting the challenge of explaining complex financial data to a conventional jury, he floated ideas such as non-jury trials involving a panel of judges, or a panel of people with specialist knowledge, to improve the capacity of the courts to deal with elaborate prosecutions arising from the financial sector.

These changes to the legal system would require a referendum. Barring that, any prosecutions arising from events of the past few years will appear before a normal jury. Hamilton believes this system is ill suited to prosecuting complicated white-collar crimes.

Hamilton’s message is not a happy one for citizens outraged by the huge damage done to the economy by a reckless banking sector, though it will come as no surprise to those with a knowledge of this area of criminal law.

The director of public prosecutions also suggested a whistle-blower’s charter as a way of making white-collar cases easier to prosecute. The Opposition wants this kind of broad law, like the one introduced in the UK in 1998, but the Minister for Justice, Dermot Ahern, has ruled it out. He is more in favour of a sector-by-sector approach, as he believes the UK model has not been a success.

Whistle-blowers are seen internationally as an important weapon in the fight against corruption and corporate crime. In white-collar prosecutions, a witness with detailed knowledge of the alleged crime can be like gold dust. US whistle-blower legislation already rewards anyone who saves the state money from fraud and tax evasion, by offering a percentage of the amount saved to the person who blew the whistle. Some cases have awarded tens of millions of dollars.

While the health service, the Garda and other some other sectors already have whistle-blower legislation, the Civil Service is not yet covered.

So are we likely to see any convictions in the area of white-collar crime in Ireland? Hamilton says there are no pending white-collar cases that he would have difficulty prosecuting, but he warns that moving towards more interventionist financial regulation, and imposing stricter rules on banks and other institutions, would see more complex cases coming into the pipeline. Referring to Anglo Irish Bank, he said he was awaiting the outcome of the investigations by the Office of the Director of Corporate Enforcement, Paul Appleby, and the Garda Fraud Bureau. He noted that any financial transactions that had been approved by the Financial Regulator would be very difficult to prosecute.

Late last year the governor of the Central Bank, Patrick Honohan, said he was prepared to take court cases that he might lose if they are taken in good faith.

In February he mentioned some of the difficulties in securing convictions. People who committed crimes should go to jail, he said, but it was “another matter as to whether it’s easy to achieve convictions on highly complex matters – which are made highly complex in some cases in order to make convictions difficult to achieve.”

The Garda Fraud Bureau and Appleby’s office are devoting significant resources to their Anglo inquiries. A third of Appleby’s staff are working on the case.

There is widespread concern in legal circles, however, about the resources that are available for investigating corporate crime. A partner in a top Dublin law firm told this reporter of a nervous client who, as a result of being investigated by Appleby’s office, was considering confessing to some breaches of company law. The client was advised to say nothing, and the breaches were never discovered. The solicitor queried whether Appleby’s staff had sufficient experience in the complex businesses their office investigates. But a partner in another firm said younger, well-qualified lawyers were now considering careers in the public service “because of the recession and because Appleby is making an impression”.

Ireland’s record in prosecuting significant white-collar crime is far from impressive. Despite the huge banking scandals over the years, only two people have gone to jail: John Rusnak and the late Patrick Gallagher. Neither was prosecuted in this jurisdiction. Rusnak was jailed in the US in 2003 for his part in the AIB rogue-trader disaster. Gallagher was jailed in Northern Ireland in 1990; he was involved in identical practices in the Republic involving the improper use of funds belonging to Merchant Banking, a bank he ran that had loaned money to the late Charles Haughey. It has never been explained why Gallagher was not charged in this jurisdiction.

What seems criminal to us is normal to them

ONE OF THE problems with white-collar crime, especially in the area of big business, is that what appears criminal to an outsider can seem like normal business practice to an insider.

Anglo Irish Bank is a case in point. It borrowed huge amounts internationally, then pumped the money into Irish property – a market that was already overheated – with multibillion-euro consequences for the Irish exchequer.

Senior figures from the bank, who were paid handsomely for their work, have contributed to the contraction of the economy, widespread unemployment, the return of emigration, a deterioration in social services and mounting public debt.

Yet it is does not follow that anything they did was criminal. Goldman Sachs, the US investment bank, made billions of dollars selling complicated financial products to customers while making further profits from betting that the products were worth less than it had sold them for.

When senior Goldman Sachs executives appeared before a US senate committee last month they dithered when they were asked if they felt they had a duty to act in the best interests of their clients.

The financial-services industry and public companies are governed by a complex array of regulations, some of which carry criminal sanctions if they are breached. Because of this, senior executives frequently consult lawyers as they go about their daily work.

For a criminal prosecution to succeed, it must be shown that the defendant knew he or she was committing an offence. It is particularly hard to do that if the defendant consulted a lawyer before acting.

In a ruling in the US supreme court in 1981 – Upjohn vs the US – the court referred to how corporations “constantly go to lawyers to find out how to obey the law”. This was particularly so, the court pointed out, as “compliance with the law is hardly an instinctive matter” given the complexity of the environment they operate in.

In a ruling in 1978 – the US vs Gypsum Co – the court observed that an antitrust law it was considering proscribed activity that “is often difficult to distinguish from the gray zone of socially acceptable and economically justifiable business conduct”.

As well as concerns about the ability of juries to prosecute complex crime, Irish lawyers have concerns about the quality of Irish juries generally. This is because so many middle-class people find reasons to be excused from service.

That said, any move to non-jury courts is a serious matter. Some lawyers argue that more could be done in settling the agreed facts in a case before it goes to trial, so that a jury could then concentrate on the issue of criminal intent. With clearer presentation, the argument goes, ordinary juries are up to the task.

ANSBACHER  - No convictions

In 1997 the McCracken (Dunnes Payments) Tribunal disclosed the existence of a secretive and unlicensed banking structure run by the late Des Traynor. Using his position in Guinness Mahon Bank, Traynor put in place a system whereby people could lodge and withdraw money through the bank on College Green, in Dublin, while their accounts were nominally held in the Cayman Islands,

at Ansbacher bank. When it was discovered by the Central Bank in the 1970s, the bank did nothing other than complain privately to Traynor, who just moved the system farther underground.

One of Traynor’s customers was his friend Charles Haughey. In July 2002 High Court inspectors found that the system was designed to help people defraud the Revenue. The Revenue has collected €107 million from 139 former Ansbacher account holders. No criminal charges have ever been brought.

DCC PLC -  Civil Action, No Criminal Prosecution

By far the most complex Irish corporate controversy in recent times was a civil case involving DCC plc and its former chief executive Jim Flavin. No criminal charges ever arose in the case, but it is worth looking at its history in the context of James Hamilton’s comments on juries’ difficulties with complex cases. In the DCC/Flavin case the people assessing the evidence were some of the most respected members of the Irish judiciary. After 87 days of evidence Ms Justice Mary Laffoy of the High Court ruled that trading information Flavin had concerning Fyffes plc, at a time when he traded in Fyffes shares worth €106 million on behalf of DCC, was not price sensitive. The civil case had been taken by Fyffes, which appealed the ruling to the Supreme Court. In their unanimous reserved judgments, after a five-day hearing, the five judges found that the information

Flavin had at the time of the trades was price sensitive. A High Court inspector who subsequently looked into the matter, Bill Shipsey SC, found that Flavin “genuinely believed he was not in possession of price-sensitive information” at the time of the DCC trades.

ENRON  - Convicted, Appeal pending

Ten years ago Kenneth Lay was the chairman and chief executive of the huge Enron Corporation, in the US, as well as an adviser to and key financial backer of President George W Bush. The businessman found himself at the centre of a storm in late 2001 when it emerged that Enron had hidden billions of dollars of debt off its balance sheet. By January 2006 he was on trial for a range of financial crimes. The multimillionaire rejected the charges, saying he was misled by those around him. He tried to lay the blame at the feet of his former chief financial officer, Andrew Fastow, who himself pleaded guilty to a number of charges as part of a plea bargain. Fastow gave evidence against Lay, who was convicted along with a number of others. Lay died of a heart attack in July 2006 while awaiting sentence. He maintained his innocence to the end. The collapse of Enron saw investors lose billions of dollars and thousands of people lose their jobs. The second-most-senior figure in the scandal, Jeffrey Skilling, appealed his conviction.

He is awaiting the judgment of the  US supreme court. One aspect of his appeal is that the jury might have been prejudiced against him.

ARTHUR ANDERSEN  -  Convicted, overturned

Arthur Andersen was one of the world’s top five accounting firms when it got caught up in the Enron scandal. The firm, which had been Enron’s long-time auditor, was convicted in October 2002 of corruptly persuading its employees to destroy documents so as to keep them from federal investigators. The conviction of Andersen led to the demise of the firm and the loss of 28,000 jobs in the US. The firm contested the charge, saying its employees never had any criminal intent to frustrate federal investigators. It appealed the conviction to the US supreme court; the appeal succeeded in May 2005. The court said the instructions to the jury at the original trial failed to convey properly that the jurors needed to find the firm had knowingly acted to subvert an investigation in order for it to be found guilty.

UBS  -  Convicted

A former employee of the Swiss bank UBS who helped an inquiry into the hiding of billions of dollars in Switzerland by US tax cheats was jailed for 40 months last year. The inquiry led to US and Swiss authorities signing a pact in which Switzerland agreed to reveal the names of 4,450 wealthy US clients of UBS to tax investigators. Bradley Birkenfeld was jailed because he admitted helping a US billionaire hide money from the Internal Revenue Service. He is now seeking whistle-blower status, which could entitle him to a percentage of the money the IRS got back – making him richer than many of the UBS clients he helped expose.

He remains in jail, though his lawyers have petitioned President Obama for a pardon.