Wednesday, 15 December 2021
Companies (Corporate Enforcement Authority) Bill: Committee and Remaining Stages
I move amendment No. 1:
In page 9, line 5, after "of" to insert "financial and non-financial"
I welcome the Bill and the aim behind it to put a stop to, or draw more attention to, crimes that are of a more privileged financial nature. It is essential that these crimes are properly investigated and prosecuted in Ireland. I want to take this opportunity to voice my support for the establishment of the corporate enforcement authority. With this support in mind, the amendments I have tabled seek to strengthen the remit and functions of the authority and allow it the best chance of meeting its aims. To this end, amendment No. 1 is very simple. It looks to insert the concept of non-financial reporting explicitly into the text of the Bill. The amendment would grant the authority the ability to enforce non-financial obligations, standards and procedures now or at any time the Minister considers appropriate.
In July, the House passed the Gender Pay Gap Information Act. The corporate enforcement authority should be empowered to ensure company directors and their shareholders are held responsible for the standards set out in that Bill. I also believe that making non-financial oversight explicitly part of the authority's functions would future-proof the authority for forthcoming legislation.
As the Minister of State is aware, the Companies (Emission Reporting) Bill 2021 has passed Second Stage. Under section 10 of that Bill, should an offence be committed by a company director, manager, secretary or other officer of the body corporate in their emissions reporting they would be prosecuted. With such legislation in mind, the amendment looks to ensure the authority can be proactive rather than reactive in the upholding of non-financial standards and obligations of the body corporate. With regard to this amendment, I have spoken in this Chamber on multiple occasions about the use of non-disclosure agreements, NDAs, within various sectors of our society. As I am sure the Minister of State is aware, NDAs prevent the sharing of information that companies deem confidential. Originally, they were devised to maintain company and sectoral trade secrets but, following the #MeToo movement, the full extent to which NDAs have been used to silence victims of sexual assault, harassment and bullying has emerged. The reason I bring this up in the context of the corporate enforcement authority is that these NDAs are often used by company directors and those in positions of authority in companies to silence victims of sexual assault or harassment. They use them to stop victims of such abuses from speaking out and to treat such abuses as if they were trade secrets. The corporate enforcement authority has an obligation to examine the use of NDAs in the State and to audit the payments companies are making under the guise of NDAs.
To follow on from that point, I will briefly state that amendment No. 2 relates to this amendment. I am disappointed that it has been ruled out of order. The purpose of amendment No. 2 was to amend the composition of the authority's membership in order that it would comprise no less than two and no more than five members. This was ruled out of order because my second amendment was in large part a follow-up to my first. It is an amendment which aims to be proactive in the context of future legislation which may come under the remit of the authority. The amendment would also have facilitated the authority's enforcement of non-financial obligations, standards and procedures now and in the future. I am aware that the Minister of State addressed this point regarding expanding the membership on Second Stage, but I still do not see the logic in restraining ourselves in the investigation of corporate crimes. The Minister of State noted, for example, that increasing the authority's membership to three would give a staff to member ratio of 20:1, a figure he noted as being top-heavy. However, who is to say that we will not also need to expand the staffing of the authority in the future?
I am also aware that, when this matter was raised in the Dáil, the Minister of State noted how the three members would be given scope in the areas of investigation, prosecution, supervision and advocacy with clear lines of responsibility. As I have stated already today, however, the scope of corporate crime is constantly changing. There must be a level of flexibility and capacity in the remit of the authority's members to address this. What are often known as white-collar crimes - which is a term I do not really like - are more accurately just the crimes of those in a more privileged position. This is true whether financial or otherwise. The Government now has the opportunity to establish this new authority and to hold such criminals to account. I have already cited the possibility of the authority maintaining standards and obligations of the body corporate with regard to the Gender Pay Gap Information Act 2021 and any forthcoming legislation on emissions reporting but we are all well aware that the financial services industry is only going to grow in the coming years with the further expansion of the fintech and crypto-finance sectors. To work effectively, the authority must grow to meet these demands. The only way to do this is by appointing experts to top positions within the authority. That means increasing the membership capacity.
I thank Senator Ruane for putting forward her amendments. With the permission of the Chair, I will speak to amendment No. 1 and to amendment No. 2, which has been ruled out of order.
I thank the Senators for bringing forward amendment No. 1. It permits me to provide further clarity regarding the existing functions of the Director of Corporate Enforcement, which will become the functions of the new authority. The Director of Corporate Enforcement has responsibility for enforcement in respect of breaches of company law by companies, whether the breaches relate to financial information, the provision of non-financial information or compliance with the range of the statutory obligations on directors and companies under the Companies Act 2014. Section 10 provides for the functions of the new authority. It re-enacts the existing provisions of section 949 of the 2014 Act, which is being repealed by this Bill. Therefore, the new authority will have the same functions and powers that the director currently has. These include the power to undertake enforcement action in respect of non-compliance with the rules of the EU non-financial reporting directive, which are transposed by way of statutory instrument in SI 360 of 2017. I assure the Senator that the functions of the new authority will include enforcement in the areas of financial and non-financial information. Rather than providing clarity, the Senators' amendment could inadvertently narrow the scope of the functions of the new authority. Therefore, I cannot support the amendment.
With regard to amendment No. 2, which was ruled out of order, I spoke at length in this House and the Dáil on the rationale behind the number that was decided upon. The number has been assessed and deemed proportionate and appropriate in the medium term. I sought the views of the Director of Corporate Enforcement, who agrees with this number. There is flexibility. While we are starting off with one member, we have the flexibility to increase the number to three.
I move amendment No. 3:
In page 26, to delete lines 23 to 37.
The purpose of this amendment is to remove the possibility that the authority might anonymise published details of certain individual cases in respect of "the relevant sanction imposed on the relevant director [where] such publication would be disproportionate" or where "the Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would jeopardise the stability of financial markets or an ongoing criminal investigation" or "the Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would cause disproportionate damage to the relevant director."
To put these provisions in context, the authority will be given the ability to anonymise particulars in order to protect directors who have committed crimes potentially involving millions of euros as it sees fit while my colleagues and I are dealing with hard-working, honest members of the public who may have committed minor crimes at some time in the past. I am talking about offences as simple as robbing a sliced pan, not having a television licence or breaking a shop window. These offences may have occurred at any stage in people's lives but they cannot move on or get a job. Their lives, their communities and their families are damaged because these offences still appear on Garda vetting forms. It seems that while we are all equal in the eyes of law, some are more equal than others. The removal of this subsection and the acceptance of this amendment would ensure that the integrity of the authority is maintained.
The Minister of State will argue that these provisions will be used sparingly but while general and imprecise language such as "would cause disproportionate damage to the relevant director" remains in the Bill, the clause remains open to abuse by those who wish to and, more importantly, have the means to, remain anonymous. Who is to decide what is considered proportionate damage to a director? During the Dáil debate on this matter, the Minister of State mentioned that the decision as to who is entitled to anonymity will be made by the authority's new director. I am afraid that such a system inherently leaves the door open to abuse, especially when we consider the scale of the financial resources available to the companies this authority is set to audit. I urge the Minister of State to consider this amendment in order to strengthen the powers and legitimacy of the authority and to maintain its integrity.
I understand that the Senator is concerned that the proposed section 944AE(3) will limit the publication of, and therefore the transparency of, administrative sanctions imposed on directors in certain circumstances. This is important, and I agree that such limitations should be minimal. However, there is an important reason for their inclusion in this Bill in the first place. I will try to explain this as clearly as possible so that there is no misunderstanding about the need for and rationale behind this rule.This section is a specific requirement of EU law and transposes Article 30c(2) of the EU audit directive practically word for word. The section provides for certain circumstances in which administrative sanctions imposed on a company director by the authority may be published anonymously. Comparing this with what goes on in court, therefore, is not a fair reflection of this aspect. This is an administrative process and done outside the judicial system. The administrative sanctions in question in this Chapter of the Bill relate to situations where a director of a public interest entity is found to have contributed to breaches of EU audit rules. That is all we are dealing with here. These provisions do not extend beyond these breaches into the broader provisions of the Companies Act 2014. What we are doing is transposing EU rules on the audit directive, and that is exactly what this specific section is concerned with in this legislation. It is entirely a decision and at the discretion of the authority as to whether it decides to publish the sanctions anonymously. However, it is a principle of natural justice that a director subject to sanction could seek to make a case that publication of a sanction would be disproportionate in some way.
Nonetheless, there are many precedents for publication of directors' details under the umbrella of the Companies Act 2014, such as in the case of restriction and disqualification of directors. So while I cannot pre-empt a decision of the authority, which is independent in its functions, I can say with confidence that the default position in law and in practise should be that sanctions imposed under this Chapter of the Bill are published. Ultimately, as I said, failure to re-enact these provisions would mean that Ireland would be in breach of its EU obligations.
The authority is independent in its functions, but the default position in law and in practise should be that administrative sanctions imposed under this Chapter of the Bill are published. The threshold for making an exception to the rules is very high, such as, for example, where there is the possibility of damage to the financial system or where a criminal case could be impacted. I understand that, to date, no sanctions have been imposed on directors of public interest entities under sections 957B to 957I. However, there are equivalent administrative sanctions and procedures for statutory auditors in sections 934A to 934I, inclusive, of the 2014 Act. The Irish Auditing and Accounting Supervisory Authority, IAASA, has imposed two sanctions to date under its similar powers and in both cases the full details of the auditors and the audit firms are published on the body's website.
We have created legislation that gives an authority administrative powers. I find it confusing then, and this aspect will not be within the remit of the Minister of State, that when we seek to advance other policies where administrative decisions could be made, such as, for example, in drug decriminalisation, we are told we live in a country that operates under common law and not civil law and that there are no administrative powers. Therefore, I am wondering how we can create administrative powers to allow for, and to anonymise, sanctions in one area of legislation while we cannot in others.
I am probably going to take it as a positive development that we now can create systems whereby the law can be administered at that level, because then it would benefit other areas we have been working on concerning matters such as drug decriminalisation. The Minister of State spoke about the EU regulations by which we are bound and mentioned that material is released on the relevant website. With that in mind, I wonder if the Minister of State will commit to a compromise whereby a report would be laid before the Houses of the Oireachtas in respect of this authority each year, and within which there would be a breakdown of the number of cases the authority has undertaken in the previous year and details of the proportion of those cases granted anonymity.
To reiterate, we considered this proposal. It was raised during pre-legislative scrutiny, on Second Stage and Committee Stage in the Dáil and on Second Stage in this House last week. The proposal has been considered, therefore, but there is no flexibility here because we are simply transposing EU regulations. These regulations were brought in as a result of the financial crash and concern audit requirements. We are transposing those aspects via this legislation. As I said already, this legislation is only concerned with EU audit rules.
This body, the new corporate enforcement authority, will have its annual report published. It will be a requirement for the new organisation to do that. Therefore, any irregularities which are found will be published as part of that report. In addition, a similar body with a supervisory role and that carries out investigations, the IAASA, has enacted two such sanctions under its similar powers. In both cases, information on those sanctions and the details of the auditors and the audit firms were published. It was not just information concerning the audit firms that was provided, but also details concerning the auditors who conducted the audits. While I can appreciate where the Senator is coming from, I do not think she has anything to fear regarding people trying to withhold information just for the sake of it.
It is nice to see the Minister of State again. I was not going to speak on this amendment, but I have been persuaded by what Senator Ruane has said. She is trying to reach a compromise here, and it seems to me to be a reasonable one. What is being sought is for the Minister of State to commit to reports being published each year detailing what percentage of people have been found guilty in the form of anonymised information. That would give us a good feel for what is happening and a sense of the extent of anonymity in this regard. It strikes me that this is genuinely a reasonable request and it would be helpful if the Minister of State could accede to it.
As I said, the proposed new section 944T clearly states that there is going to be an annual report and that it "shall include information in such form and regarding such matters as the Minister may direct but nothing in this subsection shall be construed as requiring the Authority to include information the inclusion of which would, in the opinion of the Authority, be likely to prejudice the performance of its functions". Therefore, there is absolutely no reason this information cannot be included in the annual report as it stands.
Without this information being asked for explicitly, there is also no reason for it to be included, if the Minister of State understands what I mean. There is no reason for the new authority not to include this information, but if there is no requirement to do so, then there is also no reason for the new authority to include these details in the report. Perhaps between now and Report Stage, we could discuss what requirements there may be or what we can expect to see in a report.
There is no problem in giving that commitment and it does not alter the Bill. We can direct that as part of its annual report the authority would publish details of what investigations have been concluded and the percentage of those investigations published in that regard. That is no problem.