Despite bankers playing a central role in the global financial crisis, only one has been jailed as a result, leading many taxpayers and investors to ask why more haven’t been criminally held to account.
The answer is complex, related to the layers and layers of organisational obfuscation that works towards making nobody responsible for anything. Everyone is to blame for the crisis but at the same time nobody’s to blame.
In his annual Mansion House speech last week, Bank of England chief Mark Carney warned that “the age of irresponsibility is over” and said:
“Markets responsible for trillions of pounds of global trade were stained by excess, collusion and abuse and that ‘ethical drift’ had taken hold. And Criminal sanctions should be updated, with market abuse rules similarly extended and maximum prison terms lengthened.”
In making these comments, Carney, and the UK Chancellor (Treasurer) George Osborne, were endorsing the long awaited Fair and Efficient Markets Review which called for increased criminal sanctions for market manipulation. The UK government is considering a new statutory offence of a “corporate failure to prevent economic crime” and is examining the rules on “establishing corporate criminal liability” more widely.
Australia is considering similar sanctions. At a Senate Estimates hearing this month, ASIC chief Greg Medcraft let slip that the regulator was considering tougher sanctions.
“Under section 12.2 of the Commonwealth criminal code, a company can be held responsible as an accessory for a breach of certain Commonwealth laws by its employees if the company’s culture encouraged or tolerated the breach.”
He then brought out the big stick:
“It’s a provision we need to think about more – and it’s one, frankly, we are.”
Jailing an individual for deficiencies in an organisation’s culture appears pretty far fetched, but that is exactly what Section 12 of the Commonwealth Criminal Code appears to provide for.
The Criminal code is, as one would expect, full of legalese but does actually define “culture” quite clearly as:
“An attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.
One of the key words here is “policy”, such as official company policies on fraud or behaving ethically towards customers. Having put in place such policies, the criminal code is pretty clear that corporations are required to enforce them, otherwise the corporation might be considered guilty of a “corporate culture of non-compliance or of failure to maintain a corporate culture of compliance, with the law”.