Banks May Still Be Too Big to Fail, but Their Officers Aren't Too Big to Jail

Joe McGrath

Joe McGrath is a law lecturer at UCD specialising in corporate and white-collar crime. He is also Dublin Inquirer's white-collar crime columnist.


Convicted of conspiracy to defraud and false accounting earlier this month, David Drumm’s crimes concern his involvement in the provision by Irish Life and Permanent (ILP) bank of €7.2 billion in deposits to Anglo Irish Bank, the bust bank bailed out by taxpayers.

When he was CEO of Anglo, representations were made that these funds were commercial deposits rather than inter-bank transfers. This was facilitated via a “back-to back”, circular transaction in 2008, whereby Anglo deposited money with ILP and then ILP gave back the funds to Anglo from its wholly owned entity to make it look like a corporate deposit.

The prosecution in Drumm’s trial stated that Anglo took this step, which was of no commercial substance, to make the bank appear in better financial health than was really the case.

Drumm’s crimes were serious. False accounting is punishable by up to 10 years imprisonment. Conspiracy does not carry a specific maximum penalty, but those he conspired with received sentences ranging from two years to three and a half years. Drumm has been sentenced to six years in jail.

While sentencing principles in Ireland have historically favoured white-collar criminals over other kinds of criminals, since the crash that has started to change. Drumm is only one of several officers convicted of wrongdoing related to misconduct at Anglo, and some have been given jail time.

Anglo-Related Sentences

Drumm’s co-conspirators in the back-to-back transaction, for example, had already received moderately punitive sentences.

Willie McAteer (Anglo’s finance director), Denis Casey (ILP’s chief executive), and John Bowe (Anglo’s head of capital markets) were sentenced to jail for three and a half years, two years and nine months, and two years, respectively.

In addition, McAteer was convicted along with Patrick Whelan (Anglo’s head of lending) of providing illegal loans in breach of a prohibition on the provision of financial assistance by a company to purchase its own shares. They received community service.

McAteer was also convicted of fraudulent trading when he received a loan in the amount of approximately €8.5 million on the day before the Irish government guaranteed the liabilities of the bank, which he then used to discharge a personal loan with Bank of Ireland. Whelan was fined €3,000 for failing to maintain a register of directors’ loans in respect of that loan.

Tiarnan O’Mahoney (Anglo’s chief operations officer), Bernard Daly (Anglo’s company secretary), and Aoife Maguire (Anglo’s assistant manager) were also prosecuted for concealing accounts used for the benefit of Sean Fitzpatrick, the former chairman and one-time CEO of the bank.

Initially, they received custodial sentences of three years, two years, and 18 months, respectively, but O’Mahoney and Daly’s convictions were subsequently quashed, and Maguire received a reduced sentence of nine months.

Changing Sentencing Principles

Gathering these threads together, sentences have ranged from community service to a fine to several years imprisonment. These sentences may seem quite disparate. Nevertheless, while quite unstructured, sentencing is highly principled in Ireland.

There is a constitutional imperative that offenders are punished proportionately for their crimes. This means that the sentence imposed must reflect both the particular circumstances of the offence and the personal circumstances of the offender.

In practice, this means that judges adopt a two-part test. First, the gravity or seriousness of the offence is considered. In making this determination, the court considers the harm caused by the offence and the extent to which the offender was responsible or “culpable” for its commission.

The court must consider the range of penalties for the offences and determine a “headline sentence”. If, for example, the court determines that the gravity of this particular offence is about halfway up the scale of gravity for an offence punishable by a maximum of 10 years imprisonment, the appropriate sentence will be five years’ imprisonment.

Secondly, the court applies a range of mitigating and aggravating factors and adjusts the sentence up or down accordingly. The usual aggravating factors include, among others, the use of violence, weapons, the targeting of vulnerable victims, and the abuse of trust.

In practice, of course, these factors may already have informed the issue of the gravity of the offence. The most common mitigating factors include the absence of any previous criminal convictions and the good character of the accused.

While these principles equally apply to all crimes and criminals, sentencing is always personal and individualised to the particular offender before the court. Prior to the financial crash, however, these principles had arguably operated in a systemically biased way to favour white-collar criminals.

This is because white-collar crime was often considered less harmful than so-called “conventional crime”. Moreover, offenders rarely triggered the aggravating factors, but they generally benefited from discounted sentences once mitigating factors were considered.

In particular, prior to detection, white-collar criminals are often considered pillars of the community and of otherwise good character. White-collar offences are generally non-violent. Moreover, they are difficult to detect, so the offenders rarely have previous criminal convictions.

Since the financial crash, however, the courts have indicated a greater willingness to consider white-collar criminality morally reprehensible and potentially as much of a threat to the security of the state as ordinary crime.

Furthermore, while the absence of previous criminal convictions must still be considered, it has been stated that the courts should not give this factor too much credit, because it is a common mitigating factor among those who commit these offences.

So white-collar criminals face tough punishments, including jail time in appropriately serious crimes, considering all the circumstances of the offence and the offender. The punishments doled out to the former officers of Anglo, at the upper end of the scale, reflect this development.

Banks may still be too big to fail, but their officers are not too big to jail.

[Editor’s note: this column was updated on 25 June to include the the sentence Drumm received.]

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Joe McGrath: Joe McGrath is a law lecturer at UCD specialising in corporate and white-collar crime. He is also Dublin Inquirer's white-collar crime columnist.

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