Strengthening the sentencing regime for high end financial fraud

Reading about the Panama Papers saga recently has provided much food for thought on corporate law, corporate responsibility and how society views it. It has also given me a chance to do some thinking about how I would like to see the New Zealand courts proceed with dispensing justice in such cases.

Have you ever wondered what sort of sentence you would hand down as a judge presiding over a corporate fraud/insider trading trial where billions of dollars were lost or misused deliberately, and the accused were found guilty? The reaction of society would be understandably harsh and you would have to reflect that. However, you would also have to be realistic about the sentence in terms of punishing the offender, but also deterring them from future offences. Below are my thoughts on reconfiguring New Zealand’s sentencing regime for such offences.

In order to deter the sort of high end collapse and potential fraud that companies such as the Lehman Brothers were implicated in, I think a comprehensive overhaul of financial trading laws and a register of traders is needed. The idea behind a register of traders is two fold:

  • To create a nationally recognized brokers who have agreed to be bound by an enforced code of conduct, whose
  • To give confidence that only vetted people with no criminal record can be employed in positions of trust

Right now fraud cases that involve sums of money that are less than N.Z.$250,000 go to the District Court and the High Court deals with larger sums. This division I believe is still appropriate for purposes of avoiding clogging up the lower part of the court hierarchy.

In order to make it clear to people working in the finance sector the extremely dim view that society takes on large scale fraud, a range of measures where jail sentences are just part of a larger comprehensive arsenal available to the sentencing judge are needed and could include:

  • Revocation of passports – given society’s revulsion with fraud in general, what nation will honestly want a convicted visiting/living in their territory?
  • Confiscation of luxury assets – secondary houses, helicopters, yachts, private jets/fixed wing aircraft – if the they were found to have been purchased using the proceeds of illegal transactions
  • Compulsory community service during

The structure of the sentences should take a definitive path. If there is no remorse shown then the appropriate sentence structure should be the upper echelon of jail sentences and passport revocation + confiscation of assets and/or community services. Should there be remorse a perhaps the lower echelon of jail sentences could be accompanied by community service. Should there be the means to fully repay then jail sentences and the confiscation of assets should apply.

Although the failures of New Zealand financial institutions are unlikely to match the gravity of Lehman Brothers where around $613 billion was owed, we have had large scale collapses here exceeding N.Z.$1 billion ($1.6 billion for South Canterbury Finance). Whilst I am unclear on the degree of personal or corporate offending here, which is which this post is concerned about, was involved in the Lehman Brothers collapse, the scale of failure was exceptional. I think that executives and corporate management have a particularly high level of responsibility and when they knowingly abrogate that responsibility, not only should the safe guards be of a particular standard, but so should the consequences for such action.

So with regards to New Zealand, the nearly 150 year sentence handed to Bernie Madoff for his ponzi scheme will no work – not least because only a fraction will ever get served. However a 25 year jail sentence with a $1 million fine for individuals and 40 year jail sentence for corporate offenders with an open ended fine depending on ability to pay, could be good upper sentencing limits.

But who in the New Zealand Parliament would be brave enough to overhaul sentencing laws to enable such punishment and deterrence? And that is where there might be a problem.

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