Accountancy Age reports that Ken Lay, former CEO of Enron has died.
Well, no one takes pleasure in such news, and I offer normal condolences to his family, but this news will be treated by many as his having avoided the long prison sentence that was the inevitable price of the crime for which he was so recently found guilty. Actually, I felt sorry for him in one way - I would not wish the rest of one's life in a US jail on anyone.
But there is one issue about which I am pleased. Thankfully his trial was completed so that justice could be seen to have been done. I recently wrote the following on that trial for Tax Justice Focus:
This trial was a benchmark. Firstly, senior executives were hold to account for their actions in the organisation they lead, and were found to be responsible for them. That was vital. Anything otherwise would have sent out all the wrong signals.
More than that though, the trial was by jury. These people were not found guilt by a professional body, or a regulatory board hearing; they were found guilty in a criminal court. And despite the complexity of the numerous charges and the length of the trial when it came down to it the jury was asked to decide on the charges which the two faced on the basis of a simple test — did Lay and Skilling know what they were doing was wrong, or not? That is not a technical test. It is an ethical test. And the jury convicted on that basis.
This is an important victory for two reasons. In some countries, the UK being one of them, there has been an over-emphasis on trying those charged with fraud and other corporate wrong-doing on the basis of technical evidence. This has given defendant’s lawyers the opportunity to present technical defences, has extended the length of trials making them inordinately costly, has led to claims that juries cannot understand these issues and has resulted in a poor rate of convictions. The Enron case is a lesson here. The jury were, of course, presented with evidence of wrong doing in breach of the law. That is essential to secure a conviction. But by including conspiracy charges it was possible to ask questions about Lay and Skilling’s motivation and intention in undertaking those transactions i.e. did they intend to break the law? By doing this the issue became comprehensible; because technicalities are then of much lower importance, whilst still significant. This also reduces the prospect of a successful appeal on the basis of a technicality.
It is this test that I find most important about the Enron trial. It seems to say technical compliance with the law is not enough to act as a defence, you must have been actively seeking to comply with it as well. And of course, that is what we have argued for some time in the area of tax. It’s good to see it being reflected in this case.
So where next? That’s hard to say, unless you’re Lay and Skilling where I expect them to spend some time in prison (although I would not wish incarceration for life at their ages on anyone, as some seem to suggest possible). My guess is this. First of all, this will reiterate the shockwaves that are driving enhanced compliance in the USA. The conviction will remind those in Europe who argue for lower states of regulatory checking that those processes are put in place for a purpose. And rather like the impact of the collapse of Andersen and the fines on KPMG and trial of KPMG partners this will act as a sharp shot across the bows of those considering wrong-doing for some time.
But will that be enough to change the culture of the corporate world so that such practices cease? I doubt it, I’m afraid. Change does not come from the fear of prosecution, it comes from the belief that good practices produce better outcomes. As yet insufficient has been done to stop people believing that offshore, secrecy and tax avoidance pay. Until that is changed then another Enron is inevitable, however much regulation is in place, and offshore will remain a cancer in the corporate world as it was at Enron.
So the prosecution is welcome. A changed attitude to offshore from those governments that continue to tolerate it, including the USA, would be even more welcome.