Directors face fines to beat fraud

DIRECTORS could for the first time be prosecuted and fined for concealing relevant information from auditors under a fresh clampdown aimed at preventing Enron-style frauds.

The new criminal offence is detailed in a Companies Bill published today, which also gives Department of Trade and Industry inspectors extra powers and aims to keep auditors objective.

Industry minister Jacqui Smith hailed the Bill as a comprehensive package of measures aimed at restoring investor confidence in corporate governance, accounting and company auditors.

'There is no denying that financial markets around the world have been badly shaken by the corporate failures of the last few years,' she said.

The Bill, introduced to the House of Lords today, would give auditors greater powers to get information they needed and give DTI inspectors extra powers to uncover misconduct, she said.

Directors would in future have to state they have not withheld any relevant information from auditors. Breaches of this rule would be punished by fines of up to £1000.

'Directors will need to carefully consider if they have provided all the information necessary for a successful audit,' the Department of Trade and Industry said.

The new rule is an extension of existing company law, under which directors can be jailed for up to two years for lying to auditors. The Bill would force companies to publish detailed information on the type and cost of services bought from their auditor.

This was to meet concerns in the wake of Enron, whose auditor Arthur Andersen was compromised by huge non-audit fees paid by the now-defunct US energy trader.

The Bill comes only 24 hours after the Financial Services Authority, the City watchdog, announced that in future it would automatically use its statutory powers to force suspects to provide documents and answer questions.

Other new powers in the bill

Auditors will be able to demand information from directors and for the first time from ordinary staff.

DTI inspectors will be given fresh powers to occupy premises, but not to search them, and to demand information.

Whistleblowers will be given statutory immunity from breach of confidence claims in certain circumstances.

Tax inspectors will for the first time be allowed to pass on information on suspicious activity to the accounting regulator, the Financial Reporting Review Panel.

A new legal entity, the Community Interest Company, will be created for not-for-profit social enterprises, ensuring profits and assets cannot be diverted for private gain. CICs will face fewer legal restrictions than charities, but will not qualify for charitystyle tax breaks.