Examination of Witnesses (Questions 40-59)
22 JANUARY 2004
MR RIC
NAVARRO, MR
DAVID STOTT,
MS ANNE
BROSNAN AND
MR ARWYN
JONES
Q40 Mr Thomas: Do you have any powers
at all, short of prosecution, of naming companies that are, in
your view, not complying fully with regulations?
Mr Navarro: We do issue press
releases when we serve enforcement notices on regulated companies
to secure their compliance with their obligations, so there is
that process. However, we cannot just issue press releases about
people whom we have a poor opinion of. The public register shows
the company's record and we do have operator performance and appraisal
systems which rank the performance of the companies and that,
again, is an indication of their performance in which investors
take an interest. It is interesting that we now have no band E
performers, the lowest performers. For regulated industry we are
raising the standard.
Q41 Mr Thomas: You mentioned your Spotlight
publication as well, and we talked about investment and the city.
Is there any evidence that a series of prosecutions—whether
the fines are severe or not—is having an effect on shareholder
price and therefore is having an effect back to the boardroom
through the shareholders themselves? Are you able to trace that
at all, or are shareholders not interested in environmental crime
done by the companies they have holdings in?
Mr Navarro: I think that is what
we are working on, to raise awareness so it does feedback, maybe
not directly to individual shareholders but to the institutional
investors who will take into account environmental performance
as an indication of the general company standard of management,
the standard of investment, the attitude of the company and the
sustainability of the company. We are trying to address all of
those levers and I think with some success. There is no doubt
that a series of cases will drive investment by the company. Take
the water industry, we know that in order to comply they will
need to invest, and this is to be taken into account; it is not
just the fine. Very often the major expense of the company is
the investment—millions of pounds sometimes—in order
to comply with their licensed obligations.
Mr Stott: We have had a considerable
success recently with a very high fine on a waste company and
we know that as a direct result of that its clients (who are major)
are looking very closely at whether or not they should continue
to feed their supplies to that company. I think it is going to
have a dramatic effect on the company.
Q42 Chairman: Can I explore further the
question of remediation? To what extent do the courts have the
ability to instruct people found guilty of environmental crime
to repair the damage?
Mr Navarro: I think it is important
to realise that we do have powers which are not dependent upon
convictions in order to require companies to clean up after pollution
incidents.
Mr Stott: I think I am right in
saying that in terms of water legislation there is power after
conviction to order clean up; under water legislation, not under
waste. There is a gap there.
Q43 Chairman: What about oil?
Ms Brosnan: Oil is usually found
in water offences so it would normally be covered by water.
Mr Stott: But there is a gap there
with waste. As Mr Navarro said, we have the power to serve a notice
for them to remove it but the court has no power on conviction
of a waste offence to order remediation. If there has been damage,
loss or injury caused to a victim it can order compensation for
that person, but it cannot order remediation.
Q44 Chairman: Do you think it should
be able to?
Mr Stott: I think it would be
very helpful if it could, yes.
Q45 Chairman: What about the money that
is raised by way of fines? The remainder of that goes back into
the central coffer, does it not?
Mr Navarro: Yes, it does.
Q46 Chairman: Do you think there is a
case for keeping it within the environment so to speak, and applying
it to solve either the specific environmental problem that has
led to the case or other environmental issues?
Mr Navarro: We do think there
is a case and we will be making a submission to the Treasury to
that effect. We are talking about fines of three and half to four
million pounds a year that at the moment goes directly to the
Treasury and would be available—if the Agency were to be
able to retain it—to go to increasing our enforcement effort
(which, as I said, is not funded, apart from GIA, so it might
plug that gap) or on projects to benefit the environment which
we would not otherwise be able to do.
Q47 Chairman: That might include remediation
measures as well, might it?
Mr Navarro: Yes, although on remediation
measures I think if the offender has the means and is still in
existence, then the polluter should pay so it should fall on the
company or the offender who has caused the pollution. We would
not seek to spread that, I think, to the general community. The
polluter should pay. For cases where the company has disappeared
or the offender has no means, it could be available for that.
Q48 Chairman: That would be in addition
to any fines.
Mr Navarro: Yes, in addition to
any fines.
Q49 Chairman: Going back to what you
were talking about just now about the sort of penalties available
in the case of corporate crimes, obviously you cannot lock up
a company. There may be some companies that people would like
to see locked up, but you cannot actually do it. I think you have
been looking at various specific alternatives to that. I would
be interested to hear a little bit more for example about your
ideas for compulsory share issues.
Mr Stott: That may be a bit radical,
but we did enter a dialogue with the Home Office just before the
last election on trying to create more imaginative or a wider
range of types of sentence. We were looking at Europe and America
as well. That committee fell at the election and has never been
resurrected. This was blue sky thinking quite frankly and never
got solidified, but we were looking at corporate probation, for
instance, or maybe the power of a court to order that for a certain
period the Agency or another regulatory body was a member of the
board, to look at the environmental effort; the issue of a bond
of a million pounds to be lodged for a five year period to be
set against their environmental performance. Maybe the court could
order a block share issue which would make the shareholders sit
up immediately. If you are serious about environmental improvements,
if you are seriously prepared to go that far, we actually think
that the creation of the Sentencing Guidelines Council in the
Criminal Justice Act would be the vehicle to take this forward
and have a look at whether or not we could create more imaginative
types of penalties, especially for the corporate offender. Rather
than just the blunt instrument of fines, fines, fines, let us
widen it and look at something else.
Q50 Chairman: Are you actively reviving
that discussion?
Mr Stott: We would like to.
Q51 Chairman: What does that mean?
Mr Stott: We have not really done
any in-depth thinking; we are playing around with these ideas,
but I would be keen to take them forward.
Mr Navarro: It is an interesting
area which we would like to engage on. The other aspect, of course,
is increasing the number of cases against individual directors.
Seven or eight directors have received prison sentences. Those
tend to be the smaller companies where it is much easier to attribute
the actions of the company to the individual. When we get to the
larger companies with the layers of management it is much more
difficult for us to be able to attribute individual responsibility—quite
rightly, because there is a high test—to individual directors.
That would certainly also grab their attention, I think, if we
were able to do more of that.
Q52 Chairman: What does corporate probation
mean?
Mr Stott: It is like any other
probation order. For a period of two years or whatever they do
not commit any form of environment offence or you bring them back
to court.
Ms Brosnan: We also thought about
a requirement that they should publish details of the conviction
in their annual report so it is brought home to shareholders exactly
what the failures are, so that shareholders can have an eye to
making sure that those are not repeated.
Q53 Chairman: You said it was blue sky,
but you also suggested it might be happening elsewhere in the
world.
Mr Stott: Yes, I think it is,
certainly in America. In Germany and Sweden they are using the
administrative civil type penalty. Rather than prosecuting and
taking them into court the regulator sets an amount. There would
have to be an appeal provision built into that, but that is another
avenue that could be explored.
Mr Challen: If we could have a memo on
this I think it would be a very exciting area to examine in more
detail.
Q54 Chairman: I agree. Would that be
possible? If you have done some work on what is happening elsewhere,
it would be very helpful if you could include it.
Mr Stott: I cannot promise it
would be a very long paper, but we can certainly provide something.
Q55 Mr Challen: If you have examples
from other countries—the United States or Canada—it
would be very interesting to see what their thinking is.
Mr Navarro: Certainly.
Q56 Chairman: Who actually terminated
these discussions and on what grounds?
Mr Stott: They just fell with
the election and were never resurrected. It was a Home Office
initiative.
Q57 Chairman: Did you seek to resurrect
it after the election?
Mr Navarro: It fell into abeyance
at that stage.
Q58 Chairman: Were ministers involved
in those discussions at the time?
Mr Navarro: I do not think it
had reached that stage. It was discussions between officials.
Q59 Paul Flynn: In your submission you
talk about the introduction of civil and administrative penalties.
How do you think they would work?
Mr Stott: I think they are being
used at the present time by the DTI under the Competition Act.
If they believe a monopoly has been breached then the DTI, as
the regulator, can actually set an amount for a penalty itself.
They have done it a couple of times, and I think the penalty was
a million pounds on one occasion. If you prosecute you obviously
have to follow the laws of evidence and the Police and Criminal
Evidence Act et cetera, so there is a bureaucracy and administration
to follow. The burden of proof is different as well; this is on
the balance of probabilities that you set the administrative penalty
rather than beyond all reasonable doubt. So there are attractions
to a regulator.
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