Moral hazard is frequently talked about in the context of bailing out financial institutions during the ongoing economic crisis.

In a nice piece in the UK’s Lawyer Magazine Jo Rickards, a Corporate Crime and Internal investigations partner at DLA flags up recent UK changes affecting those who privately fund their defences which broadly speaking prevent them from recovering their costs if found not guilty.

The essence of the piece is that the changes are unfair.

Jo goes on to say that if the prosecutors are to get more aggressive then it is inappropriate to stack the cards in favour of the prosecutor in this way.

It is a pretty outrageous state of affairs that a prosecutor can bring a prosecution and, in the event of failure, have no responsibility to compensate for the costs of the defendant proving his/her/its innocence.

Sadly that will be the position.  But then again, the cards have been stacked in favour of prosecutors for some time.

Against a back drop of the draconian asset freezing ability of UK prosecutors under the restraint regime the ability of individual defendants to privately fund their defence was curtailed some time ago.

Life isn’t fair.

However there are a couple of things to bear in mind and one BIG question to ask if you are a Director or an Officer.

A tale of two corporations

Big corporations can easily out gun the resources of a prosecutor in terms of the money available to throw at the defence and they are often less concerned about recovery. For members of this club then – the cards are not as stacked against them as might appear at first blush.

The position is different for companies where cash is tight.  Let’s hope prosecutors do not cynically focus on weak targets…

Directors & Officers

Directors and officers (and their employers) should waste no more time and check their D&O cover or put some in place if they don’t have it.

If you want to know what to look for in your existing policy then read this piece we published earlier this year about everything you need to know about D&O cover.