This week, White Collar Post features a guest post from Frédéric Ruppert(1) and Maria Lancri(2).
In December 2016, France passed into law the so called “Sapin 2” law to combat non-ethical behavior and promote transparency. Its new anti-corruption legislation is intended to improve its commitment to business ethics, the prevention of fraud and prohibiting the bribery of foreign public official. This new French law sets forth anti-corruption measures with a view to the more efficient pursuit and prosecution of corruption cases, both foreign and domestic. The impetus came from the frequent critics, most notably from the Organization for Economic Cooperation and Development, that France had not been adequately enforcing its current anti-corruption laws.
Large companies now have mandatory anticorruption programs, pursuant to the new law, Companies or groups of companies over 500 employees and EUR100 million of turnover and public administrations must implement a detailed anti-corruption compliance program.
Some features of the new law include obligation to implement an anti-corruption compliance program and that the executive managers bear the actual responsibility of enforcing this obligation within their companies. This is in line with a current trend where the underlying rationale is that only when individuals understand that their personal liability is at stake, will they take care of the situation.
Anticorruption programs are quite common in various organizations now, in particular following the footsteps of US, UK and many Canadian companies. The enforcement of the parent companies’ local laws (most notably US based) against their French subsidiaries, has really helped the understanding and acceptance of such regulations. French subsidiaries of foreign companies have implemented these programs for years now.
The current division in charge of anti-corruption at the Ministry of Justice (the Service central de prevention de la corruption, SCPC) had for that matter, issued guidelines on point in 2015. Today, French law demands it: larger companies must have code of conduct, a whistleblowing scheme, conduct risk mapping and third-party due diligence, accounting control procedures, a training program and a disciplinary system as well as set up internal procedures to control and review the programs implemented pursuant to the new legal requirements.
Labour law and the role of the works council are essential in France. Indeed, the new law requires that the code of conduct be submitted, although for information purposes only, to the works council and then be attached to the internal manual of procedure. The obligations set forth in these rules hence become enforceable against the employees, who may be sanctioned in case of violation.
The new law also introduced the possibility for companies under investigation for corruption to possibly be allowed to reach a settlement with the prosecutors. This so–called convention judiciaire d’intérêt public is similar to and, as a matter of fact, was inspired from the US Deferred Prosecution Agreements or DPAs. Only the prosecutors may propose such a settlement, which then needs to be validated by a judge; this is similarly to the UK procedure. This new provision is quite “a revolution” under French law since lawmakers had always considered that criminal justice could not be negotiated if it were to have any value and therefore strongly opposed such ideas in the past.
Although the fine imposed on companies that settle anticorruption procedures may be up to 30% of their average annual turnover, much higher than the fines for corruption under the penal code, such companies will be allowed to bring the matter to a close and hence be able to focus on business rather than spend years lingering in investigation, prosecution and/or litigation. Most importantly, the settlement will not be mentioned in the companies’ criminal records, which is essential for companies dealing with public procurements, as the French administrative code prohibits any person that has been condemned for corruption from being involved with submissions for five years.
The law however clearly specifies that individuals involved in corruption may still be personally prosecuted. This was requested by the lawmakers who had initially opposed settlements for criminal actions. Incidentally, this is completely in line with the Yates memo issued by the US Department of Justice in 2015. This whole procedure is a new experiment for France and we will see with time how this new tool is used.
The Sapin 2 Law also created an anticorruption Agency, the Agence française anticorruption, to ensure the effective application of anti-corruption compliance programs, through either i) the sanction powers directly granted to the Agency to review the existence and efficiency of compliance programs, or ii) its right to impose another sanction in addition to a corruption sanction or a settlement, under the control of the courts. It is worth noting that no actual monitoring, equivalent to what exists in the US, was created. The Agency is entitled to any professional documents and conduct on-site verifications to ensure the accuracy of the documentation it was remitted.
A non–compliant company may be assessed with a monetary penalty by the Agency’s sanction committee. This penalty may amount to EUR200,000 for individual executives and EUR1 million for entities. When the compliance obligation is an additional sanction to a sentence or settlement and that this obligation is not satisfied, the competent court may decide to add a fine equal to the fine sanctioning the corruption offense itself.
The Agency’s missions also cover the issuance, to both public and private bodies, of recommendations to prevent and detect corruption, adapted to the size of the entity. It is noteworthy that the Agency remains under the joint authority of both the Ministry of Budget and Ministry of Justice, rather than being an independent body.
As has been the case for years in other countries, this law grants extraterritorial jurisdiction to French courts over violations of French anti-corruption laws committed overseas by a foreign company having sufficient nexus with France. This extraterritorial reach was considered by some lawmakers as a necessary tool to compete, from a legal standpoint, with jurisdictions that have used it as a tool to regulate the economy.
At this stage, it is too early to say whether these new measures will satisfy both the OECD and the US, which has prosecuted French companies. The first cases handled in this new context will be watched with great interest. Whether the US Department of Justice trusts the French authorities to properly prosecute a case involving a French company’s misbehaving in the US is the unofficial challenge for the French authorities and the new French regulatory environment. This is somehow similar to what recently happened with the Netherland (SBM case), Brazil (Embraer case) and, even more recently, with the UK (Rolls Royce case). To meet this challenge, France first needs to stand by an active policy of pursuing cases of corruption. Secondly, the Agency needs to be properly staffed and funded. Finally, French judges, whom the proposed conventions judiciaires d’intérêt public will be submitted to, must be willing to play by the rules and confirm them.
Two other constructions of the new law are worthwhile mentioning: Some administrations and most importantly companies with at least 50 employees must set up whistleblowing procedures. These procedures have to be structured in a way that will preserve, except towards the judicial system, the confidentiality not only of the identity of the whistleblower but also of the accused person as well as the information collected. Anyone that violates this obligation may be criminally liable and sentenced to up to 2 years of imprisonment with a EUR30,000 fine. The procedures will be submitted to the works council prior to their effective date. Furthermore, as the company will handle personal data, at times, sensitive, it will have to comply with the rules set forth by the CNIL (Commission Nationale Informatique et Libertés), the French data protection agency.
The alert can be received internally or externally. Companies must choose the most appropriate system, in view of their internal organization as long as it guarantees confidentiality and organizes an efficient and appropriate processing of the alert to make sure it is actually taken care of adequately. Obviously, if the company is also under the obligation to set up an anti-corruption compliance program, both programs may be incorporated in a single manual of procedures smoothly coordinating the company’s action on these two fronts.
The whistleblowing procedure is available to individuals who are personally aware of and reveal or signal, selflessly and in good faith; a crime or an offense, a serious and clear violation of an international commitment (ratified or approved by France), a unilateral decision made by an international organization on the basis of such commitment, a law or a regulation, or a serious threat or prejudice to the general interest. The reference to “general interest” was introduced to allow people revealing unethical behavior to be able to continue to reveal information, such as in the Luxleaks case. It is quite predictable that people or companies, whose behavior is criticized, fight back and argue that the revelation lacks general interest purpose. In any event, as long as a whistleblower is deemed falling within the terms of the law, he is legally protected. For instance, he cannot be dismissed, barred or discriminated against from a recruiting procedure on the basis of having revealed information.
In a decision rendered in December 2016, not yet published but already much discussed, a court of appeals ordered a bank that had terminated an employee eight years prior, to reinstate him because his termination was not legally founded: he was terminated because he had reported, in good faith, facts amounting to an offense or crime that he had happened to become aware of in the course of his professional duties.
Lastly, the Sapin 2 law created a registry of beneficial owners, thereby adding another tool to fight terrorism, money laundering and corruption. This registry pertains to all registered companies headquartered in France and all permanent establishments of foreign companies registered in France.
The beneficial owner is defined by the monetary and financial code as “the individual that controls, directly or indirectly, the client, or the individual for which the transaction or an activity is conducted.” The principles applicable in money laundering matters, to identify the beneficial owner, will apply here as well.
A decree will specify which information needs to be filed with the registry, which will be held by the Registry of companies (RCS) and what information will not be rendered public while remaining accessible to the administration.
In conclusion, the Sapin 2 section on anti-corruption is a real change to the French legal and regulatory scene. It has nevertheless already been criticized by some observers, most notably Transparency International, which considers that the reform does not go far enough.
(1) Frédéric Ruppert, Avocat à la Cour, Attorney at Law, California State Bar, Frederic’s practice is mostly focused on M&A and Private Equity and also extends to other corporate and business matters and Corporate Governance. Email email@example.com
(2) Maria Lancri, has had a career both in private practice and in-house. She is currently of Counsel at GGV, a franco-german law firm and specializes in Compliance matters and Data Protection and advises companies in France on how to set up their Compliance programs: http://gg-v.fr/equipes/maria-lancri/