Castigated for its meager prosecution of corporations for corruption offenses, particularly involving conduct overseas, France is currently in the process of revising its anti-corruption framework. A new law, announced with great pomp, will be debated in the French National Assembly in the coming weeks, and may be adopted by summer.
This guest post for FCPA Professor provides a status update on the latest developments and offers a first look at some of the issues that arise from the draft law, including what it does and does not currently contain.
Driven by a desire to respond to mounting criticism from various international organizations (particularly the OECD and the EU) and concerned at the sight of major French companies paying significant fines to the United States Treasury, the French Government embarked approximately a year ago on a commendable attempt to upgrade the country’s anti-corruption prevention and enforcement regime.
On 22 July 2015, Michel Sapin, France’s acting Finance Minister, who had stewarded the 1993 anti-corruption law when he was serving in that capacity in Pierre Bérégovoy’s government, outlined before the Council of Ministers a new law on “transparency in economic life.” A first draft of the law, dubbed Sapin II after its primary advocate, envisioned four main changes: (i) the creation of an anti-corruption agency with independent enforcement powers, (ii) the introduction of an obligation to prevent corruption for certain companies, (iii) out-of-court-settlements of corruption offenses, and (iv) a form of corporate monitorships for companies convicted of corruption offenses.
On 24 March 2016, the Conseil d’État (which advises the French Government before it submits a bill to the National Assembly) issued a non-binding opinion on the Government’s latest draft. Having considered this opinion, the Government on 30 March 2016 registered a draft law regarding “Transparency, the Fight Against Corruption and the Modernization of Economic Life” with the National Assembly. The preamble affirms the law’s intent to “elevate French legislation [in the area of anti-corruption] to the best European and international standards.”
Recent discussions over the anti-corruption provisions of Sapin II highlight that France remains reluctant to crack down on corruption with corporate settlement agreements and hesitant to bestow too much autonomy upon a specialized enforcement authority. These “systemic” considerations aside, the law could profoundly alter individual and corporate conduct by creating a broad obligation to prevent corruption.
No Plea Agreements with Companies, Except Perhaps for International Cases?
Inspired by the U.S.-born deferred prosecution agreement and more recent experience stemming from the U.K., the Government first proposed to introduce an alternative to prosecution for corruption offenses. The settlement system, a flagship of the reform effort, would have allowed the prosecuting authority to sanction companies for acts of corruption without a criminal conviction, thus avoiding their otherwise automatic exclusion from public tenders.
Under the original draft, such agreements would have been capped at a fine of up to 30% of the company’s average revenue for the past three years paid to the French Treasury, with an obligation to submit to a form of monitorship. A judge would have had to approve the agreement, and the judge’s order would have been published. Unlike the U.K. model, the French proposal did not contain a list of factors upon which to predicate judicial review of the corporate settlement. If the company would not comply with the agreement, prosecution would be possible.
But the idea of determining guilt or innocence of corporations without trial was problematic to some from the beginning. One of the reasons is peculiar to the French criminal justice system, where plea agreements are an extremely confined exception and prosecutors do little fact-finding, especially in complex cases (where fact-finding is done by an investigative magistrate). Pointing to the lack of a public, contradictory, hearing before a judge concerning the agreement and other likely legal frictions, the Conseil d’État noted that “it could not overcome the difficulties that this device presented.”
Making a principled argument, the Conseil d’État advised that an agreement of this type “should be allowed only if its disadvantages, both for the protection of the persons implicated and the victim, and the protection of the interests of society, do not appear disproportionate in light of the interest underlying its implementation for the good administration of justice.” Since this mechanism would only apply to corporate entities, the Conseil d’État held the view that it is neither in the interest of good justice nor of the victim to introduce a different criminal procedure for all acts of corruption and influence peddling. The Conseil d’État added a caveat, however, noting that in light of existing practices in other jurisdictions, it would be possible to introduce this device for the specific, limited case of “transnational corruption,” provided that “adequate guarantees” are in place, which it did not define. While the current draft makes no mention of it, lawmakers could seek to reintroduce the mechanism with an amendment.
A New Anti-Corruption Service (rather than an Agency)
The 1993 anti-corruption law had created a unit within the Ministry of Justice, the Central Service for the Prevention of Corruption (abbreviated “SCPC” in French), meant to coordinate the fight against and investigate cases of corruption. A decision of the French Constitutional Council of 20 January 1993, however, limited the SCPC’s powers, resigning it to a more passive role. Little change occurred until a law dated 6 December 2013 established a prosecutor with special jurisdiction over economic and financial crimes and offenses. Consistent with international recommendations, and as a continuation of the 2013 legislation, the drafters of Sapin II sought to create a specialized agency to deal with corruption matters.
The Government initially proposed to replace the SCPC with a new National Agency for the Prevention and Detection of Corruption. In its opinion, however, the Conseil d’État advised against assigning that body the power to “detect” corruption, warning against the risk of confusion with the work of other authorities. The agency would merely “assist with the prevention and detection, by other competent authorities and concerned persons, of facts of corruption.” Departing perhaps from a more autonomous understanding of that governmental body, the latest draft appears to have re-centered the agency’s role on more of a support function. In a similar vein, the Conseil d’État rejected the Government’s idea to require the anti-corruption agency to issue “guidelines” to companies detailing the measures to take to prevent corruption. The Conseil d’État appeared concerned by the guidelines’ lack of clear legal status and insufficient precision, and therefore suggested calling them recommendations instead.
Article 1 of Sapin II makes it clear that the mandate of the new body – which is not called an “agency” but a “service”, a distinction that entails a lower degree of autonomy, is limited to “preventing” acts of corruption. Placed under the auspices of both the Ministries of Budget and Justice, thus raising a question about its independence, the new Anti-Corruption Service would be called upon to perform a number of roles, including (i) centralizing and publishing information regarding the prevention and the assistance in detecting corruption, (ii) participating in the administrative coordination of prevention and assistance in detecting corruption, (iii) providing support to the national and local public administration in this respect, (iv) issuing recommendations to the public and private sectors, (v) auditing public administrations to help them put in place efficient prevention and detection systems, (vi) enforcing the general obligation to prevent corruption risks imposed upon certain companies, (vii) monitoring the compliance sanctions ordered by tribunals, and (viii) controlling, in light of France’s blocking statute, compliance obligations imposed by foreign regulators. The Service would thus streamline the communication of information possibly covered by the blocking statute and relevant to foreign regulators.
Importantly, the Service would enforce administrative sanctions through a Sanctions Committee comprising three members appointed by decree for five years: a member of the Conseil d’État (France’s Supreme Administrative Court), one member of the Cour de cassation (France’s Supreme Judicial Court), and one member of the Cour des comptes (Court of Auditors). A Director, appointed by the President of the French Republic for six years, would manage the Service, reporting to both the Ministers of Justice and Budget.
Either Minister or the Service on its own could request that an audit be conducted on particular companies (Article 8 of Sapin II). Following its review, the Service would issue a report, to which the company could respond. The Anti-Corruption Service would then decide whether to issue a warning or turn the case over to the Sanctions Committee. The new obligations discussed below could be enforced against both the company and individuals acting on behalf of the company. Agents are envisioned as being able to receive documents from audited entities and to conduct on-site interviews, although the precise contours of their powers is still unclear, including whether and to what extent they would have subpoena powers or how information would be collected more generally.
Three Noticeable Adjustments to Existing Provisions
Sapin II would introduce a number of substantive changes to French law. From a jurisdictional standpoint, the law would extend the offenses of corruption and influence peddling to acts that were committed outside of France by French citizens, non-citizens residing in France or French companies. The offense of influence peddling is extended to cover the situation where the acts involved a foreign public official.
Sapin II would also seek to strengthen France’s whistleblower regime. Since 2007, French law has provided for a special protection of whistleblowers that report acts of corruption. A law dated 6 December 2013 further generalized the protection of whistleblowers. Beyond implementing a number of European Union directives into French law, Sapin II introduces the possibility for the Service to cover the legal costs of whistleblowers. While France has improved the protection of whistleblowers, it remains uncomfortable with the idea of reporting misconduct in exchange for pecuniary gain.
Under French law companies can be held criminally responsible for acts committed by their “organs or representatives” that were done “for the benefit” of the company. The test stemming from Article 121-2 of the penal code for corporate criminal liability is more stringent than the U.S. respondeat superior doctrine, but does not appear as demanding as the “controlling mind” principle of the U.K. and Canada. Some believe that the French theory of corporate criminal liability, particularly applied in the parent-subsidiary context, may be one of the reasons explaining the low number of convictions of corporations for corruption offenses.
While Sapin II does not directly address the issue, it provides for a new criminal penalty. A court, having convicted a company of a corruption offense, could impose compliance measures. The Anti-Corruption Service would monitor this court-imposed compliance program and report to the prosecutor. The Government appears to have taken inspiration from the World Bank practice in this respect. Failure to comply with these sanctions would be punishable by imprisonment of the company’s legal representative for up to two years and a fine of 30,000 euros.
Enhanced Compliance Obligations to Come for Many Companies, Enforced with Administrative Sanctions
In 2012, the SCPC recommended introducing into French law a strict liability offense of failure to prevent corruption. Non-binding guidelines were released in March 2015, which broadly outlined the elements of what could constitute an effective compliance program under French standards. With Sapin II, the Government has decided to go further; it noted in the preamble to the law that the new compliance obligations draw on similar provisions existing in the United Kingdom (Section 7 of the UK Bribery Act) and Switzerland (Article 102 of the Swiss Criminal Code).
According to the Government, Article 8 is a new “general obligation […] intended to ensure that the largest companies systematically put in place a complete and effective framework to prevent and detect acts of corruption that could arise in their national and international operations.” Under Article 8 of Sapin II, “Presidents, Managing Directors and Managers of any company employing at least 500 employees or belonging to a group of companies whose staff is of at least 500 employees and which consolidated revenue exceeds 100 million euros are required to take measures intended to prevent and detect acts of corruption and influence peddling in France and abroad.” This requirement is also imposed upon board members of certain companies (societés anonymes established pursuant to Article L-225-57 of the Code of Commerce). For companies with established consolidated accounts, the obligation contained in Article 8 also applies to subsidiaries or entities controlled.
Sapin II would require concerned companies to put in place (i) a code of conduct defining and illustrating behavior that could be characterized as an act of corruption or influence peddling; (ii) an internal whistleblowing system; (iii) a system of conducting periodic risk assessments; (iv) third party due diligence protocols; (v) accounting controls designed to ensure that books and records are not used to conceal acts of corruption or influence peddling; (vi) a training program for management and most exposed personnel; and (vii) a disciplinary sanctions procedure applicable in case of violation of the code of conduct. Unlike Section 7 of the UK Bribery Act, Article 8 of Sapin II does not appear to provide for an “adequate procedures” defense.
The Sanctions Committee of the Anti-Corruption Service could enjoin the company to adopt internal policies and procedures, and impose fines not to exceed 200,000 euros for individuals and one million euros for legal persons. Under Sapin II, the company and company officers can be held independently liable for failure to comply with this obligation, although they would also have the right to appeal decisions of the Service. A three-year statute of limitations would begin on the day when the Anti-Corruption Service noted the failure to comply.
Even if adopted, additional measures will be needed before the Sapin II framework becomes fully operational, which is unlikely to happen before year’s end or early 2017, an election year in France. The law calls for the Government to legislate by decree for a number of important undefined provisions, beginning with the procedure applicable before the Sanctions Committee of the new Anti-Corruption Service (which according to the Conseil d’État will have to comport with the requirements of Article 6.1. of the European Convention of Human Rights and therefore provide for a public hearing). A decree will also be needed to detail the functioning of the Service, including the role and powers of its agents. Another law will have to define the Service’s budget. The Government anticipates a staff of between 60 or 70 and an annual budget between 10 and 15 million euros.
Sapin II certainly represents a notable and significant step forward in terms of France’s anti-corruption reform efforts, although it remains to be seen whether lawmakers will find the necessary resolve to achieve the ambitious goal that the Government has set for the law: elevating France to the highest European and international standards and turning the fight against corruption into a competitive advantage for business. A paradigm shift, but only on paper, at least for the time being. So, as we say in French, à suivre…