Bastille Day Newsletter 2018

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NAVACELLE
Bastille Day Newsletter
Génie de la liberté

Index

Editor’s Note

What’s Hot

Enforcement / Court Decisions


Editor’s Note

Happy 2018 Bastille Day!

Lawyers at NAVACELLE thought you might be interested in reviewing a selection we made of noticeable events which occurred in France in the fields of corporate criminal liability, criminal procedure and compliance over the past year so we put together our second Bastille Day Newsletter!

We hope you will find some use to it and will be happy to answer any inquiry you might have in one of the five languages we speak.

Best wishes,

Stéphane


What’s Hot

The monopoly of the French tax administration on tax enforcement fraud in jeopardy

Parliamentarians have been challenging the legitimacy of the tax administration’s (aka ‟Bercyˮ, the neighborhood where the building is) monopoly on tax fraud since 2012 but without much success so far1. Current debates before the National Assembly however could put in jeopardy such prerogatives and grant more power to the Judiciary.

A monopoly under criticism

• Bercy’s prerogatives in jeopardy

Under French law, the procedure for tax offenses derogates from the one defined in the Code of Criminal Procedure. Unlike ordinary criminal procedures, the Public Prosecutor may not initiate criminal proceedings2. To do so, the Public Prosecutor must obtain the approval of the French tax authorities, commonly referred to as “Bercy”, first3. Because this provision is of public order, the prosecutor may not bypass Bercy without fearing an annulment of the entire proceedings4.

With regard to tax fraud offenses, the executive branch has a hold on the procedure. To decide whether the case should be prosecuted, the Ministry of Budget must refer the case to the Committee on Tax Offenses (known as CIF)5. CIF will then look at the facts and will issue a favorable or unfavorable opinion as to the opening of criminal proceedings6. If CIF issues a favorable opinion, the Minister will have no other choice than filing a complaint7.

As this monopoly might limit the prosecution of tax fraud cases, many unions and non-profit organizations asked for its suppression during the parliamentary debates on a bill aiming at reforming public finances and improving transparency8. In January 2018, the parliamentary Commission of Finance mandated an Investigation Committee (mission d’information) to determine whether it was necessary to put an end to this monopoly9.

• A heavy flow of criticisms

Interviewed by the Investigation Committee, members of the judiciary heavily criticized Bercy’s monopoly. The Head of the National Financial Prosecutor (PNF), Ms. Eliane Houlette, even stated that this monopoly infringes the constitutional principle which allows the prosecutor office to freely press charges against an individual10. Furthermore, this distinctive feature would paralyze the entire criminal proceedings.

Indeed, out of 50,000 tax fraud cases, the CIF only reviews approximately 1,000 files: 95% of these files will receive a favorable opinion and 93% will be prosecuted11. In other words, only 883 cases out of 50,000 will be brought before a judge. For some magistrates, this situation is even more frustrating as the executive does not review suspicious case submitted by the prosecutor office12.

Although some members of the judiciary do recognize that this monopoly is a way to address tax fraud issues in a fair and equal manner, the decision-making process should be more transparent and give more leeway to prosecutors13. In its last annual report, the Cour des Comptes14 criticized the lack of transparency in tax transactions15. Despite criticisms, the executive has fiercely defended its prerogatives before the Investigation Committee.

The French tax administration seeks to tighten its grip on tax fraud prosecutions

• Bercy’s monopoly: an effective anti-tax fraud mechanism?

After hearing members of the judiciary, the Investigation Committee gave the floor to members of the tax administration. After reaffirming that the executive and the judiciary do work hands in hands, Bruno Parent, General Director of the Public Finances, answered the criticisms uttered by Ms. Houlette. For Mr. Parent, the tax administration cooperates fully with the judiciary16. He then reminded the Committee that CIF was composed of magistrates and individuals appointed by the Parliament17.

If the executive recognized that only a small number of tax fraud cases are brought to the Prosecutor Office, Bercy does not forget the 98% of tax fraud cases remaining18. Indeed, aware that the judiciary does not have the resources to prosecute each tax fraud case, the tax administration would rather issue penalties instead. Thus, the tax administration issued 15,065 tax penalties last year19.

Furthermore, the executive’s anti-tax fraud policy does not aim at prosecuting, but rather at deterring. Therefore, only recidivists should face judicial prosecution20.

By suppressing Bercy’s monopoly, the executive fears it would end the open dialogue between taxpayer and the tax administration. Fearing heavy sanctions, taxpayers would not cooperate fully to regularize their situation, thus rendering anti-tax fraud policies even more ineffective21.

• A better cooperation for a more effective anti-tax fraud policies

After hearing both arguments and be informed by the current government that it was against a full suppression of Bercy’s monopoly, the Committee issued an advisory opinion on whether Bercy’s monopoly should be suppressed. Although the Committee did not provide a clear answer, it issued recommendations aiming at reducing the opacity surrounding the tax administration and improving the judicial efficiency with regard to tax fraud prosecution22. The Bercy’s monopoly is so maintained but should lean towards more transparency.

Even though, there is an impossibility to prosecute all tax fraud cases, the Committee recommended to grant more power to judges23. The judiciary should go beyond the instructions given by Bercy. Thus, if the defender committed additional or previous tax fraud offenses, the PNF should be able to include such offense in its complaint24. The judiciary should also have jurisdiction on tax fraud offenses when the latter are correlative of other offenses25.

In its recommendation, the Committee however did not take a stand in favor of one or the other party. The report advocates for a more effective cooperation between Bercy and the PNF. If the prosecutors should forward more tax fraud cases to the tax administration, Bercy should also ensure appropriate follow-up to these cases26.

During the review phase, tax administration officials and prosecutors would work together to decide which case should be brought before a judge. Such provision however would reduce CIF’ scope of action27. As an alternative solution, CIF would review cases which meet the requirements set by the law (and not by Bercy), and would issue an advisory opinion28. Then, the prosecutor office would have a full autonomy to decide whether the case should be brought before a judge29. Therefore, if all the recommendations are adopted by the Parliament during the next session, the judiciary will gain new prerogatives undermining Bercy’s.

* * *

The monopoly of tax administration on tax fraud cases is a distinctive feature of the French system. The judiciary, and members of the civil society however heavily criticized such monopoly as it leads to opaque practices and impunity. Bercy explained that this practice aims at deterring and obtaining tax penalties not at prosecuting. Despite Bercy’s strong arguments to conserve its monopoly undisturbed, the Committee issued many recommendations aiming at implementing a better cooperation between the judiciary and the executive and reinforcing prosecutors’ prerogatives. Bercy still has chance to keep its monopoly as the Parliament must vote in disfavor of these recommendations.

 


AFA: a new French agency to fight corruption

By enacting the Sapin II Act, France demonstrated its commitment to strengthen the national anticorruption framework and enforcement powers. One of the key features of this new piece of legislation was the creation of a French Anticorruption Agency (“AFA”). By granting it a wide range of prerogatives, the AFA has appeared as one of the essence of Sapin II.

French legislator arms itself with a new anticorruption instrument

In 2016, the French legislator enacted Sapin II, a legislative arsenal aiming at a providing efficient mechanisms to eradicate corruption. One of the milestone of this law has been the creation the AFA. Replacing the Central Corruption Prevention Department (“the SCPC”), the AFA has a broader scope to address more effectively corruption issues and comply with international requirements30.

Acting under the supervision of the Ministry of Justice and the Ministry of Budget, AFA’s purpose is to assist authorities in the prevention and detection of corruption offenses, influence peddling or embezzlement31.

The strength of this new agency lies in its ability to conduct a 2-stage investigation in companies with over 500 employees and a benefit exceeding €100 million. During the first stage, companies have the obligation to forward all relevant documents to the agency32. The AFA will then investigate in the facilities of the company – interviewing any employees, clients or even subcontractors. The AFA will at the end issue a report which will be shared among the parties involved33. Based on its report and the company’s observations, the agency will decide whether it should issue a warning urging the company to put in place an effective compliance program. In case of unlawful conduct, AFA’s Commissions of Sanctions, composed of 6 magistrates, may issue a pecuniary fine against legal entities (up to €1 million) or private individuals (up to €200,000)34.

To carry out its mandate, the agency has also other prerogatives. Upon requests of the Prime Minister, the AFA must ensure that French companies which have been convicted in another country, comply with compliance requirements35. The AFA’s may also issue recommendations helping private and public entities to identify misconducts, influence peddling or embezzlement and improve their compliance programs36. Despite this wide scope, the AFA should not be seen as an sanctioning authority but a preventive authority as it puts forward the implementation of anticorruption programs.

Cooperation trumps prosecution

In an advisory opinion, the Conseil d’Etat, highest administrative authority in France, defined the role of this brand-new agency. Although the AFA participates in the fight against corruption, its mandate should not compete with other entities such as the National Financial Prosecutor Office (PNF).

The purpose of the AFA is to assist companies in the implementation of compliance programs and by doing so prevent unlawful conduct. In December 2017 for instance, the agency issued non-binding guidelines to help companies to address corruption issues and enact compliance programs. To draft these guidelines, the AFA relied on foreign legislations, and more precisely the Bribery Act 2010 and the Resource Guide to the U.S Foreign Corrupt Practices Act (FCPA guide)37.

In the light of the advisory opinion of the Conseil d’Etat, the AFA appears more as an auxiliary, assisting pre-existing anticorruption key players. Initially, the legislator provided the AFA with the ability to impose measures on the territorial collectivities. The Conseil d’Etat disagreed with such provision arguing that only the law may compel a public service to take measures38. Recommendations issued by the AFA are therefore only soft law as it does not have any binding effect39.

Despite its sanctioning power, the AFA increasingly appears as a cooperation instrument aiming at facilitating the implementation of compliance procedures than a repressive organ. The AFA may not prosecute unlawful obligations: it has an obligation to refer violations that are brought to its attention to the PNF40. It is in this aspect that the AFA mainly differs from the American Department of Justice and the UK Serious Fraud Offices. Indeed, the AFA has not issued a single sanction since its creation41. It has however started to monitor companies having entered into DPAs42.

* * *

In the past recent years, the French legislator was proactive in improving the anticorruption arsenal to comply with international standards, namely by establishing the AFA by Sapin II. The AFA thus transpires as a key stone in the fight against corruption. While the agency does not aim to compete with the PNF, DOJ and SFO, it is a vehicle permitting anticorruption practices to become second nature to economic actors.


France’s asserts authority over multiple jurisdiction prosecutions in corruption cases

In the context of the adoption of the Sapin II law and the implementation of new mechanisms to fight corruption, the recent decision of the Cour de cassation (the French Supreme Court) in the Oil for food Case I is a real landmark43.

In its decision dated March 14, 2018, the Cour de cassation ruled that the non bis in idem principle could not be used as a valid argument to avoid criminal proceedings in France, after having signed a guilty plea in the U.S.

Overview of the Oil for food Case I proceedings

In a case related to the U.N. Oil for food program which enabled Iraq to sell oil to purchase humanitarian supplies for its population from 1996 to 2003, the oil company Vitol was prosecuted for bribery allegations. With regards to these facts, on November 20, 2007, Vitol entered into a guilty-plea in the New-York state court for “grand larceny” under New-York criminal law45.

Facing prosecution in France for the same facts, the defendant claimed that the guilty plea protected the company from further prosecutions under the French non bis in idem principle.

On July 8, 2013, the Paris Criminal Court46 held that the plea-deal entered into with the United States authorities prevented prosecutions in France and that article 14(7) of the 1966 International Covenant on Civil and Political Rights (ICCPR)47 guaranteeing non bis in idem was not limited to “domestic” sentencing decisions but extended to multiple jurisdiction prosecutions wherever the events took place.

On February 26, 2016, the Paris Court of Appeal48 confirmed the application of article 14(7) of the ICCPR to cases where the decisions of foreign criminal courts relate to acts committed in France. The Court of appeal however interpreted the ICCPR to require not just the facts of the offense to be identical, but also that the State interest – as shown by the characterization of the offense – be the same. Noting that the legal status was not the same between the United States of America (grand larceny) and France (bribery of foreign public officials), the Paris Court of Appeal denied non bis in idem protection.

The decision of the Cour de Cassation dated March 14, 2018: excluding the application of the non bis in idem principle

The Cour de cassation firmly confirmed the exclusion of the application of the non bis in idem principle. The reasoning of the court, through a broad appreciation of the concept of territorial jurisdiction, aims at rejecting the application of this principle whenever the offenses prosecuted can fall within the scope of the French territorial jurisdiction.

Under French criminal law, the combination of Articles 113-649, 113-750 and 113-951 of the Criminal Code shows that the non bis in idem principle only applies to the prosecution of offenses committed abroad in their entirety. To exclude the application of this principle for the Vitol case, the Cour de cassation adopted a broad appreciation of the concept of territorial jurisdiction under Article 113-2 of the Criminal Code52.

The Cour de cassation held that “French Courts have jurisdiction over bribery of foreign officials when the commission of the offense has been decided and organized on French territory, where the amounts due for compensation were paid53.

The analysis of the facts of the case shows how tiny the link was between France and the prosecuted facts. It is indeed the fact that one of the defendants had its “economic and financial interest center” in Paris and that in the same city, Vitol organized the commercialization of oil endowments and the payment of surcharges owed in relation to these endowments that triggered French jurisdiction.

This broad appreciation of the concept of territorial jurisdiction, which is the result of a developing jurisprudence54, proves that France is determined to participate in a more effective way to the fight against corruption, even for offenses which were committed at a time when the French legal framework had no extra-territorial reach.

The Cour de cassation went even further in its decision as it held that Article 4 of Protocol No. 7 to the European Convention on Human Rights and Article 14(7) of the International Covenant on Civil and Political Rights, providing the non bis in idem principle, “prevented double prosecutions for single acts” and “only applied where both proceedings were initiated on the territory of the same State55.

With this reasoning, all the arguments pertaining to the identity of the facts, the identity of the legal definition of the facts, or the identity of the protected interests as developed by Vitol to support the application of the non bis in idem principle are worthless.

The European Court of Human Rights (ECHR) recently adopted a similar position in the Krombach case56. The applicant argued that the German decision to drop charges against him prevented France to prosecute him for the exact same facts. The ECHR held that the ne bis in idem principle set out by Article 4 of the 7th Protocole to the Convention did not have a transnational application. This supports the fact that a foreign decision does not automatically have res judicata in another State, which is the sense of the French Vitol decision.

Practical implications of the Vitol decision

The prior decision of the Paris Criminal Tribunal demonstrated a sort of lack of interest of the French authorities to prosecute bribery of foreign officials.

But the rising number of French companies convicted by the U.S. authorities57 and the amount of the fines inflicted to these companies has driven France to consider the issue from another angle and to find all ways possible to enhance its legislative framework to fight corruption.

As a result, the firm decision of the Cour de cassation shows the strong determination of the French authorities willing to compete with the U.S. on an equal footing. The U.S. authorities indeed do not give a res judicata effect to foreign decisions when they can have jurisdiction over potential misconducts58.

Alongside this exclusion of the non bis in idem, France recently developed its legal framework in the fight against corruption, with the enactment of the Sapin II law. The Conventions judiciaires d’intérêt public, (French-style DPA) recently signed by three companies in France are another example of the determination of the French authorities.

One can however wonder what impact the Vitol decision will have on prosecutions led by the U.S. authorities after the signature of such agreements with French authorities. As the penalties imposed on companies within the scope of these CJIP appear no to be efficient enough from an U.S. point of view (for instance there is no disgorgement of profits under the French DPA59) and the non bis in idem principle is not a protection for these companies, defendants are at greater risk to be convicted twice by both French and U.S. authorities.

Moreover, in line with the Vitol case, another decision of the French Supreme Court is of great interest regarding multiple jurisdiction prosecutions in cases of corruption. In the Jeffrey Tesler case60, the Cour de cassation once again rejected the argument drawn from the non bis in idem principle and held that as “the Court of appeal found that the facts, grounds for the prosecution, were committed even partially on French territory”, France could prosecute the offenses submitted and the foreign decision could not have a res judicata effect in France.

The most appealing point of this ruling is the fact that the Cour de cassation found that “the accused, whose appearance before the French criminal court is not regulated by the provisions of the agreement he entered into on March 11, 2011 with the Department of Criminal Affairs of the United States Department of Justice, is free not to incriminate himself and to exercise all his defense rights”.

In this way, companies and individuals signing plea agreements, namely with the U.S. authorities will not benefit from the protection of the non bis in idem principle under French jurisdiction, when at least part of the offense is committed in France.

Even further, this combination of decisions limits their defense rights as the guilty plea involves the waiving of the right to claim one’s innocence before other courts regarding the same offense.

Consequently, companies and individuals prosecuted in France after signing such agreements are in a somewhat inextricable situation, as they cannot properly defend themselves unless they violate the provisions of their pleas – the waiving of the right to claim one’s innocence – and they cannot benefit from the protection of the non bis in idem principle.

* * *

With this recent decision, the French Supreme Court showed a new effort in the enforcement of the anti-corruption provisions. Step by step, France is building a stronger legal framework in this matter. The use of the new tools implemented with the Sapin II law puts forward that the French judicial system is ready to tackle this new challenge.

The U.S. authorities still have a strong grip however over the prosecution of corruption related misconduct. Therefore, France needs to enhance its efforts and join forces with the U.S. within the scope of global settlement in order to develop a better enforcement in the fight against corruption and provide a real protection to defendants against double prosecutions. At last these recent developments will need to be taken into account by companies and individuals in the determination of their defense strategy.

 


New challenges arising from the conduct of internal investigations by attorneys

The development of internal investigations triggered a change of paradigm through the intervention of attorney ab initio, prior to any litigation, rather than in its traditional role ex post, after the launch of criminal prosecutions.

This new stance raises challenges for attorneys tasked with expertise or assistance and counselling activities while remaining compelled to comply with strict professional ethics.

Through a resolution passed in March 2016, the Paris Bar Council considered that internal investigations fell within attorneys’ professional field. Six months later, in September, the Paris Bar Council introduced the “Vademecum for attorneys tasked with carrying out an internal investigation”[notehttp://www.avocatparis.org/mon-metier-davocat/publications-du-conseil/nouvelle-annexe-xxiv-vademecum-de-lavocat-charge-dune[/note] providing for recommendations to be inserted in the National Regulations of the profession61 and aiming at regulating this new practice.

General and specific recommendations to be incorporated in the RIBP (internal rules of the Paris Bar) were thus set to provide a minimal framework to the activity of internal investigation and ensure that attorneys do not circumvent their ethical obligations.

General recommendations for the activity of internal investigation

The Vademecum provides that any attorney carrying out an internal investigation must comply with the core principles of the profession: conscience, independence, humanity, loyalty, delicacy, moderation, competence and prudence62.

Further, the Vademecum recalls that attorney mission is non-coercive. Hence, if an attorney interviews third parties for the purpose of carrying out an internal investigation, he/she has to inform the interviewee that he/she is not compelled to answer the questions and that the exchanges may ultimately be transcribed in a report63.

Specific recommendations for the activity of internal investigation

• Assistance and counselling activities

An attorney may be mandated to carry out an internal investigation aimed at giving an opinion or advice on a given factual situation in the light of positive law. In this case, the field of intervention falls within his mission of advice and assistance and the mandated attorney may be the usual attorney of the client, without further restrictions.

The attorney will in this case be bound by the attorney-client privilege towards his//her client exclusively – the latter being free, as opposed to his counsel, to reveal information gathered during the investigation. To ensure transparency of the investigation, the attorney will also have to inform the individuals he/she interviews that he/she acts on behalf of the client who retained him/her to carry out this investigation.

If it appears that the interviewee may be held accountable for any wrongdoing at the outcome of the investigation, the attorney will then have to inform him/her that he/she may be assisted by an attorney. An attorney failing to respect this obligation would expose himself/herself to disciplinary sanctions (French legislator limiting measures to disciplinary sanctions not to impose undue burden on French attorneys compared to UK or US counsels not subject to equivalent obligations).

After the investigation, the attorney may assist his/her client in a mutual agreement procedure or in a dispute, related or subsequent to the internal investigation, but will refrain from representing his/her client in such procedure if it is directed against an individual that he/she has interviewed during the internal investigation64. In any case, it is impossible for an attorney who conducted an internal investigation to take legal action against anyone he/she interviewed.

• Expertise activity

An attorney may also be tasked with carrying out an internal investigation in the context of an expertise activity, the attorney being in this case mandated by two parties (a legal authority and a company or one of its employees or managers)65. The attorney is then a neutral and objective third party competent to assess a given factual situation66.

In any case, the attorney will refrain from accepting such mission if he/she already is the counsel of the person retaining him/her. This prohibition stems from the fact that ethical guidelines applicable to attorneys acting as an expert or as a counsel are diametrically opposed, since an attorney in the context of an expertise activity is not bound by the attorney-client privilege (the attorney being mandated to provide a report to every parties involved).

The attorney must therefore refrain from representing one of the parties in any other procedure relating to or arising from the internal investigation, even in amicable proceedings67.

*   *   *

Internal investigations constitute a genuine revolution in the missions entrusted to criminal attorneys: before Sapin II law of 2016 providing for the implementation of compliance programs and setting up a new settlement framework, judicial confrontation and absolute secrecy were prevailing, since then, a move has been made to cooperation and transparency.

Recent enforcement actions have demonstrated increasing cooperation between French authorities and foreign enforcers, including US and UK enforcers68. The real stake for Sapin II law will then to become a serious competitor to FCPA and UKBA to contain their extraterritorial reach and ensure respect with non bis in idem principle.


Clearstream case – an opportunity to detail some constituent elements of influence trafficking and corruptions

The Clearstream case is a major political and financial scandal from the last decade which was closely linked with the Taiwan frigates case in the nineties.

Thomson-CSF along with the DCN (“Direction des constructions navales” – the Shipbuilding directorate) entered in business with the Taiwanese naval forces in 1989 in order to sell six military frigates. At first, the French President, François Mitterrand, was opposed to this deal on the advice of the Minister of foreign affairs, who wanted to preserve good relationships with China.

Between 1989 and 1991, many payments were offered to Chinese high-ranking officials, Taiwanese military officers and other French politicians for a total amount of 3 billion francs. But after a change of government in Taiwan, in 2001, bribes were exposed and Thomson sued before an arbitration tribunal which sentenced the French company to pay more than 1 billion dollars.

In 2004, this case came up again with the receipt by investigating magistrateVan Ruymbeke of a list of bank accounts (from the Luxembourgish bank Clearstream) whose owners were supposed to be linked with the bribes of the Taiwan Frigates. This document incriminated many French officials including Nicolas Sarkozy (minister of Economy at the time). Finally, the inquiry showed that this document was a fake with purpose of harming the people listed (mostly business men who were leading the arms market in France) and revealed the identity of the authors (Jean Louis Gergorin and Imad Lahoud) who were sent to jail on the ground of defamation.

Many protagonists were involved in these cases and only few are mentioned here.

However, a new judgment concerning the Clearstream case has been delivered by the French Supreme Court (‟Cour de Cassationˮ) on October 25, 20171. Indeed, two other protagonist of the Clearstream case were prosecuted for influence peddling the director of the DCN (at the time of the scandal, Gérard-Philippe Menayas) and a member of the DST (direction de la Surveillance du territoire – the internal intelligence service), also working as a business intelligence consultant. The director of the DCN had asked the consultant to use his influence toward the DST to get information about the content of the “Clearstream list”. This high Court decision concerned only the ex-director of the DCN (the other had not appealed the first instance judgment). He was convicted for active influence peddling by the first instance tribunal and court of appeal.

In its decision of October 25, 2017, the French Supreme Court overturned the decision of the Court of appeal considering that: “obtaining a document through an agent of the public administration does not amount to obtaining a favor from a public administration within the meaning of Article 433-2 of the Criminal Code, even if this document is not accessible to the public”.

According to case law, the favorable decision of the public authority must have been obtained by illegitimate means to characterize the influence peddling.


First French conviction in the “III-gottent gains” case

On October 27, 2017, Equatorial Guinea Vice-President, Teodorin Obiang (eldest son of Teodoro Obiang, President of Equatorial Guinea), was found guilty by the Paris court of money laundering, abuse of corporate assets and embezzlement of public funds and sentenced to a three-year suspended prison sentence and a suspended 30 million euros fine.

The Court also ordered the confiscation of more than 100 million euros worth of his French assets (including a 101-room mansion on the exclusive Avenue Foch in Paris valued at over €100 million, €5.7 million worth of supercars, and millions more euro worth of art, jewelry, and luxury goods).

The Court President cited the slow response from parts of the French banking system in contributing to those penalties being suspended and hence being more lenient.

Teodorin Obiang denied the charges and appealed the decision on November 3, 2017.

A warning from French Courts to foreign States representatives

This ruling comes after more than a decade of litigation initiated by two French anti-corruption organizations – Transparency International France and Sherpa – and is the first of three cases involving families of African leaders from different countries, including Gabon and Congo-Brazzaville, for allegedly laundering “ill-gotten gains” in France, to reach a verdict.

It is also the first time that a French court recognized non-governmental organizations’ standing to file a criminal complaint for probity offences.

This landmark case marks a turning point in France, which has long been seen as turning a blind eye to the families of alleged corrupt foreign States representatives accused of using “ill-gotten gains” from their nations to fund luxury lifestyles on French territory.

Procedural hurdles against French prosecutions

French jurisdiction over corruptive behaviors taking place entirely in Equatorial Guinea was however fiercely debated. French courts eventually considered that the proceeds of the offenses were used to acquire different assets on French soil (real estates, cars, art, etc.) and recognized their jurisdiction, hence demonstrating French courts’ commitment to prosecute corrupt practices perpetrated beyond French boundaries.

The diplomatic immunity of the Vice-President was also raised against French prosecutions. French courts however decided to prosecute the case. Last, Equatorial Guinea argued that the Paris mansion was a diplomatic mission and therefore untouchable.

All three questions were referred by Equatorial Guinea to the International Court of Justice (ICJ) in The Hague.

In an interim ruling of December 2016, the ICJ ordered France to guarantee the same legal protection to Obiang’s property as all other diplomatic locations – the property being accordingly protected from any further searches or seizures and auctions by French authorities until the court in The Hague has reached a final verdict on the merits of the matter. The Court however declared being not competent to rule over the question of Obiang’s immunity.

On June 6, 2018, the ICJ issued a second decision, pursuant to which the Court declared itself incompetent to rule over the question of determining if Paris courts had jurisdiction to judge a national of a foreign State concerning assets fraudulently acquired in France. The Court also confirmed lacking jurisdiction to rule over the question of Teodorin Obiang’ immunity. The Court however granted Malabo’s request on the diplomatic status of the mansion located on Avenue Foch. This decision hence probably augurs a political struggle between Paris and Malabo.

The difficult question of the restitution of seized assets

The confiscation of Teodorin Obiang’s assets in France raises the question of the restitution of the seized goods to Equatorial Guinea, to which the proceeds of the offence must be ultimately returned.

The restitution to Equatorial Guinean Government does not appear to be an option, however, whether the proceeds must be returned directly to the population of Equatorial Guinea or be restituted through pre-determined development aid project raises unanswered questions.

A selected tripartite committee composed of members of the Guinean Government, local NGOs and French representatives, having the final word over the allocation of the returned assets to commonly agreed local projects, could constitute an alternative compromise solution.

The same question might be raised in corruption cases where the AGRASC, the French authority in charge of seizing criminal assets, must restitute seized assets at the end of its investigations, in States where corruption issues are still prevalent.


Upholding of France trade secret

The French Blocking Statute (law n°80-538 of July 16,1980, the amended version of the law first passed in 1968) aims at restricting cross-border discovery of information by prohibiting any French party from disclosing commercial information (which may be strategic) whether originating from France or elsewhere in foreign litigation absent of a French court order. This law was only applied once in France in the Executive Life case in 2007 where a lawyer who had sought information for the purpose of American proceedings was fined 10 000 euros pursuant to Article 1 bis of the French Blocking Statute. The US Supreme Court held in the Aerospatiale decision in 1987 that the Blocking Statute does not prevent US courts to require the disclosure of documents during discovery. In addition to this, France signed bilateral agreements such as the Mutual Legal Assistance Treaty (“MLAT”) between France and the United States setting out the rules governing the exchange of information relevant to an investigation which waive the non-disclosure requirements of the French Blocking Statute.

The last decade has witnessed the increase of extraterritorial proceedings especially US proceedings against European companies. Indeed, the Sarbanes-Oxley Act applies the rules of discovery to companies located outside the US. Such proceedings enable American authorities to access strategic information of European companies. The European Union thus decided to implement a protection for its strategic information through the Directive of the European Parliament and the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. The European Directive is intended to have a deterrent effect against the unlawful acquisition use or disclosure of trade secrets without undermining fundamental rights and freedom of speech.

France just implemented the European Directive. Indeed, the final Bill, examined by a joint equity committee (commission mixte paritaire) in a fast track procedure (procédure accélérée) was approved by the Senate on June 21, 2018. On June 27, 2018 the opposition referred the case to the Constitutional Court.

The French legislation implementing the European Directive forbids unlawful acquisition use or disclosure of information meeting the following three requirements : “1) is secret in the sense that it is not, as  a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question ; 2) it has commercial value because it is secret ; 3) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”. The French legislation defines a new legal framework to determine whether disclosing the trade secrets is legal or not. It is worth mentioning that section 4 of the new French legislation enumerates the exception to the protection of trade secrets namely when the acquisition, use or disclosure of information is carried out “for exercising the right to freedom of expression and information as set out in the Charter of fundamental rights of the European Union».

The new French legislation has suffered several criticisms and some NGOs considered that it could seriously jeopardize the public’s right to information by limiting the disclosure of information (as in the LuxLeaks or the Panama Papers case). It should however be highlighted that the joint equity committee (commission mixte paritaire) abandoned the criminal offence relating to the misappropriation of a protected business information whereas the civil fine for strategic lawsuit against public participation was restored.

The efficiency of the protective mechanism implemented by the French legislation could however be challenged in a global context. Indeed, it should be underlined that pursuant to section 4 of the law, trade secret is not protected when the obtaining, use or disclosure of the secret is required or authorized by European Union law, international enforceable treaties and agreements or in the exercise of investigative, sanctioning, authorizing powers of judicial or administrative authorities. This provision can be interpreted as if a request presented by a foreign authority within the scope of a cooperation agreement would be authorized by national law, meaning that trade secrets would not be protected in such cases. The new legislation could therefore be construed as allowing discovery injunctions by foreign courts. Finally, it must also be outlined that the new legislation does not take into account the particularities of common law and can therefore jeopardize its enforcement and efficiency.


France seeks to reinforce its anti-corruption and compliance arsenal

France suffered harsh criticism with regard to its anti-corruption legislative framework and the resources allocated to the fight against corruption. The Sapin II law entered into force on December 11, 2016 and strengthen the French anti-corruption and compliance arsenal. In order to reinforce the efficiency of this legislative tool, the report of the investigatory commission on public economy released on April 18, 2018 recommends to imitate the mechanisms implemented by common law countries with regard to anti-corruption investigations.

For example, the report suggests that companies being investigated by French authorities bear the cost of the investigation according to their global revenues.

Société Générale is the most recent entity to have signed a French-style deferred prosecution agreement (convention judiciaire d’intérêt public) with the National Financial Prosecutor (Parquet National Financier) on May 24, 2018 and approved by the Paris Court on June 4, 2018. This agreement puts an end to investigations relating to transactions with Libyan counterparties, including the Libyan Investment Authority (LIA) and suspicions of corruption of foreign public officials and compels the bank to pay a public interest fine of €250,000,000. Société Générale is also obliged to establish an anti-corruption programe which will be closely monitored by the French Anti-Corruption Agency (Agence Française contre la Corruption, AFA) for two years in order to insure ‟the quality and the effectivity of the preventive measures to fight corruptionˮ. Société Générale will bear the costs of the monitorship up to €3 million.

The Sapin II law also gave extraterritorial prerogatives to the Prosecutor and, consequently to the French AFA. Indeed, prior to the entry into force of the Sapin II law, offenses committed by French nationals outside France could also be prosecuted in France, but only on two conditions: the facts were criminalized in the country of the place of their commission and the prosecution may only be initiated at the request of the Public Prosecutor. The Sapin II law repealed these two conditions for bribery and influence peddling, thus reinforcing the prosecution of these offenses. In addition, the Sapin II law expressly provides that French law is no longer applicable only to French nationals who have committed bribery and influence peddling offenses abroad. Are now covered, all persons usually residing or exercising all or part of their economic activity on the French territory.

The new French anticorruption system aims at competing with foreign authorities. Scholars have argued that whereas French companies must comply with DOJ and SFO requirements, the French Prosecutor struggles to prosecute foreign entities. The objective of the Sapin II Law is therefore to improve the French compliance and anti-corruption legal framework to minimize foreign interferences. The CJIP signed by Société Générale on May 24, 2018 with the Parquet National Financier (National Financial Prosecutor) is the first example of a cooperation between the French Prosecutor and the Department of Justice. Société Générale was fined 250,15 million euros by the French authorities and 292,8 million euros by the US authorities for the same charges.

The report released on April 18, 2018 by the investigation commission on public economy emphasized the need to increase transparency with regard to mergers and acquisitions operations. Indeed, recent M&A deals (such as Alstom, Alcatel, STX) have casted a doubt about the ability of French authorities to regulate investment bankers’ activities. The report recommends that investment banks would have to comply with Sapin II law regarding reporting requirements and ethics rules as they fall within the “interest representatives” (lobbyists) category which have to comply with the strict transparency rules of the High Authority for Transparency in Public Life (HATVP).


Enforcement / Court Decisions

Constitutional Council rules Executive prosecutorial oversight not in breach of separation of panel on the independence of the Public Prosecutor towards the executive

Article 5 of the legal ordinance of December 22, 1958 provides that: “Prosecutors are placed under the direction and control of their hierarchy and under the authority of the Minister of Justice. At the hearing, their word is free.”

The independence of the Public Prosecutor is a long-standing debate and is subjected to harsh criticism. The judges union representatives indeed considered that the abovementioned provisions violate the principle of the separation of powers. On December 8, 2017 the Constitutional Council however ruled that article 5 of the legal ordinance of December 22, 1958 was in compliance with the Constitution. The Constitutional Council indeed considered that this article is compatible with the independence of the judiciary. Indeed, pursuant to article 30 of the French criminal procedure code the Minister of Justice provides general instructions with regard to the criminal policy to prosecutors but not for individual cases. The Constitutional Council thus considered that the provisions of the French constitution guarantee a well-balanced system between the independence of the judiciary and the government prerogatives and do not violate the principle of the separation of powers.

French-style DPAs: CJIP (Convention Judiciaire d’Intérêt Public)

November 14, 2017: Judicial approval of the first CJIP in the HSBC case
PBRS, a Swiss subsidiary of HSBC was prosecuted in France by the National Financial Prosecutor (Parquet National financier, PNF) on charges of money-laundering of tax fraud between 2006 to 2009 in Switzerland for French clients or clients having connections with France.

The company acknowledged the facts and signed a CJIP with the PNF on October 18, 2017. The CJIP imposed several obligations to HSBC namely the payment of a 300 M€ penalty (a €158 million fine and €142 million in damages) and the implementation of compliance measures. On November 14, 2017, the President of the Paris Court (Tribunal de Grande Instance) approved the CJIP. The amount of the fine represents the maximum that could be imposed on a company pursuant to a CJIP (i.e. 30% of the average turnover of the company for years 2014 to 2016). The legal maximum was thus exceeded by adding €142 million euros in damages.

February 23, 2018: Judicial approval of the CJIP in the Kaefer Wanner case
Kaefer Wanner is a French company which does maintenance and repair work over industries, nuclear power plant, building and ships. The company paid bribes to an employee of the French state electricity supplier (EDF) in order to access new markets between 2004 to 2011. On February 2, 2018 Kaefer Wanner signed a CJIP with the Public Prosecutor in Nanterre and agreed to pay a €3,3 million fine. The fine was reduced to €2,1 million due to the cooperation of the company with the authorities and the implementation of anti-corruption measures namely the appointment of a new chief compliance officer and the implementation of a training programe for the employees. Pursuant to the Sapin II law, the company is monitored by the French Anti-Corruption Agency (AFA) which is in charge of assessing the company’s compliance programme. The company agreed to pay damages to EDF even though one of the state company’s employee instigated the corrupt practices. 

June 4, 2018: Judicial approval of a CJIP in the Société Générale/LIA case
Société Générale was involved in a dispute relating to commissions paid to a Lybian broker close to the Gaddafi regime in connection with investments made by the Lybian states institutions.

In 2016, two years after the US DOJ, the PNF launched a preliminary investigation in connection to the investments Lybian Investment Authority (LIA) has made with Société Générale.

In May 2017, Société Générale and the LIA have agreed to settle a long-running dispute as the case was due to start in London’s High Court. The Lybian sovereign wealth fund had claimed that corrupt practices involving the payment of a $58,5 million by Société Générale to a Panama-registered company called Leinada. The LIA and Société Générale signed a settlement agreement covering the financial transactions subject to the legal action in front of the English Court.

On May 24, 2018, Société Générale signed a CJIP in France with the PNF and a DPA with the DOJ. The company agreed to pay €250 million to the French authorities and €250 million (293M$) to the DOJ.  This negotiated settlement paves the way of the cooperation between the US and French authorities in the fight against corruption at the global scale.

US guilty plea not valid ne bis in idem defense

The Vitol Case refers to the Oil for Food matter which enabled Iraq (under embargo) to sell oil in exchange for humanitarian supplies matter from 1993 to 2003. In the aftermaths of the unveiling of this scandal, the oil trading company Vitol was prosecuted in the United States for bribery. Vitol entered into a guilty-plea in New-York State court for “grand larceny” under New-York criminal law.

The company was also prosecuted in France for the same facts and claimed that the guilty plea shielded the company from further prosecution pursuant to the French principle ne bis in idem. In March 14, 2018, the French Supreme Court (Cour de Cassation) ruled that the ne bis in idem principle could not be considered as a valid argument for companies trying to avoid criminal proceedings in France after signing a guilty plea in the US. In this decision, the French Supreme Court ascertained a broad appreciation of its territorial jurisdiction in order to enhance the prosecution of international corruption.

Recognition of enhance legal privilege to come?

In France, correspondence between in-house counsel is not protected by attorney-client privilege and the French Supreme Court refused to grant it legal privilege. On November 8, 2017, the Court of Appeal of Paris however ruled that in the context of assistance and counselling activities, correspondence and e-mails exchanged between legal counsels within the company are protected by attorney-client privilege if the communication relates the defense strategy set out by the lawyer.

Anti-corruption NGOs’ standing in criminal procedure limited

In two recent rulings, the French Supreme Court has adopted a literal and restrictive interpretation of the requirements for anti-corruption NGOs to have legal standing, both under Articles 2 and 2-23 of the French Code of Criminal Procedure.

In its first decision of October 11, 2017 (‟Balkany caseˮ on the conviction of Levallois-Perret’s mayor for laundering of tax fraud and corruption proceeds, passive bribery and non-declaration of assets), the Court ruled that the NGO did not meet the requirements of Article 2 of the French Code of Criminal Procedure as the NGO did not suffer from a damage directly caused by the offense.

In its second holding of January 31, 2018 (‟Bygmalion caseˮ on the financing of the political campaign of former president Nicolas Sarkozy by its political party, in breach of the rules governing financing of presidential campaigns), the French Supreme Court confirmed its strict interpretation of the provisions of both Articles 2 and 2-23 by rejecting the anticorruption NGO Anticor’s claim for damages in pending proceedings for forgery and use of forged documents, breach of trust, attempted fraud, complicity, and concealment.

The Court ruled that Anticor may not join as civil party to a proceeding which did not cover any of the offenses provided for by Article 2-23 and considered that Anticor did not suffer any damage directly caused by the offense pursuant to Article 2.

Supreme Court strict rulings however provide for a pragmatist application of the “specialia generalibus derogant” rule, which would preclude NGOs to avail themselves of Article 2 when failing to meet the requirements of Article 2-23.

  1. Evan Lebastard, Fraude fiscale : le “verrou de Bercy” en question, France Culture, May 16, 2018.
  2. Article L.228 of the Livre des procédures fiscales (“Under penalty of inadmissibility, the complaints tending to the application of criminal sanctions in the matter of direct taxes, added-value tax and other taxes relating to the turnover, registration fees, land publicity tax and stamp duties are issued by the administration with the approval of the CIF. The CIF examines the cases referred to it by the Budget Minister. The taxpayer is notified of the referral, which in turn invites the taxpayer to address the commission the deemed necessary information. However, the committee examines the case without the taxpayer being notified of the referral or informed of its opinion when the Budget Minister argues that there is a strong presumption that a tax offense for which there is a risk of loss of evidence results from: 1 ° The opening of accounts or signing of contracts with bodies established abroad; 2 ° the interposition of individuals or legal entities, trusts or comparable institutions established abroad;3 ° The use of a false identity or false documents within the meaning of Article 441-1 of the Penal Code, or any other falsification;4 ° A fictitious or artificial tax registration abroad;5 ° Or any other method intending to mislead the administration. The minister is bound by the opinions of the commission. A decree in Council of State fixes the operating conditions of the commission”).
  3. Ibid
  4. Direction Générale des Finances Publiques, Infractions et sanctions pénales – Poursuites correctionnelles – Délit générale de fraude fiscaleMise en œuvre des poursuites, BOI-CF-INF-40-10-20-20150618, June 18, 2015.
  5. Article L.228 of the Livre des procédures fiscales.
  6. See. Direction Générale des Finances Publiques supra note 4.
  7. Ibid
  8. AFP, Fraude fiscale : des associations demandent la suppression du “verrou de Bercy”, March 6, 2018.
  9. Pierre Januel, Verrou de Bercy : la parole est à la justice, Dalloz Actualité, Jan. 19, 2018.
  10. Ibid
  11. Ibid
  12. Ibid
  13. Ibid
  14. The Cour des comptes is the supreme body for auditing the use of public funds in France. It is independent from the Government and Parliament. It has financial jurisdiction and is in charge of auditing, issuing rulings and certifying the State and Social Security accounts, as well as contributing to the evaluation of public policies.
  15. Ibid
  16. Pierre Januel, Verrou de Bercy : l’administration répond à la justice, Dalloz Actualité, Feb. 15, 2018.
  17. Ibid
  18. Ibid
  19. Ibid
  20. Ibid
  21. Ibid
  22. Pierre Januel, Verrou de Bercy : la mission parlementaire veut donner les clés à la justice, Dalloz Actualité, May 23, 2018.
  23. Ibid
  24. Ibid
  25. Ibid
  26. Ibid
  27. Ibid
  28. Ibid
  29. Ibid
  30. Christophe Rolland, Creation de l’Agence Française anticorruption par la loi “Sapin 2” : quels moyens pour quelle action ? AJ Collectivités Territoriales, March 10, 2017.
  31. Ibid.
  32. Pauline Dufourq, Les contrôles de la nouvelle agence française anticorruption, Dalloz Actualité, November 10, 2017.
  33. Christophe Rolland, Creation de l’Agence Française anticorruption par la loi “Sapin 2” : quels moyens pour quelle action ? AJ Collectivités Territoriales, March 10, 2017.
  34. Agence Française Anticorruption, la Commission des Sanctions, https://www.economie.gouv.fr/afa/commission-des-sanctions (last update on June. 25, 2018).
  35. Ibid.
  36. Sarah Farhat, Lutte anticorruption, – un flou artistique savamment agacé, Juris Associations 2018, n°575, p. 36 (March 15, 2018).
  37. The French Anticorruption Agency guidelines to help private and public-sector entities prevent and detect corruption, influence peddling, extortion by public officials, unlawful taking of interest, misappropriation of public funds and favoritism, These Guidelines complete the arrangements established by the abovementioned Act of 9 December 2016 and are France’s official anticorruption policy framework.

  38. Conseil d’Etat, Avis consultatif sur le projet de loi relatif à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique, N°391.262, March 30, 2016.
  39. Ibid.
  40. Jamie L. Boucher et al., The Sapin II Act: New Perspectives on Cross-Border Investigations, December 22, 2017.
  41. AFA, Rapport annuel d’activité, p. 27 2017.
  42. [1] G. Poissonnier & J.C. Duhamel, Convention judiciaire d’intérêt public : le 23 février 2018 fera date!, Recueil Dalloz 2018 p.898, May 3, 2018.
  43. Cour de cassation, criminal division, March 14, 2018, n°16-82.117.
  44. November 20, 2007, Plea Agreement.44November 20, 2007, Plea Agreement.
  45. Paris Criminal Court, July 8, 2013, Oil for food Case I.
  46. Article 14-7 of the 1966 International Covenant on Civil and Political Rights (“no one shall be liable to be tried or punished again for an offense for which he has already been finally convicted or acquitted in accordance with the law and criminal procedure of each country”).
  47. Paris Court of Appeal, 2016, n°13/09208 – Oil for food Case I.
  48. Article 113-6 of the Criminal Code (“French criminal law is applicable to any crime committed by a French national outside the territory of the Republic. It is applicable to offences committed by French nationals outside the territory of the Republic if the acts are punishable under the legislation of the country where they were committed […].”).
  49. Article 113-7 of the Criminal Code (“French criminal law is applicable to any crime, as well as to any offence punishable by imprisonment, committed by a French national or by a foreigner outside the territory of the Republic when the victim is a French national at the time of the offence.”).
  50. Article 113-9 of the Criminal Code (“In the cases provided for in Articles 113-6 and 113-7, no prosecution may be initiated against a person who establishes that he was subject to a final decision abroad for the same offense and, in the event of conviction, that the sentence has been served or prescribed.”).
  51. Article 113-2 of the Criminal Code (“French criminal law is applicable to offences committed on the territory of the Republic. The offence shall be deemed to have been committed on the territory of the Republic if one of its constituent acts took place on that territory.”).
  52. Cour de cassation, Criminal division, March 14, 2018, n°16-82.117.
  53. Cour de Cassation, Criminal division, October 11, 2017 (The Cour de cassation held that French jurisdiction over a case of bribery of foreign officials was namely justified by the fact that the different offenses prosecuted were indivisible so that the offenses deemed to have been committed on French territory were indivisible from the offenses which could have been committed abroad).
  54. Cour de cassation, criminal division, March 14, 2018, n°16-82.117 (The Cour de cassation pointed out that with regards to the scope of Article 14(7) of the ICCPR, the United Nations Committee held in 1987 that this article was only applicable to double prosecutions initiated in the same State).
  55. ECHR, February, 2018, Krombach v. France, req. n° 67521/14
  56. For instance, in 2015, BNPP was sentenced in 8,9 $ accord resolving claims that it violated U.S. sanctions against Sudan, Cuba and Iran. Crédit Agricole Corporate and Investment bank was also sentenced in 312 $ accord resolving claims it violated New-York state law by falsifying the records of New-York financial institutions. Some examples include as well other industries than banks. Alstom, Total and Technip respectively paid 683 million, 217 million and 212 million-euro fines to U.S. authorities to settle anticorruption enforcement actions.
  57. Matthew Stephenson, Further developments on French law regarding anti-bribery prosecutions by multiple States, The global anticorruption blog, April 19, 2018.(Matthew Stephenson, Further developments on French law regarding anti-bribery prosecutions by multiple States, The global anticorruption blog, April 19, 2018.
  58. Antoine Kirry and Robin Lööf, French DPAs lack crucial disgorgement tool, GIR, February 27, 2018.
  59. Cass Crim. 17 janvier 2018 n°16-86.491.
  60. https://www.cnb.avocat.fr/sites/default/files/rin_2018-01-29_consolidefinal.pdf
  61. Annex XXIV: Vademecum for attorneys tasked with carrying out an internal investigation; Article 1.1
  62. Annex XXIV: Vademecum for attorneys tasked with carrying out an internal investigation; Article 1.3
  63. Annex XXIV: Vademecum for attorneys tasked with carrying out an internal investigation; Articles 2.1 to 2.6
  64. https://www.gazette-du-palais.fr/wp-content/uploads/2017/12/904.pdf, « L’avocat chargé d’une enquête interne, une révolution ! » , Jean-Pierre Grandjean, December 13, 2016
  65. Article 6.2, para. 5 of the National Regulations of the lawyers’ profession.
  66. Annex XXIV: Vademecum for attorneys tasked with carrying out an internal investigation; Articles 3.1 to 3.4
  67. https://www.covafrica.com/2018/06/what-companies-need-to-know-about-frances-loi-sapin-ii-anti-corruption-law/