Bastille Day Newsletter 2019

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NAVACELLE
Bastille Day Newsletter
Génie de la liberté

Index

Editor’s Note

Legislative, Regulatory & Policy Updates

Enforcement / Court Decisions

What’s Hot Beyond

Navacelle in the news / news at Navacelle


Editor’s Note – Heroic stoicism: In troubled times not losing it is being heroic

Happy 2019 Bastille Day!

While lawmakers seem to have lost pace with technological progress and societal unfolding, enforcement is beyond comeback with lawyers and clients bracing for recurrent collisions between legal cultures, enforcement policies and political Hail Marys. More than ever, the unassuming bond of interpersonal trust will tie the legal profession together through deep waters which lie ahead.

Lawyers at Navacelle thought you might be interested in reviewing a selection we made of noticeable French-related events in the fields of corporate criminal liability, criminal procedure and compliance over the past year, so we put together our Third Bastille Day Newsletter!

We hope you will find some of what follows of use and will be happy to answer any inquiry you might have in Arabic, English, French, German, Portuguese or Spanish.

Best wishes,

Stéphane & team


Legislative, Regulatory & Policy Updates

MP provides PM with guidelines to reassert French and European Sovereignty and shied companies from the long arm of (US) law

On June 26, 2019, at the request of the French Prime minister, Edouard Philippe, the Député Raphaël Gauvain published recommendations to “[r]e-establish French and European Sovereignty and protect [French] businesses from of extraterritorial law and measures1” in response to US enforcement actions against French companies.

French sovereignty jeopardized by US extraterritorial measures

During the past years, French and European companies have paid billions of dollars in fines on the ground that their business practices, customers and some of their payments did not comply with US laws. Even in cases where the misconduct did not occur on US soil and cases in which the company was compliant with local regulation, French and European companies have been subjected to US extraterritorial reach.

Considering this, the parliamentary committee headed by Député Gauvin stresses the lack of legal tools available to French companies to defend themselves against the US criminal proceedings.

The report denounces the selective prosecution methods and the disproportionate fines imposed, in that “only European and Asian companies which are direct competitors of American companies are pursued”, seemingly “motivated by economic reasons”.

It also assesses that US prosecutions infringe upon the sovereignty of foreign countries to which prosecuted companies belong and neglect the Conventions on Mutual Assistance in Criminal Matters and Administrative Cooperation.

The report adds that this trend poses the considerable risk that other countries establish extraterritorial laws allowing them to act in the same way.

French sovereignty to be reasserted by Report recommendations

The report issues three recommendations and six additional suggestions for reforming French protection law.

A. Legal privilege for in-house lawyers

France is one of the world’s largest economies that does not award confidentiality to in-house counsel communications – placing French companies at a competitive disadvantage and leading to the outsourcing of their legal department to other jurisdictions2.

The main reform suggested by this report is to introduce legal privilege to protect in-house counsel documents and particularly legal consultations on defense strategy through the establishment of a new in-house counsel status.

These counsels will be registered at the French Bar on an ad hoc list and will work exclusively for the company without however being authorized to argue in court.

B. Anti-cloud act provisions

The report also calls for the extension of the GDPR3 to protect European company data against the new US 2018 Cloud Act4.
The new law suggested by the Gauvain Report is to sanction hosting companies from communicating French company data by imposing administrative fines of up to of 4% of their global turnover. Private individuals will risk fines of up to 20 million euros5.

C. Strengthening the Blocking Statute

As stated by the report, the French Blocking Statute6 needs to be strengthened to force foreign entities to cooperate with French authorities.

In this regard, the Statute must provide for a mandatory alert system, the establishment of a governmental authority that will lend support to companies and an increase in the sanctions for violations of the Statute.

The report includes six other recommendations, including the broadening of the scope of the French equivalent of the Deferred Prosecution Agreement7 to allow France to pursue French financial misconducts more efficiently and independently, and turning to the International Court of Justice and the Organization for Economic Cooperation and Development to establish international rules on extraterritoriality.

Raphaël Gauvain underlined that it is now up to the French government to bring forward a legislative proposition.

 


Anticorruption Agency (AFA) and Financial Prosecutor (PNF) take a stance in favor of DPAs though Guidelines

The number of French DPAs – the Convention Judiciaire d’Intérêt Public (“CJIP”) – is on the rise, both domestically and as part of cooperation in global enforcement. To some extent, the French guidelines show considerable proximity with what is happening other side of the Atlantic Ocean and the English Channel.

The AFA & PNF strengthen the French prosecutor’s power to settle

On June 27, 2019, the National Financial Prosecutor (“PNF”) and the French Anti-corruption Agency (“AFA”) released guidelines that details the CJIP mechanism. In this regard, companies are required to cooperate and to initiate internal audits.

The guidelines begin with a reminder of the negotiation process and identifies what needs to be achieved to secure a CJIP.

It also highlights the advantages of a CJIP for a company. Several additional penalties regularly issued by tribunals such as exclusion from public tender for instance, cannot be imposed through a CJIP.

One of the focal points of the guidance is the assessment of the fine. The amount of the fine will be determined by several criteria including the benefits resulting from the misconduct, overall revenue, and the severity of the misconduct.

PNF and AFA clearly encourage legal entities to self-report facts and to cooperate with French prosecuting authorities. This constitutes a major change in the French criminal system where previously, there was not much room for cooperation, discussion and negotiation with Prosecutors (except in a very limited way with the French plea bargaining, the Comparution sur reconnaissance préalable de culpabilité (“CRPC”).

Furthermore, the guidance underlines the idea that the CJIP favors international coordination between foreign authorities prosecuting the same facts.

By aligning itself with the US approach, France attempts to protect itself from DOJ prosecution – major sanctioning authority with its tendency to apply extraterritoriality.

Brief contrast & compare with DOJ April guidance

On April 30, 2019, the Criminal Division of the DOJ published updated guidance on the “Evaluation of Corporate Compliance Programs8.” Unlike French Sapin II law9, the Foreign Corrupt Practice Act (“FCPA ”) provides that corporate compliance programs must be evaluated exclusively in the context of criminal investigations.

This new guidance emphasizes the role of the prosecutor when evaluating the effectiveness of corporate compliance programs. There are “common questions that [the DOJ] may ask in the course of making an individualized determination”. According to this guidance, prosecutors are required to consider three questions:

(i) “Is the corporation’s compliance program well designed?”
(ii) “Is the program being applied earnestly and in good faith?’ In other words, is the program being implemented effectively?
(iii) “ Does the corporation’s compliance program work in practice?

The guidance uses these questions as the framework for the 12 most common compliance concerns10. It sets out the criteria for a well-designed compliance program and instructs the prosecutor to assess the effectiveness of internal compliance programs – strengthening its decisions with the examination of compliance programs’ efficiency11.

 


Anti-corruption Authority (AFA) releases 2018 activity report – audits, guidance & more

On June 19, 2019, the French Anti-Corruption Authority (Agence Française anti-corruption “AFA”) published its 2018 activity report12. It relates the first full year of activity of the Agency, since its establishment in September 2017.

The report relates that the AFA has carried out 47 audits13 on companies governed by Sapin II law14, has developed 8 educational documents for economic actors, has organized 17 seminars with professional organizations, has answered 152 questions that were submitted by economic operators and provided individual assistance to 20 companies and public authorities that requested it15.

Soft law publications

During the first 2019 semester, several guidelines were published by the Agency to assist companies in their compliance with anti-corruption law.

1. Guidance on the anti-corruption compliance function in a company

On February 4, 2019, AFA published its guidance on the anti-corruption compliance function16, – the first guide of a series of six to be released17.

Through this document, AFA provides key elements to companies on how to structure an efficient compliance function, in line with the requirements of Article 1 of Sapin II Law18. It states that the main duty of this function is the deployment and implementation of the compliance program within the company.

In this 18-page guide, the AFA identifies eleven tasks assigned to the compliance function among which features the implementation of an internal alert procedure or a disciplinary scheme.

2. Guidance on compliance for mergers and acquisitions

In April 2019, the AFA published a draft compliance guide for mergers and acquisitions (“M&A”). This guidance describes corruption risks faced by companies in the M&A context and explains how they can be mitigated19.

3. Guidelines on the French DPA (Convention Judiciaire d’Intérêt Public: “CJIP”)

On June 27, 2019, in partnership with the National Financial Prosecutor (PNF), the AFA released guidance on the CJIP’s implementation, in order to clarify the conditions of CJIP implementation and encourage corporation cooperation with the judicial authorities and the AFA20.

Audit mission and first hearing

On June 25, 2019, the first hearing of the AFA Commissions of Sanctions was held. the Director of the AFA, Charles Duchaine, referred a French company21 to the Commission of Sanctions for the first time, for failing to implement a proper compliance program22.

The Commission of Sanctions can impose three kinds of sanctions in the event that companies breach their obligation to implement an internal compliance program23. It can issue an injunction to the company in order to conduct enhancements of its compliance program or issue financial penalties24. Additionally, it can order that the company publish or display the decision25

International anti-corruption framework

On June 7, 2019, in partnership with the Group of States against Corruption of the Council of Europe26 and the Organization for Economic Cooperation and Development27, the AFA launched an international mapping project.

This initiative will map national authorities in charge of preventing and fighting corruption. This project intends to contribute to international cooperation actions.

 


May 22 PACTE Law strengthens French Competition Authority investigative powers

The Action Plan for Enterprise Growth and Transformation, (the “ PACTE Law ”) empowers companies to innovate, transform, develop and create jobs 28.

Validated by the French Constitutional Council on May 16, 2019, it came into force on May 22 and intends “remove obstacles to companies’ growth at all stages of their development, from their creation to their transfer, including their financing29.

The PACTE law has been the subject of much criticism from lawyers and business leaders on account of its general lack of clarity 30 and more significantly the extension of the Competition Authority’s investigative powers 31.

New prerogatives to detect anti-competitive actions

The Competition Authority is a French independent administrative authority in charge of controlling and regulating anti-competition practices and investigating the efficiency of the market system. It is not a jurisdiction but has injunction and sanctioning powers as well as investigation prerogatives.

The entry into force of the PACTE Law has extended the powers of the Authority, by strengthening its investigative powers.

For the purpose of investigating and detecting infringements of competition law or anti-competitive practices, the Authority’s agents now have access to the detailed invoices from mobile operators, which list all calls received and issued by their subscribers 32.

Under previous legislation, the Authority could seize employee mobile phones or invoices from certain companies suspected of anti-competitive practices but could not get the information from the source 33.

The September 6, 2015 Macron law 34 had already sought to grant this power to the Competition Authority but was censored by the Constitutional Council due to a lack of privacy safeguards 35.

Sort-of safeguards

The PACTE Law has raised serious questions about the respect of the right to privacy . prerogatives, its president Isabelle de Silva, insists that proper guarantees have been put in place 36.

The Competition Authority recalled that no access is given to the content of telephone conversations and specified that the right of access to data stored and processed by operators is subject to the agreement of a controller of data connection requests.

This controller will alternately be an irremovable magistrate of the French Council of State (Conseil d’Etat) or the French Supreme Court (Cour de Cassation) appointed by the General Assembly of the high court concerned, for a period of 4 years, which may not be renewed 37.

The text also provides guarantees of independence, since the controller may not receive or seek instructions from the Competition Authority or any other authority, in the performance of his duties 38.

This mechanism has been validated this time by the Constitutional Council 39.

New investigative powers likely to facilitate Authority investigations

Lawyers fear that the Authority will collect information regardless of whether they are work-related or personal. Some lawyers would have preferred a real jurisdictional magistrate to authorize seizures 40.

A further risk is that the mere existence of telephone conversations between two employees of competing companies, regardless of context, may be systematically used by the Authority to request authorization to carry out raids and seizures, or may even be directly exploited to presume the existence of an infringement 41.

 


New law & executive orders increase the reach of tax offenses enforcement

In the aftermath of the UBS42 and Cahuzac43 scandals, a law established in October 201844 aims at better identifying and sanctioning fraud, with a focus on aggravated tax fraud.

This is reflected in the reinforcement of resources allocated to the fight against fraud, the facilitating of criminal prosecution and the increase of existing tax sanctions and criminal sentences for offenders.

The law on the fight against fraud reinforces the efficiency of tax fraud investigations

The law on the fight against fraud creates a judicial police service within the Budget Ministry, under the supervision of the judiciary45.

This new judicial police service was set up on July 3, 2019 by the Minister of the Budget, Gérald Darmanin46. There are currently 25 investigators and 40 investigators are to be expected by the fall47.

The tax investigators are competent on French soil, investigate tax fraud, aggravated tax fraud and the laundering of the proceeds of such offenses and have police powers – adversely to tax agents in charge of tax inquiries48. They have in particular the powers to put individuals in police custody and can carry a weapon.

Additionally, new investigative powers are introduced for the judicial tax officers in the French criminal procedure code. They now have access to criminal police history files49 and can liaise with police from other EU Member States in order to exchange information50.

Tax agent access to police powers is counterbalanced by the widened access to tax administration files by other people likely to encounter fraud in the course of their investigative missions. This is a breakthrough in the fight against fraud, as a significant amount of information is protected by tax secrecy. Exchange of tax information is thus facilitated between the different French administrations and in fine to the judiciary.

Bercy shares its power to prosecute tax fraud with the judiciary

Initially, for the prosecution of tax offenses under French law, the Prosecutor first had to obtain the approval of French tax authorities, commonly referred to as “Bercy” to initiate criminal proceedings51. The Bercy monopoly was unlike ordinary criminal procedures and suffered a lot of criticism, as considered an obstacle to the prosecution of tax offences.

The law puts a partial end to the Bercy monopoly as it provides for specific situations where the tax administration must automatically refer the case to the Prosecutor. This is the case (i) for major fraud involving duties above 100 000 euro when the tax administration applied a tax penalty (whether 100%, 80% or 40%)52 (ii) when a tax penalty was applied to a person bound to declare his/her patrimony to the High Authority for the Transparency of Public Life53. In addition, the Bercy monopoly no longer applies when the investigation uncovers new facts concerning the same individual.

The goal is thus to draw a distinction between minor and major fraud. This is in line with the French Constitutional Council position which considered that it is possible to combine a tax penalty and a criminal sentence for the most serious breaches of tax obligations54.

One thousand cases from Bercy were sent to court last year, and the Budget Ministry believes this number could double pursuant to the enactment of this law.

Plea-bargaining and judicial conventions of public interest extended to tax fraud

Another significant legal development introduced by Sapin II law is that the Prosecution can now use negotiated procedures such as plea-bargaining (comparution sur reconnaissance préalable de culpabilité) and the French equivalent of the DPA (convention judiciaire d’intérêt public, “CJIP”) for tax offences. This shows an extension of the negotiation from tax administration to prosecution in tax-related matters.

The law against tax fraud also introduced several others mechanisms to enhance the efficiency of the fight against fraud such as the “Name and Shame” (i.e., the publication of tax sanctions imposed on companies in serious breach of their tax obligations), the establishment of a tax sanction for intermediaries who intentionally help a taxpayer commit tax fraud, the broadening of the tax flagrance procedure, and the tightening of the provisions relating to tax-privileged States and non-cooperative territories.

 


Compliance monitorship by the French Anti-Corruption Agency (AFA)

The French Anti-Corruption Agency (AFA) was empowered by the Sapin II Law55 to handle monitorships of companies as part of the implementation of the French Deferred Prosecution Agreements (Convention Judiciaire d’Intérêt Public “CJIP”). As of today, the monitorship process is still under experimentation and some consider it too narrowly focused on anti-corruption and recommend assessing other areas of compliance risk56.

Conditions and process of the AFA monitorship

Since 2017, France has introduced the CJIP into its legal system, a means by which companies, under determined conditions, can escape public proceedings by paying a fine or complying with certain obligations57. These obligations can be the implementation of an action plan58 aimed at improving the company’s compliance system under the AFA’s control for a maximum of 3 years59.

Given the complexity of the tasks resulting from monitoring a company, the AFA may delegate to or be assisted by law firms and experts60, as long as the monitorship complies with budget restrictions. Indeed, in an interview given to the Global Investigations Review (GIR), the AFA’s director of strategic analysis and international affairs, Renaud Jaune, considered that this externalisation “may prove too costly” 61 for the company, which must bear the costs.

The French monitoring procedure includes 5 stages. After an initial audit, a report establishing the action plan is drafted and then validated by the AFA. During the implementation’s phase, the AFA undertakes several tests to verify the company’s evolution and report annually to prosecutors. Finally, the AFA will draft a concluding report addressed to the prosecutors, evaluating whether the company has reached the required goals62.

Moreover, according to Julien Laumain, an AFA compliance expert, the Agency has a specific role in foreign monitorships on French companies, particularly by ensuring that national security-sensitive information will be protected from foreign monitors63.

Results and perspectives

In 2018, among the 5 companies that have entered into CJIP, 4 of them have had designated the AFA as a compliance monitor64. The most significant case concerns the French bank Société Générale, which agreed in May 2018 to a EUR 250 million fine and a 2-year monitorship65. This case is particularly significant, as it is the first US and French joint bribery resolution, signed with both the French National Financial Prosecutor’s Office (“PNF”) and the US Department of Justice (“DOJ”). As part of the settlement, the DOJ was asked by lawyers to allow the AFA monitorship to be set up instead of a DOJ monitorship66.

Although it is too early to determine whether this type of agreement is to become common practice, it is a turning for US/France cooperation67. The AFA Director Charles Duchaine, declared that these agreements would be used as prototypes, and that France must be competent to monitor French companies, even when the monitorship obligation of comes from a foreign authority68.

According to the 2018 AFA activity report, the first 4 monitorships clearly shown that at least 2 years are required in order to execute an effective control. Moreover, 2 of the CJIPs concluded in 2018 took place at a moment in which the company was operating a managerial change.

The AFA concludes that it can be in the interest for the company to accept a monitorship that will erase previous mistakes and improve its reputation regarding ethics issues69.

 


A brief compare and contrast between European and French whistleblowing mechanisms & the EU Directive

France established protective legislation for whistleblowers similar to nine other European countries70. Whistleblower protection in France was reinforced in December 2016 with the enactment of the Sapin II Law.

The Sapin II law defines the whistleblower, establishes channels by which information is to be reported and introduces measures to ensure whistleblower protection71.

Recent cases – Panama Papers, Luxleaks, Dieselgate or Cambridge Analytica – demonstrate the need to define and protect whistleblowers non only at a national level, but also at a European level.

On March 14, 2019, a new whistleblower directive on the protection of persons reporting on breaches of European Union law was approved in Strasbourg72. EU Member States will have two years after the finalization of this text to implement the rules into each country’s legal system.

(i) The definition of a whistleblower

French law defines a whistleblower as “a physical person who reports, selflessly and in good faith, a crime or an offence, a serious and obvious breach of an international commitment duly ratified or approved by France, of a unilateral act from an international organization issued on the basis of such commitment, of law or regulation, or a serious threat or harm to the public interest, of which he has personal knowledge73. Moreover, the reporting mechanism set out by Article 8 of Sapin II provides that whistleblowers can only report on facts related to their employer or the entity for which they work for.

The European Directive applies to reporting persons working in the private or public sector who have acquired information on breaches in a current, former or future work-related context 74.

The European understanding of the whistleblower is wider than that of France however, in that the European Directive includes shareholders, former employees, employees of subcontractors, suppliers, colleagues and parents of the whistleblower.

Furthermore, European law does not impose the pre-requisites on whistleblowers that they have personal knowledge or report selflessly.

(ii) The reporting mechanisms

Drawing from the recommendations of the French Administrative High Court, Conseil d’État75. Sapin II sets out a three-step procedure76:

  • – Internal reporting channel: the whistleblower must bring the facts “to the knowledge of his direct or indirect superior, his employer or somebody” (a type of Whistleblowing Officer) “designated by his employer to that effect”77.
  • – Communication to the competent authorities: “[i]n the event that the person who received the reported information fails to diligently […]verify the admissibility of said report within a reasonable time”, its issuer may address the judicial authority, the administrative authority or the professional bodies78.
  • – Disclosure to the public: “[a]s a last resort, [if the authority referred to] fails to address the issue within three months, the reported information may be made public79, e.g. communicated to the media, associations, NGO, or unions.

Derogation from the application of this procedure is possible in the event of serious and imminent danger or if there is a risk of irreversible damage. In both cases, the whistleblower can address the competent authorities or make his/her report public directly80. Sapin II also enables whistleblowers to address their report to the Défenseur des droits, the French Rights Defender81, in order to be directed to the appropriate authority82.

In a similar way, the European Directive allows for various reporting mechanisms – internal, external and in case of imminent danger. Mirroring the French provisions, the European Directive provides that in cases where no appropriate action was taken in response to the whistleblower’s initial report, or if the whistleblower believes that there is an imminent danger to the public interest or a risk of retaliation, he/her will still be protected if he/her chooses to disclose the information publicly.

Adversely to French law however, with the purpose of ensuring whistleblower protection and confidentiality of the information, the European provisions allow the whistleblowers to choose between disclosing the information internally to the legal entity concerned or externally, to the competent national authorities, or to the relevant EU institutions, bodies, offices and agencies. This alternative had also been put to debate in the French National Assembly but was rejected by the Senate.

(ii) The protection of the whistleblower

French law protects whistleblowers during the entire process, by preserving the confidentiality of the whistleblower’s identity, the identity of the person concerned by the report, and the information received within the report.

Revealing information that could lead to the identification of a whistleblower is punishable by up to two years’ imprisonment and a criminal fine of up to 30,000 euros. A legal authority may face a criminal fine of up to five times this amount, i.e. 150,000 euros83.

Moreover, the whistleblower benefits from disciplinary immunity. The whistleblower is therefore protected against any disciplinary measure or sanction, discrimination or unfavorable measure.

European law goes even further to ensure protection of whistleblowers. Additionally, to protecting the whistleblower from retaliation, civil, criminal, administrative or employment related liability, the Directive prohibits any form of direct or indirect retaliation, including threats and attempted threats and lists many detrimental measures. The Member States have also committed to supporting the whistleblower by providing free independent advice on the remedies available for protection against retaliation, effective assistance of authorities and access to legal aid.

In light of these differences between the French and European provisions on the whistleblower mechanism, it remains to be seen how the French legislator adapts to the widened scope of the whistleblower status and reinforced protection of the whistleblower.

 


French Labor law considerations when dealing with internal investigation

The golden rule is that companies must conduct a neutral and objective investigation, respecting employee individual rights. Through due process, the company must consider both individual rights – including the right to privacy – as well as collective rights – of employee representatives and unions which can be achieved though inclusiveness in the code of conduct.

The employer duty to ensure legal protection

  • It is established that the client is free to choose his/her lawyer whether or not the lawyer’s fees are paid for by the company. Therefore, a company cannot bind its employees to a pre-designated lawyer. It can, however, set a proportionate maximum fee amount not to be exceeded or settle on a contingency fee agreement to anticipate the cost of defense.
  • The French Supreme Court held that employers must provide legal support to employees for acts committed in execution of their work 84.
  • The French Supreme Court based its decision on article 1194 of the French Civil Code 85, which provides that “contracts bind not only to what is expressed in it, but also to all of the implications that equity, usage or law provide.
  • According to this decision, the employer owes judicial protection to the employee unless the latter has committed a fault that does not constitute a corporate risk 86.
  • The employee is also covered by the employer if he/she is prosecuted for facts that fall outside the scope of his/her mission and if no fault or misconduct can be proven.
  • In that specific case, since the employee was dismissed by the criminal court, no fault could be imputed and therefore, the employer owed him judicial protection. The same result was obtained in case of discharge.
  • However, the company does not have to pay for lawyer fees for its non-salaried executive in case of breach to corporate law, neither in case of intentional offense 87.
  • Nevertheless, the fees incurred may be reimbursed by the company if an intentional offense was made in the interest of the company rather than for personal interest 88.

Employee’s guarantees regarding personal data collection

  • Internal investigations often include the collection of numerous documents and information regarding employees’ work (e-mail exchanges, transcript of telephone conversation; social network conversations…) that would be then, analyzed and recorded in the internal investigation report.
  • It results from the law that employee prior consent is required for the collection of some personal data 89.
  • However, non-professional data and information must be excluded at the beginning of the investigation, since it is prohibited to read, use and/or transcribe employee personal data 90.

Involving employee/union representatives in the process of implementing an internal investigation

  • Article 17 of the Sapin II Law 91 requires that companies implement a code of conduct that must be an appendix to the company’s internal rules and regulations.
  • This requirement has the consequence that employee/union representatives must be involved in establishing the code of conduct 92.
  • Some professionals recommend separating disciplinary measures from all other measures related to the anti-corruption plan in order to facilitate debates with employee/union representatives, who may want to get involved in the internal investigation 93.
  • Although employee/union representatives shall be consulted in the drafting of the anticorruption plan, it is not clear whether such a participation exonerates the corporation from informing them of the opening of an internal investigation, which may create an array of concerns.

 


Enforcement / Court Decisions

Any individual with a role in a public procurement process can be held liable for favoritism, Supreme Court says

Favoritism is a probity offense which runs against the principles of equal and free access to public procurement contracts and applies to a broad category of individuals – broader than for any other probity offense – and now features in the French Criminal Code94.

The French Supreme Court (Cour de Cassation) held the chief executive of a public hospital accountable for favoritism in a judgment dated September 12, 201895. More specifically, the chief executive was blamed for awarding a contract to an architectural firm without calling for competing bids.

The court stressed that this individual – as the head authorizing officer for expenditures of a public institution – was in a position to intervene in the award of public contracts and was responsible of the very system that enabled him to bypass the rules of public procurements. The chief executive was thereby accountable for favoritism pursuant to article 432-14 of the Criminal Code – and this despite not being part of the public procurement signatories.

This decision constitutes a coherent application with the French Criminal Code, which implies that any individual who is in a position to interfere in the public procurement process and to award someone an undue advantage will undoubtedly be held liable for favoritism.

 


UBS sentence: lessons learned from the decision that made France a “B” – as in Billions – country

On February 20, 2019, the Swiss company UBS AG, its French subsidiary and five former representatives was sentenced by the Paris Criminal court (Tribunal Correctionnel) to a 3.7 billion euros fine and to 800 million euros in damages to the French State for unauthorized banking solicitation, aggravated tax fraud and money laundering97 (UBS AG had neither the authorization to prospect, nor to exercise banking activities in France) but also for tax fraud98 and aggravated money laundering99 for having organized illicit transfers from Swiss undeclared accounts to offshore accounts between 2004 and 2012. UBSF was prosecuted in parallel proceedings as an accessory to both offenses.

The proof that a settled agreement is always the best strategy?

Although not reflected in the Paris Tribunal decision, UBS previously entered discussions with the National Financial Prosecutor100 (“PNF”) to explore a negotiated alternative with a Convention Judiciaire d’Intérêt Public (“CJIP”).

Indeed, UBS was offered a CJIP that would have requested the company to pay an amount in the ballpark of 1 billion euros in return for a monitoring period followed by the probable dismissal of all charges.

This offer was considered as an excessive financial burden by UBS who rejected it. The choice to leave it to the courts results in a considerably higher payout, a staggering financial loss for the bank, raising the question of the judicial strategy that prosecuted companies should adopt in such cases.

The UBS case is a signal that the French authorities – and the PNF in particular – intend to show a more hardline approach that has a real impact on companies that violate French law.

However, it would be a mistake to conclude that this decision shows that companies should always accept a CJIP. By opting to refuse the CJIP, UBS took a risk, but chose to let the legal debate run its course.

If the prosecution’s narrative can be challenged, the trial could be the better solution. The decision to opt for one or the other needs to be taken after weighing the pros and cons. In the process of a cooperation with the authorities for instance, defendants have no guarantee that the documents and information communicated will not be used at a later stage, in case of failure of the CJIP.

Either way, criminal trials will always be subject to uncertainty. UBS counsel has appealed the trial decision.

 


Carmignac to pay a 30 million euro fine to settle tax fraud prosecution

On June 28, 2019, French investment firm Carmignac Gestion, agreed to pay a 30 million euro fine as part of the French equivalent of a Deferred Prosecution Agreement (“DPA”) settled with the National Financial Prosecutor (“PNF”) to resolve a two-year criminal investigation for tax fraud.

This Convention Judiciaire d’Intérêt Public (“CJIP”), signed by Carmignac Gestion and approved by the judge during the confirmation hearing on July 8, is the first prosecution agreement for tax fraud in France since the extension of the CJIP scope to tax fraud101 – the scope initially limited to corruption, influence peddling, laundering of tax fraud proceeds and offenses “connected” to the latter.

In the Carmignac case, it appears that the company’s Luxembourg subsidiary payed its executives with dividends rather than salaries to reduce French tax expenditure. To avoid criminal conviction, Carmignac settled for a 30 million euro fine to put an end to the tax fraud investigation launched in February 2017. The PNF indicated that this fine was determined in consideration of the benefits resulting from the misconduct102.

Once again, this case highlights the most considerable advantage of the CJIP – Carmignac resolved the dispute without conviction or admission of guilt.

Carmignac states that “[t]he prosecutors were investigating into technicalities over transactions carried out before 2014” and that the company had thereby “seized the opportunity to close a case belonging to the past103.

The question of potential proceedings stays open concerning the individuals who may have been involved however, as they are not concerned by the CJIP provisions.

 


Société Générale DPA for violations of Cuban embargo – manipulation of the law in global economic warfare

Three months after agreeing to settle for 1.3 billion dollars in the Libyan and LIBOR case 104, Société Générale signed another Deferred Prosecution Agreement (“DPA”) on November 18, 2018, with the US Attorney’s Office of the Southern District of New York (“SDNY”) for Cuba’s embargo violation 105.

Extraterritorial application of U.S. laws on embargo

As a matter of international law, an embargo should apply only to nationals of the concerned State or the nationals of the States imposing the measure, who must refrain from any commercial exchange with the State or entities subject to the measure says the leading French legal publication 106. The general sentiment in France is that in the case concerning Société Générale, the US have gone beyond that principle.

Sanction of the French bank justified by the use of the U.S. trade system

Put in place in 1962, the embargo on Cuba prohibits in particular most imports and exports between the U.S. and Cuba and has been strengthened several times 107. As a unilateral decision, it is supposed to be applicable only to US nationals.

By stating however that Société Générale “engaged in a deliberate practice of concealing the Cuban nexus of U.S. dollar payments that were made in connection with those facilities108 the agreement enshrines the US dollar as the tool of one of the US’s exports.

In the Société Générale case, the French bank has been accused of having, from 2004 to 2010, granted payment facilities to Cuban entities and hidden transactions, that should they have been revealed, would have been prohibited by the Office of Foreign Assets Control (“OFAC”).

Nearly 2,500 transactions occurred and are presumed to have used the U.S. trade system, amounting to a total of 13 billion dollars. Most of these transactions financed oil purchases or sales between a Dutch trading company and the Cuban state-owned company with a monopoly on crude oil production and refining.

The investigations revealed that a majority of the transactions were put an end to in 2007 in fear of the US authorities, which were at that time investigating violations of the Iranian embargo in various companies.

European companies and French banks in particular, have already faced investigations by US authorities and this is not the first time that such a fine is imposed. On June 30, 2014, BNP Paribas accepted to pay a 8.9 billion fine for violation of the U.S. embargoes on Cuba, Sudan and Iran 109 and in October 2015, Crédit Agricole, faced with similar charges, negotiated a 787 million dollar deal 110.

Economic and legal battle

More recently, on May 2, 2019, the US government reactivated Title III of the Helms-Burton Act, passed in 1996 but never implemented 111, paving the way for claims to be brought before US courts by US nationals against foreign persons and entities that have made profits by trading with nationalized Cuban companies.

This law enables proceedings to be brought against any foreign company (including European and Canadian) that manage business in Cuba – from hotel and tourist venues to rum distilleries and cigar factories 112.

At the announcement of this DPA and considering the application of unilateral measures against Cuba running contrary to international law, the EU has decided to react and threatens to bring the case before the World Trade Organization – marking a short-lived attempt at a recast of the global economic and legal landscape 113.

 


Seizure of property that amounts to indirect and partial proceeds of the offence must be proportional

On June 27, 2018, the criminal chamber of the French Supreme Court (Cour de Cassation) 114 held that criminal courts must consider the principles of necessity and proportionality when ruling on the seizure of property acquired by lawful and unlawful funds.

This ruling comes pursuant to the legislator widening the scope of the legal application of seizure of property to include property which amounts only in part to the object or direct or indirect proceeds of the offence115 – leading to a potential infringement of the fundamental right to property116.

Examining the challenged investigating chamber’s decision (chambre de l’instruction) to seize company property as the proceeds for the offence of illegal acquisition of interest, the French Supreme Court ruled on several aspects.

Firstly, considering the difficulty to identify the proceeds for complex offences, the Court reasserted the necessary loose interpretation of “proceeds”. In the case at hand, the Court held that the proceeds were the company benefits from the litigious transaction rendered possible by the initial fraud.

Secondly, the Court reiterated that is not required to state the grounds when ruling on the seizure of property constituting in its entirety the proceeds or object of the offence or when ruling on the seizure of the equivalent value of the proceeds of the offence.

The French Supreme Court however ruled that the investigating chamber should have considered the principle of proportionality when ruling in favor of the seizure of property that only constituted in part the proceeds of the offence – because partially acquired with lawful funds.

A second ruling on the same day by the French Supreme Court117 identified the conditions to be verified for the seizure of property acquired by lawful and unlawful funds. The judge must establish the seizable nature of the property in accordance with the legal requirements, the disclosure of the nature and origin of the property and the basis of the measure and the demonstration where appropriate, of the necessity and proportionality of the infringement of the accused’s right of ownership.

Criminal courts must now demonstrate their assessment that the seizure – be it at the investigation or at the adjudication stage and in any event, before its authorization – of the part of the property that does not constitute the proceeds of the offence is a proportional infringement of the accused’s property rights.

If it were to be considered an unwarranted infringement, remains the difficulty that real estate acquired by legal and illegal funds cannot be subject to partial criminal seizure. This lays the ground for potential substitution of seized property by other assets of estimated equal value to the proceeds of the offence.

 


3-liners on active matters

Alstom now under investigation in France, piling up ahead? Alstom has already been convicted in Switzerland, and the UK due to failure to prevent bribery by company executives. The company is now under scrutiny in France and Alstom’s counsel in the UK confirmed that the French National Financial Prosecutor’s Office investigations without information as to scope. Alstom Network UK has chosen to appeal the 2018 Southwark Crown Court conviction on the grounds that no “directing minds” were identified during the case.

SNCF raided in an investigation on public tenders with IBM. French police have raided SNCF’s headquarters and other sites of the group on June 4, 2019, as part of a preliminary investigation lead by the French National Financial Prosecutor’s Office. The investigation aims to establish whether Stelia, a group subsidiary, fostered contracts passed with the US IT group between 2009 and 2011118.

Confederation of African Football’s president, Ahmad Ahmad, suspected of bribery. Arrested in Paris on June 4, 2019 to be questioned over corruption allegations, Ahmad Ahmad was finally released by French authorities. In April 2019, former general secretary Amr Fahmy accused Ahmad Ahmad of bribery and misuse of the organization’s funds. While Ahmad Ahmad denied any wrongdoing, Amr Fahmy was fired by the African football organization. FIFA was unable to contribute on any detail about the investigation119.

Athletics: The International federation on trial yet again. Lamine Diack, former head of the International Association of Athletics Federations (IAAF), will be facing charges of bribery and money laundering in Paris. Lamine Diack and his son, who is currently in Senegal and subject to an international warrant, allegedly received bribes from Russia’s athletic authority to cover up failed drug tests120. This trial will follow a four-year investigation into doping cover-ups, extortion and bribe taking in the world of athletics.

PSG’s president, Nasser al-Khelaifi faces indictment. The world of sport is undoubtedly under the authorities’ sight. A few days after the Lamine Diak trial was announced, Nasser al-Khelaifi, the president of the Paris Saint-Germain football club was put under formal investigation. Interrogated by the French National Financial Prosecutor’s Office, he denied any wrongdoing regarding a 3,5 million dollars deal with Lamine Diak concerning Doha’s campaign to host the 2017 Athletics Championships.

Carlos Ghosn’s arrest may have an impact on Corporate Governance. Since November 19, 2018, Carlos Ghosn has been subject to four indictments for financial malpractices in Japan for incorrect reporting of compensation, leveraging a company investment fund to offset personal investment losses or to satisfy personal expenses as well as inappropriately filing expense reports121. In France, investigations are open into the former CEO’s wedding at Versailles allegedly financed thanks to a sponsorship agreement entered into by Renault122.
As Mr. Ghosn insists that his compensation and expenditures had been approved by Nissan, the issue of the board’s responsibility arises. The Japanese authorities have called for a renewal in Nissan’s corporate governance, board structure and overall culture, requesting more independence. For some legal commentators, this scandal might have consequences on corporate governance, likewise those following the Enron case123.

Airbus subsidiary GPT shuts down bribery investigations. Following whistleblower accusations in 2012, the SFO investigated the aerospace company for illicit payments and gifts. The amounts at stake reach at least £14m and the attribution of a £2bn military contract with the Saudi National Guard. In an annual report published in June 2019, GPT Special Project Management announced that it would go out of business at the end of the year after the loss of its only contract with the UK Ministry of Defense124. While individuals will remain subject to prosecution, it will no longer be possible to prosecute the company after that date.

Danske bank formally indicted in France. Danske bank, which faces major money laundering allegations stemming out of its Estonian subsidiary, has been placed under formal investigation by the French authorities in February 2019125. The largest Danish Bank is already under investigation in several other countries regarding €200 billion worth of suspicious payments to Russian and ex-USSR customers in the years 2007-2015. The European Commission announced that “[i]t is the biggest scandal in Europe to date”, calling for increased vigilance in supervising bank activities126. According to an official announcement released by the institution, Dansk bank was ordered to post a €10.8m bail127.

Russian senator Kerimov placed under formal investigation by French authorities for the second time. On March 20, 2019, Suleyman Kerimov, a Russian senator whose family own Russia’s largest gold company, was placed under formal investigation by the Nice prosecutor for complicity in aggravated tax fraud. He is suspected of having acquired properties for underreported amounts on the French riviera128. Following the indictment, the oligarch was placed under judicial supervision and required to post €20 million in bail129. Kerimov faced similar charges last year but was acquitted in June 2018.

Four of France’s largest electrical companies raided by French police on a corruption and cartel pricing probe. Several raids were conducted by French police on Legrand, Rexel, Sonepar and Schneider Electric – as part of an investigation into cartel pricing, bribery, forgery, breach of trust and misuse of corporate assets, opened in June 2018130. According to Reuters, the investigation targeting the groups was opened by the French National Financial Prosecutor’s Office in Paris pursuant to receiving reports from the French Anticorruption Authority (AFA) 131. When the AFA is knocking at your door worst can happen.

TechnipFMC Plc agreed to pay $296 Million to resolve foreign bribery charges. While TechnipFMC had announced in February 2019 a $280 Million provision for a trilateral settlement, the agreements signed by Technip on June 25, 2019 were only with DOJ and Brazilian authorities regarding bribery schemes in Brazil and in Iraq.
TechnipFMC has announced being still cooperating with the PNF relating to projects in Equatorial Guinea and Ghana. While this investigation has not yet reached resolution, TechnipFMC maintains a $70 Million provision.

 


What’s Hot Beyond

 

Egypt hosts the first African anticorruption forum and toes the line132

On June 12, 2019, Egyptian President Abdel-Fattah El-Sisi inaugurated the first African Anti-Corruption Forum in Sharm El-Sheikh, in Egypt. This forum stress expansion of compliance globally. Thanks to it becoming a financial liability, ethics is widespread throughout the world.

It is common nowadays for international companies to require transparency and compliance guarantees from contractors before signing contracts in order to avoid enforcement from the other side of the world. African and Middle Eastern companies are compelled to follow suit.

In his opening session’s speech, the Egyptian president emphasized the importance of tackling corruption. He stated that “corruption is a lesion gnawing at the economics of the states”, “loss of resources due to corruption is the main reason for the decline of African countries’ economy”.

Indeed, as stated by the United Nations (“UN”) Economic Commission for Africa, Africa loses $148 billion annually to corruption133 and according to the president of the Association of African Anti-Corruption Authorities Emmanuel Ollita Ondongo, “[c]orruption leads to negative consequences such as impoverishment of peoples that results in their immigration134.

Egyptian legal framework

Egypt has put in place a legal framework to prevent and fight corruption. In 2004, Egypt ratified the UN Convention against Transitional Organized Crime135 and in 2005, the UN Convention Against Corruption UNCAC136. In 2014, Egypt became a state party in the Arab League pan-Arab anti-corruption instruments, the Arab Convention to Fight Corruption137.

Egypt has also implemented institutional reforms and deepened its partnerships with the European Union (“EU”) and the UN on anti-corruption and anti-money laundering138 139.

In line with international development, Egypt made considerable legislative progress140. Egypt has implemented all these obligations in its national law. Articles 103 to 111 of the Egyptian Criminal Code now contain provisions sanctioning corruption. 141 142

Furthermore, on January 25, 2018, article 106 (bis) (B) and the second paragraph to article 111 of Egypt’s Criminal Code sanction corruption of a public foreign or international official came into force. These articles support the extension of Egyptian jurisdiction over international transactions and demonstrate that similarly to U.S., English or French law, Egyptian law extends its rationae materiae jurisdiction to misconduct of foreign officials143.

These advancements highlight the desire of the country to bridge the gap between its legal system and the international movement.

Lack of practical implementation

During the past years, Egypt strengthened its measures to fight corruption. However, all research indicates that there is substantive ground yet to cover in the fight against corruption. 144 145

According to studies, it appears that the Egyptian anti-corruption system is ineffective146. Emmanuel Ollita Ondongo explained that despite a framework of anti-corruption regulation and laws, no implementation in practice has followed147. Very few convictions have been issued on the ground of anti-corruption in Egyptian courts148.

Egyptian and African companies will thereby need support to comply with national and international anti-corruption provisions in order to remain competitive.


Francophone Institute on White Collar Crime and Compliance

The Francophone Institute on White Collar Crime and Compliance – Institut Francophone du Droit Pénal des Affaires et de la Conformité (www.IFDPAC.org) is what to look for in the Fall. We’ll be calling for contributions to this French/English/Arabic platform.