France: The French Prosecutor Office Has Entered Into The First French DPA In History With HSBC Private Bank Suisse

On Nov. 14, 2017, six months after the so-called Sapin II law1 entered into force in France, the president of the Paris Tribunal de grande instance approved the first French deferred prosecution agreement (DPA or CJIP –convention judiciaire d'intérêt public) in a procedure established by this law and which was entered into on Oct. 30, 2017, by the French prosecutor office (PNF –Parquet National Financier) with HSBC Private Bank Suisse.

As a summary:

1. What is the French DPA, the so-called CJIP ?

This French criminal settlement procedure, quite similar to DPAs in the U.S. and UK, may be proposed:

  • By the public prosecutor before the initiation of criminal proceedings2
  • When a criminal investigation has already begun, by the investigating judge, who may refer the case to the public prosecutor to pursue a CJIP3
  • Only to legal entities accused of corruption, influence peddling, laundering of tax fraud proceeds and related offenses

However, neither the Sapin II law nor its related implementation Decree4 provides the applicable criteria for proposing to enter into this procedure.

Moreover, as with U.S. and UK DPA proceedings, the CJIP does not require any admission of guilt from legal entities, although depending on the stage of the proceeding, the entity may need to acknowledge relevant facts.

If parties reach an agreement over this procedure, legal entities can see imposed on them one or more of the following:

  • Payment of a fine proportional to the benefits that result from the identified wrongdoing, which can reach up to 30 percent of the legal entity's average turnover calculated over the previous three years
  • Implementing an anticorruption compliance program under the control of the French Anticorruption Agency (AFA – Agence française anticorruption) for a maximum of three years
  • Payment of damages to the victims of the offense, if identified

Once the agreement is reached, the public prosecutor submits it to the president of the Tribunal de grande instance for approval.5 If it is approved, legal entities have a 10-day period to withdraw.6

As in the US, a CJIP is public and may be the subject of significant publicity: A press release is published by the public prosecutor and the AFA must release on its website the validation order, the amount of the fine and the agreement reached.7 

2. What is the context in which the first CJIP was entered into?

It was obvious that the PNF was eager to enter into a CJIP as soon as possible and, thus, moved very quickly to use this new tool only a few months after its establishment.

HSBC Private Bank Suisse was charged with illegal banking and financial solicitation, as well as with aggravated laundering of tax fraud proceeds in November 2014 (but not with corruption or influence peddling). In particular, the bank was alleged to have solicited French taxpayers on French territory and to have made substantial and willful contributions so as to help these taxpayers evade taxes related to their assets. Interestingly, in line with the French legislature's desire to promote whistleblowing, as evidenced by the new whistleblower's status provided for in the Sapin II law, the PNF expressly noted in its press release that it possessed evidence found at the residence of a former HSBC employee.

3. What has been imposed on HSBC Private Bank Suisse through this CJIP?

A fine of €300 million has been imposed on HSBC Private Bank Suisse for having encouraged tax evasion relating to assets amounting to €1, 6 billion.

This fine covers:

  • €86,4 million as disgorgement of profits
  • €71,6 million as a complementary penalty in view of the serious and habitual nature of the facts recognized by the entity and its minimum cooperation with the prosecuting authorities
  • €142 million as damages to be paid to the victim, the French tax administration

It should be noted that this fine reaches the exact threshold of 30 percent of HSBC Private Bank Suisse's average turnover calculated over the previous three years.

However, HSBC Private Bank Suisse has not been required to implement a compliance program under the control of the AFA, although this was possible in accordance with the Sapin II law.

4. What are the specifics of the case?

The CJIP entered into with HSBC Private Bank Suisse was preceded by a discharge order against HSBC Holdings Plc. This was probably an effort by the PNF to encourage legal entities suspected of corruption, influence peddling or laundering of tax fraud proceeds to enter into negotiations for the purpose of a CJIP, by showing that in exchange the holding company might be discharged. However, two former executives of HSBC Private Bank Suisse, who could not benefit from this settlement procedure as physical persons, remain subject to prosecution for the same facts.

This case is also notable because the CJIP was not entered into before the initiation of criminal proceedings, but after a criminal investigation had already begun. As a consequence, this CJIP does not necessarily provide insight into the criteria that could be considered by the public prosecutor when proposing to enter into a CJIP before the initiation of criminal proceedings, although it closely refers to some criteria used in the U.S., such as:

  • The undefined notion of minimum cooperation
  • The seriousness of the wrongdoing
  • The habitual nature of the wrongdoing

Moreover, while a CJIP does not give rise to admission of guilt, it might be noted that this CJIP underlines that HSBC Private Bank Suisse acknowledged the facts and the criminal classification adopted.

Furthermore, regarding the publicity surrounding this CJIP, the PNF did not wait for the aforementioned prescribed period of 10 days to expire before it published a press release. It should also be noted that this CJIP has been made available in English on the AFA's website.

5. What's ahead of us?

As a conclusion, although this CJIP does not make the standards put in place by HSBC Private Bank Suisse a key element to be taken into consideration, such criminal settlement procedure, as in the U.S., is likely to encourage French legal entities to be even more anxious to get acquainted with compliance obligations that have already, and notably, been imposed on the other side of the Atlantic.

Footnotes

[1] Law no. 2016-1691 dated 9 December 2016.

[2] Article 41-1-2 of the French criminal procedure Code.

[3] Article 180-2 of the French criminal procedure Code.

[4] Decree no. 2017-660 dated 27 April 2017.

[5] Article 41-1-2 of the French criminal procedure Code.

[6] Article 41-1-2 of the French criminal procedure Code; Decree no. 2017-660 dated 27 April 2017.

[7] Article 41-1-2 of the French criminal procedure Code.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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