France: Navigating French Internal Investigations And Self-Reporting - French Authorities Issue New Guidance

France is off to a strong start enforcing Sapin II, its December 2016 anti-corruption legislation. Since the enactment of the statute, the lead French investigating and prosecuting agencies, the Parquet National Financier (PNF), and the Parquet de Nanterre, have entered into six deferred prosecution agreements, called Convention Judiciaire d'Intérêt Public (CJIPs), and there is little doubt that French authorities will continue apace.

Despite this flurry of activity, until recently, companies facing investigation have received limited guidance about the French authorities' expectations and the CJIP framework. On 27 June 2019, however, the PNF and French Anti-Corruption Agency (AFA)1 published guidelines (the Guidelines) setting forth the conditions companies must meet to be eligible to enter into a CJIP, as well as details about how financial penalties are determined.2

Though not legally binding, the Guidelines provide much-needed clarity for companies seeking to resolve an investigation by entering into a CJIP. Among other things, the Guidelines make clear that a passive approach is no longer acceptable to French authorities, and that companies hoping to resolve investigations on favourable terms are expected to perform thorough internal investigations, self-report wrongdoing, and cooperate with the authorities.

The Guidelines overlap significantly with similar guidance issued by the U.S. Department of Justice (DOJ) and the UK's Serious Fraud Office (SFO), providing further evidence of the French commitment to joining the ranks of the U.S. and UK in fighting corporate corruption. In this era of increasing cross-border cooperation between prosecuting authorities, clients with any plausible criminal exposure in France must now contend with the French authorities when seeking a coordinated global settlement.

In this OnPoint, we provide an overview of the emerging French CJIP regime and compare and contrast it with the U.S. and UK approaches.

THE CJIP FRAMEWORK

Under Sapin II, CJIPs are available to companies under investigation for specific offences of corruption, influence peddling, and laundering the proceeds of tax fraud or related offences. The Guidelines direct the Public Prosecutor to evaluate on a case-by-case basis whether a company should be offered a CJIP "where it appears in the public interest not to pursue a criminal prosecution" and public proceedings have not begun.

FACTORS TO BE CONSIDERED

The Guidelines outline the factors the PNF will consider before exercising its discretion to enter into a CJIP.

Cooperation

Cooperation with the authorities' investigation is a "necessary pre-requisite" to be eligible for a CJIP. This is consistent with U.S. and UK emphasis on cooperation as a critical factor in determining a company's eligibility for a Deferred Prosecution Agreement (DPA).

Self-reporting and voluntary disclosure

Self-reporting is not a precondition to obtaining a CJIP, but it is one of the key factors French authorities are required to consider. The Guidelines make clear that self-reporting must be timely and the authorities will scrutinise any delay in a company disclosing wrongdoing. If any delay is found, authorities will assess any impact the delay may have had on the investigation, including any impact on the preservation of evidence and the risk of collusion.

U.S. and UK guidance also strongly encourages voluntary disclosure of misconduct, but recent cases confirm that a failure to self-report is not fatal to DPA prospects in either country if a company cooperates with the investigating authorities.

Comprehensive internal investigation

In order to be eligible for a CJIP, a company is expected to have "actively engaged in discovering the truth through an internal investigation or a detailed audit on the facts and malfunctions of the compliance system that allowed the offence." The Guidelines further indicate that findings from the investigation or the audit should be shared with the authorities within a reasonable period of time, but do not further specify what is and is not reasonable.

The PNF does, however, make clear that it expects:

  • an accurate and comprehensive report – it is unclear if it must be in writing – setting out the facts "with as much precision as possible;"
  • the preservation of evidence, including the collection of witness testimony in a reliable manner;
  • the provision of all evidence that can be used to prosecute individuals; and
  • transcripts of witness interviews, together with all documents shown to witnesses during interviews.

Although these new Guidelines diverge sharply from the traditional approach to criminal defence and the investigation of misconduct, their broad alignment with the U.S. and UK approach may ultimately simplify the decision-making landscape for companies facing investigations across these jurisdictions, notwithstanding the important differences that remain.

Legal privilege

When an internal investigation is conducted by external counsel, the company and its lawyers need to assess what they will share with prosecutors, what they can protect from disclosure, and how the authorities will respond to arguments that certain kinds of communications or information are protected. The Guidelines make clear that the assertion of legal privilege can meaningfully harm a company's ability to negotiate a CJIP. According to the Guidelines, (1) work product created during an external lawyer's internal investigation will not be covered by French professional secrecy (secret professionnel) as a matter of course, and (2) a company's failure to provide documents on grounds of professional secrecy can be viewed as non-cooperation.

Despite this tough stance, the PNF also states that it will take into account the risks companies may face in other jurisdictions by waiving privilege. For example, in the U.S. there can be serious consequences if companies facing simultaneous civil litigation and criminal investigations waive privilege. This recognition of effects outside France suggests that a company's refusal to disclose documents that are privileged under foreign, but not French law, will not necessarily be interpreted as a lack of cooperation.

The French approach to legal privilege varies greatly to the U.S., where DPA guidance explicitly states that cooperation or voluntary self-disclosure credit "is not in any way predicated upon waiver of attorney-client privilege or work product protection."3 The UK splits the difference, with the SFO not penalising companies for the justified withholding of privileged information, while reserving the right to view a voluntary decision to waive privilege as a clear indication of the company's cooperation.

Confidentiality

As discussed more fully below, to become final, CJIP resolutions must be validated by a court. If a French court does not approve a proposed CJIP, or if the company exercises its right to refuse the validation order within ten days of issuance, all documents the company provided to the French prosecutor during the CJIP cooperation process are deemed confidential and cannot be used against it.4 The Guidelines suggest, however, that materials shared by the company before a CJIP is formalised can be used by the PNF in subsequent investigations and proceedings.

The U.S. offers no such protection, allowing prosecutors to use evidence provided during DPA negotiations against the disclosing company if settlement negotiations are unsuccessful or if a DPA is entered into and breached.5 Disclosed evidence can also be used against employees and agents if separate criminal and/or civil actions are initiated against individuals.

The UK takes a similar stance. Subject to certain limitations,6 documents disclosed to the SFO during DPA negotiations may be used by the prosecutor against the company and its employees/agents if DPA negotiations break down or if the court rejects the DPA agreement.7 Documents revealing that the company entered into negotiations for a DPA, however, cannot be used against the company.8

Absence of Prior Convictions

The Guidelines explain that companies seeking a CJIP will face difficult terrain if (1) the company or one of its subsidiaries or managers have been the subject of prior sanctions for "breaches of probity" by a French court or a foreign authority, or (2) a company has already benefitted from a CJIP or a DPA with a foreign authority. However, the PNF will take into account the lapse of time and the facts that led to prior sanctions. The PNF may also consider the good faith of the company's representatives where facts not covered in a previous CJIP are later discovered.9

The U.S. and UK also take into account criminal recidivism in determining whether a DPA is justified.10

The Implementation of an Effective Compliance Programme

According to the Guidelines, the French authorities will also consider the implementation of an effective compliance programme in deciding whether a CJIP is an appropriate form of resolution. Sapin II requires companies with over 500 employees and revenues greater than €100 million to implement effective compliance programmes.11 If a company subject to this requirement fails to comply with it, such non-compliance may prevent it from entering into a CJIP; if one is ultimately offered, the non-compliance will be considered in fixing the relevant fine.12 Similarly, a company not subject to this requirement can increase the likelihood of a CJIP by complying with it nonetheless. As a result, any French entity, whether subject to the compliance programme requirements under Sapin II or not, can increase the chance of obtaining a CJIP by pre-emptively bolstering its compliance and anti-corruption policies.

Like the French authorities, when making DPA determinations, the DOJ considers the adequacy and effectiveness of a corporation's compliance programme at the time of the offence, as well as at the time when a settlement is being negotiated.13

The UK authorities and courts similarly consider a company's compliance and remediation efforts in deciding whether to enter into and approve a DPA.14

CJIP FINES

In the context of a CJIP, Sapin II imposes a maximum cap on fines of 30 percent of a company's average annual revenue over the prior three years.15 The PNF calculates fines as a multiple of the benefit to the company from criminal conduct. According to the Guidelines, the multiple is determined by a number of aggravating and mitigating factors. Aggravating factors include: (1) repeated or systemic acts of corruption; (2) the corruption of public officials; (3) prior convictions/sanctions imposed in France or abroad; and (4) the use of the company's resources to conceal the acts of corruption. Mitigating factors include (1) self-reporting within a reasonable time; (2) excellent cooperation; and (3) the implementation of an effective compliance programme and remedial measures. The Guidelines appear to be inspired by guidance issued by the DOJ and SFO, both of which set out the aggravating and mitigating factors to be considered when assessing fines.

The Guidelines state that the calculation of the fine may be subject to input from foreign prosecuting authorities, to allow for the global assessment of the fines and penalties to be paid by the company. This, too, is in line with current practice in the U.S. and UK where coordinated global resolutions are encouraged in order to avoid multiple fines.

IMPLEMENTATION

Before becoming final, CJIPs must be validated by a judge during a public hearing. The resulting "validation orders" are accessible, short documents setting out the conduct in question, a brief statement of facts, and the penalties to be imposed. The level of judicial scrutiny is cursory, landing France much closer to the U.S. approach than the UK's.

If the judge approves the CJIP, the validation order does not amount to an admission of guilt by the company16 and does not have the effect of a conviction. If the court does not approve, or if the company exercises its right to refuse the validation order within 10 days of issuance, documents the company provided to the French prosecutor during the CJIP cooperation process cannot be used against the company.17

This judicial approval requirement is similar to the UK, where a DPA cannot be entered without a judicial finding that it is "in the interests of justice" and that the proposed terms are "fair, reasonable and proportionate."18

MONITORING

Similar to the U.S. and UK, French companies can be subject to monitoring pursuant to a CJIP. The monitoring is conducted by the AFA for a period of up to three years, pursuant to a five stage process: (1) the AFA will carry out an initial audit to assess the measures in place within the company to prevent and detect fraud; (2) the company will propose an action plan; (3) the action plan proposed will be approved by the AFA; (4) the AFA will validate the key tools of the anti-corruption programme, will carry out targeted audits and will also prepare annual reports; and (5) the AFA will carry out a final audit and transmit its report to the PNF.19

If the company has its registered or operational office in France, or if it exercises all or part of its business on French territory, the AFA will act as the monitor and the PNF will keep the foreign authorities updated.20

A NEW ERA IN FRANCE

Since Sapin II, the PNF and the AFA have made a strong start to French anti-corruption enforcement. As a result of the six CJIPs concluded to date, as well as its cooperation with the DOJ and SFO in a number of significant investigations, the French authorities have gained meaningful experience and sophistication with the new suite of anti-corruption tools and appear poised for continued enforcement.

Given this new aggressive enforcement environment, the Guidelines are sure to be welcomed by companies and their external lawyers seeking greater predictability in negotiating a CJIP. The Guidelines also make clear that French authorities expect companies to conduct thorough internal investigations, self-report wrongdoing, and cooperate with the PNF in order to achieve gentle resolution of criminal investigations. Further, the PNF is embracing lawyer-led investigations to facilitate speedy access to justice, provided companies ensure internal investigations do not disrupt the prosecutors' investigation.

HOW WE CAN HELP

Criminal enforcement actions increasingly involve close coordination between various prosecuting authorities operating across borders. As a result, lawyers seeking global resolution of legal issues for their clients must have a thorough understanding of the contours of each of the legal regimes in jurisdictions where their clients are subject to enforcement. As France plays an increasing role in global criminal enforcement, understanding Sapin II and the CJIP process is essential.

Footnotes

1) The AFA, established by Sapin II, has broad powers and has various responsibilities including: (i) ensuring that companies implement a robust compliance programme; (ii) monitoring companies that have entered into CJIPs; and (iii) ensuring that companies comply with Article 694-4 of the French Code of Criminal Procedure or more commonly referred to as the French Blocking Statute.

2) The Guidelines.

3) Article 9-47.120 of the FCPA Corporate Enforcement Policy.

4) Article 41-1-2 of the French Code of Criminal Procedure.

5) The extent to which statements made during the course of DPA negotiations can be used against a company is governed by Rule 408 of the Federal Rules of Evidence.

6) See paragraph 13(6) of Schedule 17 to the Crime and Courts Act 2013.

7) CPS & SFO, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013 (1st edition), 11 February 2014, page 9, paragraphs 4.4-4.6.

8) Section 13 of Schedule 17 to the Crime and Courts Act 2013, CPS & SFO, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013 (1st edition), 11 February 2014, page 9, paragraphs 4.4 i-ii, 4.6 i-v.

9) The Guidelines, pages 7-8.

10) U.S. Attorneys' Manual § 9-28.300; CPS & SFO, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013 (1st edition), 11 February 2014, page 5, paragraphs 2.8.1(i) and (iv).

11) Article 17 of Law of 9 December 2016, which came into force on June 1, 2017, defines the companies within the scope of Sapin II as French companies, including subsidiaries, with over 500 employees and revenues greater than €100 million. Law No. 2016-1691 of 9 December 2016 – Article 17.

12) The Guidelines, page 8.

13) U.S. Attorneys' Manual § 9-28.300.

14) CPS & SFO, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013 (1st edition), 11 February 2014, page 6, paragraph 2.8.

15) Article 41-1-2 of the French Code of Criminal Procedure.

16) The company will not have to admit any liability provided the criminal proceedings ("action publique") have not yet commenced. Under French law, the CJIP procedure does not amount to the commencement of a criminal proceeding. However, if a company has been indicted or is under investigation by a French Magistrate ("juge d'instruction") who then decides to offer to the company the opportunity to enter into negotiations for a CJIP, the company may be required to admit guilt.

17) Article 41-1-2 of the French Code of Criminal Procedure.

18) CPS & SFO, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013 (1st edition), 11 February 2014, page 12.

19) The Guidelines, annex 1.

20) The Guidelines, page 16.

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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