Since the enactment of Sapin II,1 the lead French investigating and prosecuting agencies have entered into eleven Conventions Judiciaire d'Intérêt Public ("CJIPs"), which are the French equivalent of deferred prosecution agreements. On 2 June 2020, the French Ministry of Justice issued a circular (the "Circular")2 that explains what companies must do to be offered a CJIP. The Circular reiterates some of the principles set out in the non-binding guidelines issued by the Parquet National Financier ("PNF") and the French Anti-Corruption Agency ("AFA") on 27 June 2019 (the "Guidelines").
The Circular is significant because it comes directly from the executive and was shared with all prosecutors in France. The Circular explains that French prosecutors will carefully consider whether they can prosecute foreign companies for misconduct in countries outside of France, even if the companies have only tenuous links to France. This therefore confirms that the French authorities intend to continue to actively enforce complex international fraud and bribery cases. Given this aggressive enforcement environment, companies should be prepared for increased scrutiny and need to be conscious of evolving guidance and nuances around corporate cooperation with regulators.
To help readers understand this terrain, this article provides an overview of the key points from the Circular and what this means for companies.
Reminder of the CJIP mechanism
By way of reminder, a CJIP can only be concluded for the specific offences of corruption, influence peddling, and laundering of the proceeds of tax fraud and related or "connected" offences, and must be "validated" by a judge during a public hearing. The judge will determine whether the company should be offered a CJIP by determining (i) whether it is appropriate to enter into a settlement; (ii) whether all procedural rules have been followed during the negotiations between the company and the prosecutor; (iii) whether the fine imposed is lawful (as fines in France are capped at 30% of the annual turnover of a company over the past three years); and (iv) the fine's proportionality to the gains derived from the company's wrongdoing. If the judge approves the CJIP, the validation order does not amount to an admission of guilt and does not have the effect of a conviction.
Companies have 10 days to reject the validation order of the CJIP. A criminal investigation and trial will follow if the judge rejects the CJIP or if the company uses its statutory right to reject the agreement. CJIPs are disclosed to the public by way of a press release, and the fine and validation order, including a brief statement of facts, is published on the website of the AFA.
The Circular states that the following factors will be taken into account to determine if a company is eligible for a CJIP:
- A company must not have previous convictions. This is in line with the Guidelines which explain that companies seeking a CJIP will face difficult terrain if (i) the company or one of its subsidiaries or managers have been the subject of prior sanctions for "offences against probity" by a French court or a foreign authority; or (ii) a company has already benefitted from a CJIP or a DPA with a foreign authority;
- Whether the company has "voluntarily disclosed wrongdoing"; and
- Whether the company has cooperated with the authorities. The Circular does not specify the degree of cooperation required but notes that companies should assist prosecutors to identify individuals who are "the most implicated" in the wrongdoing.3
Under Sapin II and the Guidelines, a company did not have a mandatory legal obligation to self-report to the authorities, nor was self-reporting a precondition to obtaining a CJIP. The Guidelines make it clear that self-reporting is a key factor to be considered and the authorities will scrutinise any delay in a company disclosing wrongdoing. The Guidelines also do not indicate whether or not cooperation by a company will guarantee that the company be allowed to enter into a CJIP. In practice, the French authorities regard cooperation as a mitigating factor when it comes to assessing sanctions against an implicated company.
The Circular notes that even though senior management/executives of French companies do not have a legal obligation to report wrongdoing to the authorities, it "could be in their interest to do so in order to benefit from cooperation credit."4 It is interesting to note that the Circular cross-refers to the U.S. Department of Justice Yates memorandum which states that for a company to receive cooperation credit, it must "completely disclose to the Department of Justice all relevant facts about individual misconduct" and "identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority."5 The Circular recommends that the PNF develops an exchange mechanism framework with some of France's largest employer federations such as the Movement of French Enterprises (MEDEF) and the French Association of Private Companies (AFEP), and adopts a practical approach to encourage companies to self-report wrongdoing.6 The fact that the Ministry of Justice has set out the self-reporting requirement by using stronger language than in the Guidelines is a turning point but the question of whether a company needs to self-report in practice in order to benefit from a CJIP still appears to be open as the Circular does not have the same binding effect as a law or a decree. Self-reporting is one of the most serious and consequential decisions a company can make - it needs to be thought through extremely carefully with in-depth analysis of the short, medium and long term risks and benefits.
Relationships with other enforcement authorities
The Circular anticipates that the PNF will continue to develop relationships with other enforcement authorities going forward and act in partnership with them. The PNF is likely to use the extended jurisdictional powers granted by Sapin II to conduct global investigations and levy fines. Companies should therefore be prepared to consider cross-border concerns at the outset of any investigation, including how and when to engage with different regulators and work towards a coordinated global resolution.
The Circular notes that:
- If mutual legal requests for assistance refer to French companies or companies exercising an activity on French territory, the PNF will (in addition to addressing the mutual legal assistance request) consider whether it would be appropriate for it to also open a criminal investigation;
- The PNF will carefully consider national and international press articles and carry out independent checks of information contained in those articles to determine whether it should open a criminal investigation;
- French prosecutors will carefully consider whether they can prosecute foreign companies for misconduct in countries outside of France, even if the companies have only tenuous links to France (e.g. subsidiaries, branches, commercial offices or other establishments even if they do not have a distinct legal personality).
Before the Organisation for Economic Co-operation and Development ("OECD") review of France in 2021, the Circular confirms that French prosecutors are committed to actively prosecuting international fraud and bribery cases.
Sectors of focus
The Circular notes that the PNF will focus on the following sectors which are identified by the OECD and the European Union as being areas with the biggest corruption risks:
- Extractive industries;
- Pharmaceutical industries;
- Energy sector;
- Military equipment.7
Companies operating in these sectors should therefore pay particular attention to ensure that:
- Their compliance programmes are adequate and proportionate to the risks they face;
- If companies discover potential corruption-related violations, they should conduct comprehensive internal investigations and, where appropriate, consider whether the wrongdoing should be self-reported in order to benefit from cooperation credit from the relevant authorities which may have jurisdiction;
- If a company decides that it will not self-report wrongdoing, the company should ensure that appropriate steps have been taken so that if the authorities come knocking on their door, companies can demonstrate that they have taken action and remediated wrongdoing (if appropriate).
Role of the PNF
The Ministry of Justice clearly sets out in the Circular that regional prosecutors in France should systematically inform the PNF about any investigations where there are "credible suspicions of international corruption" regardless of:
- The status of the case;
- The persons potentially involved in the wrongdoing; and
- The financial dimension of the case.8
The Ministry of Justice envisages that the PNF will continue to play a key and leading role in the fight against international corruption and notes that the PNF is "recognised and respected by international authorities because of its technical and legal expertise"9, has established close ties with key international actors fighting corruption in recent years, and has acquired an understanding of economic and judicial mechanisms in place in other countries.
The Circular therefore establishes clear lines on how the PNF and France's 164 regional prosecutor's offices should work together and envisages a more organised, coordinated and centralised approach. The prosecutorial system in France is currently decentralised which means that local prosecutors can open financial crime investigations as they see fit even when the PNF may be better suited to investigate. This can lead to tensions between the PNF and other prosecutor's offices. The Circular should encourage local prosecutors to share more information with the PNF and to establish more uniformity in how investigations are handled, a change that will be welcomed by corporates.
The Circular states that if a company is eligible for a CJIP, particular attention must be paid to the company's compliance programme and the amount of the fine imposed, which is in line with the Guidelines.
The PNF calculates fines as a multiple of the benefit to the company from the criminal conduct. As trials in French courts have resulted in substantial fines, the ability to reduce penalties through a CJIP is certainly something that companies need to take into account when weighing their options.
Sapin II requires companies with over 500 employees and revenues greater than €100 million to implement effective compliance programmes. The Guidelines explain that the effectiveness of a corporate's compliance programme will be a key factor in determining whether to enter into a CJIP and it is the responsibility of the executive management of the company, once made aware of the offences of corruption or influence peddling committed inside the company, to take the "necessary corrective measures to strengthen the effectiveness of the compliance programme." This will be "carefully examined by prosecutors when considering the possibility of entering into a CJIP."
The French Ministry of Justice is sending a clear signal that France has and will continue to actively enforce Sapin II. The PNF has proven procedurally nimble and pragmatic in concluding cases with significant financial penalties and establishing themselves as active enforcers in complex international fraud and bribery cases. The PNF has successfully developed relationships with other enforcement authorities and acted in partnership with them.
Companies should be prepared for increased scrutiny in this aggressive enforcement environment, and be ready to navigate multiple legal regimes, enforcement authorities and procedures. It will be important to assess strategic considerations from the outset to maximise the coverage and protection that can be achieved.
Originally published by Dechert, June 2020
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.