France: Business Crime Defence Review 2017
By Emmanuel Marsigny, Marsigny Avocats
In this article, Emmanuel Marsigny explores the recent developments in the field of business crime defence in France including new legislation, the protection of whistle-blowers and the increasing focus on fraudulent tax practices.
In 2016, business crime defence has seen many important developments, most notably, the introduction of new provisions regarding anti-corruption, the protection of whistle-blowers and the continued rise in criminalisation of tax optimisation.
Binding obligations on French companies to prevent corruption have been enacted, introducing a major change in the legal approach of anti-corruption policy. Until 2016, criminal defence in France regarding bribery and corruption was mainly based on an ex post defence, following a criminal investigation.
Although major French companies were already working to meet international anti-corruption standards – mindful of the extraterritorial reach of some foreign legislation – the enactment (following a lengthy parliamentary discussion) of the new Law on Transparency, the Fight Against Corruption and Modernisation of the Economy (Sapin II Law) led to a significant change.
France’s former Central Service for the Prevention of Corruption (SCPC) provided guidelines, but these were not enforced by French criminal law. The new legislation brought in a strict, positive obligation to establish anti-bribery and corruption programmes, applicable to French companies employing more than 500 employees or with a turnover (or consolidated turnover) exceeding €100 million.
Though inspired by international anti-corruption standards, in contrast to the UK’s anti-corruption legislation (the Bribery Act 2000) the fulfilment of these legislative requirements does not legally grant a penalty reduction for French companies prosecuted for corruption.
The mere breach of the new corruption prevention plan may lead to new sanctions for which both the company and its directors will be held accountable, even in the absence of any prior offence.
Nevertheless, due to French rules concerning criminal accountability of legal persons and their executives, the proper implementation of a stringent prevention plan, and the strict monitoring of such, is likely to constitute, without prejudice of future case law, a solid defence argument in some cases.
The French Anti-corruption Agency (AFA) is a new independent administrative body, created to replace the SCPC. The AFA aims to provide companies with guidelines (and updates), and to ensure that company compliance programmes meet the regulation’s requirements.
In this respect, the AFA benefits from the power to impose the following sanctions for guideline breaches: a warning; an injunction; or a fine of up to €200,000 for natural persons and
€1 million for legal entities. This in addition to publication of the AFA’s decision.
The corruption prevention plan must be based on eight principles, on a par with the highest international standards: These include:
- introduction of a code of conduct within the company’s international regulations;
- a reporting process;
- an assessment process;
- training programmes,
- disciplinary sanctions; and
- regular audits of the programme.
In addition, 2016 marked the end of French reluctance to ensure the legal protection of whistle-blowers. French legislation used to provide for disparate protective provisions; however, until 8 December 2016, there had been no uniform legal framework on the subject.
Recent, highly publicised leaks in the pharmaceutical, banking and accounting sectors have altered the way they are perceived by the public, and the proliferation of such disclosures has to be expected.
The Sapin II Law defines a whistle-blower as a natural person – an employee or an external stakeholder – who discloses, in a bona fide manner, an infringement of which it has been personally aware. It grants the whistle-blower protection against retaliation, such as sanction, discrimination or dismissal by employers.
The Sapin II Law also compels companies employing more than 50 people to take appropriate measures in collecting internal feedback. Neither administrative nor criminal penalties have been enshrined into the relevant legislation; however, the implementation of such measures may be in the affected company’s interests, since the whistle-blower is only protected as long as he or she first tries to get an appropriate response from his or her manager, or any person appointed by him or her (internally or externally – a lawyer, for instance) before approaching the relevant administrative body (which has a duty to report any offence to the prosecutor) or to the judicial authority. He or she is protected when reporting the alleged misconduct to the media as a last resort, if all efforts before this have been inconsequential.
In 2016, business crime defence saw a rise in the prosecution of tax fraud, sometimes extended to situations that would once have been seen as merely tax optimisation. In these times of significant budget concerns among the public, there has been a strong focus on tax offences committed by French authorities, with a particular consideration for aggressive tax planning, transfer pricing or hidden permanent establishments of foreign companies in France.
No matter how tried and tested corporate and tax structuring may have been, major international groups seem likely to be under scrutiny from a criminal law standpoint. In this context criminal investigations have started on key international players in, for example, the internet and food sectors suspected of tax evasion or the laundering of money generated by tax evasion. The banking system is also under scrutiny, with several ongoing criminal investigations into tax fraud and/or the laundering of money generated by tax fraud.
It is therefore preferable to exercise a thorough application of compliance programmes and the awareness of such risks when conducting tax planning or, for the finance industry, know-your-customer processes.
Recently, there has also been a special focus on how companies and executives handle ongoing criminal proceedings. In 2016, practitioners saw the rise of specialised prosecution authorities and significant reforms increasing upstream interaction with these authorities, as well as a trend for more vigorous prosecution of business crime.
The national financial prosecutor (NFP), created by the Act against tax fraud and major financial crime of 6 December 2013, has just passed its third year. The NFP holds national jurisdiction on larger cases, most notably those related to probity offences (corruption, influence peddling, misuse of public funds, etc) or tax fraud. It is therefore in charge of opening investigations of such cases, when the matter is deemed particularly complex.
The NFP has reached a high level of activity and far-reaching visibility by dealing with significant cases. It shows a particular determination to investigate, enabled by newly enhanced means to do so. Comprising 15 prosecution attorneys, the NFP is currently handling over 400 cases, including prominent tax fraud, corruption and money-laundering cases against high-profile politicians, businessmen and international groups.
The development of the NFP, and the creation of a new, specialised criminal chamber within the High Court of Paris, have significant consequences: media coverage of suspected offences rapidly leads to the opening of investigations, and proceedings may be significantly speeded up. It also presents the defence with a more responsive, specialised interlocutor.
The rise of the NFP goes hand in hand with the global reinforcement of the prosecutor, whose role is slowly moving towards that of the investigating magistrate. Generally speaking, proceedings are opened by the prosecutor who may either supervise the investigations himself (preliminary inquiry) and then decide whether to prosecute any accused; or to refer the case to an investigating magistrate, who will take on the supervision of investigations (judicial investigation) and then decide whether to send any charged person to trial.
Traditionally, one of the major differences between preliminary inquiries and judicial investigations is the secrecy of the former (in which suspects have no access to the file) and the adversarial nature of the latter.
The bill of 3 June 2016, which reinforces the fight against organised crime, terrorism and its financing, and improves the efficiency of procedural safeguards, has facilitated access to the file (under certain circumstances) during a preliminary inquiry, enabling the formulation of observations.
This development created new defence possibilities that must be considered by companies and individuals under investigation. For example, they may allow detailed explanations, legal motives or evidence in order to avoid trial, where possible. This makes upstream handling of criminal defence all the more essential.
The prosecutor also gained latitude in dealing with corruption matters specifically. With the above-mentioned alignment of anti-corruption legislation with international standards, the prosecutor is now entitled to settle corruption cases via a deferred prosecution agreement.
When dealing with ongoing proceedings, companies, executives and individuals must also consider persistent tightening of the business crime laws.
Over the past 12 months, developments around the prohibition of double jeopardy have been tempered. This is particularly significant in business crime defence since some administrative bodies (for example, the tax administration and the Financial Markets Authority) also have the power to sanction illicit activity.
As alluded to in last year’s review, the prohibition of double jeopardy (the non bis in idem principle) has undergone important recent developments – for example, through the prohibition (since 2015) of cumulative prosecution before both the Financial Markets Authority and the criminal courts in insider trading cases.
The trend appeared to be moving towards a reinforcement of the non bis in idem principle; however, recent public debate and case law have had a tempering effect. The long-awaited decision in the Wildenstein case, delivered by the constitutional council on 24 June 2016, has approved (under certain rather slack restrictions) the possibility to cumulate tax sanctions and criminal prosecution in the most serious tax fraud cases.
New case law will certainly develop on the conditions provided for by this decision, which, by the way, introduces a certain level of legal uncertainty on high-stake issues for economic operators. In any case, cumulative tax and criminal sanctions in tax fraud cases are in principle allowed, as decided by the European Court of Human Rights which recently revisited its formerly more protective case law on this issue.
Increased attention on defence strategy, in the context of tax fraud suspicions, is certainly topical. The tightening of laws is also made evident via the significant extension made to the statutes of limitations by the reform vote on 16 February 2017. It introduced a major evolution by extending the statute of limitations from three years to six years for offences in the category of business infringements, and from 10 years to 20 for crimes, commencing from the date on which the offence or crime is committed.
However, it must be noted that business crime defence also benefits from increased legal certainty and procedural predictability for offences considered “secret or concealed”. In this instance, the statute of limitation used to begin, in accordance with case law, when the offence became visible and could be noticed in a way that made prosecution possible. The recent reform has enacted the new rule, which still raises questions about what constitutes a “secret or concealed” offence, or what is meant by “becoming visible and having been noticed”; however, it also provides for an absolute limit of 12 years for offences and 30 years for crimes. This puts an end to the considerable uncertainty caused by the lack of such absolute limit.
As such, the practice of business crime defence faces longer at-risk periods of activity (from a criminal risk standpoint) but also more predictability on certain issues. The developments that occurred in 2016 confirmed that business crime defence requires constant and thorough concern for criminal risk management among businesses. It needs to be dealt with further in advance of criminal proceedings, and at an earlier stage once the proceedings have actually begun. Prosecution also requires deep expertise of the appropriate legal mechanisms and a skilful handling of criminal proceedings. For this, strategic planning is essential and may even determine the final outcome.