France adopted a new anti-corruption law “Sapin 2” on November 8, 2016. French companies will soon have to implement tangible measures to prevent, detect and sanction corruption. The new legislation will bring a significant change in the legal landscape.
From the OECD Convention to Sapin 2
Since its adoption of the OECD anti-corruption Convention in September 2000, France has been regularly criticised for its perceived poor domestic enforcement in respect to acts of corrupting foreign officials abroad. Recent years have seen a fierce extraterritorial enforcement from the US targeting French companies with substantial fines and often long monitorships. Further other non-US regulators have significantly stepped up their activity in this area also – most notably perhaps the Brazilians and the Dutch.
Sapin 2 reinforces transparency in public decisions and also puts a strong emphasis on the detection, prevention and sanction of corruption. The law will consist of the following:
• Creation of the Agence Française Anticorruption (AFA) to replace the former Service Central de Prévention de la Corruption (SCPC) which had no enforcement capacity. The AFA will have 70 staff (there are currently 16 staff within the SCPC) and an annual budget of €10-15 million. It will be supervised by both the justice and the finance ministries.
• The AFA will assume the current responsibilities of the SCPC, which include providing advice to companies, publishing anti-corruption guidelines and making sure the French blocking statute is respected. It will now also control the implementation of an appropriate compliance program within companies.
• The AFA will also protect whistle-blowers by providing and financing their legal protection, anonymizing their reporting (whatever category of red flag they raise).
Before Sapin 2 was adopted, there were two main hurdles preventing the anti-corruption enforcement in France:
• Firstly, it was only the French public prosecutor who had to file a complaint on corruption grounds. With the new law, it will be possible for an NGO like Transparency International or Anticor to file a complaint;
• Secondly, it will also no longer be necessary for the wrong-doing to have previously been successfully prosecuted in the foreign jurisdiction where it took place. This de facto prevented France from taking the initiative to prosecute.
Their suppression is likely to kick-start the French anti-corruption enforcement.
Sapin 2 will also allow the prosecution of foreigners living in France or managing a French company, over bribery or influencing peddling committed abroad. Until now, only French citizens could be prosecuted and condemned in France for offences committed abroad.
Compliance: What will Sapin 2 change?
French companies employing over 500 employees (or belonging to a group employing globally more than 500 employees in France) and generating more than €100 million in revenue will have to adopt procedures specifically aimed at preventing bribery and corruption. This equates to approximately 1,570 companies employing 5.3 million employees in France .
Under Sapin 2, the following items will become mandatory:
• A code of conduct to prevent corruption and influence peddling; this code will have to be integrated within the company’s internal regulations “règlement intérieur”, hence submitted to the consultation of the employees’ representatives. This code of conduct will be more than an ethical chart: it will describe what the company considers forbidden behaviour(s); what can and cannot be done to obtain (or prolong) a sales contract; and how to deal with gifts and entertainment, sponsoring, lobbying, etc. The code will also describe the applicable internal sanctions in case employees fail to comply.
• An internal whistle-blowing mechanism to collect employees’ reporting’s of suspected wrong-doings; actions will have to be taken to investigate, remediate and punish these wrong-doings. This mechanism can be outsourced to an external provider.
• A risk mapping will need to identify the company’s sectorial, geographical and business specific corruption risks; the identified risks will have to be mitigated appropriately. The company will have to update and provide an audit trail of this risk assessment every 2 years.
• A third-party risk assessment: According to the OECD report on foreign bribery, intermediaries were involved in 3 out of 4 foreign bribery cases. Some thorough due-diligences are necessary for local sales and marketing agents, distributors and brokers, but also local consulting firms, companies located in offshore financial centres or tax heavens.
• Internal or external accounting controls to check that books and records do not conceal fraudulent transactions; an external compliance audit can be a useful supplement to internal controls by providing an objective analysis of potential weaknesses of the internal control environment and suggesting recommendations for improvements.
• Initial and regular anti-corruption training for the employees with a high-risk of dealing with corruption risks. The code of conduct will need to be implemented across the entire organization and to all employees.
• Setting up of an internal sanction policy defining appropriate disciplinary proceedings against employees who infringed the company’s code of conduct and procedures. The company will have to investigate the facts and circumstances that allowed for the infraction to take place and remediate the weakness to deter recurrence.
Sanctions and mitigating factors
Under French law a company which pays a bribe to a foreign public official can be fined up to €1 million or double the ‘benefit’ gained for the wrong-doing.
Now with Sapin 2, the AFA will be able to police what companies have implemented in terms of necessary measures to prevent and detect corruption. If the AFA finds the company non-compliant, it will first issue an injunction. The next step is a fine, which could reach up to €1million for the company (€200,000 for individuals). The AFA will potentially make these sanctions public.
The fact that there is almost equal fine amounts for having paid a bribe and for failing to implement an effective compliance program demonstrates the importance that Sapin 2 places on the prevention of corruption.
Sapin 2 now allows for the possibility of a company involved in a corruption scheme to enter into a Convention Judiciaire d’Intérêt Public, i.e. a “Judicial Convention of Public Interest”, a French equivalent to a US or a UK Deferred Prosecution Agreement (DPA). It will consist of a 3-fold agreement: the company recognizes the facts without admitting guilt. It pays a fine – the amount will be linked to the benefits made through the tainted sales (limited to 30% of the company’s turnover). It then enters into a probation period (for 3 years maximum) where it has to enhance its compliance program under the control of the AFA. At the end of this period, if convinced of the company’s progresses, the court will drop the prosecution. The main advantage of this mechanism is that in absence of criminal conviction, the company will still have access to public tenders.
This “French DPA” has generated significant debate led by the French Conseil d’Etat (the Council of State is the highest administrative body advising the Government on the preparation of laws). The main criticisms are that this “judicial transaction” prevents any contradictory and public debate (the hearings being confidential), excludes the victim from the investigation and is reserved for companies and is not applicable to individuals, meaning that the managers or employees can still be prosecuted after the company enter into a settlement. The DPA nevertheless further aligns France with the US and the UK by allowing faster and more efficient resolutions for companies without resorting to full criminal procedures and prosecution.
What is not clear at this stage is to what extent a company will be given credit for having implemented an effective compliance program. What incentive will there be for implementing and testing a compliance program? What will happen for instance if a company, during the course of a compliance audit, discovers some wrong-doings? Should it turn to the AFA and self-disclose? What mitigating credit will it gain for doing so? These questions are yet to be answered.
After Sapin 2, French companies will have no other choice than to implement a robust compliance program. It is a clear sign that the French authorities aim to take their place at the forefront of anti-corruption practice and transparency along with other major international jurisdictions. By hardly ever enforcing French anti-corruption laws since 2000, France has exposed its companies to a much tougher enforcement activities, mainly from US authorities. With Sapin 2 and the creation of the AFA, foreign authorities should see an active counterpart taking charge of French companies’ compliance matters. In case of trouble, French companies should consider how and if they could be prosecuted by their own authorities thus potentially avoiding the American-style investigations where potentially sensitive information is sent across the Atlantic as well as increasingly significant fines are demanded. It will may well become, over time, more difficult (and perhaps less desirable or perceived of as necessary) for US authorities to exert jurisdiction over French companies, and that is likely to be perceived domestically as a promising and long-awaited step for French companies operating internationally. This is perhaps a positive perspective and worth keeping in mind when corporates start putting together the long list of Sapin 2 requirements.
.png)
.png)
