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The French bill “Sapin II”: how will it affect companies when published?

François Michaud

Counsel

Skadden, Arps, Slate, Meagher & Flom LLP

Paris

 

 

The future French anti-corruption law on Transparency, Fight Against Corruption and Modernization of the Economy (the “Sapin II Bill”) is in its final stages of adoption after discussions and a vote by both the French National Assembly and Senate. It will be a landmark change in the French legal environment.  France had not had a global anti-corruption law and three out of ten companies involved in the top FCPA enforcement actions in the last 20 years were French whereas there has been just one decision by French judicial authorities condemning a French company for corruption and this  15 years after the fact. There have been some substantial changes since the initial bill, which are still under discussion, however, there are already provisions that companies should anticipate which will become enforceable in the near future and companies should prepare themselves to comply with such provisions.

 

Which companies are concerned?

The anti-corruption obligations will apply to companies that, for two consecutive years, had at least 500 permanent employees and also companies forming part of a group of companies with at least 500 employees and a consolidated net turnover of EUR 100 million.

 

Will the anti-corruption law have an extra-territorial scope?

The new anti-corruption law will apply to any prohibited act or conduct that occurs within the French territory.

In addition, this law may apply to acts or conduct outside of France when the victim is a French national or when the act or conduct was committed by French nationals outside France, where such act or conduct is a punishable offence under the law of the country where the offence was committed. In this last instance, a procedure can only be initiated by the French public prosecutor. However, for the moment, the French senate has gone further in suppressing the need for the act to be punishable under the foreign law and this is one aspect that will probably be discussed further.

 

What are the obligations a company should expect in the near future?

Companies will have to take the following steps at least to prevent and detect corruption both in France and abroad:

  • adopt a code of conduct, which shall be annexed to the Internal Rules (“Règlement Intérieur“),
  • implement and update on a regular basis corruption risk mapping and assess their corruption risk based upon their types of activities and organization (by types of activities and by geographical zones, based on the main clients, suppliers and intermediaries (this last category is not defined but may also encompass agents and distributors)),
  • screen customers, providers, business partners and intermediaries,
  • provide regular training to employees targeting those exposed to the risk of corruption and influence peddling,
  • adopt accounting control systems,
  • disciplinary sanctions against employees for breach of the internal rules
  • implement a whistleblowing process, and
  • set-up an internal control and appraisal process of these measures.

 

Are there other actions companies should think about and anticipate beyond this law?

The Sapin II Bill is defining de minimis obligations.

In addition, companies should consider:

  • giving the “tone from the top”:  it is important that the tone comes from the top i.e. from executive management and the board of directors and that they ensure the necessary measures are implemented in a swift and efficient manner and there exists a periodic control of their efficiency by the board
  • involving the board of directors in the initialization of processes for preventing corruption and their monitoring, whether through the audit committee or a specific committee and training of the board members,
  • appointing a head of Compliance, who reports directly to the CEO and to the board of directors, including on anti-corruption matters,
  • taking into account compliance with anti-corruption rules in personnel assessment and remuneration,
  • analyzing their potential exposure to Politically Exposed Persons in doing business in France or abroad (which is defined under the fourth EU Anti Money Laundering Directive dated May 20, 2015).

 

Who will monitor and enforce the anti-corruption law?

A new authority shall be created named “Agence Nationale de Prévention et de Détection de la Corruption” (National Agency for the Prevention and Detection of Corruption). It will be placed under the authority of the Ministry of Justice and there are ongoing discussions as to whether it will also be under the authority of the Ministry of Budget.

The agency will be headed by a magistrate, appointed by the President of the Republic. To ensure their independence, they shall be appointed for a unique mandate of six years and cannot be removed except upon their request, inability or serious misconduct and they will not be placed under the authority of any governmental or administrative agency.

The agency will help administrative authorities to implement internal programs for the prevention of corruption and companies in defining internal processes and procedures for complying with their obligations under the anti-corruption law.

The agency shall also provide guidelines, assess companies’ anti-corruption programs, policies and procedures, elaborate a risk mapping on corruption, present a long-term plan for fighting corruption and shall coordinate with international organizations on France’s position on fighting corruption.

It will also be vested with investigative and enforcement powers. It shall monitor the proper implementation by companies of anti-corruption programs, including by requesting documents and running on-site inspections. Any obstruction to its investigation powers may trigger a EUR 30,000 penalty.

It should have the authority to fine companies who fail to implement adequate processes, even though there are still discussions whether, as an administrative agency, it can impose criminal penalties.  

 

What are the potential sanctions a company will be exposed to?

First, after a control, the agency may issue a warning to a company that does not have adequate anti-corruption processes or does not comply with the anti-corruption law.

Then, if within three months of the agency’s warning, there has been no improvement or remediation, it may request that a judge issue an order to improve such processes under financial compulsion.

If the agency determines that the anti-corruption programs are insufficient or ineffective, it may impose penalties up to EUR 1 million for the company and EUR 200,000 for individuals and its decision may be rendered public.

In the event of a judicial decision sentencing a company for not complying with the anti-corruption laws, the Sapin II Bill introduces the concept of a complementary sanction which consists of imposing a remedial action plan and a monitorship. A judge may impose injunctions to force the company to implement an anti-corruption program in line with the agency’s suggestions within a maximum of 5 years from the date of the injunction.

Should the company fail to comply with its remedial obligations, the company will be exposed to a EUR 2 million penalty and individuals to a prison sentence up to 2 years and a penalty of EUR 400,000. The decision may be made public.

It is uncertain at this stage whether the agency will directly monitor the process or if it will be under the control of a judge who may mandate the agency. The Sapin II Bill also introduces the principle that the costs of monitoring will be borne by the company subject to a remedial plan.

 

What about the introduction of a deferred prosecution agreement or settlement process?

Once of the keystones of the Sapin II bill was the introduction of an option for companies to sign a settlement agreement during the course of or before entering into a criminal procedure related to corruption cases (“convention judiciaire d’intérêt public“). In addition to a remedial action plan and monitorship, the judicial authorities would impose a potential financial penalty capped at 30% of the company’s average turnover over the last 3 years.

However, the French supreme administrative court (“Conseil d’Etat“) expressed some concerns about the introduction of a settlement procedure and it is not sure that this will be in the final bill.

 

Is there any specific status for whistleblowers?

The Sapin II Bill creates a protected status for whistleblowers and in the last draft amended by the French senate provides a broad definition: “A whistleblower is an individual who alerts, in the general interest, in a disinterested manner and in good faith, a crime or an offence or a serious and obvious violation of the law or of the regulation he became personally aware of”. However, information and data covered by medical secrecy, national defence secrecy and legal privilege are excluded from disclosure by whistleblowers.

The alert cannot be made immediately public and must first be reported to managers, then the designated referee and if there is no follow-up then to competent authorities (judicial, administrative or professional). It is only as a final resort that the whistleblower can alert the media and the French senate added that it should only be in cases of imminent and serious danger or because there is a risk of irreversible damages. The publicity of the alert is also conditional on the fact that there is a general public interest to make the information public.   

Companies with more than 50 employees will have to organize the reporting and alert processes for whistleblowers.

The Sapin II Bill provides for the possibility of compensation for a whistleblower either to compensate for the procedures he or she may be involved in or for any financial precariousness they may suffer, but it does not provide for remuneration.

 

Conclusion:

The different drafts of the Sapin II Bill already provide guidelines on the obligations that companies will have to comply with in terms of prevention and detection of corruption. Companies that fall within its scope should start thinking about whether they are organized and prepared for its implementation.

It is expected that companies will put in place effective programs and processes, with the involvement of top management and the board.

It is also an excellent opportunity to consider the company’s organization, processes and policies more globally, not just limiting them to corruption, but taking the opportunity to merge their efforts and resources for complying with other regulatory obligations on anti-money laundering and sanctions, as well as foreign anti-corruption laws including the U.S. Foreign Corrupt Practices Act (FCPA) or U.K Bribery Act.

François Michaud

Counsel

Skadden, Arps, Slate, Meagher and Flom LLP

Paris

 

September 2016

François Michaud is a counsel in Skadden’s Paris office and a member of the Financial Institutions Regulation and Enforcement Group. He has more than 20 years of experience in the financial services sector and advises on government enforcement, white collar crime, internal investigations, compliance anti-bribery, anti-corruption and banking regulatory matters. Prior to joining Skadden in 2014, Mr. Michaud served as senior legal counsel and head of special affairs and regulatory at a major international corporate and investment bank, handling significant cross-border criminal and regulatory investigations and advising on a wide range of regulatory matters.

 

The ETHIC Intelligence Expert’s Corner is an opportunity for specialists in the field of anti-corruption compliance to express their views on approaches to and developments in the sector. The views expressed in these articles are those of the authors.




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