What is the legal test for determining if a legal entity, such as a corporation, can be found criminally responsible for the acts of its officers or employees?
Well, that’s a good question. And the answer is not simple, because the legal test can vary from country to country.
Do these variations in the law make a difference?
Very much so, perhaps more than many people realize.
Can you explain?
To take the example of France, in the fifteen years since it adopted legislation criminalizing overseas corrupt payments, in conformity with the OECD Convention of 1997, there has not been a single corporation convicted in France under this legislation. Meanwhile, a number of other countries – especially the United States – have actively and successfully prosecuted international companies, including French ones, under the US Foreign Corrupt Practices Act.
Do you believe that this is based on differences in the laws relating to corporate criminal responsibility?
In part, yes. A recent report of an ad hoc committee of the Club des Juristes in Paris, in which I participated, mentions a number of reasons for France’s difficulties in prosecuting overseas corruption (and suggests some interesting approaches to improve the situation). But France clearly has a more demanding test for pinning responsibility for criminal acts on a corporation, and in my view this has had a real impact on France’s track record.
Can you give an example?
A January 2015 decision of the Court of Appeals of Paris in a case involving allegations of overseas corruption is perhaps the most recent example of the problem I am raising.
Very briefly, what is the procedural history of the case?
Safran, which is a large French aerospace company, was investigated by a well-known investigating magistrate (juge d’instruction) in Paris, who ultimately bound the company and two of its officers over to trial on criminal charges of corruption relating to allegations that payments had been made to officials in Nigeria in 2001 that led to the award of a large contract to their entity SAGEM before the merger with SNECMA (SAGEM and SNECMA became Safran). After the trial, the two individuals were acquitted, but the trial court concluded that Safran, the corporate entity, was criminally responsible.
What happened on appeal?
The first significant event was the position taken by the Public Prosecutor on appeal, who argued that both elements of the trial court’s judgment should be reversed – that is, that the corporation should now be acquitted but that the individuals should be convicted.
What was the basis for this position? What does it tell us about the way the prosecutor analyzed the criminal responsibility of the corporation?
With respect to the corporation, the prosecutor apparently relied on an interpretation of Article 121-2 of the Penal Code, which governs the criminal responsibility of corporations. That article, which entered the Penal Code in its present form only in 1994, provides that corporations can be held criminally responsible for the acts of its “organs or representatives” when done “for the benefit” of the corporation. On the appeal, the public prosecutor apparently took the position that these elements were not satisfied. On the other hand, he argued that there was sufficient evidence to convict two individual officers, who had been acquitted in the trial court.
Did the Court of Appeals agree with the prosecutor on the issue of corporate criminal responsibility?
The court did not rule on that specific question, although it recited the prosecutor’s position. It did not need to do so because it went on to conclude that neither the corporation nor the individuals were shown to have violated the anti-corruption statute.
What was the basis for that part of the Court of Appeal’s decision?
The Court engaged in a fairly lengthy discussion of the facts, and then concluded that while there was evidence of a payment, and evidence that the contract was let to Safran, the evidence did not compel a conclusion that there was an illegal “quid pro quo” between these two acts necessary to find that the statute had been violated. This part of the Court’s opinion is quite detailed and I am simply summarizing it here. Readers can look at a recent article in Le Monde by two well-known specialists in this area for further discussion of the Court’s opinion.
What do you think may be the impact of this decision?
Let us start with the possible impact of the Prosecutor’s position that the criminal responsibility of the corporation was not demonstrated. The legal principles underlying corporate criminal responsibility are quite nuanced, and differ markedly from one country to another. In the United States, it is relatively easy to pin corporate criminal responsibility on corporations for almost any act committed by an employee as long as that act was intended to, or did, benefit the corporation at all. In the United Kingdom, the standard is much more demanding: a corporation cannot be found criminally responsible unless the prosecution can show that the so-called “directing mind” of the corporation – that is, individuals in a significant position of authority – were aware of it and approved. Article 121-2 of the French Penal Code strikes me as falling somewhere in between these two provisions – significantly more restrictive than the American approach, perhaps a bit less so than the British one.
Does this mean that the problem of pursuing corporate corruption is even more difficult in the United Kingdom?
It might be, but the British legislature addressed that issue in a manner that is quite innovative: the UK Bribery Act adopted in 2010 created a new offense generally known as the “corporate offence.” Under it, if it is shown that an act of corruption has occurred, the corporation may be found guilty of failing to have had in place a compliance program that was reasonably designed to prevent such acts. Such a conviction can happen without showing that any particular individual in the corporation had specific knowledge or specific intent that the act of corruption was going to occur, which of course makes it quite a bit easier to prosecute. On the other hand, it is a complete defense to such a prosecution to demonstrate that, in fact, the corporation had had a sufficient program of compliance.
Does this approach make sense to you?
It does two things, in my opinion: first, it recognizes that acts of corruption can occur notwithstanding diligent efforts to avoid them, and thus that in some circumstances it may well be appropriate not to condemn the corporation if, for example, an individual flagrantly broke its rules; and, second, it provides robust encouragement to corporations to adopt strong compliance policies, precisely so that they can use it as a defense in the event of a future investigation. –
So how does this compare with the situation in France?
It seems to me that French laws have a significant gap: it now appears that there are significant obstacles to the prosecution of corporates in France, yet there is no equivalent to the UK Bribery Act “corporate offence” with its less demanding elements of proof. There is also no specific legal incentive to have a strong compliance program.
How do you analyse the Public Prosecutor’s position on the issue of corporate criminal responsibility in the Safran case?
Decisions interpreting Article 121-2 have been nuanced and I cannot say that there is a clear line to be drawn detailing the limits of the statute. I do know that in the Le Monde article I cited earlier and elsewhere, the position of the Public Prosecutor on this precise issue has been roundly criticized. But if Article 121-2 is not changed or reinterpreted, it seems to me that the French legislators might do well to consider an analogue to the British approach of a “corporate crime” with diminished elements of knowledge and intent.
What about the ultimate decision acquitting the corporation and the individuals because of factual insufficiency?
The Court’s decision is so fact-oriented that it is difficult to draw from it any particular principle as to how future cases will be decided in France. I can certainly say that from a US perspective, it is hard to understand an acquittal on the basis of factual insufficiency when it appeared quite clear that a significant payment was made to an apparent representative of a foreign country’s government and that that government ultimately awarded a very lucrative contract.
Do you think this might have an impact on the way the US DoJ enforces the the FCPA against non-US companies?
In the near term, I anticipate that this decision may well increase efforts by the United States Department of Justice to investigate and, where appropriate, to prosecute French corporations for apparent violations of the US Foreign Corrupt Practices Act if that Act is applicable to the activities of the corporations in question. We have already seen four major quasi-criminal settlements – with Technip, Alcatel, Total and Alstom – where the US Department of Justice investigated French companies even though, at least in some of those instances, the connection with the United States was not very clear. A number of commentators in France have criticized these arrangements as reflecting an inappropriate and overly aggressive exercise of extra-territoriality by American prosecutors. My fear is that once the lessons of the Safran acquittal are appreciated by the Department of Justice in Washington – which may not yet have been the case – the prosecutors there will draw the conclusion that either French laws are inadequate or French investigators are incapable or unwilling to prosecute French laws, and that US authorities will have to do so.
Do you feel that the DoJ is unfairly focusing on French companies?
I cannot speak for the DoJ, but it is very clear that they believe that French companies have not met their responsibilities in various areas of international law enforcement and regulation, and thus that they merit attention from Washington, DC. Just last week the head of the Criminal Division of the DoJ gave a major speech in which she singled out two French companies – BNP and Alstom – noting that they had earned very large fines for various violations because of a “failure to cooperate.”
Do you believe that French companies suffer from the absence of effective prosecutions in France in the area of overseas corruption?
Yes, I do, as I have already noted on your website, I believe there is ample reason to believe that French companies could benefit from a realistic enforcement of French laws by French authorities. –
Do you think the OECD should work on harmonizing the corporate offense incrimination?
The OECD should continue to stimulate active discussion of the issue, which it has done very effectively. The OECD treaty of 1997 was a huge step forward in creating a “level playing field” by encouraging a general convergence of the substantive laws relating to overseas corruption. It would be nice if the OECD could also encourage a convergence on secondary, or even “procedural,” issues such as corporate criminal responsibility. I personally do not think that this will happen very soon or very easily, with the result that there will be no “one size that fits all” in terms of how cross-border investigations take place.
Frederick T. Davis, Of Counsel
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Tel: +33 1 40 73 12 12
The ETHIC Intelligence Experts’ 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.