The French authorities concluded a Convention Judiciaire d’Intérêt Public in with a bank in November 2017. Was this the first agreement of this kind?
Yes. This agreement is the first Convention Judiciaire d’Intérêt Public (“CJIP”) – which stands for Judicial Agreement in the Public Interest – concluded by the French National Financial Prosecutor (“NFP”) since the adoption, in December 2016, of the “Law regarding transparency, the fight against corruption and the modernization of economic life”, better known as the “Loi Sapin II”. The CJIP and the Paris Court’s decision became binding and public on November 24, 2017 after a 10 day opt-out period left to the Bank.
The Loi Sapin II introduced some significant amendments to the French Code of criminal procedures (“CCP”), one of the most consequential being the CJIP. The CJIP is modeled after deferred prosecution agreements (“DPAs”) as practiced in the United States and the United Kingdom. It was adopted, among other reasons, to address France’s relative absence of prosecutions and convictions of corporations for major economic and financial crimes, notably overseas corruption. This first CJIP was concluded to settle charges on the laundering of proceeds from tax fraud.
Wasn’t the CJIP adopted to enable the settlement of corruption-related charges?
Originally, the CJIP was intended to allow only negotiated outcomes in the context of investigations for corruption, but its scope was ultimately extended to the laundering of proceeds of tax fraud. The CJIP is therefore available to corporate entities – but not individuals – accused of offenses of public and private corruption and influence peddling, whether domestic or foreign, as well as of the laundering of proceeds of tax fraud. This means, however, that a CJIP cannot be concluded for any other offenses, including tax fraud or the laundering of proceeds of corruption.
What are the terms of this first CJIP?
In total, the Bank agreed to pay €300 million to enter into a CJIP with the NFP. This amount is composed of (1) a €158 million “public interest fine”, which represents 30% of the Bank’s average annual turnover over the previous three years (2014-2016) and is the maximum authorized under the Loi Sapin II, and (2) €142 million to be returned within a year to the French State, which had formally joined the prosecution as a victim (partie civile). The €158 million fine is divided between €86,4 million of disgorgement of illegal profits and a €71,6 million additional penalty.
Source CJIP, 9.P.
Were any credits obtained for cooperation or self-reporting
The concepts of cooperation and self-reporting to enforcement authorities, as understood in the U.S. and the U.K., are unfamiliar to the French judicial and prosecutorial culture. Neither the French criminal procedures, nor the Loi Sapin II, contain guidelines related to cooperation or self-disclosure similar to those described in the U.S. Principles of Federal Prosecutions of Business Organizations (U.S. Attorneys’ Manual, Chapters 9-28.700 and 9-28.900) and the U.K. DPA Code of Practice (§2.8.2). This situation contrasts with the DOJ’s policy which is to continually emphasize the importance of corporations to self-report and fully cooperate in order to obtain a discount or a declination to prosecute. The revised Corporate Enforcement Policy for the U.S. Foreign Corrupt Practices Act, unveiled on November 29, 2017, is the most recent expression of such policy.
Having said that, here lies the most novel aspect of the recent CJIP; it is the first time that lack of voluntary disclosure and minimal cooperation are mentioned in the context of a French criminal proceeding. The CJIP highlights that “minimal cooperation in the investigation” was offered. This assessment is based on (1) the lack of voluntary disclosure of facts, and (2) lack of acknowledgment by the Bank of its criminal liability during the investigation. While the CJIP also points out that there was no legal mechanism encouraging defendants to cooperate at the time of the investigation, it confirms the NFP’s willingness to sanction companies with higher fines absent voluntary self-reporting and full cooperation.
Does the CJIP also require the implementation of a compliance program?
This first CJIP does not require the implementation of a compliance program. This may be explained by the fact that this agreement was negotiated to settle an investigation into money laundering and tax fraud, as opposed to corruption-related charges. As a result, it appears that the possibility for any future prosecution of the same facts will end upon payment of €142 million to the French State by November 2018 at the latest ( the €158 million fine was paid within 10 days of the CJIP becoming final).
Wasn’t the adoption of mandatory compliance programs a key feature of the Loi Sapin II?
Yes. The Loi Sapin II enables the conclusion of a CJIP under either one or two of the following conditions: (1) the payment of a public interest fine, and/or (2) the implementation of a compliance program under the monitorship of the French Anticorruption Agency (“AFA”) for an agreed-upon period up to three years. The CJIP was therefore adopted to impose the implementation of restorative and remedial measures, in return for which formal charges against the company would be dropped without a sentencing judgment. In the same vein, the Loi Sapin II also introduced a requirement for all medium and large companies to adopt anticorruption compliance programs meeting certain specifications. The AFA, which is tasked to monitor the adoption of compliance programs by required companies, has recently published useful guidelines aimed at helping the corporates meet the criteria set forth in the Loi Sapin II.
Are managers and employees also facing separate charges?
There is no public information available to date confirming that the managers or employees of the Bank’s Swiss subsidiary are being prosecuted in the same case. However, two former directors of the parent Bank have been bound over for trial. It is worth mentioning that, during an event held on November 30, 2017, the representatives of the NFP declared that there was, and there will be, no discussion over the potential culpability of individuals as part of the negotiation of a CJIP with the legal entity.
Could you remind us of the procedures involved to conclude a CJIP?
The CJIP can only be concluded at two stages of the French criminal process, either (1) during a preliminary enquiry undertaken by the prosecutor and prior to the commencement of the “public action” (i.e., before initiation of criminal prosecution), if proposed by the prosecutor (article 41-1-2 CCP), or (2) after a criminal investigation by an investigative magistrate has been launched, if proposed by the prosecutor or the investigating magistrate and agreed by the prosecutor (article 180-2 CCP). The latter option is only available when the legal entity placed under investigation acknowledges its liability for the charges brought against it, as well as the legal qualification attached to them. Since the criminal investigation of the Bank started in 2014, the latest CJIP was concluded under this second procedure. Although the admission of liability does not equal a formal acknowledgment of guilt, it essentially mirrors the process introduced in 2011 in the context of the French guilty plea procedure (article 180-1 CPP), known as the Comparaison sur Reconnaissance Préalable de Culpabilité (“CRPC”).
What are the differences between a CJIP and a CRPC?
The CRPC is a guilty plea. The main difference is that a CRPC results in an official criminal conviction, while the CJIP does not end in a sentencing judgment. This explains why the CRPC is very rarely used by legal entities, because it can have devastating consequences for a company, including debarment. In fact, it appears that it was only used once and this by a Swiss bank in January 2016. Another distinction is that the CRPR is used extensively to resolve charges against individuals, whereas the CJIP is only available to legal entities. Last but not least, the CRPC provides, in practice, very little room for negotiation with French prosecutors.
How does the CJIP compare to U.S. and U.K. DPAs?
On the one hand, the CJIP, much like U.S. and U.K. DPAs, allows a legal entity to negotiate a settlement with prosecutors and avoid a criminal conviction by demonstrating good conduct. In all three cases, individual representatives of a company can still be prosecuted and face separate sanctions. On the other hand, the CJIP appears to be more similar to the U.K. scheme than to the U.S. procedures, mainly because (1) it is only available to companies and not individuals, unlike U.S. DPAs that were originally introduced for individuals, and (2) it has to be validated by a judge after a public hearing. For a comparative overview of different alternatives to prosecution, please see this useful table.
U.S. DPAs also require some sort of approval by a U.S. judge, don’t they?
U.S. DPAs require that U.S. prosecutors first file criminal charges with a district court. The DPAs thus become court orders and may be, at least in theory, subject to judicial scrutiny. Nevertheless, the control of DPAs by U.S. judges is considered very tenuous and has caused considerable debate in the United States over the past few years. In 2009, the U.S. Government Accountability Office issued a report attempting to assess the role of the courts in the DPA process. Based on the responses provided by U.S. district and magistrate judges, it concluded that judges “were generally not involved in the DPA process”, and they believed that “decisions in the DPA process – such as whether to enter into a DPA instead of prosecute, set the terms of the agreement, or determine whether a company has complied with or breached an agreement – were functions of the executive rather than judicial branch”. This rather restricted role of the U.S. judge was confirmed by two recent decisions. In April 2016, the D.C. Circuit Court ruled in United States v. Fokker Services B.V. that, although the Speedy Trial Act provided for courts to approve the exclusion of time pursuant to a DPA (18 U.S. Code §3161(h)(2)), judges did not have the authority “to second-guess the Executives’ exercises of discretion over the initiation and dismissal of criminal charges.” The Fokker decision was reinforced in July 2017 by United States v. HSBC Bank USA, N.A., where the U.S. Court of Appeals for the Second Circuit held that “absent unusual circumstances not present here, a district court’s role vis-à-vis a DPA is limited to arraigning the defendant, granting a speedy trial waiver if the DPA does not represent an improper attempt to circumvent the speedy trial clock, and adjudicating motions or disputes as they arise”.
How does this compare with the review of DPAs operated by U.K. judges?
In the U.K., the judicial review of DPAs is a “critical feature of the scheme” where the proposed agreement is examined in detail and is required to meet strict statutory conditions. This was highlighted by Lord Justice Leveson in his final judgment approving the first U.K DPA concluded in 2015 with Standard Bank. This review follows a two-step process: (1) at the very beginning of the negotiations with an organization, the prosecutor first needs to seek preliminary approval from the judge to engage in such negotiations. The judge assesses, in a private hearing, if the considered agreement “is likely to be” in the interest of justice and its contemplated terms are fair, reasonable and proportionate; (2) once the negotiations are over and both parties have come to an agreement, a final declaration is required by the judge to approve the merits and the terms of the DPA. It is only at this final stage that the statement of facts, the DPA and the two declarations made by the judge are published.
Are the French judges required to follow the same process when validating a CJIP?
After an agreement is reached between the prosecutor and the company, the CJIP needs to be “validated” by a French judge during a public hearing. The Loi Sapin II, supplemented by an April 27, 2017 Decree, set forth the following criteria for validating or dismissing a CJIP: (1) merits of the proposed agreement, (2) regularity of the process, (3) compliance of the financial penalty with the authorized threshold (up to 30% of the company’s average turnover over the previous three years), and (4) proportionality of the measures with the advantages gained from the wrongdoing.
Was this the process followed to validate the first CJIP?
In its decision validating the CJIP, the President of the Paris Court confirmed that the CJIP was “fully justified in its merits and its amount”. The validation appears to be based on three main factors, as listed in the decision: (1) the Bank acknowledged the statement of facts as well as the legal qualification attached to them (as per article 180-2 CPP’s procedure); (2) the CJIP sufficiently describes the investigation, the amount of French assets held and managed by the Bank at the time of the wrongdoing, and the basis for the calculation of the penalty; and (3) the NFP justified its use of this scheme and the amount of the proposed penalty. Nevertheless, the 4 page-decision offers very little insight into the arguments raised by the NFP during the public hearing, and the reasoning of the French judge that lead to the approval of the CJIP. It is also worth noting that the proportionality of the penalty with the advantage derived from the misconduct was not discussed.
Does this imply that the validation of French judges is less robust that the control operated by U.K. courts?
It is too early to say. Given the type of misconduct involved and the late stage of implementation of the procedure (i.e. as a result of a criminal investigation and not during a preliminary enquiry), this first CJIP may not provide a clear example of future agreements. In any event, it looks like the Paris Court is ready to give the NFP more flexibility in negotiating a CJIP. This may be due to the fact that the French judge can only choose to validate or dismiss a CJIP, unlike the U.K. judge who is much more involved during both the adoption and the monitoring phases of the DPA.
Should we expect to see more CJIPs in the future?
The NFP has recently expressed that it is planning to settle more CJIPs, including for corruption-related charges. That said, three main reasons could prevent more CJIPs from being concluded, all based on the specificities of French criminal rules and procedures: (1) the French criminal corporate liability rules (article 121-2 Penal Code), which provided on several occasions a successful defense before French courts in cases that would have clearly resulted in corporate liability in the U.S.; (2) the statutory penalty for corruption and money laundering, which may result in lower fines paid as a result of a trial than the conclusion of a CJIP; and (3) the limited access to files containing facts and evidence obtained in the context of preliminary enquiries conducted by prosecutors, despite a 2016 reform that has allowed a person believed to be guilty of an offense to request the file after a year following the first hearing (article 77-2 CPP).
In France, the burden of proof lies with the prosecutors, who, before initiating criminal prosecution, conduct a preliminary enquiry where incriminating elements are kept secret from any potential person involved. In these cases, unless the French prosecutors decide unilaterally to share information about their enquiry prior to concluding it or referring the case to an investigative magistrate for further criminal investigations, companies and their representatives may be encouraged to follow a “wait and see” defense strategy as opposed to self-reporting and cooperating. This situation, which has often paid off in French criminal litigations, obviously represents a serious hurdle to the negotiation of CJIPs at an early stage (i.e. before initiation of criminal prosecution and without acknowledgment of liability). It could only be addressed if companies undertook active parallel steps to identify their own potential misconduct, so as to hold all the cards at the beginning of negotiations and to avoid blind cooperation, were given incentives by the prosecutors to disclose the findings.
One additional reason relies on political factors and the interest of U.S. authorities in engaging enforcement actions, since the law in the United States provides no double jeopardy or ne bis in idem protection for foreign judgments. This issue was thoroughly analyzed by Columbia Law School’s Professor Frederick T. Davis in his article and blog post. It remains to be seen to what extent the U.S. authorities will agree to back off and consider a CJIP as a sufficient outcome that punishes violations of their own potential interests, notably in corruption-related cases as these are more likely to involve cross-border elements than issues focused on domestic tax fraud.
Do you see more CJIPs concluded with French or with foreign companies?
In relation to laundering the proceeds of tax crimes, we should expect additional CJIPs concluded with foreign banks. The situation may be more complex in the context of corruption-related investigations, as indicated by the AFA’s head, Charles Duchaine, and reported in the news. However, the Loi Sapin II was clearly adopted to boost French enforcement authorities’ ability to pursue and penalize overseas bribery, and the latest CJIP shows that the French authorities are effectively starting to implement key aspects of the law. In this respect, the law has increased French prosecutors’ power to pursue acts of public corruption committed abroad, by expanding the extraterritorial application of French law to any person “carrying out all or part of his/her/its economic activity on the French territory” (articles 435-6-2 and 435-11-2 Penal Code). This means that, for example, any foreign company having a subsidiary in France is subject to French anti-corruption laws, even if the act of corruption took place outside of France, had no participation by a French subsidiary and there were no French victims identified.
How does the CJIP increase opportunities for corporations facing multi-jurisdictional criminal investigations?
Corporations being investigated for financial and economic crimes by several enforcement authorities need to first undertake a careful assessment, so as to decide to what extent they should start engaging with these different authorities. In the context of a surge in cross-border and multi-jurisdictional investigations, the CJIP opens doors to French and foreign companies for a serious alternative allowing them to restore their integrity, without bearing the potential disastrous financial and reputational impact resulting from a criminal conviction. Wider potential strategic choices will allow companies to take quicker and sounder decisions, contributing simultaneously to a timely and efficient justice; because “justice delayed is justice denied”.