Partner Nicolas Brooke examines how new guidelines issued by French authorities are a step forward in the right direction but remain quite high-level and are at times inconsistent with stances taken by other law enforcement authorities which may disrupt future cross-border resolutions, in Global Investigations Review.
Nicolas’ article was published in Global Investigations Review, 17 July 2019, and can be found here.
New guidelines issued by French authorities are a step forward in the right direction but remain quite high-level and are at times inconsistent with stances taken by other law enforcement authorities which may disrupt future cross-border resolutions, Nicolas Brooke at Signature Litigation in Paris argues.
France’s National Financial Prosecutor’s Office (PNF) and Anti-Corruption Agency (AFA) issued guidelines on 27 June on judicial public interest agreements (CJIPs), a mechanism for reaching negotiated criminal resolutions akin to US-style deferred prosecution agreements (DPAs). The US-style settlements were introduced in France on 9 December 2016 by Law No. 2016-1691, which is colloquially known as Sapin II.
The guidelines, which were published roughly a year and a half after the enactment of Sapin II and the conclusion of six CJIPs with French law enforcement authorities, provide information about what conditions should be met to benefit from a settlement and the methodology for determining the financial penalty. They were preceded by an instruction issued by the French Ministry of Justice on 31 January 2018 to public prosecution services regarding the implementation of the Sapin II law, which contains a limited amount of guidance on CJIPs.
Although the January 2018 instruction and the June guidelines provide some insight on the approach the PNF intends to follow in relation to CJIPs, they are not legally binding on companies. Furthermore, it remains to be seen whether the guidelines will be followed by other offices of the French public prosecution services (for example, the Public Prosecutor’s Office of Nanterre, which concluded three out of the six CJIPs agreed to date in France).
The guidelines also leave a number of questions unanswered and raise concerns regarding the protection of lawyer-client confidentiality (the rough equivalent of attorney-client privilege in French law) and how individuals caught up in cross-border investigations will be treated as the practice of CJIPs develops in the future.
After a lengthy introductory section where the respective roles of the AFA and PNF as well as the advantages of concluding a CJIP from the perspective of companies are described, the guidelines discuss how companies can maximise their chances of concluding a CJIP.
The emphasis is put on timely self-disclosure (the timeliness of the disclosure being assessed as of when a representative of the corporation became aware of the wrongful conduct), cooperation, the absence of former convictions or criminal resolutions by the company (including its subsidiaries or directors, which comes across as a little odd given that there is no concept of vicarious criminal liability under French law) whether in France or abroad and the deployment of an effective compliance programme.
Although the law provides that CJIPs can be offered at the public prosecutor’s initiative before a charging decision has been made, the guidelines helpfully suggest that nothing prevents companies from taking the initiative by asking for a settlement and engaging in discussions with the authorities to that effect, even on an informal basis. The guidelines also argue, however, that the evidence gathered during the investigation and made available to the prosecutors must be enough to support an indictment before any discussions regarding the conclusion of a potential CJIP can take place.
It therefore appears that companies cannot hope to reach an agreement, even in principle, on the basis of an incomplete evidentiary record. The guidelines also state that article 41-1-2 of the French code of criminal procedure (which governs CJIPs) should be read as meaning that all the materials turned over by the company before a CJIP is formalised (therefore towards the end of the negotiations) can be relied on by the authorities in subsequent investigations or proceedings.
If that controversial view prevails, the decision to self-report after having conducted an internal investigation will be all the more complex to take, given that the corporation will run a very real risk of prosecution if the parties do not succeed in concluding a CJIP, potentially on the basis of the record that was voluntarily turned over to the PNF.
The guidelines provide some insight as to how the PNF views the articulation between the internal investigatory work companies are strongly encouraged to conduct as a token of their cooperation with the authorities, and the judicial investigation running in parallel. They note that when an internal investigation is launched before the opening of a judicial inquiry, companies should ensure evidence is preserved and that the testimony of witnesses is truthful.
The guidelines also insist that companies should ensure investigatory work conducted internally does not disrupt the prosecutors’ investigation, and the need for a high level of coordination in this respect. The PNF therefore appears to share the concerns about the prospect of parallel internal investigations causing a “trampling of the crime scene” expressed by various representatives of the UK Serious Fraud Office (SFO) since DPAs were introduced to the UK in 2014 and to be reticent to “outsource” investigations to companies and their counsel as tends to be the practice in the US.
In future cross-border resolutions involving the PNF and other foreign agencies, it will be interesting to see how the various investigatory styles and law enforcement authorities’ expectations regarding deconfliction of certain investigatory steps can be reconciled, and most of all, how that will affect the various authorities’ assessment of the corporation’s cooperation.
Individuals and legal privilege
Individuals are not entitled to conclude a CJIP and the guidelines simply note that the PNF will exercise its discretion in deciding whether or not to prosecute them. Under the guidelines, companies are expected to assist in providing evidence of criminal conduct that will lead to the successful prosecution of individuals. That requirement places individuals subject to French jurisdiction at a disadvantage compared with individuals in other countries. By way of illustration, an individual who is the target of a DOJ investigation can obtain immunity from prosecution in certain circumstances and the director of the SFO appears to be seriously considering relying on the UK Serious Organised Crime and Police Act to offer cooperation agreements to individuals as well.
The practical result is that witnesses caught up in a cross-border investigation will be tempted to “forum-shop” in an effort to place themselves under the protection of the more favourable criminal justice system, which could potentially lead to significant disruption during the course of a cross-border investigation in the future.
Another cause for discomfort is the ambiguous statements the guidelines make about lawyer-client confidentiality. The guidelines observe that when an internal investigation is led by external counsel, the corporation and its counsel will have to determine what work-product will be turned over to the prosecutors to assist with their investigation.
The guidelines go on to note that not all the investigatory work-product is covered by lawyer-client confidentiality and that, in any event, “whereas the duty of lawyer-client confidentiality is binding on counsel in their relationship with their client, the client itself is not bound by such a duty”.
The stance may be taken as implicitly suggesting that companies – as opposed to their outside counsel – are encouraged or even expected to turn over privileged materials if this assists with the judicial investigation.
This would obviously be unacceptable, given that lawyer-client confidentiality is a right that is protected as a matter of public policy under French law (see article 2.1 of the French Bar Rules). Such a proposition would also be somewhat surprising in light of the fact that the so-called Gauvain report (a parliamentary report commissioned by the French Prime Minister on how to “Restore the sovereignty of France and Europe and protect [French] companies against the extraterritoriality of certain laws and measures”, which was issued a day before the guidelines) firmly advocates for extending lawyer-client confidentiality to in-house lawyers to protect their work-product from disclosure.
It would therefore be helpful if the PNF and AFA would clarify what is meant in this part of the guidelines and confirm that companies discussing a CJIP are not expected to waive lawyer-client confidentiality, which is a fundamental procedural safeguard. On the other hand, the guidelines do note that a corporation’s refusal to turn over documents that are privileged as a matter of foreign law, but not under French law, will not necessarily be construed as a lack of cooperation.
This is very encouraging, given that significant amounts of materials protected for example under the US attorney work-product doctrine – which finds no equivalent under French law – can be created during the course of a cross-border internal investigation and that a waiver of the privilege could lead to devastating results for the corporation, in particular if it is facing civil law suits in parallel to a criminal or regulatory investigation.
Finally, the guidelines sketch out a methodology for calculating the financial penalty under the CJIP. The amount of profit derived from the criminal conduct is to be treated as a base amount and will be calculated by deducting costs from the revenue derived from the scheme. The guidelines note that the relevant portion of the company’s EBE or EBITDA (earnings before interest, tax, depreciation and amortisation earnings) can provide a relevant basis of calculation, which is a good start and consistent with the approach of other authorities (ie, the “adjusted gross profit” calculation used by the SFO).
The guidelines also note that other benefits should be considered, such as an increase in market share. There are indeed instances where the benefit to the corporation is not directly linked to the profit of the organisation. No guidance is provided, however, as to how the base penalty will be calculated in such cases and one can only assume that the PNF may turn to the amount of corrupt payments made by the corporation in the absence of an assessable profit.
The guidelines also state that as well as a restitutionary aspect, the financial penalty should have a punitive angle. To this end, they set out various criteria that will trigger multipliers of the base amount, which is similar to the approach set out in the US Federal Sentencing guidelines that are typically relied on by the DOJ in FCPA investigations.
By way of illustration, bribing a public official, or repeat offending would increase the culpability score. On the other hand, self-disclosure or an excellent degree of cooperation will weaken it. Although this guidance is obviously useful, it remains at a very high level.
No specific numbers are provided for the applicable multipliers; furthermore, by contrast with the position articulated in the DOJ’s FCPA Corporate Enforcement Policy, the guidelines do not introduce a presumption that the corporation will receive a declination absent aggravating circumstances if it has self-disclosed, fully cooperated and timely and appropriately remediated.
The concept of the corporation’s “ability to pay” the fine without risking insolvency is not addressed either. This is also likely to create imbalance in future cross-border resolutions.
To conclude, the AFA and PNF’s guidelines are a step forward, but appear to advocate for an approach that is not entirely consistent in some respects with that of other law enforcement authorities, which creates a risk of disruption in future cross-border resolutions. Furthermore, there remains a high degree of uncertainty surrounding certain key issues, regarding the fine calculation methodology that will be adopted in practice by the French authorities. Hopefully more clarity will come in the coming weeks and months, as the practice of DPAs develops in France in the future.