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Tuesday
Mar132018

Xavier Oustalniol: French enforcement action under Sapin II

There is some recent news from the front lines concerning the Agence Française Anti-Corruption’s and French prosecutor's actions against companies that violate the French Anti-Corruption Law, Sapin II, and the use of the Convention Judiciaire d’Interêt Public.

The Agence Française Anti-Corruption (AFA) published new Conventions Judiciaires d’Interêt Public (CJIP) concerning two separate corruption matters involving French companies.

The first CJIP against HSBC related to tax evasion issues. The new ones, however, relate directly to corrupt payments and are the first of their kind. The actions provide some insight into how the CJIP functions, how penalties are assessed, and the factors considered in determining penalties and how a monitorship “a la Française” may be structured for those companies caught making corrupt payments.

In the first example, a company that made corrupt payments to obtain contracts with EDF, France’s state energy firm, had to pay an aggregate penalty of €800,000 (about $983,000). In assessing the penalty, the decision listed aggravating factors -- duration of the scheme and involvement with a government company -- and attenuating factors that included departure of the president of the company, termination of the general counsel and CFO involved, and replacement of shareholders and management.

In addition, the company had to pay damages to EDF, and is subject to a monitorship by the AFA for a period of two years. The cost of experts in that regard, if required by the AFA, would be borne by the company. Former management may be subject to additional enforcement actions.

The second example also involves EDF contracts and related corrupt payments (among other allegations), as well as the use of foreign companies to facilitate payments. The company entered the CJIP without prejudice and with a presumption of innocence afforded to its employees.

The penalties amounting to €2.7 million (about $3.3 million) also took into account aggravating factors that included the duration of the scheme and nature of the entity (EDF).

The attenuating factors included the company’s cooperation and remediation efforts in response to the issues, such as:

  • its implementation of detective and preventive controls,
  • training,
  • new compliance rules and management,
  • designation of a CCO,
  • implementation of a site to sensitize employees to ethics,
  • whistleblower procedures disseminated by the company, and
  • training of employees on corruption.

Further, the prosecutor pointed to the implementation of the risk mapping (contemplated in Sapin II under article 17), an ethics guide, and the implementation of a whistleblower hotline.

In this case, the monitorship appointed by the AFA is for a duration of 18 months. The costs of use of experts, if required, by the AFA are to be borne by the company and set forth in the CJIP. Again, EDF was entitled to receive damages of €30,000 ($37,000). However, no information on the calculation of such damages is mentioned.

So far, foreign companies have not been involved with CJIP concerning corruption issues (again, HSBC was related to tax evasion). But as we look forward, these recent CJIPs give some insight into how the prosecutors think through the issues, as well as the role of the AFA and outside experts when remediation is involved

(Both CJIPs can be found here and here in French).

____

Xavier Oustalniol, a partner in the San Francisco office of StoneTurn, began his accounting career in his native France. Now, with more than 25 years of experience as an auditor, forensic accountant and litigation consultant, he focuses on complex forensic accounting issues, fraud investigations, and fraud prevention and anti-corruption compliance assessments. His clients include many French companies and U.S. entities with operations in France.