Combating corruption as a legal obligation of enterprises
A new law introducing an obligation to establish anticorruption compliance procedures entered into force in France on 1 June 2017. The impact of the law may be broader than it might seem at first glance.
The Law on Transparency, the Battle with Corruption, and Modernisation of Economic Life (Loi n° 2016-1691 du 9 décembre 2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique), known as “Sapin II” from the surname of its proponent, former Finance Minister Michel Sapin, is the latest legal instrument in France designed to combat corruption. Sapin II creates a legal obligation, enforceable by sanctions, for mid-size and larger enterprises to establish anticorruption compliance procedures. The obligation to introduce such procedures may also be imposed as a punishment when an enterprise (company) or other legal person is convicted of corruption or similar crime (e.g. influence-peddling).
Sapin II is an internal act of French law, but that does not mean that it will not exert influence beyond the country’s borders. The global trend toward international reach of national legal systems—“long-arm jurisdiction”—particularly in the battle with corruption, means that the obligation to establish anticorruption procedures will not be limited only to French enterprises.
Moreover, legal systems more and more broadly defines the notion of the professional standard of care expected of businesses, shifting certain duties to them (e.g. in the area of data protection or protection of confidential information, or in avoiding implication in VAT carousels). The rules set forth in Sapin II may thus prove a valuable source of inspiration for building internal compliance systems.
Under the new regulation, from 1 June 2017, an anticorruption compliance programme must be established in French enterprises employing at least 500 people (or belonging to a capital group headed by a French company employing at least 500 people) and generating annual turnover (or consolidated turnover) of more than EUR 100 million. In the case of international capital groups, this obligation will not be limited to the French parent company but will cover all companies in the group, regardless of where they are registered.
The responsibility for establishing and introducing mechanisms for combating and uncovering corruption will rest on the persons managing the company, including the directors or other persons duly assigned compliance obligations.
Given the range of elements that should be included in an anticorruption compliance programme under Sapin II, it appears that it will be essential to involve the heads of finance, HR, purchasing, and the legal department, even if the organisation already has a separate compliance function.
Sapin II defines an anticorruption compliance programme as a system of measures and mechanisms aimed at combating and uncovering corrupt practices within the organisation and its operations, in France and abroad. It also lays out the elements that should be included in such a programme:
- Code of practice defining and illustrating prohibited behaviours
- Internal system for reporting irregularities
- Map of corruption risks, continually updated
- Procedures for verifying counterparties (customers, suppliers, intermediaries) in terms of the corruption risks identified in the map
- Internal and external procedures for auditing accounting books and records to determine whether they are being used to conceal corrupt practices
- Training for managers and staff on anticorruption practices and corruption risks
- Disciplinary procedure for persons violating the code of practice at the organisation
- Procedure for evaluation and revision of applicable anticorruption procedures.
French practitioners involved in implementing compliance programmes single out two areas requiring particular attention: the map of corruption risks and the accounting control procedures.
The risk map must detail and document corruption risks that the organisation and its employees may face depending on the geographical area and the sector of the economy in which its economic cooperation is established and realised.
The accounting control procedures must be correlated to the risk map, suggesting that the focus of the control procedures may be subject to continual review. For now it is recommended that accounting procedures focus primarily on areas most susceptible to corruption, such as commercial contracts with customers and suppliers, commissions paid to commercial intermediaries, and cost notes.
Failure to implement mechanisms at an enterprise for combating and uncovering corrupt practices may result in imposition of sanctions on persons at the organisation responsible for implementation of compliance programmes and also on the enterprise. The sanctions can be as high as EUR 200,000 for individuals or EUR 1 million for legal persons. The competent authority for oversight of compliance systems under Sapin II is the French Anticorruption Agency (l’Agence française anticorruption).
Penalty for legal person for corruption offence
The obligation of establishing an anticorruption compliance programme is not formulated only as a general legal duty borne by an enterprise with a certain scale of operations. It may also be imposed individually on a legal person in a criminal proceeding if the legal person is convicted of a corruption offence or other crime of falsehood. The punishment of having to establish a programme de la mise en conformité under Art. 1391-39-2 of the Code pénal may be imposed on any legal person regardless of its scale if the criminal court finds that the prerequisites for criminal liability of the legal person were met, i.e. that a corruption offence was committed by an authority or person authorised to act for the company, for the company’s account.
It should be pointed out that unlike the Polish regime of criminal liability of collective entities, criminal liability of legal persons in France is not dependent on prior conviction of an individual. Additionally, the concept of a person authorised to act for a legal person is not directly defined in the regulations but is assessed under the specific facts of the case. Thus a legal person can also be held criminally responsible for acts of a person to whom a portion of managerial duties have been assigned (délégation de pouvoir) or to a de facto manager (gérant de fait).
The penalty of establishing an anticorruption programme may be imposed for a maximum period of 5 years. During the period when the sanction is in place, the convicted legal person is required to establish and effectively implement a system including the same elements as a compliance programme implemented under the new legal obligation for larger companies under Sapin II.
Failure to carry out such sanction is itself a criminal offence for which individuals performing managerial functions in the convicted company may be punished by up to 2 years in prison or a fine of up to EUR 50,000, and a legal person can be subject to a fine for failure to carry out the penalty of establishing a compliance programme.
Significance of Sapin II for companies from outside France
Although Sapin II is an internal French law, its existence and importance should not be ignored elsewhere.
The new obligation under the act to establish an anticorruption compliance programme will assume a cross-border dimension in capital groups with international reach, where the parent company is a French company of at least medium size. The duty to operate a compliance programme will apply not only to the French parent company but will also extend to its subsidiaries. Even if the French Anticorruption Agency is not in a position to inspect the efforts taken by the foreign subsidiaries directly, it may be assumed that the French parent company will have to demonstrate that compliance measures have been effectively implemented at its subsidiaries.
A foreign enterprise may be held responsible for violation of French law, for example in the event of commission of a corruption offence in French territory on behalf of a foreign company by a member of its authorities or other person authorised to represent the company. From a practical point of view, however, at present sentencing a foreign entity to implement a compliance programme as a sanction for a corruption offence may be moot because there are no legal instruments in place, at least within Europe, for mutual recognition and enforcement of this type of sentence against a legal person. But the possibility of adopting such a mechanism in the future cannot be ruled out.
French regulation as a source of inspiration
This institution may also prove relevant for the practical application of the law more broadly, as well as criminal policy. This is tied to increasingly higher requirements imposed on businesses relevant for assessment of criminal responsibility. Businesses are required to take all efforts and precautions to avoid situations where the enterprise becomes an instrument for commission of prohibited acts (e.g. complicity in tax fraud or money laundering). If the enterprise cannot demonstrate that it took due efforts, this may be found, depending on the facts of the case, to demonstrate a direct intent to commit the offence and consequently result in conviction and further consequences, such as forfeiture of the enterprise (under Polish law, this is provided for by Art. 44a §2 of the Criminal Code).
It should be borne in mind that due efforts in this sense is not a statutorily defined term, and thus the assessment of the company’s actions will rest with the authorities applying the law. In this respect, the authorities have a wide range of inspirations and points of reference. These include standards formally governing the particular field, as well as standards of reasonableness and prudence or standards relevant to other fields of the economy, as well as guidelines and recommendations.
In practice there is also a noticeable and disturbing trend to evaluate due efforts from the perspective not of the standards in force at the time of the event, but at the time of judgment. Thus an enterprise may be judged by harsher criteria as the range of efforts deemed to be necessary and proper continually expands.
Consequently, the French law can and should serve as an important new benchmark when developing overall compliance systems in business organisations.
Aleksandra Stępniewska, Business Crime practice, Wardyński & Partners