The nepotism scandal involving presidential candidate François Fillon in France has strengthened the commonly held view that French leaders, both in politics and business, can take a somewhat cavalier approach to ethics and corruption. This could change, though, as France plays catch up with other developed economies and starts enforcing anti-corruption laws that are worth their name.
Fillon has found himself in deep trouble after it became known that French investigators are looking into allegedly illegal payments made to his wife, Penelope Fillon, by his parliamentary office. It has also emerged that his son and daughter have been employed as parliamentary assistants, even though there are doubts about their qualifications to do the jobs they were paid for. The so-called “Penelopegate” has caused enough uproar to derail Fillon’s bid to be elected the next president of France in April.
The case has shocked French voters and so have the puzzled reactions of other politicians, who appear unable to understand why so much ado has been made about a practice that is far from unusual in the country. But the outrage illustrates a new development in France that affects not only politicians, but companies too: France’s public opinion is no longer taking the ethical missteps of their leaders with merely a shrug and a bouf. In fact, at least in theory, adepts of corruption practices, both at home and abroad, face a much higher risk of going to jail now in 2017 than in previous years.
The public mood has been enshrined into law since last December, when Parliament approved Loi Sapin II, a long-discussed bill to modernize the economy and fight corruption. The law creates a number of compliance obligations for companies and public organizations, and also emboldens entities such as Agence Française Anticorruption, AFA, a new anti-corruption agency, and Parquet National Financier, PNF, a prosecutor’s office, to investigate misdeeds by public and private players alike. It also imposes fines and other punishments to those that even fail to comply with the new requirements, let alone engage in actual foul play.
“For many years, French companies and the French society have been very reluctant toward the issue of whistleblowing. The fact that it is imposed now by law constitutes, per se, a sort of revolution.”
Philippe de Montigny, President, Ethics Intelligence
PNF has been the body behind the Fillon investigation and also the three-year jail term that befell on Jérome Cahuzac, a former junior minister of the budget, in December. A relatively new body, PNF was created in 2013 and has incorporated the new eagerness among the French authorities to show that, contrary to the general perception, they are not “soft” on corruption. The approval of Sapin II has been part of this broader effort, but investigators have their work cut out to succeed in changing a view of French elites that is currently widespread at home and abroad. “Why is France so corrupt?,” asked the venerable Foreign Policy magazine in the wake of the Penelopegate. The answer may very well have something to do with impunity. According to White & Case, only one sentence about a corruption case has been issued by French courts in the past decade.
By approving Sapin II, lawmakers have also strived to remove French corporations from the U.S. Department of Justice’s target list. For many years, American prosecutors have been lodging cases against French companies, under the FCPA, for alleged corruption acts committed abroad. Of the ten largest FCPA-related settlements closed so far, two have been made by French groups (Alstom and Total), according to the FCPA blog. Not a few French business leaders see this offensive as a commercial strategy, rather than a legal one; in any case, the growing activities of French multinationals in emerging markets have made them logic targets for the DoJ.
Paul-Albert Iweins, an associate at the Taylor Wessing Law Office in Paris, says that the exposure of French companies to the U.S. justice system has been a main driver of the country’s anti-corruption focus. “It is all a result from the U.S. extraterritorial laws,” he said. “Until now, the Americans could argue that corruption investigations in France were poorly done and resulted in few material consequences to the companies involved. But now Sapin II provides France with world-class anti-corruption legislation, and French prosecutors will be more capable of telling their American counterparts that they can investigate French companies themselves.”
One of the most important novelties introduced by the law has been the ability of prosecutors such as the combative PNF to sign agreements with those accused of wrongdoings to close investigations in exchange of financial penalties and an admission of guilt. The new legal tool, which is similar to America’s Deferred Prosecution Agreements (DPA), is known as Convention Judiciaire d’Interêt Public and could be a difference maker in a country where long court cases have killed more than one corruption investigation. “Prosecutors have certainly been empowered,” Iweins said.
The law has also created stringent compliance obligations that must be followed by organizations with 500 or more employees or revenues of over €100 million (U.S.$106m). The obligations apply to both French companies and to the subsidiaries of foreign groups. Starting on June 1st, they will need to have in place a proper compliance system that fulfils several criteria, including the adoption of a broadly endorsed code of conduct and the performance of regular mapping exercises to identify corruption risks.
“Risk mapping is probably the core of Sapin II,” said Philippe de Montigny, the president of Ethics Intelligence, a consultancy in the French capital. “Companies will need to identify all third parties and the risks that they represent. Then they will have to adopt measures to mitigate this risk,” he said.
MITIGATING CORRUPTION RISK
Below is an excerpt from Jones Days' commentary on the Sapin II Bill.
Under the Sapin II Bill, companies that employ at least 500 employees or that are part of a group with at least 500 employ ees and have an annual gross profit exceeding EUR 100 million would be required to have in place a compliance program to prevent and detect corruption or influence trafficking. Such a compliance program would have to include and involve:
A corporate code of conduct defining and illustrating conduct to be avoided;
A procedure for accepting and investigating whistle blower complaints;
An updated assessment to identify, analyze, and priori tize the risks of corruption;
Integrity reviews of clients, suppliers, and third parties;
Internal and external accounting controls to ensure that the company’s records are not covering up corruption or influence trafficking offenses;
Training for employees and managers; and
A deterrent sanctions policy, including disciplinary action against personnel found to have engaged in misconduct.
Source: Jones Day
Companies will also have to guarantee that both staff and management receive regular training about the evolution of the risks faced in their daily jobs. “Training will not be restricted to employees. Top management, including the executive committee, will have to be trained as well,” Montigny said. “Money laundering and corruption schemes are becoming ever more complex, so it is important that managers are up-to-date with these developments.”
Sapin II also creates an obligation for firms with more than 50 employees to implement whistleblowing channels and introduces legal mechanisms to protect those who decide to denounce misdeeds by their colleagues or bosses. This is a major development, as the French have a well-documented dislike for whistleblowers, in what experts see an inheritance from the dark days of collaboration with the Nazis during World War II. “For many years, French companies and the French society have been very reluctant toward the issue of whistleblowing,” Montigny said. “The fact that it is imposed now by law constitutes, per se, a sort of revolution.”
“The obligation to have confidential whistleblowing systems is not restricted to larger companies. A much higher number of companies must comply with it, including many SMEs,” said Franck Poindessault, a partner at the Boken law office in Paris. “Additionally, whistleblowing systems will not be limited to the denunciation of corruption practices. They must also encompass issues related to the environment and many others.”
As a result, at least in theory, France now has an anti-corruption law that puts it on the same foot as countries such as the United States and the United Kingdom, Poindessault added. The law also provides the authorities with the tools to make sure that companies are taking the new obligations seriously. If an organization does not have a compliance program in place, it can be fined up to €1 million (U.S.$106m), and its managers, up to €200,000 (U.S.$212,110). AFA will have the power to inspect companies to check that they are complying with the law. Iweins noted that the absence of a compliance system will be treated as a criminal offense, and therefore will not be coverable with a D&O insurance policy.
According to the experts, large French multinationals that have been under the scrutiny of American or British officials in recent years are well prepared to face the new requirements, while smaller firms will struggle more to be fully compliant. But even those with mature compliance procedures in place should be careful to adapt them not only to Sapin II, but also to other tough legislation such as data privacy and labor rights.
“Foreign companies in France that have to comply with Sapin II must keep in mind that there are some aspects that are specific to the French law,” said Raphaël Gauvain, also a partner at Boken. “For instance, the code of conduct, before it is introduced to staff, must be approved by workers’ representatives, and so must whistleblowing channels. Also, the anti-corruption authority will put much emphasis on how companies collect and store data about their compliance programmes, and on the traceability of the information.”