In December 2016 the French government finally passed the so-called “Loi Sapin II” in order to bolster its ability to penalize overseas bribery. Its unstated but clear goal was to achieve some degree of parity with US efforts in this area, which had led to a number of highly publicized cases where well-known French companies had paid fines totaling well over $2 billion to the US treasury to resolve criminal matters that could well have been resolved in France. A key provision of the new law is a procedure that permits a negotiated outcome, similar in concept to a US Deferred Prosecution Agreement (“DPA”), that avoids a criminal conviction. On November 14, 2017, the first such agreement was announced by the National Financial Prosecutor of France. While many details of the deal will not be known until the release of the court’s opinion approving it, which may be available as early as the end of November, the fact of the outcome and its known parameters are very significant.
The French DPA resulted from a highly publicized criminal investigation of the Swiss subsidiary of HSBC after prosecutors discovered from documents leaked in 2009 that HSBC had apparently offered wealthy French individuals a means to hide their assets from the French tax authority. On November 18, 2014, HSBC Private Bank Swiss was formally put under criminal investigation by a French Investigating Magistrate for several offenses including laundering of the proceeds of tax fraud. In a very unusual development showing the seriousness of the investigation, in 2015 HSBC Holdings PLC, also put under investigation, was ordered to pay a “bail” amount of €1 billion – later reduced to €100 million by a Paris court – pending the resolution of the investigation. It was later reported that HSBC refused a €1.4 billion plea bargain under a procedure, which I have described, that would have required a formal criminal conviction.
The Loi Sapin II created a new procedure called a CJIP (standing for Judicial Agreement in the Public Interest), which allows corporations – but not physical persons – to negotiate an outcome that would resolve certain kinds of criminal charges against it without a judgment of conviction. As I have explained elsewhere, the CJIP was unquestionably adopted to allow French prosecutors more flexibility and effectiveness in pursuing certain kinds of corporate crime, and in particular to address the public perception in France that US prosecutors, who have regularly forced French companies to reach negotiated agreements to pay very large sums to the United States Treasury, were taking unfair advantage of their ability to enforce the US Foreign Corrupt Practices Act. Roughly like its US counterpart, a CJIP consists of an agreement for the defendant to make a substantial payment (which in France may be as high as 30% of its annual turnover over the previous three years) and/or to engage in specified remedial measures under the supervision of a “monitor” reporting to the French anti-corruption authority. If the corporation respects its obligations for a period of three years, a definitive order is entered precluding any prosecution for the same facts, but without the corporation ever having a conviction entered against it, which otherwise might affect its ability to participate in certain kinds of public markets. While the French CJIP was clearly inspired by the US Deferred Prosecution Agreement, its procedures are actually much closer to those adopted in the United Kingdom in 2014 because as in the UK, but entirely unlike in the US, a CJIP must be submitted to a judge for review and approval.
In the HSBC case, after the Sapin II law entered into effect in 2017, the Investigating Magistrate sent the case back to the financial prosecutors to permit them to negotiate a possible CJIP with HSBC. The Sapin II Law provides that once a company has been put under formal investigation, a CJIP is only possible if (1) the Investigating Magistrate has established a sufficient factual basis upon which responsibility may be based; (2) the corporation recognizes responsibility for its acts, and (3) there is agreement from the Prosecutor that a CJIP is appropriate.
On November 14, 2017, apparently after six months of negotiations, the French financial prosecutor’s office (Parquet National Financier) announced the approval by the President of the Paris Court of the first ever CJIP, whereby HSBC Private Bank Swiss agreed to pay €300 million to settle the criminal charges against it, without admission of guilt. HSBC has a ten-day period during which it can opt out of the agreement, after which it becomes final and binding. The €300 million amount is among the highest amounts ever imposed by French criminal justice. It is reported to be comprised of a €158 million fine and an amount of €142 million to be returned to French tax authorities. Prosecutors have said the €158 million fine is the maximum provided for by the law (i.e., 30% of the bank’s average annual turnover over the previous three years).
Under the new law, the judge who approved the CJIP must state his reasons for doing so in a public decision confirming the regularity of the procedures as well as the proportionality of the fine and of the proposed measures in relation to the magnitude of the violations. The decision and the agreement will apparently be made public after November 24, 2017, when HSBC’s opt-out period will expire. It will be interesting to see the judge’s conclusions since they may help predict how future proposed agreements may be handled.
As I have noted elsewhere, applying fairly similar procedures, the High Court in London has very carefully scrutinized the DPAs submitted to it to date, showing that the court will not “rubber stamp” whatever agreement the parties may reach. Among other factors, the English High Court has carefully reviewed the size of the required payments to insure that they were sufficient to deal with the size of the misconduct, but has also focused on the degree to which the corporations in question had cooperated with prosecutors. In the HSBC matter, it will be interesting to see if the agreement obligates HSBC to cooperate with the prosecution’s investigation of individuals, including HSBC employees who have already been put under formal examination, none of whom is protected by the CJIP. Essentially forcing a corporation to “cooperate” by providing evidence of culpability of employees is much less widely done in France than in the US, and if done here may elicit a reaction among labor unions, among others. It will also be interesting to see the details of whatever remedial compliance program HSBC agreed to institute, and the standards the judge used in determining its sufficiency.
Even without those important elements of the transaction, its size alone shows that this case was important to the French national financial prosecutor, and suggests that she will be seeking similarly important outcomes in other investigations that may be underway.
One question that may come up in future cases, although not in this one, is whether US prosecutors will consider a CJIP reached in France as sufficient to preclude or obviate the need for a “me too” US prosecution – a sensitive and important issue that I have recently addressed. Since this case involved French tax issues, US authorities presumably have no interest in it, but the same is not likely to be the case in cases involving overseas corruption, where the US Department of Justice has been notably aggressive in pursuing French corporations even when the US interest was relatively slim. Each such case will depend on its unique facts, but the size of this outcome suggests that the French national financial prosecutor intends to be in a position to argue to her US counterparts that she is perfectly capable of applying French criminal laws to French corporations and does not need US intervention.
Frederick T. Davis is of counsel in the Paris and New York offices of Debevoise & Plimpton LLP. He is a former US federal prosecutor and member of the Paris and New York Bars. His practice focuses on criminal, regulatory and civil litigation and investigations involving US and French laws.
Disclaimer
The views, opinions and positions expressed within all posts are those of the author alone and do not represent those of the Program on Corporate Compliance and Enforcement or of New York University School of Law. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.