By Wu Wei, Zhu Yuanyuan and Zhang Shuang King & Wood Mallesons’ Dispute Resolution group
Law No. 2016-1691 was enacted by the Constitutional Council of France on 8 December 2016 to strengthen enforcement against anti-corruption and bribery. Its pillars are transparency, the fight against corruption and the modernization of the economy.
Dubbed the “Sapin II Law” after Michel Sapin, the French Finance Minister, who proposed the first anti-corruption act in 1993, this new law contains 9 chapters and 169 articles. It is a combination of new provisions and amendments to provisions of the Criminal Code, the Code of Criminal Procedure and the Monetary and Financial Code. This article will discuss the key points of the Sapin II Law.
Creation of an anti-corruption agency, the “Agence Française Anticorruption (AFA)”
The AFA, an agency established under the Sapin II Law, specializes in the prevention and detection of: acts of corruption, influence peddling, embezzlement and misappropriation of public funds and interests.
The AFA is responsible for monitoring companies’ compliance programs. The Sanctions Committee of the AFA can impose administrative sanctions on companies and their executives for failure to implement effective compliance programs.
However, the AFA does not have the power to prosecute. Upon discovering corruption or bribery, the AFA must notify the Public Prosecutor.
Mandatory requirements for compliance programs
Article 17 obliges companies and their executives to be proactive by establishing compliance programs to facilitate the prevention and detection of bribery.
1. To whom does this obligation apply?
According to Article 17(1), companies must establish appropriate compliance programs if:
- they have 500 or more staff, or belong to a group of companies that has its headquarters in France and has 500 or more staff worldwide;
- sales are at least €100 million. This encapsulates both subsidiaries of French companies in China and subsidiaries set up by Chinese companies.
Executives play a vital role in the establishment of compliance programs. The Sapin II Law recognizes this by putting a positive personal obligation on executives (eg) chairman, executive directors, managers – to establish compliance programs.
2. What’s in the program?
According to Article 17(2), a corporate compliance program must include:
- A code of conduct: this must define acts considered to constitute corruption. It must be incorporated into internal rules of procedure and is subject to consultation by employee representatives stipulated in the French Labor Code.
- An internal warning system: where employees can report breaches of the code of conduct.
- Risk mapping: aims to identify, analyze and prioritize risks of a company’s exposure to corruption. Relevant factors are business sector and geographical location. Mapping results must be regularly updated. Clients and both direct and indirect suppliers must be included in the assessment of risk.
- Internal or external accounting controls to ensure that books, records and accounts are not being used to conceal acts of corruption. Such measures may be implemented by a company’s own accounting and auditing department, or by external accountants in accordance with relevant provisions of the French Commercial Code.
- Staff training for those with the highest risk of exposure to corruption.
- Disciplinary systems for employees who violate the code of conduct.
- Internal controls and assessments of established programs.
3. What are the consequences of the absence of required compliance program?
Under the UK Bribery Act, having an effective compliance program may constitute a defense in bribery prosecutions. In comparison, the Sapin II Law, puts a positive obligation on companies and their executives to establish compliance programs. This stricter requirement means that companies and their executives may be punished without corruption actually occurring.
Under Article 17, failure to establish a compliance program can result in penalties from the Sanction Committee of up to €1 million for companies and €200,000 for executives. The Sanction Committee may also impose a requirement on companies or their executives to establish a compliance program within three years.
The Sapin II Law also amends the French Criminal Code and the Code of Criminal Procedure. Courts may order a company that commits the offense of bribery to establish a compliance program under Article 17(2). The AFA will be responsible for monitoring and assisting companies to establish compliance programs, and to produce regular (at least annual) reports to the Public Prosecution Office. Associated costs incurred by the AFA shall be borne by the company. Companies and natural persons will be subject to separate penalties for failure to establish compliance programs, with sanctions of up to two years imprisonment.
Establishment of deferred prosecution agreement regime in France
A French deferred prosecution agreement regime is established under Article 22, similar to those in the UK and the US. Prior to the initiation of public criminal proceedings, the Public Prosecution Office may enter into settlement agreements with companies accused of bribery to avoid criminal prosecution.
Conditions of settlement include:
- payment of a settlement amount equivalent to 30% of the company’s average annual turnover of the past three years; and
- the implementation of a compliance program within three years under the supervision and control of the AFA. In case there is any known victim, the accused company shall indemnify the losses of the victim within one year of the amount and in the manner stated in the settlement agreement.
When the parties have reached consensus, the Public Prosecutor will submit the settlement agreement to the court for validation after a public hearing. Conditional on a company’s compliance with the settlement agreement, the Public Prosecutor will not initiate a prosecution.
The Sapin II Law has a significant influence on France’s anti-corruption legislation. This new law has stricter requirements than both the US Foreign Corrupt Practices Act and the UK Bribery Act.
French companies with subsidiaries in China and Chinese companies with subsidiaries in France should carefully assess the impact of the Sapin II Law on themselves and their executives. Those affected by compliance program requirements must proactively assess potential compliance risks and collaborate with specialized lawyers to establish appropriate compliance programs which conform with both Chinese and French legal requirements.
KWM’s Compliance Group
KWM is one of the first Chinese law firms to have an anti-corruption team. Our team consists of former procurators, ex-police officers, and well-experienced criminal barristers. We have been counselling many Fortune 500 companies around day-to-day legal issues, internal and external investigations, legal risk-control regimes, and administrative and criminal litigation. KWM was awarded the Compliance Law Firm of the Year by LEGALBAND in 2016 and Law Firm of the Year (China) in the category of anti-bribery & compliance by China Business Law Journal in 2015.
 See Article 17.