A new addition to the global regulatory framework for anti-corruption enforcement is France’s Loi Sapin II pour la transparence de la vie économique (Sapin II). Faced with mounting pressure from international organizations that have strongly criticized the lack of enforcement of anti-corruption laws in France, the French government promulgated Sapin II to significantly strengthen and improve the country’s anti-corruption system. Sapin II is widely being recognized as the world’s most stringent legislation in this regard.
The extraterritoriality of the legislation is discussed below, along with the key compliance-oriented stipulations introduced: mandatory compliance programmes, whistleblower protection and judicial agreements in the public interest.
Extraterritorial jurisdiction: Under Sapin II, the French authorities have been granted wide jurisdictional powers. While the earlier law provided jurisdiction over offences committed when either party was a French national or had their usual place of residence in France, under the new system jurisdiction has been extended to cover all “persons having all or part of their economic activity in France”. There is some ambiguity as to what the term “part of their economic activity” includes, which raises a lot of questions.
Such a wide stipulation represents a major extension of the territorial jurisdiction of French criminal law, much like the US Foreign Corrupt Practices Act and the UK Bribery Act where extraterritoriality is broadly interpreted. The wide jurisdiction envisaged under Sapin II would include in its ambit not only French companies operating in India but also any Indian companies having a nexus with the territory of France. All stipulations under Sapin II will apply mutatis mutandis to such Indian companies.
Mandatory compliance programmes: One of the focal points of Sapin II is the implementation of internal compliance programmes. The legislation mandates all “bound entities” to set up the following procedures and measures as part of their compliance programme: (1) code of conduct; (2) whistle-blowing mechanism; (3) risk mapping; (4) due diligence procedures; (5) internal financial controls; (6) training sessions; (7) disciplinary procedures; (8) effectiveness monitoring.
In case of failure to fulfil the above requirements, the anti-corruption agency may issue warnings and instruct the companies to adopt an effective compliance system. The agency has also been empowered to impose financial penalties of up to €200,000 (US$245,000) for individuals and €1 million for companies. If a company is convicted, an executive could face up to two years in prison and a €50,000 fine for failing to implement such a programme.
Whistleblower protection: The protection of whistleblowers previously depended on the existence of proof provided by them, particularly for disclosures regarding corruption. Sapin II extends the scope of protection to any disinterested individual who in good faith reports knowledge about a crime, offence or violation of any duty adopted by the organization or imposed on it by the law.
The legislation stipulates a specific reporting mechanism, which aims to ensure strict confidentiality of the procedure and anonymity of the whistleblower and prohibits discrimination against or harassment of the whistleblower. In keeping with the stated aim, the legislation stipulates penalties including imprisonment for two years and a €30,000 fine for any person who divulges confidential information. Preventing a whistleblower from making disclosures is punishable with one year of imprisonment and a €15,000 fine.
Judicial agreements in the public interest: Sapin II has introduced a form of criminal settlement called judicial agreement in the public interest, which permits a negotiated outcome for legal entities without an admission of guilt.
A judicial agreement may be initiated by a proposal from the public prosecutor before the proceedings commence in court. The agreement must stipulate a disgorgement of illegal profits and may also mandate establishing an effective compliance programme and proving its effectiveness through annual reports within a period of three years.
At the end of this period, the public action will be deemed to have extinguished, thereby prohibiting any future prosecution. The judicial agreement is not registered in the criminal record and thus does not entail the effects of a conviction, including automatic debarment from public procurement contracts. Thus, this hybrid tool developed under the French law is a welcome step in the direction of reformative justice.
Cyril Amarchand Mangaldas is India’s largest full-service law firm. Kunal Gupta is a partner and the head of investigations at the firm. Pankhuri Bhatnagar, an associate, assisted in preparing this article.
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