Compliance

I. AFA’s role

In recent years, compliance has taken on an increasingly significant role in corporate governance across various sectors, particularly following the introduction of the Sapin II Act in 2016. The French Anti-Corruption Agency (Agence française anticorruption – AFA), created under this law, has been instrumental in shaping the anti-corruption landscape by publishing guidelines and overseeing corporate practices.

Over the past year, the AFA introduced several key updates, including the “Securing Corporate Sponsorship and Patronage Operations” guide, as well as a 2023 survey on third-party corruption risk evaluations, which explored how companies assess the integrity of their partners and suppliers. Additionally, the AFA initiated a comprehensive review of corporate anti-corruption frameworks to further refine its support for companies.

The AFA also plays a key crucial role in monitoring certain Conventions judiciaires d’intérêt public (CJIPs), a legal mechanism introduced by the Sapin II Act – equivalent to deferred prosecution agreements.

The AFA is tasked with monitoring the implementation of compliance programmes when CJIPs provide for them. Even though the AFA’s monitoring applies mainly to probity offences, one can be put in place for all offences eligible for CJIPs. In 2023, the AFA supervised the completion of four such compliance programmes related to probity, and a first supervision programme relating to tax fraud was put in place the year before.

Initially established to combat serious financial crimes, particularly corruption and tax fraud, CJIPs have been, since a law was enacted on 24 December 2020, the preferred tool for addressing environmental offences.

II. Growing focus on environmental compliance

The focus on environmental compliance is growing. Companies are increasingly required to implement risk management with regard to employees, human rights and the environment, as imposed by the 2017 Duty of Care Law.

This law requires large companies to implement vigilance plans addressing risks related to employee safety, human rights and the environmental impacts across their activities, as well as those of their subsidiaries, suppliers and subcontractors.

This duty of care has taken centre stage in recent legal developments in France.

The first substantive ruling applying the duty of care occurred in the La Poste case, issued by the Paris Judicial Court on 5 December 2023. This case highlighted the gaps in the French postal operator’s vigilance plan, leading the court to order the company to improve its risk mapping, implement an alert mechanism and ensure proper oversight of its supply chain. Notably, the court emphasised the importance of precise risk identification and prioritisation, requiring La Poste to establish a clear risk hierarchy and take concrete actions based on this analysis.

In December 2023, France also became the first EU member state to transpose the Corporate Sustainability Reporting Directive (CSRD) of 14 December 2022 into domestic law. The French law mandates that large companies exceeding EUR40 million in net turnover, EUR20 million in total assets and an average of 500 employees must publish a sustainability report by 2025. This report must include detailed information on environmental, social and governance (ESG) matters.

Another notable development was the establishment in June 2024 of a dedicated chamber within the Paris Court of Appeal to handle environmental and vigilance-related cases. This chamber has already ruled on major cases involving companies such as TotalEnergies, Veolia and EDF, addressing their environmental impacts and compliance with vigilance laws.

These cases highlight the increasing legal pressure on large energy companies to meet stringent sustainability and corporate responsibility standards in line with EU directives.

Since the law of 24 December 2020, the scope of French deferred prosecution agreements (CJIPs) has expanded to include environmental violations. In 2023, 12 environmental CJIPs were signed.

In the first half of 2024 alone, six out of eight signed CJIPs concerned environmental violations, reflecting the increased emphasis by French authorities on holding companies accountable for their environmental actions.

This growing trend aligns with global concerns regarding climate change and corporate responsibility.

The Corporate Sustainability Due Diligence Directive, adopted by the European Union in June 2024 but not yet transposed into French law, will further strengthen corporate obligations to manage sustainability risks, particularly in global supply chains, signalling the future direction of compliance in France and across Europe.

Increased Criminal Risk for Intermediaries Involved in Tax Fraud Schemes

The fight against tax fraud has intensified over the past few years.

While this fight primarily targets entities committing tax fraud, promoters of fraudulent tax schemes are facing increased criminal risk.

On 1 January 2024, a new offence was introduced to criminalise and prosecute all individuals or entities involved in the design or implementation of tax fraud schemes, regardless of whether subsequent tax fraud is committed or attempted by the client.

Before this law, intermediaries involved in structuring these schemes could be prosecuted for complicity in tax fraud. However, for complicity to be found, it was necessary to prove that tax fraud had occurred.

The new legislation, introduced in Article 1744 of the General Tax Code, criminalises independently and directly any person providing “one or more means, services, actions or legal, tax, accounting or financial instruments aimed at enabling one or more third parties to fraudulently avoid the establishment or full or partial payment of the taxes mentioned in this code”.

A non-exhaustive list of means, services, acts or instruments, whether provided free of charge or for a fee, was established:

• opening accounts or subscribing to contracts with entities established abroad;
• using intermediaries such as individuals, legal entities, organisations, trusts or comparable institutions established abroad;
• providing false identity or documents;
• providing or justifying fictitious or artificial tax residence abroad; and
• executing any other scheme designed to mislead the tax administration.

It is noteworthy that these elements closely resemble the aggravating factors of tax fraud.

For an offence to be established in all its constituent elements, it is also necessary to demonstrate that the perpetrator intended to provide a means to avoid taxes. In this regard, case law frequently refers to the status of legal and financial professionals to show that they knew, or should have known, that the information provided was likely to be used to commit tax fraud.

Unlike the offence of tax fraud, which is subject to specific and more stringent procedural rules, this new offence is exempt from special procedural requirements.

For individuals, the penalties are:

• three years’ imprisonment and EUR250,000 fine, increased to five years’ imprisonment and EUR500,000 fine when the means, services, actions or instruments are provided using an online public communication service; and
• additional penalties, such as disqualification from civic, civil and family rights, posting of the decision, disqualification from specific professional activities, etc.

For legal entities:

• a fine of EUR1.25 million, or EUR2.5 million when the means, services, actions or instruments are provided using an online public communication service; and
• additional penalties, such as closure of establishments of the company, posting of the decision, exclusion from public contracts, etc.

While the definition of this new offence covers a broad range of situations and facilitates the prosecution of intermediaries involved in tax fraud schemes, the penalties for this offence remain less severe than those applicable for tax fraud.

Seizures and Forfeitures

Since 2020, the French Department of Justice has been instructing public prosecutors to implement a proactive policy to expand seizures and forfeitures of criminal assets, as this has been identified as a means to crack down even more severely on white-collar criminals.

After a first phase of prolific seizures and forfeitures, raising a new interest in this field of criminal law, a second phase has followed, which aims at adapting the statutory regimes to practical and legal issues revealed by practitioners.

The first phase is still ongoing, and the figures for the year 2024 are compelling: EUR1.44 billion was seized in 2023, ie 87% more than the year before, and EUR175.5 million forfeited in 2023, ie 13% more than the year before.

The second phase has seen outstanding developments between 2020 and 2024.

One striking example is that, after almost ten years without any change, the provisions governing seizures and forfeitures have been modified no fewer than three times between 2021 and 2024 in the French Criminal Code.

These adjustments mostly concerned the protection of bona fide owners, giving them the right to be a party to the procedure and thereby to challenge seizures and forfeitures. These reforms were driven by a series of rulings of the Conseil constitutionnel, the French Constitutional Supreme Court, to prevent undue violations of their property rights.

In June 2024, the latest reform targeted a specific issue: the regime of real estate forfeitures, aiming to improve the regime’s effectiveness while preserving the rights of bona fide third parties. The Conseil constitutionnel refused to approve the work of the lawmakers and asked for a redrafting of the legal provisions, which is still ongoing.

Most importantly, the 2024 reform took a decisive step, providing that some forfeitures would now become automatic in the case of a conviction. Before this, forfeitures required a specific order from the court.

Finally, these developments have understandably led to numerous rulings over the past few years and to a growing case law.

In 2023, the Cour de cassation, the French Supreme Court for civil and criminal cases, ruled on many forfeiture-related cases, trying to answer the legal questions arising from practice. Two of them dealt with the crucial distinction between forfeitures that are subject to an extensive control by the judge – based on a proportionality test – and forfeitures that are subject to a limited control.

Therefore, seizures and forfeitures are now governed by a sophisticated yet complicated set of laws, with different statutory regimes depending on the type of asset, the type of offence, the legal ground used by the judge and the facts of the specific case.

The excitement around this new kind of financial punishment even led a reckless Paris court to order an unprecedented EUR1 billion confiscation, a penalty that was found to be illegal in that particular case.

As expected, the French Criminal Supreme Court overturned this irregular ruling in 2023, concluding another episode of the UBS saga.

The UBS Saga: Reassessing the Historic Financial Penalty Imposed on the Swiss Bank

On 15 November 2023, the Cour de cassation, the French Supreme Court, issued a significant ruling in the UBS case, involving the Swiss bank UBS AG and its French subsidiary UBS SA. While both entities were found guilty of illegal banking solicitation and aggravated laundering of tax fraud proceeds, the Court overturned parts of the Paris Court of Appeal’s decision regarding the sentences and civil damages.

This decision was based on three key points: the lack of justification for the EUR800 million in damages claimed by the French State, the inapplicability of a EUR1 billion forfeiture penalty to legal entities at the time of the offences, and the improper use of bail for forfeiture. The ruling emphasises the importance of accurately assessing damages based on the loss of opportunity (I) and strictly applying the principle of legality in penalties (II).

I. Proper characterisation and estimation of damages to the French State

The Cour de cassation overturned the damages awarded to the French State. The Court of Appeal had ordered UBS to pay EUR800 million for damages caused by money laundering. The State claimed it had lost the opportunity to detect and recover evaded taxes before they were time-barred.

The Court criticised the Court of Appeal for not using a tangible basis or rigorous method to calculate this loss. To prove a loss of opportunity, there must be evidence of the “disappearance of a current and certain chance of a positive outcome” – in this case, the recovery of evaded taxes – because of the fraud. The Court held that a more detailed examination was needed to assess the likelihood of the tax authorities’ success in detecting and recovering the taxes, and to quantify this loss accurately.

II. Strict application of the principle of legality of criminal penalties

Another reason for overturning the Court of Appeal’s decision was the strict application of the principle of legality of criminal penalties. This principle states that “no one can be punished with a penalty that is not provided for by the law applicable at the time the offence was committed” (Article 111-3 of the French Criminal Code).

In 2021, the Court of Appeal imposed a EUR1 billion confiscation penalty on UBS, an amount equal to the bail paid by the bank in 2014. However, this penalty for legal entities was only introduced into French law in December 2013. Since the offences occurred between 2004 and 2012, before this law came into effect, the Cour de cassation ruled that applying this penalty retroactively violated the principle of legality.

The Court also rejected the Court of Appeal’s use of bail as a basis for the confiscation. Bail, meant to guarantee court appearance or payment of fines and damages, cannot be used as a confiscation penalty. The Court of Appeal’s use of bail was deemed to have overstepped legal boundaries.